STONE HARBOR – With the State Health Benefits Plan for local government employees in what the state Treasury Department calls a death spiral, municipalities like Stone Harbor are facing difficult choices in order to meet obligations to employees for health benefits.
Facing a 40% to 50% hike in the annual premium for employee health care in 2026, the borough has been desperately seeking a way to mitigate the financial pain to employees and the borough’s already constrained budget. A public presentation by Human Resources Director Chuck Schlager at the Oct. 21 council meeting outlined the strategy for 2026.
Schlager said with no change to the health plans the borough is currently offering to employees, the financial burden to the borough for premiums next year would increase by $1 million.
Municipalities across the state, including several in Cape May County, have withdrawn from the state plans due to premium increases that since 2023 have “nearly doubled” the cost of providing health benefits, according to Schlager.
The borough tested the waters for private insurance but came up short. The town’s loss ratio was too high to make it an attractive customer for private companies. But several other Cape May County municipalities have recently withdrawn from the state plans due to premium increases that since 2023 have “nearly doubled” the cost of providing health benefits, Schlager said.
He said that the municipality’s state carrier for employee insurance is paying out roughly $1.20 for every $1.00 collected in premiums. The problem is the heavy use of the pharmacy benefit by employees. Schlager said the “Pharma ratio is upside down.” He added that most private companies declined to even bid Stone Harbor’s business, and that the one bid they received did not represent a meaningful savings over the state plan.
The decision, Schlager said, came down to “What can we do within the context of the state plan?” In considering options the borough was constrained by a phrase that is part of union contracts and the employee manual. It states that the borough can change plans as long as what is offered to the employee is “equal or better” than what is already in force.
What the borough has been offering employees during the open enrollment period that ends Oct. 31 is a high-deductible plan from the state plan offerings. Unlike the two state offerings that Stone Harbor employees are enrolled in today, the high-deductible plan is offered at a significantly lower premium level in exchange for potential higher out-of-pocket expense to the employee.
The borough then mitigates that higher out-of-pocket expense with a health savings account to which the borough contributes over $8,000, which the employee can draw down to cover the higher expenses.
Council member Ken Biddick, a CPA by training, called the proposed plan a “win-win” for the borough and the employee. The employee’s portion of the premium payments declines under the proposed plan from where it would be if the employee maintained current coverage with the 2026 rate hikes. The borough’s portion of the premium costs drops significantly, allowing for mitigation of the $1 million budget hit that otherwise would have come from the current offering.
The choice, however, rests with the employees, each of whom can elect to change or stay with the current plans and absorb the premium hikes. Schlager presented the numbers for employee contributions.
Under the current 2030 family plan for an employee, the premium cost for the plan in 2026 is $61,750, of which an employee in a $65,000 income range pays $11,724. Under the high-deductible plan, the employee payment drops by over $5,000, to $6,576. The borough sees significant savings in premium payments. The borough pays roughly 80% of the total premium costs. The savings to the budget are still significant even after the borough factors in the $8,400 of borough funds placed in the employee’s health savings account to mitigate out-of-pocket expense.
The actual numbers for a given employee can change given type of coverage, family vs. individual, and level of employee compensation, a factor in the state formula.
Overall, the estimates used in the presentation show that if no employees took the high-deductible plan the borough faces more than $900,000 in increased expense for providing health benefits in 2026. If all employees take the high-deductible plan, the borough cost for providing insurance coverage in 2026 would actually be $100,000 less than it is in 2025.
There is a catch in that employees in the family plan who receive the $8,400 borough contribution to the health savings account must cover the impact of the high-deductible plan for out-of-pocket expense once the contribution is used up in any given year. The high-deductible option places a burden on the employee to use the savings account wisely. It also lets those who have any funds left in the account at the end of the year to roll them over to the next year.
The borough has held employee meetings to explain the new option in the hopes that employees will see the positives associated with it.
With the open enrollment period ending soon, the borough will be able to calculate the impact of health insurance on the 2026 budget.
Contact the reporter, Vince Conti, at vconti@cmcherald.com.
