AVALON – The borough has become the fourth Cape May County municipality to withdraw from the State Health Benefits Plan, an action taken Oct. 23 in response to a 17.2% increase in the benefits premium following two years in which the premiums for active employees and retirees rose a combined 29%.

Avalon Business Administrator Scott Wahl explained that the transition from the state plan to AmeriHealth would save the borough $440,000 for the 2025 budget year.

Sea Isle City terminated its relationship with the state plan on Oct. 8, and Cape May City did the same on Oct. 15. Ocean City switched from the state plan to private insurance starting with the 2023 plan year.

AmeriHealth was also the successful bidder for replacing the state plan in Cape May City and Ocean City. Horizon Blue Cross and Blue Shield will offer the benefits to Sea Isle City under a private contract.

Cape May City Mayor Zach Mullock said the switch to a private insurer will save his city $800,000 over what it would have paid in 2025 if it stayed with the state plan. Mullock called the move a “home run” for the city, its employees and its taxpayers.

After imposing a 22% increase in premiums for local government employees, the state plan saw many local governments and school districts leave the plan in 2023. It is not unusual for local government units to move on or off the state health plan, but ever since the large rate hike announced for the 2023 plan year, the exodus has picked up steam. Faced with a 17% increase for plan year 2025, more towns may leave the state plan, as is happening in Cape May County.

A fear for those that remain is that if the number of towns and counties leaving the state plan increases, the plan could enter a spiral in which higher rates result from a smaller subscriber pool, leading to yet more defections and subsequent rate hikes.

Avalon had weathered the first significant round of state rate hikes announced in 2022 for the 2023 plan year by moving from a more favorable state plan to one in which employees would normally have had to pay more in co-pays and deductible amounts. To offset the impact of that move to a higher-deductible state plan, the borough adjusted amounts in an employee’s Health Reimbursement Account for co-pay and deductible payments. The benefit for employees remained essentially where it was while reducing the premium burden imposed by the state hike.

At the Oct. 23 meeting, Wahl told the council, which voted unanimously for the withdrawal, that exiting the state plan was now the only viable option for avoiding the double-digit rate hikes. “We were already at the last stop on that journey,” he said, meaning that there was no other state plan the borough could move to in order to reduce the premium burden.

The borough’s goal is to offer employees “substantially similar benefits” without adding a significant burden to the taxpayer, Wahl explained. The move to AmeriHealth accomplishes that goal, he added.

Wahl said if one took the state plan’s 17% increase in health benefit premiums and imposed it on the 2024 budget, as an example, the new cost for the employee health plan would absorb 7.7% of the general fund budget. “For every $100 paid in taxes, almost $8 would go to health benefit premiums,” he said.

The administrator said the borough had successfully negotiated down the bid amount initially proposed by AmeriHealth, which helped result in the budget savings of $440,000. “There are two stakeholders in this process,” he said, “the employees and the taxpayers.” The council was satisfied that the proposed change in plans minimized the impact on both of those stakeholders.

Normally the Avalon Council does not vote on resolutions until two weeks after they are discussed in a council work session. The vote on leaving the state plan and moving to AmeriHealth was an exception to that practice. Wahl’s presentation came during the work session, and the vote followed in the regular business meeting. The reason for the haste is a state requirement that the borough must give 60 days’ notice to state officials of its intent to withdraw from the state plan.

The new plan will go into effect on Jan. 1, 2025. It remains a so-called 2035 plan, meaning a plan with higher copays and deductibles, but the same offset via the Health Reimbursement Account will be available.

Contact the reporter, Vince Conti, at vconti@cmcherald.com.