CAPE MAY CITY – The City Council has voted unanimously to withdraw from the New Jersey State Health Benefits Plan following a third straight year in which that plan has seen significant rate increases. For 2025, the state plan will raise rates by an average 17% for municipal employees.
Speaking before the council voted on Oct. 15 to withdraw, Mayor Zach Mullock said the towns that are leaving the state plan are those with the most favorable risk pools among their employees.
Mullock said the risk pool for city employees was strong enough to gain the city favorable terms in the private insurance marketplace. He said that towns with significant claims histories that remain in the state plan then have the impact of adding to the rising rates.
According to Mullock, the strong risk pool among city employees has led to terms that save the city $800,000 over what would have been paid if the town had remained with the state plan.
He said employees would see an average of $1,600 less in their out-of-pocket expense since the new coverage plan with AmeriHealth, also approved at the Oct. 15 council meeting, has fewer copays as well as lower premiums.
The mayor called the move a “home run” for the city, its employees and its taxpayers.
The State Health Benefits Commission met in July to hear presentations on proposed 2025 rates. The recommended rate increase for local government active employees was 16.3%, with a 24.3% rate increase for prescription drugs. Retirees would see a 17.9% inclusive rate increase.
Sea Isle City Council voted to leave the state plan on Oct. 8. Ocean City left the plan in favor of coverage by AmeriHealth in the 2023 plan year following an average 22% increase in rates in 2022.
When rates started to climb with double-digit increases, the state cut deals with its major employee unions to reduce the impact on state-level staff. No deal was offered for municipalities and school districts, leaving governing bodies and school boards across the state scrambling to find budget resources to cover the hike in rates.
Municipal funds shoulder the burden for an average of 70% of employee health premiums, making sudden substantial hikes in rates a major destabilizer for local budgets. Although some municipalities and school districts were independent of the state plan in 2022, the rate hike that year began to drive more municipal entities from it. As is often the case, those that left early were those that could find better rates elsewhere, the towns and school districts with the best employee risk pools.
The State Health benefits Plan is a self-insurance plan, meaning employee contributions are used to pay claims. If claim amounts outpace premiums, rates rise as a result. If governments and school districts withdraw from the plan the overall premium volume shrinks, a circumstance that can cause further rate hikes.
According to the New Jersey State Policy Lab at Rutgers, municipal enrollment in the state plan has fallen by 18% in the two years prior to this most recent rate hike. State employee units cannot move off the state plan. Municipalities and school districts have the option to participate in other insurance programs.
In 2022 John Donnadio, executive director of the New Jersey Association of Counties, said that having members of the state plan “with good experience ratings” leaving is “detrimental to the long term viability of the program.”
By early 2023 the exodus was growing, with 31 towns and school boards filing the paperwork to leave the state plan.
Among those that left were some of the larger municipalities in the state, including Newark, Trenton and Camden. At the time of this initial exodus, Michael Cerra, executive director of the New Jersey League of Municipalities, asked, “What does this mean for the state plan next year and beyond?” He added that every reduction in the pool was going to have an implication for those that remained.
Cape May City elected to use the flexibility allowed under state law to make a relatively quick decision on replacement coverage for its employees and retirees. Working with two brokers, a city group that included the city manager and a member of the council chose AmeriHealth as the municipality’s new provider.
Further evidence that towns with more favorable claims exposure than the state average could see better terms independent of the state plan comes from the vote in Sea Isle City. Sea Isle stayed with the same provider that is used by the state plan, Horizon Blue Cross Blue Shield, and, according to Mayor Len Desiderio, still saw “significant cost savings” compared with the state plan.
Cape May’s new arrangement for health coverage will go into effect on Jan. 1, 2025.
Contact the reporter, Vince Conti, at vconti@cmcherald.com.
