The state Health Benefits Commission has approved health insurance rates for the 2026 plan year that increase premiums for local government employees by 36.5%.
With local government entities paying the most significant share of the increased premiums for their employees, the 2026 rates will continue a trend of destabilizing local budgets and increasing the likelihood of property tax hikes.
Aon, the state’s actuary, made recommendations for increases for the plans for state and municipal workers in July. State officials put a requirement into the 2026 budget that state workers reduce the cost by $100 million.
But state worker unions objected loudly, negotiations ensued, and Gov. Phil Murphy agreed to sign new legislation repealing the $100 million figure. There will still be a $75 million savings target as part of a new deal that all 16 of the state’s unions have agreed to. The state employee insurance rate will increase by 19.7%, an increase that is 46% lower than that facing local government units.
With the rates set, the Treasury Department will move ahead to finalize the open enrollment period that begins in October.
In May Treasury issued a report that stated bluntly that the State Health Benefits Program for Local Governments is in “what actuaries commonly refer to as a death spiral.” If so, it is a death spiral that the majority of Cape May County municipalities are still a part of.
In Cape May County, local governing bodies have been leaving the plan since Ocean City did so in 2022. Cape May, Middle Township, Sea Isle City and Avalon have all since left the state plan. Early this September, Stone Harbor said it has directed its benefits broker to look into options for the borough. Wildwood and North Wildwood are also not participants in the state plan.
According to a September list provided by the state, nine county municipalities are current plan participants: Cape May Point, Dennis Township, Lower Township, Stone Harbor, Upper Township, West Cape May, West Wildwood, Wildwood Crest and Woodbine.
In addition, several other local government units in the county are still in the plan and will be facing the 2026 increases. These range from the county bridge commission to all three of the county’s municipal housing authorities.
The problems of the State Health Benefits Program’s local government fund go beyond the factors incorporated into the rate hike. These rates do not reflect the repayment of approximately $200 million that the local government fund has borrowed from the state employee fund to cover cash flow shortages and depleted reserves.
The approved rate increases for 2026 are likely to cause significant problems for 2026 budgets in the remaining participating municipalities. Some, like Stone Harbor, are investigating options that would cause them to leave the state plan. If they are able to find cheaper alternatives, their departure could increase what is known as the “adverse selection” process that is one of the factors driving costs up.
Adverse selection occurs when healthier local government units leave the plan for cheaper private alternatives, leaving behind what the League of Municipalities terms “a sicker and more expensive pool of members.”
Contact the reporter, Vince Conti, at vconti@cmcherald.com
