A New Jersey Treasury report issued this week states bluntly that the State Health Benefits Program for Local Governments is in “what actuaries commonly refer to as a death spiral.”
“What began as a commitment to offer affordable, high-quality coverage to public employees has become a structurally unstable and financially unsustainable system, due to adverse selection, diminished participation and cost escalation,” the report, released May 20, says.
Adding to the alarm, the report says that the School Employee Health Benefits Plan “now faces significant financial and actuarial risks and may be on a similar trajectory as [the local government benefits plan] – potentially entering a death spiral in the medium term or experiencing serious affordability issues for its members.”
Double-digit increases in premiums since 2023 have led to municipal defections from the local governments benefit plan, reducing participation to many of those municipalities with the worst health records, thereby increasing pressures on the fund.
The report offers little hope for a turnaround, stating, “Even the most aggressive plan design changes likely will not be enough to reverse the systemic unraveling underway.”
The potential impact would be significant across 564 state municipalities plus commissions and other local government units. That count does not include the more than 600 boards of education.
The number of local government units participating in the plan has declined from 768 in 2021 to 689 in a March count. In Cape May County, local governing bodies have been leaving the plan since Ocean City did so in 2022 for the 2023 plan year. Cape May City, Middle Township, Sea Isle City and Avalon have all since exited the state plan.
Some municipalities have been returning to the state plan after facing rising premiums in private insurance plans.
However, theses towns often had rising rates due to higher-risk workers who will only place added pressure on the state plan when they return.
One culprit in the rising costs has been increasing prescription drug usage, including popular weight-loss drugs.
A law signed in November to allow the local government plan to borrow from the state workers plan has resulted in a local plan debt of $120 million, which could result in a midyear premium hike since the local fund does not have the money to repay the debt.
The report says there could be a 26.5% “floor” to the 2026 premium hike, along with other charges. Cumulative increases from 2026 to 2029 could exceed 60%, according to the report.
“The situation is not one of temporary imbalance – it reflects deep-seated structural challenges that, if unaddressed, will further destabilize the plan,” the report says.
The report says one alternative is for the state to begin an orderly unwinding of the local part of the State Health Benefits Plan, leaving the local government units and school districts to find health coverage through various forms of group insurance funds.
Contact the reporter, Vince Conti, at vconti@cmcherald.com.
