STONE HARBOR – The borough, like many of the state’s municipalities, is struggling with the soaring increases in premium levels for participation in the State Health Benefits Plan for local government employees. According to Borough Council member Frank Dallahan, Stone Harbor is facing an increase of 40% for 2026.

Dallahan said at the Oct. 7 council meeting that the borough wanted to leave the plan but was unable to find affordable private insurance to do so. He added that the loss ratio for the borough based on actual use of the health plan exceeds the threshold that private insurers look for.

Stone Harbor’s efforts follow three years of double-digit increases in premiums that have already driven a number of Cape May County municipalities out of the plan. Ocean City left for the 2023 plan year. Cape May, Avalon, Sea Isle City and Middle Township all followed suit the next year. All were able to negotiate private insurance options.

According to borough Administrator Joseph Clark, “Insurance companies generally submit bids when the expenditures for medical/prescription are $.80 for every $1 of premium. The Borough of Stone Harbor is currently in excess of that ratio.”

Clark said that the borough’s ratio is “$1.14 to every $1 of premium. An outside insurer would not profit from insuring Stone Harbor.”

The problem of rising employee health insurance premiums compounds an already existing difficulty in the borough. Last year the borough had problems adopting a budget that funded necessary services while still remaining below the state’s annual appropriations cap.

The difficulty with the cap is due primarily to the introduction of paid career firefighters in 2021. They had been added to what had been a completely volunteer fire company without seeking cap increases at the time. Since then the borough has moved to increase the number of paid firefighters.

The continuing rise in health benefits premiums adds pressure to the already thin margins between necessary spending and the state spending cap. The borough is attempting to avoid the need to request a cap waiver from the state as part of its budget process. There is no guarantee that the state would grant one.

Dallahan said the borough’s human resources director, Charles Schlager, had designed an alternative plan for health benefits that calls for moving employees from their current state plan levels to a higher-deductible plan level. The switch, should employees elect to make it, would come with a health reimbursement arrangement card with borough funding to allow the employee to use the funds to pay deductibles and co-payments. According to Clark, the maximum amount for the employer’s contribution to the employee’s individual health services account is set by federal regulation.

This arrangement places a burden on the employee to manage the reimbursement card “wisely,” to use Clark’s term. One example Clark mentioned was an employee who chooses to use the card’s funds for something like the expensive weight loss drug Ozempic, making a decision that could “chew up your HRA” and that could leave the employee to pay more for deductibles.

The plan is intended to benefit employees by lowering their premium contributions. Public employees in the state contribute to premiums based on employee salary range and plan level choice.

The use of the high-deductible plan would also lead to savings for the borough, by lowering the premium contribution from the borough and setting a cap on the contribution to the health reimbursement card that is generally lower than the total premium contribution the borough would have to make under the current plan arrangement.

However, it is at best a temporary fix to the larger problem. A recent state Treasury Department report described the state health plan for local government employees as in a “death spiral.” With rates climbing at between 20% and 40% annually, the plan’s survival is at risk. The May 2025 report from Treasury calls it “structurally unstable” and “financially unsustainable.”

Towns and other local government entities with younger, healthier employees have left the state plan. The plan has lost over 10% of its government entity membership since 2021, and the pace of departures is increasing. Some towns and entities that wish to exit are not finding welcoming arms in the private sector.

Local taxpayers may also find themselves facing the threat of new tax burdens stemming from their school districts soon. The same Treasury report says that the School Employees Health Benefits Program “now faces significant financial and actuarial risks.” The report projects that the school plan could “potentially enter a death spiral in the medium term or experience serious affordability issues for its members.”

Open enrollment in the state plan options began Oct. 1 and runs through Oct. 31.

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