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August 22, 2006

League of Municipalities Statement Supporting Changes to State Health Benefits Program

Dear Members of the State Health Benefits Commission and Pension and Health Benefits Director Fred Beaver:

On behalf of the League of Municipalities which represents the local municipal government portion of the 981 non-state participating employers who collectively join as part of the New Jersey State Health Benefit Plan, I offer the following comments. The medical plans offerings by the State Health Benefit Plan are comprehensive and complete. It is the privilege for local governments to participate in plan coverage. We receive benefits based upon the large collective membership which represent more than 802,000 covered lives who participate in State Health Benefits. Local governments along with the State recognize the escalating costs which have resulted from medical coverage provided to our employees. The aggregate benefits cost has caused a significant burden on the local property tax. We are facing a health care spending crisis.

Health Care Spending
The State of New Jersey and its political subdivisions are facing a crisis with regards to health care for active employees and post retirement benefits.  The State is paying over two billion dollars for health benefits. This issue is highlighted by the recently adopted budget and recognized by the State’s Benefits Review Task Force, the League's COPE report and Affiliate Associations. The problem is significant and one that will require difficult decisions. First, there must be cost sharing and incentives to empower customers. Individuals must develop a new paradigm for healthcare and it begins with personal responsibility. Judicious planning for larger co-pays, appropriate deductibles and elimination of dual coverage will prospectively result in significant savings.
The State Health Benefit System represents the largest single purchaser of health care services in the State. Fifty-five percent (55%) of county and municipal employers participate in the system. Also, 51% of educational employers participate in the system. The range and number of options provided by the State Health Benefit System should be re-examined in order to maximize purchasing power. The healthcare industry, particularly the drug, therapy, diagnosis and treatment techniques should be subject to market forces as the State Health Benefit System is a major player in the market. Controlling healthcare costs will be your most difficult task.

Specific amendments the League suggests would save local governments, school boards and community colleges significant revenues if adopted. For example:

Premium Sharing

Chapter 8 Public Laws of 1996 (NJSA52:14-17.28b) is known as the premium sharing concept. It specifically precluded local governments from using collective bargaining negotiation as a means to develop shared premium cost by groups.  This statute prevents employee participation toward the total cost of providing medical coverage and thus is a hard limitation on local governments, county associations, school boards and community colleges.

Uniformity Regulations

The State Health Benefits Commission through rules and regulations (NJAC17:9-5.4) precludes local governments from negotiating dependent coverage with employees under the "uniformity" regulation. Therefore, local governments must offer the same level of benefits to all collective bargaining groups and employees on a uniform basis. The inflexibility of the “uniformity” regulation limits collective bargaining for health benefit plans and thereby precludes local governments from offering selective plans to the various bargaining groups.

Duplicate Coverage

State law (NJSA40A:10-17.1) was amended in 2003 to authorize public contracting units to offer incentives to employees to waive duplicate coverage. The statute specifically excluded school districts from offering this incentive. The resulting impact is costs have increased.

Self Funding of Benefits

Currently school districts and community colleges cannot pool health benefit experience and cost with municipalities to self fund benefits. By amending NJSA40A:10-36.1, 40A:10-6(d) and NJSA18A:18B1 et seq, it would permit the pooling and joining together of school districts and municipalities to self fund health benefits and maximize savings.
Implementation of the above recommendations would produce significant cost savings in the form of property tax reform for local governments, school boards, community colleges and county associations.

The League understands the proposal before the Commission today is to increase the $5.00 co-pay for doctor’s office visits to $10.00. Also the current co-pay for brand name drugs should, as recommended, increase to $15.00 as of January 1, 2007. The League supports both of these changes. We recognize the changes, if approved, will become mandatory as of January 1, 2007, and may be contradictory to existing labor contracts which are in place at various local governments. The blending of the difference between the mandatory fee and contract provisions will be a local issue each mayor will deal with, but the mandatory provisions will assist every local governing body in future negotiations.

There is a proposed change for generic brand prescriptions. If approved for retired and active employees to become effective October 1, 2006, it will create some management issues for local governments who currently have contract provisions which may be contrary. But the League endorses the provision of generic brand name drugs as a method of lowering taxpayer costs and recognizes individual mayors must deal with the contradiction until said contract provisions can be changed.

The League suggests the provisions under consideration today do not go far enough. We would like clarification on a specific regulation found at N.J.A.C. 17:9-4.5 which states:

§ 17:9-4.5 Local; employee defined

(a) For purposes of local coverage, "employee" shall mean an appointive or elected officer or full-time employee of the local employer, including an employee who is compensated on a fee basis as a convenient method of payment of wages or salary, but who is not a self-employed, independent contractor compensated in a like manner.

(b) To qualify for coverage as an appointive officer, an employee must be:

1. Appointed to an office specifically established by law, ordinance, resolution or such other official action required by law for establishment of a public office by an appointing authority. A person appointed under a general authorization, such as, "to appoint officers" or "to appoint such other officers," or similar language, is not eligible to participate as an appointive officer and must qualify for participation as a full-time employee; and

2. The employee must be invested with some portion of political power partaking in any degree in the administration of civil government, and the duties of such employment must emanate from the sovereign authority. The employee's duties must be integral to local government, and the employee must have some authority to make decisions on behalf of the civil government.

This provision mandates that elected officials, regardless of their wishes, must be covered by State Health Benefits if the local community participates in the State Health Benefit Plan. It does not provide an option for the local community to determine if they wish to offer said benefits to their local elected officials. The League would suggest discretionary language be added to the Administrative Code to make it optional for local communities to determine if they wish to provide said coverage to elected officials. There may be some communities that wish to continue under the existing provisions and provide the benefits to their elected officials and there may be some communities that wish to not classify elected officials as “full time employees” thereby providing coverage of State Health Benefits. The League believes the discretion and option should be with the local governing body.

Thank you for your time and consideration.


Very truly yours,

William G. Dressel, Jr.  
Executive Director





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