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June 24, 2011

Re: Proposed Health Benefit Changes, S-2937/A-4133

Dear Mayor:

S-2937/A-4133 will make various changes to pension and health care benefits for public employees.  We anticipate that Governor Christie will sign this bill into law on Monday.  This letter will detail the health benefit changes.  You should have already received a separate letter detailing the pension system changes.

While the bill takes effect immediately, Section 81 of the bill permits a delayed implementation of the health care premium share for “necessary administrative actions for collection”.  Further, such contributions cannot be applied retroactively.  The four year phase in period will begin on the first day of collection.

The bill requires that all local government employers participate in a Section 125 plan.  This will allow employees to make the required premium payments for health care prior to the withholding of taxes.  For more information on the Section 125 plan please visit www.irs.gov/govt/fslg/article/0,,id=112720,00.html#Faq.

All employees will be required to contribute a percentage of their health care premium or 1.5% of base salary, whichever is greater.  The percentage will be based on the employee’s base salary on a sliding scale.  The percentage will be phased-in over four year as follows:

    • 1st year – ¼ of the percentage
    • 2nd year – ½ of the percentage
    • 3rd year – ¾ of the percentage
    • 4th year – 4/4 of the percentage

At no time will an employee pay less than 1.5% of their salary for health benefits.  But in no event will the employee be required to pay the percentage of the premium plus 1.5% of their salary.
The employee contribution, based on cost of coverage,  is as follows:
Individual Coverage


Salary Range

Year 1

Year 2

Year 3

Year 4

less than 20,000

1.13%

2.25%

3.38%

4.5%

20,000-24,999.99

1.38%

2.75%

4.13%

5.5%

25,000-29,999.99

1.88%

3.75%

5.63%

7.5%

30,000-34,999.99

2.50%

5.00%

7.50%

10.0%

35,000-39,999.99

2.75%

5.50%

8.25%

11.0%

40,000-44,999.99

3.00%

6.00%

9.00%

12.0%

45,000-49,999.99

3.50%

7.00%

10.50%

14.0%

50,000-54,999.99

5.00%

10.00%

15.00%

20.0%

55,000-59,999.99

5.75%

11.50%

17.25%

23.0%

60,000-64,999.99

6.75%

13.50%

20.25%

27.0%

65,000-69,999.99

7.25%

14.50%

21.75%

29.0%

70,000-74,999.99

8.00%

16.00%

24.00%

32.0%

75,000-79,999.99

8.25%

16.50%

24.75%

33.0%

80,000-94,999.99

8.50%

17.00%

25.50%

34.0%

95,000 and over

8.75%

17.50%

26.25%

35.0%

Member/Spouse or Member/Child Coverage

Salary Range

Year 1

Year 2

Year 3

Year 4

less than 25,000

0.88%

1.75%

2.63%

3.5%

25,000-29,999.99

1.13%

2.25%

3.38%

4.5%

30,000-34,999.99

1.50%

3.00%

4.50%

6.0%

35,000-39,999.99

1.75%

3.50%

5.25%

7.0%

40,000-44,999.99

2.00%

4.00%

6.00%

8.0%

45,000-49,999.99

2.50%

5.00%

7.50%

10.0%

50,000-54,999.99

3.75%

7.50%

11.25%

15.0%

55,000-59,999.99

4.25%

8.50%

12.75%

17.0%

60,000-64,999.99

5.25%

10.50%

15.75%

21.0%

65,000-69,999.99

5.75%

11.50%

17.25%

23.0%

70,000-74,999.99

6.50%

13.00%

19.50%

26.0%

75,000-79,999.99

6.75%

13.50%

20.25%

27.0%

80,000-84,999.99

7.00%

14.00%

21.00%

28.0%

85,000-99,999.99

7.50%

15.00%

22.50%

30.0%

100,000 and over

8.75%

17.50%

26.25%

35.0%

Family Coverage

Salary Range

Year 1

Year 2

Year 3

Year 4

less than 25,000

0.75%

1.50%

2.25%

3%

25,000-29,999.99

1.00%

2.00%

3.00%

4%

30,000-34,999.99

1.25%

2.50%

3.75%

5%

35,000-39,999.99

1.50%

3.00%

4.50%

6%

40,000-44,999.99

1.75%

3.50%

5.25%

7%

45,000-49,999.99

2.25%

4.50%

6.75%

9%

50,000-54,999.99

3.00%

6.00%

9.00%

12%

55,000-59,999.99

3.50%

7.00%

10.50%

14%

60,000-64,999.99

4.25%

8.50%

12.75%

17%

65,000-69,999.99

4.75%

9.50%

14.25%

19%

70,000-74,999.99

5.50%

11.00%

16.50%

22%

75,000-79,999.99

5.75%

11.50%

17.25%

23%

80,000-84,999.99

6.00%

12.00%

18.00%

24%

85,000-89,999.99

6.50%

13.00%

19.50%

26%

90,000-94,999.99

7.00%

14.00%

21.00%

28%

95,000-99,999.99

7.25%

14.50%

21.75%

29%

100,000-109,999.99

8.00%

16.00%

24.00%

32%

110,000 and over

8.75%

17.50%

26.25%

35%

 

The requirement to use the premium share grid will sunset in 4 years after the local employer’s effective date.  After that point, the premium grid could be altered through contract negotiations.  The phase-in of the contribution would not impact employees currently in a collective bargaining agreement, until that agreement expires.  Once that collective bargaining agreement expires, employees covered by that agreement, will begin at year 1 of the phase-in until they reach year 4 of the phase-in.  It will be possible that you will have employees contributing at different levels of the grid based on collective bargaining agreements. 

If the municipality provides health benefits in retirement, employees will be required to contribute in retirement.  However, current retirees and current employees with 20 years of service on the effective date of the bill will not be affected when they retire.

Retirement contributions will be based on retirement allowance, but in no circumstances less than 1.5% of monthly retirement allowance.  The amounts will be deducted from the retiree’s benefits and paid to the retiree’s former employer.  Retirement contributions apply to surviving spouse and employee’s dependents in the same manner as to the retiree at time of death.

The definition for cost of coverage varies.  For municipalities that participate in the State Health Benefits Plan “cost of coverage” is defined as the premium or periodic charges for medical and prescription drug coverage plan but not dental, vision or other health care.  For municipalities not participating in the State Health Benefits Plan, “cost of coverage” is defined as the premium or periodic charges for health, prescription drug, dental and vision benefits and for any other health care benefit.

For employers participating in the State Health Benefit Program the following changes will be made:

  • The state will be required to conduct an annual study of the risk impact of employers moving in and out of the State Health Benefits Program and private plans, long-term sustainability of the State Health Benefits Program/School Employees’ Health Benefits Program, and impact of the change under the law
  • Two boards will be created at the state level to administer health benefits.  One will be for the State Health Benefits Program and the other will be for the School Employees’ Health Benefits Program
  • The boards will be comprised of half employer and half employee representation

State Health Benefits Plan Design Committee – 12 member board

    • 6 Employer representatives chosen by the Governor
    • 3 Employee representatives chosen directly by AFL-CIO Public Employer Committee
    • 1 Employee representative chose by head of the police union
    • 1 Employee representative chose by head of the firefighter’s union
    • 1 Employee representative chose by head of the State Trooper union
    • 3 year term
    • Majority vote is 7
  • The committees will be responsible for and exercise authority over various plans and components of those plans including:
    • Medical benefits
    • Prescription benefits
    • Dental
    • Vision
    • Any other health care benefit
  • The committees have the authority to create, modify or terminate any plan or component at its sole discretion
  • The committees have the same duty and responsibility to the program as the State Health Benefits Program Commission
  • The committees will be required to work with insurers to develop at least 3 plans for each level of coverage (individual, family and individual +1), differentiated by out of pocket cost to the employee, including co-pays and deductibles
  • The committees will be required to develop a health savings account, high deductible plan.
  • The committees have the sole discretion to set the amounts for maximum, co-pays, deductibles and other such participant costs for all plans in the program
  • A form of super-conciliation will be used to solve any impasses on the committee.  When the committee fails to render a decision because it has not received a majority vote after 60 days pass the initial consideration the committee shall use a Super Conciliator, who is randomly selected from a list developed by NJ PERC.  The Super Conciliator shall promptly schedule investigatory proceedings.  Investigating  and acquiring all relevant information regarding the failure to render a decision and discussing the difference with the members.  The Super Conciliator can require a 24 hour per day negotiations and institute any other non-binding procedure.  If the Super Conciliator fails to resolve the dispute they shall issue a final report, immediately providing a copy to the committee.  The report becomes available to the public within 10 days

The bill also permits local employers to negotiate a different premium share and out-of-pocket cost arrangement that results in the same level of savings as the statutory premium share formula and plan design changes.  Savings would have to be certified by the Division of Local Government Services.  If the Division does take action with 30 days the certification will deemed approved.
Finally, the bill has a provision regarding out-of-state health care coverage.  According to a statement released by Senate President Sweeney and Speaker Oliver an agreement was reached to remove the out-of-state hospital provision.  S-2959, which revises the requirement that public employers provide certain health benefit plans to public employees, was amended to repeal the out-of-state health care coverage provision.  It has been returned to the Senate for a vote on Monday. 

We will continue to provide you guidance as it becomes available.  If you have any questions or need additional information please do not hesitate to contact Lori Buckelew at 609-695-3481 x112 or lbuckelew@njslom.com.

Very truly yours,

William G. Dressel, Jr.
Executive Director

 

 

 

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