While Chapter 78 increased the average healthcare contributions required of public employees based upon a sliding percentage of the cost of coverage, if Assemblyman Declan O’Scanlon’s proposal is implemented, public workers can expect to pay higher out-of-pocket costs toward coverage provided under a lower-level plan. In exchange, the Assemblyman’s plan provides for a constitutional amendment obligating the state to contribute annually to the pension system. The obligation proposed by O’Scanlon’s plan, however, is qualified.
As reported by NJ.com, Republican state lawmaker has introduced legislation to pay for billions of dollars in upcoming public pension bills by reducing state and local health care spending on government workers.
Assemblyman Declan O’Scanlon’s legislation, introduced Monday, revives a dormant plan proposed by the governor’s special pension commission last year to overhaul public employees’ benefits and save their employers billions of dollars a year. While it would require workers to pick up more of the cost for their heath care, they would be rewarded with a constitutional amendment obligating the state to contribute to the public pension system annually — unless tax collections are in trouble.
O’Scanlon (R-Monmouth) unveiled the sweeping legislation Tuesday, just one day after an Assembly committee voted in favor of a Democratic plan to grant workers that constitutional protection. However, O’Scanlon, who has railed against that proposal as dangerous and flawed, said New Jersey can’t afford to make that kind of binding commitment without extracting significant reforms. “To choose not to do this is to choose one of two deaths: either massive reductions in services or massive tax increases, or both,” he told NJ Advance Media on Tuesday.
Gov. Chris Christie’s pension commission recommended as much when it released a highly anticipated report last year to drastically reduce the cost of public employee pension and health care costs. After its release, Christie tried to sell the plan at public events across the state. But even as the pension commission issued a more detailed follow-up in February, the proposals didn’t get off the ground.
O’Scanlon said he’s turned the commission’s recommendations into legislation, which he described as a potential watershed in the pension system’s history. The state portion of the public pension system is $43.8 billion short of what it would cost to pay for future benefits. The state is contributing $1.3 billion into the pension system this year and $3.53 billion for health benefits. Absent reforms, the pension payment is on track to reach $5.48 billion in 2022 and health benefits, $5.43 billion by 2022. O’Scanlon’s proposal would save the state $2.2 billion a year, including $1.42 billion through lower-cost benefits and $810 million by shifting the cost of retired teachers’ benefits to their employers (the commission assumes that will be offset by benefit changes at the local level).
Broadly, active employees would be moved onto health care plans equivalent to gold plans under the Affordable Care Act, and retirees would be given retiree reimbursement accounts to cover the cost of purchasing coverage through a private exchange. Active employees would pay lower annual premiums, because the total cost of the plan is lower, but higher out-of-pocket expenses. For example, a single worker making $33,000 and enrolled in the NJ Direct 15 plan would pay about $800 more a year — the difference between a $1,043 annual premium and $435 out of pocket and a $711 premium and $1,561 out of pocket. A worker making $72,000 and enrolled in the family plan is paying a $6,404 premium and $1,213 out of pocket, but after reforms could pay a $4,366 premium and $4,356 out of pocket, an extra $1,100 a year, according to the commission’s report.
The assemblyman said his proposal contemplates rebates to help employees offset some of their new expenses. “I want to minimize that impact,” he said. “These are not particularly painful reforms. They’re going from platinum plus plans to gold or gold plus plans. It still leaves public workers with wonderful health benefits. Better health benefits certainly than the average person in the private sector.”
For early and Medicare-eligible retirees, the public employer would cover the cost of purchasing the equivalent of a gold level plan or gold level equivalent supplemental insurance, respectively. Early retirees, who pay no premium, will likely see jumps in their out of pocket costs. But the employer would cover “average” out of pocket costs for those on Medicare.
The constitutional protection workers would receive in exchange for their troubles is not so bulletproof as the one envisioned by Democrats and public labor groups, which they say is needed to restore workers’ trust in state lawmakers and spare the pension system from customary underfunding.
Opponents of that amendment, including O’Scanlon, say it would create a “super priority” likely to force severe spending cuts or tax hikes if the state economy doesn’t drum up enough cash to cover the payments. O’Scanlon’s includes a safeguard in the event of a fiscal emergency, like those that prompted Christie to contribute less than he’s promised. But if tax collections are even just a little better than expected, the pension gets its regular contribution plus half of the improvement, he said. “So we are in this together, on the downside and the upside,” he said.
Hetty Rosenstein, state director of the Communications Workers of America, said O’Scanlon’s “safety valve,” which kicks in when revenues fall at least 1.5 percent below projections, would “probably allow the Christie administration to never make the pension payment anyway, since that would merely allow (lawmakers) to do what they have done for two decades — that is, whenever they need any cut to eliminate the pension payment first.”
While the assemblyman’s bills do not alter pension benefits, he said none of the reforms would prevent future reforms.