As reported in, the Murphy Administration has reached a health care deal with the state’s public workers’ unions that is expected to yield approximately $500 million in savings over the next two years. The pact directs union members and retirees to utilize “in-network doctors” and “generic prescription drugs”, according to a report by the Record. These are the same cost-cutting measures that have been employed by private sector employees for years.

The plan represents about 15 percent of the $3.4 billion New Jersey paid this year under its self insured healthcare plan. The changes were approved by a joint union-management panel, led by Union and Management representatives.

Currently, the State spends $15,680 on health care for the average employee and $12,988 for the average retiree, according to figures from the state treasurer’s office. Private-sector employers in New Jersey spend an average of $4,747 per employee for heath insurance, according to a Kaiser Family Foundation study.

The anticipated savings from the new healthcare plans will be attained by directing Medicare-eligible retirees from preferred-provider plans to Medicare Advantage plans and by making it more costly for employees and retirees to use out-of-network specialists and brand-name prescriptions. Employees and retirees will have no co-pays for in-network doctors and $3 co-pays for generic prescription drugs. These changes, as announced by Murphy’s office, are expected to yield $274 million in savings in the coming plan year and another $222 million in year 2020.  Also, the state could see up to an additional savings of $20 million if enrollees switch to a new low-cost health plan.

The new plans are being praised as a positive step in controlling the state’s growing costs for employee benefits. In a separate panel established last month by State senator Sweeney, D-Gloucester, recommendations were made to roll back employee health benefits to the federal “gold” level. Sen. Tom Kean Jr., the Republican minority leader, said in a statement that such a shift in benefits would save state and local governments more than $1 billion a year.  Kean said that although he is “encouraged by the modest savings” announced by Murphy, “taxpayers deserve to know that every opportunity to achieve savings on the massive cost of public employee health benefits is being investigated.”

In commentary, it is refreshing to see that the Murphy Administration has made a conscious policy change in negotiating healthcare benefits rather than legislating the changes as his predecessor Chris Christie did over his two terms as Governor.  Healthcare has always been a subject that has been negotiated between management and labor and now that both employees and management incur substantial costs in providing benefits it is in everyone’s best interests to find alternatives that present the best possible coverage for the least amount of money.  We will of course keep you posted as developments continue in this area.