Message From PSMA Board of Directors

As you may be aware the Governor has released the Pension Commission's Final Report regarding recommended changes to our pensions and health benefits (see article below). This "Roadmap" is just a report and is not being implemented at this time. Regardless of any tentative agreements which may have been discussed there are no firm plans or legislative proposals. The "Roadmap" discusses a number of recommendations, particularly with regard to reducing health benefits and changing the pension system. PSMA, along with IBEW Local 30, are going to work very closely with our legislators to protect our critical benefits. We will keep you informed as to any developments.

Christie Pension Commission Recommends Plan for Huge Savings, Fewer Benefits

Samantha Marcus/NJ.com/February 24, 2015

TRENTON - Gov. Chris Christie's high-powered pension commission has proposed a sweeping plan that would save the state billions in retirement and health care costs while reducing benefits for hundreds of thousands of public workers.

The commission says New Jersey needs to drastically change its pension and health plans. Christie's budget address will launch the complex proposal, which he'll hold up as the answer to a $37 billion unfunded pension liability - which balloons to $83 billion under new accounting rules - and $53 billion in unfunded health care liability.

Christie, who once declared that his 2011 pension reform package had saved the system, has taken to saying they didn't go far enough.

His bipartisan panel agreed and said in the report that New Jersey's future without a meaningful overhaul is "bleak" and "burdensome." Any delay, the commission warned, and the system will be beyond repair.

"We recognize that there are elements of this approach that are likely to be unpopular at first, but believe in time they will be viewed as the best way to move forward," the report said. "The need for urgency in adopting a solution cannot be overstressed. The already narrow window for a reasonable solution is closing fast."

Unlike the 2011 reforms, which left the pension system intact while making changes to employer and employee contributions, the commission's far-reaching recommendations include freezing that plan and moving active public employees onto a hybrid of a traditional defined-benefit pension plan and a 401(k)-like defined-contribution plan.

That change is part of a scheme that calls for less expensive health care plans and for employees to pick up a larger share of their health insurance costs. The state's health care savings would be recycled into closing the gap in pension funding.

Perhaps the report's biggest bombshell is the proposal to freeze the existing state and local pension plans and move workers onto a so-called "cash balance" defined-pension plan.

Freezing the existing pension system would save the state and local government more than $2 billion in a single year. The cash balance plan would cost the state and local governments $1.23 billion a year, based on $26.6 billion in combined payroll.

Employees who are now under the traditional pension plan would not be able to accrue more benefits, their existing benefits are protected, and the state must continue to make payments on it.

Like a defined-contribution, or 401(k), plan, an employee's benefits would show as a lump sum in a "hypothetical" personal account, which is funded by employer and employee contributions and investment returns. But unlike a 401(k), employees can receive their benefits in lifetime payments determined by their balance.

As of 2005, nearly a quarter of private sector workers with defined-benefit pension plans were enrolled in cash balance plans, according to the U.S. Bureau of Labor Statistics.

The cash balance plan could be a boon to younger, newer employees who currently receive the lowest tier of benefits offered by the state. It would be less attractive to more tenured workers.

An Urban Institute study of a similar plan created last year in Kentucky found that employees with fewer years of service would receive higher benefits than under their traditional defined-benefit plan, and employees with "many years of service would receive less."

Along with the retirement overhaul, the panel proposes health care cuts it characterizes as bringing benefits in line with what the private sector offers. That "significant reduction" in state and local costs is crucial to freeing up funding for the pension plans, the panel said.

Public employers pay, on average, 95 percent of an employee's health care expenses, while the average employee pays 18 percent of premium costs. Benefits would be reduced, with the employer paying 80 percent of expenses and the average employee contribution to their premium increasing to 25 percent. Retirees would receive the lower level of coverage without having to kick in more.

The commission didn't venture into choosing a new plan's mix of deductibles, copays, coinsurance and other features.

"The commission's proposal will mean changes for employees, but they will still end up in a good place and avoid the draconian cuts that would follow an attempt to fund the existing benefits," commission Chairman Tom Healey said. "On health care, they will enjoy the same kind of benefits provided by quality private-sector employers."

The commission also suggests that local school districts should absorb the cost of local education retiree health benefits and the new pension plan. It says the changes in pension plans would generate enough money to absorb the cost.

Paying those bills without the help of local districts would require the state to find $1.53 billion in additional revenue.

For their sacrifice, employees would be rewarded with a constitutional amendment guaranteeing that the state make required pension payments. At the same time, the proposed constitutional amendment would strip a group of employees of the "nonforfeitable right" to receive certain benefits that has exempted them from previous reforms.

"A constitutional amendment permitting the reduction of benefits and implementation of these reforms, and also compelling compliance with the payment schedule intended to fund these obligations, would provide an enforcement mechanism that beneficiaries could trust," the report said.

Those changes demand brisk action by the Democratic-controlled Legislature, which would need to approve a proposed amendment by Aug. 3 to get it on the November ballot.

The commission paints a grim picture of New Jersey finances in laying the groundwork for the proposal.

By the fiscal year beginning July 2016, the state's pension contribution is expected to rise to $4.3 billion. The price tag for state employee health benefits - which ranks third-highest in the nation - will increase to $3.7 billion. At the local level, that bill could reach $10 billion.

The state portions of funding pension and health care that year combine for total of $8.05 billion, or nearly a quarter of an annual budget.

The alternatives to its recommendations, the commission cautioned, are extreme tax increases: it would take raising the sales tax from 7 percent to 10 percent or increasing the income tax by 29 percent to generate $3.6 billion a year.

Even with a "millionaire's tax" charging the state's 16,000 richest an extra $50,000, on average, the state would still need to raise income taxes 23 percent. Funding the $3.6 billion entirely on the backs of millionaires would cost each an additional $228,000 a year, according to the report.

"This is a pretty unique window in time, and we may never have another opportunity to solve this. The chasm may just get too wide," said Tom Byrne, a member of the pension commission and former chairman of the state Democratic Committee.

Under the commission's plan, the state's total payment for the budget year beginning in July 2016 could be cut from $8.05 billion to $4.59 billion. The state would contribute $1.72 billion toward the new, lower health care system, $2.6 billion to the frozen pensions plans and $266 million to the new retirement plans.

Even with the cuts to retirement and health benefits, the state would still come up about $179 million short, according to the report.

And the frozen plan would still require increasing payments, likely to the tune of 3 percent to 4 percent a year, forcing the state to come up with about $500 million in additional revenue by 2020.

"While there is reason to hope that this revenue will become available through natural growth in the state budget and capture of a modestly disproportionate share of that growth for benefits funding, there are no guarantees," the commission said,

While Christie said his administration is working with the New Jersey Education Association teachers union on a framework of the plan, some unions are likely to bristle at its recommendations. The police and firefighters' unions, for instance, are locally funded and are much healthier than the state-funded plans.

Patrick Colligan, president of the New Jersey State Policemen's Benevolent Association, immediately dismissed the findings, saying his group's fund should simply be carved out from the state system.

"The five state and local pension funds should have been analyzed individually rather than as a whole," Colligan said in a statement. "Our pension system is funded by local governments who are making their payments and which, along with our 10 percent member contributions, makes it the healthiest employee pension fund in the state... To propose solutions to further reduce employee benefits essentially ignores the math of (Police and Firemen's Retirement System) and punishes nearly 40,000 law enforcement officers and firefighter who have no part to play in the state's underfunded pension plans."

Editor's Note:

The full Commission's Reports can be found at 

Sweeney Pilot Aims to Save Money, Improve Public-Employee Healthcare

Andrew Kitchenman/February 13, 2015/NJ.com

Senate President Stephen M. Sweeney has unveiled a proposal for a pilot project that -- if successful -- could go a long way toward saving money on health benefits for state workers while keeping them healthy.

The pilot would start with as many as 60,000 of the 800,000 public workers in the state's two major health insurance plans. Rather than a conventional fee-for-service model, the project is based on "patient-centered healthcare," in which doctors are paid based on seeing a limited number of patients, with bonuses awarded for keeping those patients healthy.

Public-employee insurance programs currently cover about 9 percent of New Jersey residents.

Patient-centered healthcare is similar to the healthcare delivery model increasingly used by self-insured health plans as well as government programs like Medicare and Medicaid. Accountable-care organizations are also based on variations of the concept that doctors' pay should be tied to patient outcomes.

Sweeney said he's hopeful that the proposal would reduce monthly insurance premiums, which saw a sharp increase in worker contributions over the past four years. He said it was "a concept that will actually improve care and reduce costs. I know that's hard to believe, but it is doable."

Under the proposal, primary-care doctors would see a maximum of 1,000 patients, rather than the 1,500 that is typical in New Jersey. This is intended to allow the doctors to spend more time with each patient, including giving them age-appropriate tests and screenings intended to catch serious health issue before they cause crises.

The concept has received backing from public employee labor unions, with New Jersey State AFL-CIO legislative affairs coordinator Eric Richard saying that it would move the focus from shifting healthcare costs onto workers toward lowering the overall cost of care. New Jersey Education Association Secretary-Treasurer Sean Spiller said that until the state takes steps to prevent rapid premium increases, there will always be a "loser" in health-benefit contracts.

Their support will be crucial, since labor representatives comprise half of the benefit-design committees that would determine the details of the pilot program. But the proposal will not advance without the support of Gov. Chris Christie's administration, since Christie appoints the other half of the benefit-design committees. Sweeney said he was "challenging the management side" to support the proposal.

Administration officials were still digesting the proposal yesterday. A state Treasury spokesman noted that the ideas contained in Sweeney's proposal aren't entirely new, since the State Health Benefit Program already includes patient-centered models through insurer Horizon Blue Cross Blue Shield of New Jersey. He added that the cost of the pilot program would be in addition to existing costs to administer the SHBP and School Employees Health Benefits Program.

Under Sweeney's proposal, five large medical practices or provider networks that are located in areas with large concentrations of public workers would serve as the primary-care providers for the patients in the program.

Up to 60,000 public workers could choose whether they and their families would participate in the program. They could keep their current doctor if the doctor joins the program; otherwise, they would have to switch to a participating doctor.

Doctors who participate would have to agree to have all of their patients in the patient-centered model, since it requires different billing and referral practices than traditional healthcare, in which doctors are paid a fee for each service they provide.

Along with agreeing to the changes in how they're paid, doctors must agree to use electronic medical records and refer patients to specialists who have a track record of providing "high-value" care - with value defined as meeting various measurements of patient health while keeping a lid on costs.

The pilot program would last at least three years, during which time the state would gather data on whether it achieved savings while meeting standards for patient health.

The primary attraction for patients might be the absence of out-of-pocket costs if they use participating providers.

For doctors, the attraction is the opportunity to spend more time with each patient, although some doctors have questioned the shift from the fee-for-service payment model, saying that outcomes-based models remain unproven.

If the program does bring down costs, it would be a major benefit to the state government. The Christie administration has projected that the state will pay hundreds of millions of dollars annually in the Affordable Care Act provision known as the "Cadillac tax." Under this tax, employers would pay an additional 40 percent of the cost of insurance policies that are more than $10,200 for individuals and $27,500 for families, starting in 2018.

While the tax will raise revenue to pay for the ACA, it was also designed to put downward pressure on healthcare costs by encouraging the elimination of wasteful or unnecessary services. High-cost states like New Jersey are projected to be especially hard hit by the tax.

The proposal by Sweeney also serves to set the table for legislative discussions of changes to public-worker health benefits. A four-year moratorium on labor negotiations over health benefits is expiring this year. Sweeney said it wouldn't be necessary to reintroduce bargaining over healthcare if his proposal were adopted, since labor representatives would be able to influence the design of benefits.

Representatives of two organizations that could wind up either providing healthcare through the pilot program or supporting those who do highlighted yesterday the savings they've seen through similar patient-centered programs.

Dr. John M. Tedeschi, chairman and CEO of Evesham-based Continuum Health Alliance, noted that medical practices working with his organization have seen significant cost savings. Continuum supplies services to help doctors shift from fee-for-service to "fee-for-value," with the value based on keeping patients healthy while lowering costs. Continuum-affiliated doctors generated $4.5 million in savings through Horizon Blue Cross Blue Shield of New Jersey's patient-centered medical home program.

Dr. James Barr, chief medical officer of Summit-based Optimus Healthcare Partners ACO, said strategies similar to those proposed by Sweeney lowered the cost of healthcare spending on 30,000 New Jersey seniors Optimus serves by $17 million.

"This model works," he said. "It's something we've needed for a long time."

Sweeney's proposal was developed with the support of America's Agenda, a national nonprofit whose board is composed of labor, insurance, pharmaceutical and hospital leaders, including New Jersey Education Association President Wendell Steinhauer.

The group is supporting patient-centered healthcare in other states, including Vermont, which launched the first such program for public workers in 2007.

America's Agenda Executive Director Mark Blum said the need to rein in health costs was particularly acute in New Jersey. He noted a report by state consultant Aon Hewitt that projected that New Jersey's annual health costs would rise by 10.3 percent for teachers and 8.1 percent for other public workers this year, well above national averages.

Those in patient-centered programs see their costs decline by between 5 percent to 15 percent, he said.