On June 29, the Legislature gave final approval to a proposal intended to save school districtstheir employees and taxpayers hundreds of millions of dollars by overhauling the health care plans offered to school employees. The bill would require the creation of lowercost health plans while shifting employees to a salary-based, premiumsharing schedule, with the goal of reducing costs for both staff and boards of education. 

Gov. Murphy announced he will sign the bill on July 1. 

In March, Senate President Steve Sweeney and the New Jersey Education Association announced an agreement proposing significant changes to health benefits coverage for teachers and other school employees, as well as the amount that such employees must contribute to the cost of their coverage.  At the time, it was estimated that the proposal could save approximately $1 billion, with over $600 million of that amount realized by school districts. The actual amount of savings will depend on the level of participation in the newly created health care plans. 

Legislative History The Senate approved the bill to effectuate the agreement, S-2273, but the measure stalled in the Assembly. On Thursday, June 25, Speaker Craig Coughlin introduced an Assembly version of the billA-20. It was advanced by the Assembly Appropriations Committee, with amendments, the following day. And on Monday, the full Assembly approved the measure and returned it to the Senate, which concurred with the changes made by the Appropriations Committee. 

The legislation requires the establishment of “New Jersey Educators Health Plan” (NJEHP) within the School Employees Health Benefits Program (SEHBP).  The new plan is expected to require significantly lower premiums than the current two most popular SEHBP options – NJ Direct 10 and NJ Direct 15. This would be accomplished in part by reducing reimbursements for out-of-network services and incentivizing the use of generic prescription drugs. Coverage under the NJEHP would begin January 1, 2021, following the SEHBP’s annual open enrollment period.   

Employees who opt into the NJEHP will pay a percentage of salary towards their health benefits, based on sliding scale ranging from 1.7% to 3.6% of salary for single coverage, and from 3.3% to 7.2% for family coverage.  However, the bill stipulates that no employee will contribute more than what is required under Chapter 78, the landmark 2011 pension and health benefits reform law.  All newly hired employees would be required to select the NJEHP.  Any employees who choose to remain in Direct 10 or Direct 15 would continue to pay whatever is required under the district’s collective bargaining agreement. 

Once the new NJEHP is implemented, other existing SEHBP plan options besides NJ Direct 10 and NJ Direct 15, will be eliminated. Additionally, the plan designs of the NJEHP, NJ Direct 10 and NJ Direct 15 will be essentially “locked in” from January 2021 until the end of 2027, unless changes to the plans are required by state or federal lawThe amount that employees covered under the NJEHP must contribute to their coverage will not be subject to contract negotiations over that same time period, while NJ Direct 10 and NJ Direct 15 employee contributions will continue to be governed by collective bargaining.

The bill will also require the creation, by July 2021, of the “Garden State Health Plan” (GSHP), which is expected to have substantially lower premiums than the NJEHP.  The benefits of the GSHP plan will be identical to that of the NJEHP.  However, only New Jersey-based providers will participate in the GSHP. Employees who select coverage under the GSHP will see their required premium-sharing contributions slashed in half, compared to what they would pay under the NJEHP. According to information released by the Senate Majority Office earlier this year, care delivered outside of New Jersey is 50% to 100% greater than the same services provided in-state. 

The bill is an exception to the seven-year lock-in period concerning plan design and employee contributions that would kick-in if a targeted level of savings is not reached. Under amendments adopted by the Assembly, the state’s actuary for the SEHBP must issue a report by mid-2023 confirming that implementation of this bill has resulted in at least $300 million in net annualized savings for employers.  The net savings calculation will be the result of reducing the total savings by the amount of the reduction in contributions paid by employees and retirees in each yearIf less than $300 million is achieved, the SEHBP Plan Design Committee will be required to make plan design changes or adjustments to employee contributions, or both, to make up for the shortfall. If the committee is unable to achieve consensus on such changes, then the State Treasurer would be authorized to unilaterally make plan design and contribution changes to achieve the $300 million savings. 

The legislation will also apply to school districts that do not participate in the SEHBP, such as those that selfinsure, participate in a joint insurance fund, or procure coverage on the commercial insurance market. Beginning in January, these districts will have to offer their employees coverage that mirrors the NJEHP, and any employees who select such coverage will transition into the percentage of salary premium-sharing schedule established under the bill.  These districts would also have to offer plans that are identical to the Garden State Health Plan which only covers services provided in-state. As is the case with SEHBP districts, employees who select the equivalent of the GSHP will pay half of what they would under the NJEHP. 

Non-SEHBP districts will still be required to offer any existing plan options available to employees under an existing collective bargaining agreement.  However, no new health plans may be added by these employers for seven years – until January 2028 – unless such plans would result in additional premium cost reductions. 

Use of any savings realized by school districts under this plan will depend on whether they are spending above or below adequacy according to the school funding formula. For districts spending above adequacy, such savings shall be used exclusively for reducing local property taxes.  The legislation does not restrict how the savings may be used by districts spending below adequacy. To track the level of savings, each school district must annually submit data sheets with health care cost information to the N.J. Department of Education, N.J. Department of the Treasury, and the Legislature.  

The Senate approved the legislation by a vote of 34-0 in March.  The bill passed by the Assembly largely mirrors that version of the bill, with three key changes: 

  • Delaying implementation until January 1, 2021.  Under the version passed by the Senate, the NJEHP would have had to be made available by July of this year; 
  • Requiring the production of the actuarial report verifying that at least $300 million in employer savings have been realized, and directing the SEHBP Plan Design Committee or state treasurer to take action if those savings are not achieved; and
  • If the employer share of health care costs under existing collective bargaining agreements is lower compared to what they would be under the NJEHP, then a board of education and its local association would be required to engage in negotiations over the impact of the difference. 

Throughout legislative deliberations, the NJSBA indicated its overall support for the proposal’s intent, which is to generate significant financial savings for school districts, employees and taxpayers. If it works as intended, the plan will provide boards of education with much-needed relief from the high cost of providing employees with quality health coverageThe Association also offered several improvements to the bill that would make it more valuable for all districts. The NJSBA’s guiding principle was to advocate for all of our member districts and ensure that each one enjoy the legislation’s anticipated benefits. A copy of the NJSBA official position statement can be found here.  

Anti-Subcontracting and Job Protection Bills Also Passed 

In other action, two long-time union legislative priorities advanced in the Legislature.  

S-2303/A-4140 concerns subcontracting agreements entered into by public school districts, county colleges and the state’s public institutions of higher education. Following Assembly passage of the bill on Monday, it was returned to the Senate, which will need to concur with amendments made in the Assembly before the legislation is sent to the governor. The Senate originally approved the measure in March. 

NJSBA led a coalition of education, government and business organizations that opposed the bill. 

The legislation places the following conditions and requirements on any school district considering the subcontracting of non-instructional services, such as food services, pupil transportation, and maintenance, as well as certain instruction-related services:

  • Makes the employer’s decision to subcontract a mandatory subject of negotiations; 
  • Prohibits subcontracting during the term that a collective bargaining agreement is in effect; 
  • Requires the employer to provide written notice to any union that may be impacted by the decision to subcontract at least 90 days prior to soliciting bids for a subcontracting agreement; 
  • Provides the union the right to meet and consult with the board of education to discuss the decision to subcontract and the opportunity to engage in negotiations over the impact of subcontracting; and 
  • Grants any employee replaced or displaced by the subcontracting agreement any previously acquired seniority and recall rights whenever the subcontracting ends. 

NJSBA believes the decision to subcontract a service should remain a prerogative of local boards of education so that they efficiently manage resources and, if necessary, quickly respond to fiscal emergency.  

A copy of NJSBA’s testimony on the bill can be found here.  

In addition to NJSBA, the coalition that opposed the legislation included the Garden State Coalition of Schools, the N.J. Council of County Vocational-Technical Schools, the N.J. Association of School Administrators, the N.J. Association of School Business Officials, the N.J. Business and Industry Association, the Chamber of Commerce of Southern New Jersey, the N.J. State Chamber of Commerce, the N.J. State League of Municipalities, the N.J. Association of Counties, and the N.J. Council of County Colleges. A joint letter sent by those organizations to the General Assembly can be accessed here.  

The second bill, S-993/A-631which would establish tenure-like protection for school district support staff, received final legislation approval on Monday. 

The legislation would subject a board of education’s personnel decisions to challenges through binding arbitration.  If enacted, it would grant a non-teaching staff member the right to submit to binding arbitration virtually any disciplinary action taken by a board of education against the individual.  The bill includes an expansive definition of disciplinary action that includes reprimands, withholding of increments, terminations or non-renewals, expiration or lapse of employment, or lack of continuation of employment.  In addition, it permits the employee to submit to binding arbitration any dispute regarding a disciplinary action regardless of the reason behind the employer’s action. 

The NJSBA strongly opposed the legislation, citing its negative impact on effective management of employee performance, school district operations and a board’s ability to meeting changing educational needs. The Association also expressed a concern about potential litigation resulting from the new structure and the resulting impact on district resources. 

NJSBA’s position statement in opposition to S-993/A-631 can be found here.