As West Windsor and other towns begin employee contract negotiations once again, one issue that perennially rises to the forefront is the cost of employee benefits. Council member Bryan Maher raised the issue at a recent meeting, asking: “Why are we paying health care, vision, and other benefits for former employees who no longer work or live here? These contracts are problematic — this is where your tax dollars are going. The employees’ pay is reasonable, but their benefits are out of control. We are currently negotiating contracts. We need to reduce benefits, especially for former employees, for future contracts.”
Mayor Shing-Fu Hsueh, council president George Borek, and council member Linda Geevers agreed with Maher that these costs need to be looked at closely when reviewing the five contracts up for renewal. (WW-P News, April 26).
One source of potential information about reducing employee benefits costs is a study of Mercer County townships’ employee health benefits programs recently completed by the Citizens Campaign, a non-profit organization based in Metuchen. The study, funded in part by the Sandra Starr Foundation, has identified local government insurance purchasing, particularly the purchase of health insurance, as a major opportunity for municipalities to save tax dollars.
According to researcher Heather Taylor, “The Citizens Campaign estimates that by adopting specific procedures that ensure an open and competitive process for the selection of health insurers and brokers — with a requirement that a price be solicited from the State Health Benefits Plan — New Jersey municipalities, school boards, and county governments could save more than $200 million each year.”
Explained Taylor: “We are not necessarily advocating that all towns use the state health benefits plan. We are advocating that all towns use a fair, open, competitive bidding process, and consider the state plan as one of the possible alternatives.”
According to the Citizens Campaign, Hamilton, Robbinsville, West Windsor, and Hopewell do not use the state health benefits plan. The remaining eight municipalities in Mercer County do, as does Plainsboro.
West Windsor purchases health insurance from Horizon Blue Cross/Blue Shield of New Jersey through its broker, Eric B. Labaska of Frenkel Benefits. Labaska is paid a flat fee of no more than $45,000 annually for health care insurance consulting. Said Taylor: “West Windsor follows many of the best practices that we recommend, so the fact that they do not use the state health benefits system does not necessarily mean that they are not saving money.”
West Windsor Township CFO Joanne Louth confirmed that West Windsor has chosen to use private insurance for a variety of reasons. “By having our own plan, we can price it out every year and can find that plan that is best for us financially based on our experience as an employer. If we used the state plan, there is no control over what price they will charge. It is true that for communities that do switch, there is a cost reduction in the beginning. But the annual renewals, beyond the introductory price, are subject to state-mandated pricing, and we do not want to be bound by that.”
Louth noted that the types of benefit plans offered to township employees is dictated to a certain degree by the bargaining units’ contracts. “Any changes to employee plans have to be negotiated. Having said that, by using our own plan, we have leverage to change plans. If we find a cheaper plan that offers the same level of benefits, we would be able to change plans. Under the state plan, we would not have that leverage. So in the end we have found that it is more financially prudent all in all to use our own insurance.”
“For example, based on the plan we have, the [recently approved] 2013 budget saw a $115,000 savings in benefits, which was the largest line-item reduction this year. Part of this is due to the change in the law. As of 2011 state employees are mandated to pay a portion of their health care benefits,” said Louth.
All five of the township’s employee contracts expired on December 31, 2012, and all are being re-negotiated. The expired contracts remain in force until new ones are negotiated and approved. “Each of the contracts has different provisions for employee benefits, and of course some employees have different benefits based on when they were hired. But all employee benefits packages are being negotiated, and benefits for future retirees are being negotiated as well,” Louth said.
Plainsboro, in Middlesex County, was not included in the Citizens Campaign study. Like many of the towns in Mercer County, Plainsboro has opted to switch to the state employee benefits plan.
Said Plainsboro Township administrator Robert Sheehan: “Each community has a different starting point when making this kind of decision. Health benefits are a difficult cost to contain, especially because it is subject to collective bargaining.”
“For the past nine to ten years, since I became township administrator, we have been focusing on ways to reduce health benefits costs. We were self-insured for a while, then we switched to Aetna. We always employed open, competitive, transparent business practices in choosing our insurance plans.”
In 2011, when the state passed the law mandating that employees pay a portion of their premiums, the employees and the township became partners in trying to contain costs while providing reasonable benefits,” Sheehan said.
“We switched to the state health benefits plan two years ago, and in those two years we have saved approximately $420,000 — $225,000 in 2011-’12 and $195,000 in 2012-’13, which works out to be a one penny decrease on the tax rate. For Plainsboro, which struggles to keep tax rates stable, this is a huge savings. Plus, we work directly with the state; we have no insurance agent, which is an additional savings. The switch was not only cost-effective, but satisfactory to the employees as well.”
Sheehan agrees that there is a concern that the state may raise its prices, thereby negating any cost savings. “We share a concern about an increase in the cost of the state health benefits program. However, we will continue to monitor the costs between state and private insurance. As long as we provide ‘substantially similar’ benefits to our employees, I can make a switch at any time to another insurance plan. But the financial advantages were so profound over the past two years, it was worth it to make the switch.”
All township employees are enrolled in the state health benefits system, including retirees. “We all use the same program, which helps keep the cost of retiree benefits down as well.”
