Proposal for moratorium on N.J. state insurance pool draws fire

Posted: March 21, 2011

A proposal to alter health-care benefits in New Jersey is under fire for a provision that some experts say would push government workers out of the state insurance pool and into plans with private carriers.

The bill introduced by Senate President Stephen Sweeney (D., Gloucester) last month would put a moratorium on new membership in the State Health Benefits Program, a statewide insurance pool that provides coverage to workers in more than 1,000 towns, school districts, and government authorities.

Traditionally, public employers have gone in and out of the state plan depending on whether they can get a better deal in the open market. But with the state plan closed, towns and school districts would be forced to negotiate with private insurance brokers and carriers without the pool to fall back on.

The insurance industry "stands to benefit from this," said Joel Cantor, director of the Rutgers University Center for State Health Policy. "The state plan is extremely efficient relative to the private sector. It avoids broker commissions, and it has a lower cost of capital."

As health-care costs soar around the country, New Jersey's government is debating how to provide coverage for workers while keeping spending in line, with cost-cutting officials like Sweeney and Gov. Christie on one side and public-employee unions on the other.

Not surprisingly, Sweeney's bill, which also would raise health-care contributions for workers, has proved hugely unpopular with the unions. They have latched onto the moratorium provision, calling it evidence of a political push to benefit the state's insurance industry.

"The other side looks like it's enriching the brokers, who do a pretty good business anyhow," said Dudley Burdge, a senior staffer with the Communications Workers of America who serves on the State Health Benefits Commission.

Sweeney maintains that the moratorium will help stabilize the state pool, which has run drastic deficits in recent years. In 2009, the program's reserves fell 30 percent after claims exceeded fees paid by $216.7 million. Last year, reserves dropped $30 million more.

Asked whether the program should have a long-term future providing health insurance to towns and school districts, Sweeney said, "I'm not sure."

"I have a problem with them spending state money to keep the rates artificially low. And until we can fix that, you put a moratorium on it," he said.

He said he would like to see more health-insurance options presented to employees in the state pool, a move Christie supports. But when the governor announced his health-care proposal in September, he made no mention of a moratorium.

The Governor's Office said it was in agreement with most of Sweeney's bill but would not comment further.

The vast network of carriers and brokers who do significant business in New Jersey's public sector, including Aetna, Blue Cross Blue Shield, Willis Group, and Brown & Brown, stand to expand their client bases if the legislation passes, according to experts.

Many of the companies and their executives are major political donors; according to the New Jersey Public Interest Research Group, the insurance industry has donated more than $42 million to state political campaigns around the country since 2003.

But it's Conner Strong, the national insurance brokerage led by South Jersey political power broker George Norcross, that is drawing most of the unions' attention.

Norcross and Sweeney, who are longtime family friends, are close Democratic allies. And Conner Strong is a major player in New Jersey's public-sector insurance market, doing business with vast numbers of government entities in its South Jersey home base.

Conner Strong president and chief executive officer Michael Tiagwad wrote in an e-mail that the legislation was "immaterial to our total business portfolio."

Norcross declined to comment for this article.

In an e-mail about another provision in Sweeney's bill that was widely disseminated, Burdge wrote that it would add "even more costs for property taxpayers . . . [while] providing nice fees for health brokers and advisers like Conner Strong."

Sweeney called the insinuation that the bill was designed to benefit the insurance industry and Norcross a political tactic.

"The unions know they can't get anywhere with 'I can't pay any more money.' That argument was lost a long time ago," he said. "They're just trying to make this as ugly as possible."

Other insurance brokerages that operate in the New Jersey public sector would not comment for this article or did not respond to phone calls.

Jeanne Heisler, spokeswoman for the Independent Insurance Agents and Brokers of New Jersey, said she thought the moratorium's effect would be minimal.

"You'd see maybe some locals come out, but I'm not sure it would be a great number," she said. "If a town or a school board is in the private market already, they're probably not going to be clamoring to go into the State Health Benefits Program."

It's difficult to gauge exactly how much money the brokerages earn in the public sector. Their fees are sometimes paid by the carriers in complex and often undisclosed arrangements, said Harry Pozycki, chairman of the Citizens' Campaign, a nonprofit government watchdog in Metuchen. Those relationships were the subject of a civil suit in 2004 filed by then-New York state Attorney General Eliot Spitzer against a host of brokerages and carriers.

In cases where brokers are paid by the government directly, the state does not track which companies the entities do business with.

The State Health Benefits Program has been a political hot potato in New Jersey going back two decades, said Doug Forrester, a former gubernatorial candidate who served as state director of pensions and health care in the 1980s.

Originally set up to provide health care to state employees, the program was opened to local governments in 1971. But the amount those entities pay for coverage has often had more to with politics, namely keeping the public-employee unions happy, than with the actual cost of health care, said Forrester, who now works with companies to set up self-funded insurance programs.

The result has been massive fluctuations in the program's rates from year to year as it corrects for undercharging one year with a big rate increase the next. The funds' reserves, which provide a cushion when claims estimates are off, jumped by $150 million in 2008, only to fall by more than $200 million the next year.

"The whole purpose of these plans is to try to spread risk in an even and fair way," Forrester said. "Public entities have budgeting constraints that are pretty significant. If you have people bailing out because there's been a big increase, it affects everyone who's left even more."

But over the last three years, local-government enrollment in the program climbed by 15 percent, according to the state treasury. Bill Dressel, executive director of the New Jersey League of Municipalities, said many towns were finding that the rise in health-insurance costs was making the state plan more competitive.

"There was a period a little while back where the costs went up and people were bailing out," he said. "I have been hearing from mayors they're finding the state health-benefits plan is, comparatively speaking, affordable and providing a higher level of benefit."

But if Sweeney's bill passes as written, that option would close, though in an interview Friday the senator said the moratorium could be lifted in one or two years.

If the insurance pool does shut down to new entrants without freezing current membership, it would quickly begin a chain reaction that would result in its end, Forrester said.

"If you do something to severely damage the credibility of the fund, it will invite departures," he said. "You begin a death spiral; you start to lose the good risks, leaving only the bad risks."

Pozycki is already preparing for that scenario. Touring New Jersey towns and school districts, he is offering what amounts to a seminar on how to negotiate with insurance brokers.

His group advises tactics like requiring brokers to take a flat fee rather than a commission and getting brokers to sign agreements not to accept any payment from the insurance companies.

"The situation we're in now is where [the brokers] are working for the town and receive a commission from the carrier," Pozycki said. "The towns think the broker is their broker, that he has their interests at heart. And that's not always the case."

Contact staff writer James Osborne at 856-779-3876 or

Inquirer staff writer Maya Rao contributed to this article.

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