NJ government workers’ health plan enters ‘death spiral’

New Jersey’s health benefits plan for local public workers, harried by years of sharp premium increases and a dwindling subscriber pool, has become “structurally unstable” and “financially unsustainable,” the Treasury said in a report released Tuesday.

The purely informational report is the latest in a series of dire warnings, now outright alarms, over the future of the public worker health plan, which has faced an exodus of municipalities amid repeated double-digit premium hikes approved in recent years.

“The plan’s very high actuarial values, a depleted and now insolvent cash management margin reserve … and a static governance structure have created a self-reinforcing loop of premium increases and employer exits — what actuaries commonly refer to as a ‘death spiral,’” the report says.

Health insurance plans function by diluting risk, using healthy subscribers’ premiums to underwrite medical care for sicker members. But as premiums under the local part of the State Health Benefits Program rose, towns and cities with younger, healthier workers fled to private options.

As a result, risk and premiums continued their climb, and municipalities continued their departures. The number of local governments participating in the plan fell from 768 in 2021 to 689 at the end of March.

In January, only 56.2 percent of local governments were participating in the program, and the municipalities that return to the plan after facing higher premiums under private options could push costs up further as higher risk workers return to the public pool, driving up overall risk and costs.

Rising prescription drug usage — especially around new and trendy weight-loss drugs — plus the growing use of high-cost services and inflation have contributed to the plan’s rising costs, the report said.

The state’s actuary has said premiums for the local government part of the program would need to rise by 19.5 percent to stabilize its reserve fund, on top of separate hikes to account for increased prescription and medical benefit usage.

A law signed last November to keep local government workers’ plan solvent by lending from state workers’ plan could bring the floor for premium increases up even higher. The local part of the State Health Benefits Program owes state workers’ plan roughly $120 million, and it won’t have the money to repay that debt without a mid-year premium hike. By law, those loans must be repaid within 365 days of being taken.

“There could be a 26.5 percent ‘floor’ to 2026 premium increases … in addition to the ‘regular’ medical and prescription drug trend rates,” says the report, adding increases to rebuild the plan’s reserves could be phased in over multiple years.

Cumulative increases from 2026 through 2029 are expected to “significantly exceed” 60 percent, according to the report. Those would add to the 59 percent cumulative increase it saw between 2022 and 2025.

“Without meaningful intervention, current trends in enrollment, utilization, and health care cost inflation will continue to drive unsustainable premium increases,” the report says. “The situation is not one of temporary imbalance — it reflects deep-seated structural challenges that, if unaddressed, will further destabilize the plan.”

Because state workers cannot leave their public health plan, the state part of the State Health Benefits Program remains stable, but it will still require premium increases to meet rising costs, the report says.

Plan design changes could partly defray rising costs but “even the most aggressive plan design changes will likely not be enough to reverse the systemic unraveling now underway” and broader changes are needed to stabilize the public health benefit programs, the report said.

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