N.J. Audit Finds State Health Plan Cheaper for Towns

March 1, 2012

More than a third of New Jersey counties and towns are wasting millions of dollars on health insurance brokers and premiums when switching to the state’s plan would be cheaper, a new audit has found.

The report from the state Comptroller released Tuesday found the 14 counties and 217 municipalities not in the State Health Benefits Plan rely on pricy brokers or haven’t fully evaluated the costs and benefits of the state plan.

The report looked at four government units outside the state plan — Essex County and the townships of Brick, East Brunswick and Haddon — and found that they could have saved about $1,000 per employee per year, about $12.5 million collectively over two years, if employees were insured through the state plan. If all local governments made the switch from private carriers to the state plan, more than $100 million could be saved on taxpayers’ behalf, the audit estimated.

“Health coverage for public employees is an area in which substantial savings can be realized for taxpayers,” Comptroller Matthew Boxer said. “Too many public entities in New Jersey are not taking basic steps to ensure that they are getting the best deal.”

The broker for Essex County, the largest of the audited local governments, is Conner Strong & Buckelew. The broker’s executive chairman is Democratic power broker George Norcross III. The county, which is led by another powerful Democrat, Joe DiVincenzo, paid Conner Strong $756,450 in fees in 2009 and 2010, the two years covered by the audit, the report showed. The much smaller Brick and Haddon paid $264,051 and $57,050 respectively to different brokers during the same period, the audit showed. East Brunswick didn’t use a broker.

Broker fees are not incurred by counties and towns that participate in the state plan. One broker told the Comptroller’s office there was no incentive to promote the state plan as a health care option for its clients.

Conner Strong spokesman Joseph DiBella issued a statement Tuesday saying the company explores every option to bring clients insurance coverage at the lowest cost possible. He said the company’s recommendations to clients “are made regardless of any impact to our compensation.”

The state plan offers medical, prescription and dental coverage options to more than 850,000 participants, including employees, retirees and dependents. Seven of the state’s 21 counties and 349 (62 percent) of its 566 municipalities were in the state plan as of last April, according to information from the Department of Pension and Benefits. All of the plans have substantial networks of health care providers and provide services nationwide, generally with copays of $10 or $15.

In their responses to the audit, the government bodies said union contracts prevent them from switching to the state plan, which offers higher copays.

Boxer acknowledged that it might not be possible for a local government to join the state plan until current collective bargaining agreements expire.

Even then, wholesale change would be difficult to achieve, Essex County Administrator Ralph Ciallella said in his response to the audit. He said any changes to employee benefits would have to be negotiated individually with each of 26 collective bargaining units representing county employees. When the county tried to raise prescription drug copays, for example, he said law enforcement unions took the issue to arbitration and won.

One local governing body also expressed concern about the financial stability of the deeply indebted state plan.

Boxer said the most recent independent audit of the state plan showed all three funds exceeded their liabilities. He also noted that counties and towns could opt out if the plan’s solvency became an issue, or if future rate increases made the plan less cost-effective than private carriers.

All four of the audited government entities also failed in some way to comply with state contracting law when procuring health insurance services, the audit found. For example, Haddon Township failed to seek quotes from competing vendors when awarding the contract to administer its health plan, and Brick Township acknowledged having not passed a resolution authorizing the award of a contract for its health insurance coverage as required since 2002.

The Comptroller’s office also contacted four municipalities that recently switched from private insurance to the state plan. All four reported that their premiums decreased under the state plan. One township reported that it was able to hire seven additional police officers and avoid planned layoffs that would have been necessary had the township not made the switch.

The audited county and towns have 90 days to submit a remediation plan to the Comptroller to correct the deficiencies.

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