Local governments could save $100 million per year in state health plan, audit contends

Local governments around the state could save more than $100 million per year by joining the state operated healthcare plan, according to an audit released today by the state comptroller.

Comptroller Matthew Boxer studied four local governments – Essex County, Brick Township, East Brunswick Township and Haddon Township – and found that together the four could have saved $12.5 million over two years – about $1,000 per enrollee – by joining the state health plan.

In addition, the audit found only one of the four had evaluated the potential savings reaped by switching to the state plan and that evaluation was incomplete and incorrect.

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

According to the report, 14 of the state’s 21 counties and 217 of New Jersey’s 566 municipalities do not participate in the health plan.  If all of those governments opted into the plan, the savings would amount to $100 million per year.

The savings in Essex County, the largest of the four entities looked at by Boxer, would have seen the greatest savings over the two-year period at $9.5 million.  Boxer found that each of the four incurred broker fees when participating in private insurance plans that amounted to more than $1 million.

“Further, since the broker’s profit often is directly related to the amount of insurance premiums or fees the (local government) pays, there are conflicting incentives for brokers in seeking lower cost healthcare alternatives for (local governments) they represent. One broker we interviewed admitted that the broker has no incentive to promote SHBP as a healthcare option for its clients,” Boxer wrote in the report.

Essex County alone paid more than $750,000 to its broker, which a spokesman for the Comptroller confirmed is Connor Strong, the brokerage firm operated by South Jersey political power player George Norcross.

Last year, Senate President Steve Sweeney, an ally of Norcross, introduced legislation as part of the pension and benefits reform package he spearheaded that would have put a moratorium on new entrants into the state system.  At the time, critics slammed the measure as a way to funnel more insurance business to private brokers such as Norcross.

Sweeney argued that the state system was in financial distress and said the moratorium would allow the system to stabilize.

The report issued today disputes that notion.

“One (local government) also expressed concern with the financial stability of (the state plan).  DPB stands behind the stability of the plan, and as discussed in this report the State recently has taken steps to enhance its stability. Further, the most recent independent audit of (the state plan) for the period ending June 30, 2011 indicated the assets of all three (state plan) funds exceeded their liabilities. To the extent there is a concern about future (state plan) rate increases resulting from any such financial issues, we note that (local governments) can choose to opt out of (the state plan) in the future if an alternate plan becomes more favorable at that time. In the meantime, local taxpayers are losing an opportunity for savings.”

Other findings included in the audit include a pay to play violation by Brick Township.  According to the report, the city awarded an insurance contract after  an administrator of a private plan made donations to both the mayor and council members.

Brick officials counter that the brokerage fee was paid by the administrator so the donations do not violate pay to play laws.  Boxer has referred the matter to the state Election Law Enforcement Commission.

Local governments could save $100 million per year in state health plan, audit contends