SENATE BUDGET AND APPROPRIATIONS COMMITTEE

STATEMENT TO

[First Reprint]

SENATE, No. 627

with Senate committee amendments

STATE OF NEW JERSEY

DATED: FEBRUARY 22, 1996

      The Senate Budget and Appropriations Committee reports favorably Senate Bill No. 627 (1R) of 1996 with committee amendments.

      Senate Bill No. 627 (1R), as amended, makes various changes regarding the payment of the premium or periodic charges for the State Health Benefits Program (SHBP).

      Currently, the State as an employer bears the complete cost of SHBP benefits for active State employees and their dependents. The purpose of this bill is to permit the determination of the obligations of the State concerning the payment of the premium or periodic charges for SHBP coverage through binding collective negotiations agreements. This bill will apply to any agreement in force at the time of enactment.

        For State employees who have no majority representative for collective negotiations purposes, the State Health Benefits Commission may, in its sole discretion, modify the respective statutory payment obligations of the State and its employees in a manner consistent with the terms of any collective negotiations agreement binding on the State.

      The bill also provides that if a husband and wife are both eligible for SHBP coverage as employees:

      (a) each may elect coverage for himself or herself as an employee and for their qualified dependents, including the spouse, under the traditional plan or NJ Plus, but only one may elect coverage for himself or herself and for their qualified dependents, including the spouse, in a participating HMO; and

      (b) each may elect single coverage in any participating HMO, provided that he or she is not covered under that HMO as a dependent of his or her spouse.

      The bill allows the State to establish a cafeteria plan for its employees pursuant to section 125 of the Internal Revenue Code to provide for a reduction in an employee's salary in exchange for payment by the employer of any required employee contribution for SHBP coverage, medical or dental expenses not covered by SHBP, or dependent care expenses. The amount of any reduction in an employee's salary for the purpose of contributing to the plan will continue to be treated as regular compensation for all other purposes, including the calculation of pension contributions and the amount of any retirement allowance; however, to the extent permitted by the Internal Revenue Code, the amount of any reduction will not be included in the computation of federal taxes withheld from the employee's salary.

      An active employee over age 65 currently must enroll in Medicare Part B; the State or local employer reimburses the employee for the Medicare Part B premium payments. The bill eliminates the enrollment requirement and terminates the requirement that the State or local employer reimburse active employees for Medicare Part B premium payments.

      The bill clarifies the premiums to be paid by the State and employees for health benefits in retirement for State employees with 25 or more years of service credit in a State-administered retirement system. The bill provides that:

      (1) for each State employee who accrues 25 years of service credit in a State-administered retirement system or retires on disability before July 1, 1997, the State will pay the full cost of the premium or periodic charges for the health benefits provided to a retired State employee and dependents covered under the State Health Benefits Program, but not including survivors, and will also reimburse the retired employee for premium charges under Part B of Medicare covering the retired employee and the employee's spouse; and

      (2) for each State employee who accrues 25 years of service credit in a State-administered retirement system or retires on disability on or after July 1, 1997, the State will pay the premium or periodic charges for the health benefits provided to a retired State employee and dependents covered under the State Health Benefits Program, but not including survivors, and will reimburse the retired employee for premium charges under Part B of Medicare covering the retired employee and the employee's spouse: (a) in accordance with the provisions, if any, concerning health benefits coverage in retirement which are in the collective negotiations agreement applicable to the employee at the time of the employee's accrual of 25 years of service credit in the retirement system, or (b) if the employee has no majority representative for collective negotiations purposes, in a manner consistent with the terms, if any, concerning health benefits coverage in retirement which are in any collective negotiations agreement deemed applicable by the State Health Benefits Commission to that employee at the time of the employee's accrual of 25 years of service credit in the retirement system.

      Taking into consideration the collective bargaining agreements for the three unions representing State employees that have concluded negotiations at this time, this bill, if enacted, would implement premium sharing, eliminate "dual coverage in HMOs," establish a cafeteria plan for State employees, eliminate the reimbursement of Medicare Part B for active employees, and require certain employees to pay part of the cost of post-retirement medical benefits.

COMMITTEE AMENDMENTS

      The committee amended the bill, on the motion of the Chairman, to delete in section 2 of the bill the two members added to the State Health Benefits Commission by the Senate Management, Investment and Financial Institutions Committee, and to delete section 7 of the bill concerning health benefits terms for State employees who reside in certain rural areas.

FISCAL IMPACT

      The Governor’s FY 1997 Budget in Brief estimates that premium sharing for traditional coverage and the elimination of dual coverage will save an estimated $15.8 in State-employer contributions to the SHBP; the savings depend in part on the specifics of negotiated contracts. The Governor’s proposed FY 1997 budget assumes savings of $1 million in State payments of federal employment taxes on amounts deferred under cafeteria plans. Removing the requirement that employees over age 65 enroll in Medicare Part B is estimated to reduce State reimbursements for such coverage by $1.9 million in FY 1997.

      It is noted that there are multiple unions representing State employees. These unions negotiate collective bargaining agreements for their members and these agreements may contain different terms and may be of varying duration. In addition, the bill leaves many of the specific details of implementation to the discretion of the State Health Benefits Commission.