You might've heard that New Jersey's State Health Benefits Program (SHBP) and School Employee Health Benefits Program (SEHBP) are in a death spiral. These are health insurance plans offered to state workers and local governments, including school districts; your district's teachers are likely on SEHBP. For those not in the know, a health insurance plan is in death spiral when healthier people start exiting, which makes the remaining pool riskier, which drives up premiums, which compels more healthy people to leave. So it goes.
You should care about the SHBP/SEHBP because it affects your property taxes. Your municipality or school district might have SHBP for their workers. When premiums spike, so probably will your taxes. (One year my borough's council justified a big hike this way.) When a local government can't take the spikes anymore, and they think they can get a better deal in the private market, they leave SHBP, which drives up taxes for everyone else.
You might think, so just let SHBP/SEHBP die. A kind sentiment, but what if there was a way to slow your tax growth by saving SHBP? If the State can offer local governments a plan that's cheaper than, or at least competitive with, private alternatives, that would tame our rising costs.
This issue is especially salient as NJ reconsiders how it funds education. Some districts argue that the funding formula doesn't fully consider the rapidly rising cost of teacher health insurance. If true, the formula needs changing, but we can help it out by slowing those insurance costs.
The fix
After months of delays, a state commission just voted to raise SHBP premiums. They didn't really have a choice. The commission lacks any power to fix SHBP/SEHBP, power that only the state legislature and governor have. Left unchanged, SHBP/SEHBP would simply become insolvent without premium hikes.
So what will fix SHBP/SEHBP? Reference-based pricing (RBP): Cap SHBP/SEHBP reimbursements to providers at 200% of what Medicare pays, for both in-network and out-of-network services. Montana, Oregon, Indiana, Washington, Colorado, and Vermont already use full RBP for their state health plans, and others like California use it in a more limited way. The Century Foundation summarizes how it went in some of these states. Consider Oregon:
Over 2020 and 2021, the state limited cost growth in OEBB and PEBB plans to less than 2 percent, while Oregon’s commercial insurance spending over the same period grew by 6 to 8 percent.
That is, Oregon's state health plan premiums grew slower than private plans. If something similar happens in NJ, then the death spiral would not only halt, but reverse into a virtuous cycle: local governments would hop back onto state plans, diversify its risk pool, and keep premiums even lower.
Impact
We even have independent estimates of how RBP would affect NJ. The Center for Advancing Health Policy through Research (CAHPR) at Brown University's School of Public Health published a study last year, finding that a 200% cap would save the SHBP "$433.3 million annually across 61 hospitals in New Jersey". They conclude that the impact on profit margins would not bankrupt our hospitals: "Overall operating margins are expected to average 8.1% (down from 9.3%)."
Only 2 of NJ's 61 hospitals would get negative margins from the cap: Newton Medical Center at -0.2% and Robert Wood Johnson's Hamilton campus at -1.2%. They can probably stay afloat by becoming slightly efficient. Other hospitals in this list somehow already operate at much more negative margins, perhaps with public subsidy.
It's best to tie SHBP/SEHBP prices to Medicare prices because Medicare has a lot of bargaining power, and thus gets good prices. Medicare designs its prices to fully cover the costs of an efficiently-run hospital. If NJ offers double that to its hospitals, and they cry foul (which they will), then you can guess what they aren't.
Rather, hospitals will direct all of their lobbying resources against RBP because they have a lot of market power to juice prices for health insurance plans other than Medicare and Medicaid, and they want to maintain that power.
What to do about it
There is a proposed bill in NJ's State Senate, S2995, that would make our state's health plan commissions study and implement RBP within a year of passage. It's currently stuck in committee, has no co-sponsors, and lacks a counterpart bill in the General Assembly. That's all to say, this bill isn't being seriously considered by our leaders. This despite Governor Mikie Sherrill's transition team calling for RBP and citing the Brown study.
Here's what we might want to do:
If any of your state legislators sit on the State Senate Health, Human Services, and Senior Citizens committee, where S2995 is currently stuck, tell them to put it up for a vote, and to vote yes.
Regardless of where you live, contact your state legislators, tell them about S2995, and say you want reference-based pricing for the state's health plans.
Alternatives
I'm still researching what else we could do to save SHBP/SEHBP. I hear arguments that RBP might not be the most efficient or elegant solution, the second-best option at best. I might agree, but RBP was proposed by a labor union that's currently at the negotiating table, and the governor at least signaled support for it in the past. Thus, I believe RBP is actually possible, and I'm willing to accept a second-best solution in a world that's second-best at best.
Going further
Perhaps issues affecting state health plans are still too abstract and far-removed from your everyday concerns. But the Brown study mentions how reference-based pricing could directly benefit you, even if you're on employer-sponsored health insurance:
And two other states, Indiana and Vermont, have gone even further—establishing reference-based price caps on the amount that hospitals can receive from any payer, including state employee health plans.
If I'm understanding correctly, this means Indiana and Vermont control health care costs for everyone. I'll look into this more.