Actuaries a Footnote in NJ Benefits Study

The “Non-Partisan Study Commission Asked To Think Big And Be Bold” according to their website boldly came out with their Supplemental Report on Health Benefits the day after it would make no difference to anyone not running for president.

Two of the original Commission members did not sign off on this report:

• Carl Hess, Managing Director of The Americas for Towers Watson and former Managing Director of Towers Watson Investment business
• Margaret Berger, Mercer, consulting actuary and Principal for the Retirement Practice of a global consulting leader in talent, health, retirement, and investments, with specific expertise in defined benefit plans, nonqualified plans and retiree medical and life insurance plans

And the only two other actuaries had nothing to do with this report according to End Note 1 on page 25:

 1 Commission Members Ethan Kra and Lawrence Sher are pension actuaries serving on the Commission as concerned citizens. They were not involved in preparing and are not responsible as actuaries for the health benefits-related cost projections set forth in this Report.

Based on the numbers included in the report and this disclaimer what these actuaries seem most concerned about is lawsuits.

From what I could make of the changes it seems as if for 2016 the State cost of health benefits would drop from $3.53 to $2.37 billion dollars by changing colors on the insurance plan and then down to $1.45 by having localities pay for the teacher part.  These savings would then go into the pension system to pay off the underfunding. How the new color scheme creates all these savings (which would also be extended to the health benefit costs of localities) is never explained in detail (ie. will the insurance people backing politicians throughout the state be taking a hit?) which leads me to believe that a random number generator could have been used (something that ASOPs are not currently endorsing).

Notable excerpts from this new report follow:

These are not new issues.  The Commission considered them a year ago when, reluctantly, it concluded full funding of all the benefits claimed under the current pension plans was no longer within the State’s means.  This is not only because of the dollar amount of funding required, but also because a State budget so burdened by employee benefits would not be able to weather a recession or permit the State to do what is necessary to promote the general welfare of its citizens.  Nothing has occurred since our 2015 Report to change this conclusion.  Instead, a year of inaction has simply made the problem worse.  (page ii)

It is possible, with modest impact to subscribers, to reallocate to pension funding over $2 billion a year currently spent by the State on employee and retiree health benefits. (page 5)

The 2016 average total cost for family health benefits coverage for a State employee has been estimated to be $30,322. “Actuarial value” is the percentage of average total cost covered by the policy. A bronze level plan under the ACA with an actuarial value of 60% would cover 60% of average total costs. State employees are covered by policies with an average actuarial value of 96%, meaning the policies cover 96% of estimated total costs which, for family coverage in 2016, is $29,109. (pages 5-6)

The total health benefits costs for New Jersey public employees for plan year (PY) 2016 are expected to be ~$ 11.8 billion, of which ~$3.7 billion would be spent by the State and ~$8.1 billion by local governments. (page 9)

Just as the proposed reforms would result in over a 30% reduction in the State’s average cost to provide coverage to active employees, employees would see the same reduction in their premium contributions. (page 12)

To make the most efficient use of available resources and take full advantage of opportunities to access federal funds, the Commission proposes that early retirees receive coverage through a private exchange. The State would provide funding through a RRA. (page 14)

Similar to the approach proposed for early retirees, coverage for Medicare-eligible retirees would be provided through a private exchange with Medicare retirees receiving funding through an RRA and having the option to purchase more extensive coverage at additional cost. (page 15)

Our 2015 Report concluded the State cannot continue to fund all of what has become a $4.6 billion annual obligation for teachers’ pension and health benefits. As shown in Exhibit 12, this results in the State funding health benefits for over 150,000 retirees who do not make premium contributions, compared to only 93,000 employees who do. No other public employer in the State has this kind of an upside-down contribution ratio. (page 17)

All that is necessary for the shift to work is for the school districts and municipalities to implement the necessary health benefit reforms. (page 18)

New Jersey has 565 municipalities and ∼600 school districts. Despite this diversity, the data suggests the proposed shift would be cost-neutral absent extraordinary circumstances in a particular community. Moreover, if such extraordinary circumstances do exist in a community, under the Commission’s proposal, the State would be limited to shifting only those expenses which could be offset by local savings, with the State retaining responsibility for any excess. (page 24)

The Supreme Court of New Jersey has never held that the existing “non-forfeitable rights” statute is constitutional, or that it grants such broad and absolute protection to benefits, particularly to benefits not yet earned. The sole purpose of section b of the proposed amendment is to concede this point to public employees prior to judicial resolution and take away any right the State might have to adjust pension benefits for employees hired before mid-2010. (page 25 End Note 6)

Only seven states, Alaska, Arizona, Hawaii, Illinois, Louisiana, Michigan and New York, extend constitutional protection to pension benefits. (page 27 End Note 18)

Contrary to the mandate of Chapter 78, some employers also may not be collecting required employee premium contributions. (page 36 End Note 81)

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Summing it up, an njspolight story inlcudes this telling quote:

Reached later in the day, officials from the New Jersey League of Municipalities, which released its own study of the commission’s initial findings last year, praised the panel for keeping lines of communication open. But they said more data is needed before a full evaluation can be conducted.

“We have been for some time trying to get the data that shows how those savings are generated,” said Michael Darcy, the organization’s executive director.

Without data actuaries can be no more than a footnote in this process.

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Finally for those of you who have read this far there is a good chance you are an actuary.  Without knowing exactly what went on with the commission I am conflicted as to whether the actuaries on the commission acted honorably by distancing themselves (to varying degrees) from this new study.  Please take the poll: