Temperature still rising over N.J. health costs

Portions of this story were omitted from Sunday's edition. It is being rerun in its entirety.

TRENTON - New Jersey pays 2 1/2 times more for current and former public workers' health benefits than it did a decade ago.

And the $2.5 billion-plus cost, about 9 percent of the state budget, is expected to keep growing.

How to rein in health costs will be one of the biggest debates at the Statehouse in coming months, as Gov. Christie promises to double property-tax relief for seniors and middle-class homeowners only if lawmakers vote to have government workers pay more for their benefits.

In a move that has riled public-sector unions, Christie has proposed that government workers pay for 30 percent of their insurance premiums, nearly four times what he says is the average contribution now. Senate President Stephen Sweeney (D., Gloucester) wants employees to chip in between 12 and 30 percent, depending on their salaries.

Every New Jersey resident has a stake in the outcome because health-benefit costs, if unchecked, will continue eating up a greater portion of the budget and possibly lead to cuts in services or higher taxes to pay for them.

The Garden State owes nearly $67 billion in health benefits to former government employees and current public workers who are in the pipeline to retire. A study by the Pew Center on the States found that New Jersey has the highest unfunded liability for retiree health costs of any state.

The state has promised health insurance to almost 420,000 active state and local employees and about 196,000 retired workers and spouses. Public employees are eligible to continue medical insurance into retirement if they have 25 years of service.

But New Jersey is one of about 20 states that haven't saved any money for those benefits, instead operating on a "pay as you go" system.

It wasn't always this way.

In the late 1980s, New Jersey began "prefunding" retiree health benefits in a special account, similar to the way it had been putting money into the pension fund.

"It was a good fiscal practice," said Richard Keever, who was budget director at the time, under Govs. Thomas Kean and Jim Florio.

But that system ended after Christie Whitman became governor in 1994 and cut payments to the pension and health-care funds to balance the budget while cutting taxes.

"Rather than cut another program or raise taxes, [state officials] said, 'Ha, there's some money sitting there. We'll just latch on to it,' " said Keever.

The scope of the liabilities gained attention only in recent years after new accounting standards forced governments to make greater public disclosures.

After that shortfall was revealed, an actuary in 2007 made a recommendation that the state did not adopt: Create a retiree health fund that would save money in the long run by generating investment income.

Switching to that method would require spending more money up front but smooth out the problem of the large number of baby boomers on the cusp of retiring, said Kil Huh, director of research at the Pew Center on the States.

"You might find it manageable on a pay-as-you-go basis now, but a lot of states face a demographic bubble, and the cost for retiree health care is going to grow exponentially," said Huh. "It'll grow because the cost of health care is rising, but at the same time more people are going to be retiring."

The cost of providing health benefits to government retirees during the last decade in New Jersey more than quadrupled in the state budget, from $304.6 million to $1.3 billion, while expenses for active employees doubled.

But there is no talk of moving away from the pay-as-you-go system, Department of Treasury spokesman Bill Quinn said.

Instead, political leaders are seeking greater contributions from current employees to get a handle on costs.

Christie's plan would exempt current retirees from paying more for benefits, but he is calling for active workers to continue paying the proposed 30 percent contribution once they retire.

Thousands of union members rallied Friday at the Statehouse in solidarity with public employees in Wisconsin. An uproar in that state has followed Gov. Scott Walker's proposal to scale back collective bargaining for government workers, and some New Jersey union workers fear Christie is going too far in trying to reduce their benefits.

"The problem with health benefits is the same as with pensions: The current plan is not sustainable, and our employees do not contribute enough," Christie, a Republican, told the Democratic-controlled Legislature in his budget address last week.

Contracts that took effect in 2007 - set to expire in four months - required most state employees to pay a minimum of 1.5 percent of their salaries for health benefits and increased their co-pays.

A law passed last year, within months of Christie's taking office, expanded that mandate to teachers and other local government employees.

Christie says the typical public employee pays 8 percent of his or her health-care costs.

By comparison, the U.S. Office of Personnel Management says, the typical federal employee pays 30 percent - about the same as the average percentage paid for family coverage by private-sector workers, according to one national survey.

But what Christie is proposing would reduce the take-home pay of teachers by more than $5,000 a year, even as they are paid less than private-sector employees with comparable education, according to the largest state teachers union.

"The things the governor is trying to impose would essentially permanently halt public employees from ever recovering from this economic downturn when everybody else does," said Steve Baker, spokesman for the New Jersey Education Association.

There appears to be some public support for such changes. In a Monmouth University/Gannett New Jersey Press Media poll in the fall, half the respondents said government workers should pay about 25 percent or more of their health-care premiums.

Experts warn that the state's pension fund is also headed toward insolvency if no further changes are enacted, and Christie is pushing for all public workers to put 8.5 percent of their salaries toward retirement pay, among other changes.

In all, New Jersey faces more than $120 billion in unfunded liabilities for retiree pension and health benefits.

"Is the problem real? Yes, the problem is real," said Keever, who supports Christie's proposals. "Is the problem growing? Yes, the problem's growing. The state has to address it."