OPINION
After weeks of tense negotiations, Gov. Phil Murphy’s administration and public-sector unions announced what they’re calling a “compromise” to avoid massive health benefit contribution hikes. Don’t be fooled. This deal does not reduce the cost of health care. It shifts the cost—from the State onto public workers.
You’ll hear plenty about “deductible adjustments” and “copay realignments.” But let’s be honest: that’s not reform. That’s moving money around on a spreadsheet while hospital monopolies, pharmacy benefit managers (PBM), and insurance administrators keep raking in record revenue. For the 300,000 public workers, retirees, and families covered by the State Health Benefits Program (SHBP), this means paying more out of pocket for the same broken system. And taxpayers shouldn’t feel smug watching from the sidelines. When the SHBP and its sister program for school employees spend billions without controlling underlying costs, it’s local governments and property taxpayers who pick up the tab.
Here’s what makes this deal so infuriating. The Murphy administration has known for years what it takes to control health care costs. First in 2018, then again in 2021—Murphy paid McKinsey over a million bucks to study the problem and write detailed reports. Those reports didn’t mince words. They urged New Jersey to use its size and leverage as one of the largest health care purchasers in the state to drive real reform: build custom formularies to shut down PBM profiteering, launch Centers of Excellence to buy better outcomes at lower prices, confront runaway hospital charges with direct contracting or reference-based pricing, and restructure administrator contracts to force accountability. The message was consistent: stop protecting the middlemen and start demanding value. And yet, nothing. Not one of these solutions has been put in place.
And it’s not as though no one has tried. SHBP’s previous contract with Horizon contained cost containment guarantees that were consistently missed by Horizon, resulting in penalty payments of over $20M for two years in a row. That is until the Division re-bid the contract and did away with any cost control levers and instead chose to select vendors based on the ir “discounts.” Discounts off of what? Horizon won’t tell.
Moreover, labor representatives on the SHBP Plan Design Committee have been pushing these very reforms for years. They’ve offered innovative solutions grounded in the same recommendations McKinsey was paid to deliver. Every single time, the administration fought them. In one recent meeting, an administration official openly opposed reference-based pricing—not because it wouldn’t work, but because they were “concerned about Horizon’s contracts with providers” (paraphrase). Think about that. The administration sided with Horizon’s business relationships over the financial well-being of public workers and their families.
Meanwhile, the profiteers keep winning. RAND has shown New Jersey hospitals are among the most expensive in the country, charging commercial plans 250 to 350 percent of Medicare, sometimes even higher. In some outpatient settings, prices approach 460 percent of Medicare. Consolidation has left employers and patients with no leverage, and the State has refused to step in. The Division of Pensions and Benefits hasn’t rebid the PBM contract in more than seven years. Seven years of double-digit pharmacy inflation while UnitedHealth Group’s Optum division, our PBM, reports billions in profit every quarter. Rebidding is one of the simplest tools to discipline costs. The State refuses to use it. And Horizon, with billions in premiums flowing through its books each year, has enormous leverage to push back on hospital pricing. Instead, it shrugs, collects administrative fees, and watches rates climb.
Murphy’s team calls this “responsible change.” Let’s call it what it is: gaslighting. You can’t pretend that raising members’ costs is reform when the actual drivers of health care inflation are left untouched. For years now, labor has been bringing forward serious proposals to restructure how the SHBP purchases care—proposals the administration itself has paid consultants to validate. Instead of acting, the administration has blocked progress, protected the incumbents, and passed the bill to members.
Real leadership would mean rebidding the PBM contract and holding it accountable. It would mean demanding Horizon use its leverage to negotiate rational hospital prices. It would mean implementing custom formularies and Centers of Excellence at scale. It would mean using direct contracting and reference-based pricing to stop paying 300 percent of Medicare for routine procedures. These aren’t radical ideas.
This “compromise” doesn’t solve the problem. It doesn’t even try. It just kicks the can down the road and leaves public workers paying more while profiteers collect record revenue. We’ll have the same fight next year. And I, for one, am done watching the administration congratulate itself for protecting everyone but the people it’s supposed to serve.
Chris Deacon is a former assistant drector of the New Jersey Division of Pensions and Benefits, Health Benefits Policy and Operations