Murphy proposes legislative fixes to avert ‘death spiral’ in local government health benefits program
ATLANTIC CITY, N.J. — Gov. Phil Murphy on Thursday proposed a sweeping set of legislative reforms aimed at preventing what he called the impending collapse of the State Health Benefits Program for Local Government Employees, warning that the system is trapped in a “death spiral” of rising costs and declining participation.
In his final keynote address at the New Jersey League of Municipalities Annual Conference, Murphy said premiums in the SHBP-LG have risen roughly 60% in recent years as more local employers exit the program, pushing costs even higher for those who remain.
“The State Health Benefits Program for Local Government is on the brink of collapse,” Murphy said. “As health care costs have skyrocketed over the past few years, premiums have gone up by roughly 60%. And more and more employers are withdrawing from the program, which has created a ‘death spiral.’ Unless we take sweeping action now to shore up this program, there are tens of thousands of New Jerseyans whose access to health care will be in serious jeopardy. We cannot allow that to happen.”
Murphy said his administration is prepared to provide $260 million in short-term relief — including $180 million in loan balance forgiveness and $80 million to replenish the Claims Stabilization Reserve — in exchange for long-term structural changes to modernize the plan and stabilize participation.
“Our Administration is willing to provide a quarter billion dollars over the short-term to keep the SHBP for Local Government solvent in exchange for smart structural and governance reforms that will stabilize the program over the long-term,” he said. “Achieving this goal will require hard decisions. But that is what good government is all about: making reasonable reforms to advance the public good.”
The governor’s proposal includes replacing more than 50 existing health plans with three simplified options: a PPO, a high-deductible plan paired with a Health Savings Account, and a tiered network plan. It also calls for establishing a seven-member State Health Benefits Program – Local Commission to oversee SHBP-LG matters and restructuring the State Health Benefits Program Plan Design Committee to focus solely on state-level plans.
Governance changes would add a binding tie-breaking vote from the State Treasurer, a move the administration says is necessary to overcome chronic gridlock. Murphy also proposed requiring municipalities to commit to staying in — or staying out of — the program for at least five years to reduce volatility caused by rapid employer departures.
The urgency of the reforms has intensified since earlier this year, when AON, the state’s actuary, recommended a 36.5% rate increase for SHBP-LG, which was later adopted. State officials say health care inflation has affected public employee plans nationwide, but that SHBP-LG’s cost increases have significantly outpaced peer systems.
A 2023 AON study cited by the administration found that the program’s generous plan design and limited utilization-management requirements contribute to high costs. A Treasury report released in May identified similar drivers, including adverse selection, static governance, diminishing participation and escalating health care prices.
Murphy said the proposed reforms represent the only viable path to maintaining stable and sustainable health coverage for tens of thousands of local public employees and their families.
