Chapter 78 Relief Bill Now Law – What NJ School Districts Need to Know

On July 1, 2020, Gov. Phil Murphy signed legislation providing health benefits contribution relief to New Jersey educators…

On July 1, 2020, Gov. Phil Murphy signed legislation providing health benefits contribution relief to New Jersey educators. The new law will reduce the cost of health insurance for school employees while also lowering costs for school districts and taxpayers.

“With our state facing historic public health and economic challenges, it is more important than ever that we ensure access to high-quality, affordable health care for our educators, while also ensuring cost-savings for our taxpayers,” Gov. Murphy said in a press statement. “I am proud to sign this bill into law and at long-last provide relief for our educators from Chapter 78. I thank the New Jersey Education Association, Senate President Sweeney, and Assembly Speaker Coughlin for their collaborative, good-faith negotiations.”

Key Provisions of Chapter 78 Relief Bill

The new law, Senate Bill 2273/Assembly Bill 20, overhauls P.L.2011, c.78 (Chapter 78), a pension and health insurance law enacted in 2011 that requires school employees to pay a percentage of their health insurance premiums.  It will also offer 2 new health care plan options to grandfathered employees through the School Employees Health Benefits Program (SEHBP) or equivalent private plan.  Newly hired employees will be mandated to be enrolled in one of the two new plans. SEHBP will maintain the NJ Direct 10 plan and NJ Direct 15 plans and add the New Jersey Educators Health Plan (NJEHP) this school year.  A second new plan, the Garden State Health Plan (GSHP), must still be developed and will be available on July 1, 2021.

The new law reverts contributions back to a percentage of salary for those who choose to enroll in the NJEHP.  Salary contribution percentages range from as little as 4.5% of salary for employees making less than $20,000 to 35% of salary for those making $95,000 or more.  Once it is established, contributions for the GSHP will be up to 50 percent less than the NJEHP. Several other key provisions of A20/S2273 are detailed below.

Enrollment

A20/S2273 requires Districts to provide an open enrollment period before January 1, 2021, to allow all employees who commenced employment before July 1, 2020, to select affirmatively an existing SEHBP or Private Plan and pay C.78 contributions or to switch to NJEHP and pay salary contributions.  If an employee fails to select affirmatively a plan during the enrollment period, the employer will enroll the employee, and their dependents if any, in the New Jersey Educators Health Plan for the year beginning January 1, 2021.

Employees hired on or after  July 1, 2020, will be mandatorily enrolled in NJEHP in January 2021 and will be offered a choice of only the NJEHP and GSHP until  January 1, 2028. For the plan year that commences January 1, 2028, the employee may select, during any open enrollment period, any one of the plans provided by the School District.

Retirees Not on Medicare

Under A20/S2273, starting for the plan year beginning January 1, 2021, the plan must enroll any retiree who is not Medicare-eligible, and the retiree’s dependents if any, in the New Jersey Educators Health Plan (or equivalent) for health care benefits as a retiree.  The retiree must remain in that plan until December 31, 2027 or until the retiree becomes eligible for Medicare, whichever comes first.

Garden State Plan

Beginning July 1, 2021, Districts must also offer the SEHBP Garden State Health Plan or equivalent plan.  The plan will be developed by the School Employees’ Health Benefits Plan Design Committee and will provide medical and prescription drug benefits that are equivalent to the level of medical and prescription drug benefits provided by the New Jersey Educators Health Plan, except that the benefits under the Garden State Health Plan will be available only from providers located in the State of New Jersey with certain exceptions.

Plans Negotiable in 2028

The level of benefits in the New Jersey Educators Health Plan, the Garden State Health Plan, the NJ Direct 10, and the NJ Direct 15 plan (or District existing private and equivalent plans) will remain unchanged until December 31, 2027. For the plan year that commences on January 1, 2028, the benefits in the plans may be modified. 

Employee Contributions

A20/S2273 requires an employee, or a retiree who is not Medicare-eligible and who is required by law to contribute in retirement toward the cost of health care coverage under the program, to contribute annually a percentage of base salary or retirement allowance, including any cost of living adjustment to that retirement allowance, toward the cost of the health care benefits coverage under the New Jersey Educators Health Plan and the Garden State Health Plan.  The required contribution toward the cost of health care benefits coverage under the Garden State Health Plan will be one half of the percentages required for the New Jersey Educators Health Plan. The specific percentages are specified in the law.  However, consistent with earlier laws, the contribution cannot be less than the contribution of 1.5% of salary.

An employee who selects a plan other than the New Jersey Educators Health Plan or the Garden State Health Plan will continue to be required to contribute toward the cost of coverage (1) in accordance with a collective negotiations agreement applicable to that employee as negotiated in accordance with certain requirements of Chapter 78; (2) as may be required at the discretion of the employer; or (3) as required by a provision of law, whichever is applicable to that employee.

Non-SEHBP Employers

The new law requires eligible employers that do not participate in the SEHBP to offer plans equivalent to the New Jersey Educators Health Plan beginning January 1, 2021, and equivalent to the Garden State Health Plan beginning July 1, 2021. The level of benefits in these two plans will remain unchanged through December 31, 2027. No new plans, other than the equivalent New Jersey Educators Health Plan and the equivalent Garden State Health Plan, may be provided during that period unless the provisions of collective negotiations agreements entered into before or after the effective date of this bill result in additional premium cost reductions.  Health care benefits plans that existed before July 1, 2020, may continue to be offered by employers that do not participate in the SEHBP.

Enrollment in equivalent NJEHP and GSHP plans will also only be required to contribute percentages of salary as determined by the State issued contribution chart.  Eligible employers may modify, through collective negotiations agreements, the two plans and the contributions required for those plans, for the year beginning January 1, 2028 and thereafter. The enrollment provisions required for these employers for the new plans will be the same as those for the employers who participate in the SEHBP.

Use of Savings to Reduce Taxes

A20/S2273 mandates that actual savings realized by school districts as a result of the new law must be used solely and exclusively by the school district for the purpose of reducing the amount that is required to be raised by the local property tax levy, except when a school district is spending below adequacy as calculated in accordance with N.J.S.A.18A:7F-70. When a cap on the annual increase in the property tax levy for a school district is imposed by law, the savings realized must be deducted from the adjusted tax levy for the previous budget year and the difference will serve as the basis for calculating the adjusted tax levy for the next year.

Next Steps for NJ School Districts

A20/S2273 represents a significant change in the health plans that will be provided to school employees and how premium benefits will be calculated. School districts should thoroughly review the changes and start preparing to implement them. For guidance, we encourage you to contact a member of Scarinci Hollenbeck’s Government Law Group.

If you have any questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Carolyn Chaudry, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.