On May 19, the State Treasurer’s office released a report, “Structural and Financial According Challenges in the State Health Benefits Program for Local Government,” on the status of the State Health Benefits Program for Local Governments (SHBP-LG). The report laid out how the fund is a “structurally unstable and financially unsustainable system due to adverse selection, diminished participation, and cost escalation.” to the report, the plan is in a “death spiral” as the plan has “very high actuarial values, a depleted and now insolvent cash management margin reserve (known as the Claims Stabilization Reserve), and a static governance structure: creating “a self-reinforcing loop of premium increases and employer exits.” The report urges policy makers to “consider significant reforms to transition to an alternative delivery mechanism, or to partially stabilize the volatile enrollment pool and provide more agile governance.”
The SHBP-LG is a large, self-insured health benefits plan with 26 plan options for Active employees, 28 plan options for Early Retirees, 9 plan options for Medicare Retirees, and 3 dental plan options. With $2 billion in annual premiums, the plan has an average membership of approximately 156,000 covered lives for 689 local employers.
According to the report, 95% of the SHBP-LG enrollees participate in plans with an Actuarial Value (AV) exceeding 97%. As a point of reference, the Affordable Care Act Platinum tier threshold is 90%. The report uses the example that “a 98% AV plan means that for every $10,000 in expected medical expenses, the plan covers $9,800, while the member pays $200 in copays, deductibles, or coinsurance. (This excludes the member’s premium contributions via payroll deduction.)”
The report notes that if left unchanged, the SHBP-LG projected cumulative premium increases for 2026 will be 30-35%, in 2027 just under 40%, in 2028 50%, and in 2029 60%. Over the past four years, from 2022 to 2025, the SHBP-LG; premiums have increased by 59%.
The report cites the primary cost drivers as “medical inflation (i.e., the increase in costs of healthcare services), the growing cost of prescription drugs, and increased utilization of high-cost healthcare services and prescription drugs” as well as adverse selection, the static plan design committee, and depletion of the claim stabilization reserve.
Adverse selection is when employers leave the SHBP-LG fund for either a health insurance fund (HIF) or to become self-insured. The report notes that “over the past several years, employers with healthier, lower-cost employees (i.e., lower loss ratios) have exited the plan, leaving behind a population with higher health care utilization and associated costs. This trend has contributed to premium volatility and an increasingly unstable financial position for the remaining employers.”
In reviewing the numbers, the League found that more than 70 local government employers have exited the SHBP since the end of 2020 through the first quarter of 2025.Unfortunately, the number of covered lives for each employer is unknown, so we are unable to calculate the loss ratio. But according to the report, in 2024 the weighted average loss ratio was 78.5% based on the top 10 employers leaving the SHBP-LG. The report recommends enacting a withdrawal and entry policy. establishing a three-to-five-year period during which a participating local government employer must wait before leaving the plan or re-entering the plan. It is projected that this would result in 10-14% savings over five years.
The Plan Design Committee, established as part of the c. 78 pension and health benefits reform, is a 12-member board equally divided between management and labor. In order to make changes to plan the Plan Design Committee, the changes must be adopted by a 7-5 vote. When initially enacted, the plan design committee was able to effectuate changes; however, over the years the committee has been unable to make changes as votes usually end in a 6-6 tie. The report recommended that the Plan Design Committee be changed to delegate authority to the State Treasurer or the Division of Pensions and Benefits Director to make routine plan changes, such as copay tiers, deductibles, and tiered networks. We would like to note that there is no local government management representation on the Plan Design Committee.
The Claim Stabilization Reserve (CSR) is a reserve to manage the fluctuations in claims expenses and premium collections and payouts. The SHBP-LG is supposed to have a two-month CRS. P.L. 2024, c. 86 permitted the Division of Pensions Director to transfer funds from the State Employee Group State Health Benefits Plan (SHBP) to SHBP-LG when the funding level for the SHBP-LG fell to a level that is insufficient to cover 10 days of anticipated payments. At the end of March 2025, $258 million has been transferred. The SHBP-LG has reimbursed $138 million. The outstanding balance is $120 million. According to the report, in order to just replenish the CSR, there would need to be an increase of 19.5% in the premium. The report noted that “Legislative support and significant State funding would be required, as the plan cannot generate sufficient surpluses under current premium projections to do this organically in the short-term.”
The report also suggests that instead of reform the state should replace the SHBP-LG. “Phasing out the plan in an orderly, supported, and equitable manner will mitigate further destabilization and align the State’s policy approach with prevailing market
conditions and local preferences.” The report then outlines actions the State should take to assist local governments who need insurance as a result of the SHPB-LG closing.
The report concludes, “Notably, even the most aggressive plan design changes will likely not be enough to reverse the systemic unraveling now underway. The conditions mentioned above have contributed to worsening adverse selection, as local employers with better risk profiles increasingly opt to remain outside the plan or never consider entry in the first place. This dynamic has eroded the program’s viability as a stable, broad-based risk pool and underscores the urgency of a structural reform. Accordingly, policymakers should now consider significant reforms to transition to an alternative delivery mechanism, or to partially stabilize the volatile enrollment pool and provide more agile governance.”
The SHBP-LG Rate Renewal meetings for the State Health Benefits Commission are scheduled for July 9 and July 28. The League has an active task force exploring all options for affordable and sustainable health care options for local government employers and employees. In the meantime, if you participate in the SHBP-LG we suggest you review the October 7, 2024 Lunch & Learn: Choosing the Right Benefits Plan or the September 2022 Lunch & Learn: SHBP Alternatives.
Contact: Lori Buckelew, Deputy Executive Director, lbuckelew@njlm.org, 609-695-3481, x112.