public healthcare benefits

The Costs of Public Healthcare Benefits

Understanding How Healthcare Impacts State Budgets

There is an oft-quoted saying, usually attributed to Otto von Bismarck, the 19th century Prussian leader who became the first Chancellor of the united German Empire, that compares the production of sausage to the process of creating legislation: “It’s better not to see them being made.”

The process can be messy and unappetizing. The end product can amount to an amalgam of disparate contributors and ingredients. And while it might be satisfying when first ingested, there might be some unforeseen side-effects that crop up after the initial passage.

Because many states, including New Jersey, are in the midst of annual State Budget negotiations (with an official deadline of June 30th for passage), interested viewers will have a ringside seat as they get to watch the legislative budget deliberations at their most intense. (Note: Governor Wolf signed Pennsylvania’s FY2019 budget on Friday, June 22, the first on-time budget of his tenure.)

Healthcare Communicators Under Pressure

For healthcare communicators, particularly those who work for public organizations or entities that receive some kind of public healthcare funding, it’s important to appreciate the pressures and influences that often come together during peak budget deliberations.

At a recent meeting of the Health Issues Committee of the Chamber of Commerce of Southern New Jersey, Tom Byrne, Managing Director and Head of Equity Portfolio Management for Byrne Asset Management, provided an overview of the role public healthcare benefits increasingly play in state budget deliberations.

For New Jersey in particular, public healthcare benefits and pensions “are a huge albatross,” said Byrne. That includes the costs of providing healthcare coverage and pension contributions to the many thousands of public employees, including elected officials and their staffs, judges, police, fire and rescue personnel, teachers, superintendents and other personnel throughout New Jersey’s approximately 678 operating public school districts, and more.

Many of these public employees are protected by unions and guaranteed contracts, so there is little incentive for them to agree to shed benefits in the budget deal-making process.

Underfunded Pensions in NJ

One of the key challenges New Jersey budget negotiators face is the past. Over the course of years, budget-negotiators sought to balance the books by underfunding public pension allocations, hoping to make it up at some point in the future when the state’s economic situation became rosier.

Unfortunately, spending on other concerns always seemed to take precedent. As a result, New Jersey faces one of the most dire pension shortfalls in the country. How serious is it? Other states have come out of similar pension problems, but never one this deep, Byrne said.

public healthcare benefits
Tom Byrne, Byrne Asset Management

In March, New Jersey Governor Philip Murphy proposed an allocation of $3.2 billion toward pensions in FY 2019, a 28% increase over last year’s contribution. The proposal noted that this contribution would be larger than the total of all contributions made during the previous administration’s first four years. Even so, it’s only a start to making it whole.

More Funding for Education, Healthcare

In addition, Gov. Murphy proposes increasing state funding for public education, including an expansion of Pre-K and STEM education, Pursuing Tuition-Free Community College, and expanding student aid.

In addition, he has proposed increases in funding for healthcare coverage for low-income citizens, family planning, mental health and addiction services, developmental disabilities services, the Supplemental Nutrition Assistance Program (SNAP) and hospital funding – all worthwhile-sounding investments.

But to arrive at a balanced budget, what’s given out in one area has to be taken back in another – unless the pie is enlarged. That means raising taxes. With New Jersey property owners already paying some of the highest property taxes in the nation, the practicality of continually going back to that well is questionable. An increase in the sales tax is one proposal. Also a “millionaire’s tax” and a proposed fee on carried interest that would focus on Wall Street earnings.

Pushback Expected

Byrne said he expects there to be some discussion about revising public healthcare benefits – incorporating more wellness and in-network programs and requirements as a means to lower overall spending. But such suggestions are only part of the answer, Byrne said.

The fact is, pension and healthcare costs are crowding out a larger and larger share of discretionary spending. And powerful interests with a desire to maintain an existing state program or allotment will be pressuring lawmakers to protect those concerns.

“If you cut eight million dollars from the state budget as a line item, you won’t get eight million thank-you notes from people for saving them a dollar each,” explained Byrne. “But you may upset powerful interests.” That’s something most elected officials try to avoid.

Adding to the uncertainty is the fact that many legislators simply don’t have expertise in public finance, pensions and public healthcare. Byrne said they need to become better educated in order to effect solutions on such complex issues. And soon.

Healthcare will likely be a major component of any solution, but public healthcare reform is not a panacea. There are too many other interconnected variables and links that need to be sorted out before this state budget sausage is fully cooked.

Each year, as annual budget negotiations begin to percolate, healthcare communicators should make the effort to understand how the interests of their organizations line up with pending budget proposals as well as the viewpoints of their allies in the legislature and other influential government officials. Budget negotiations are often referred to as a numbers game. But the number of friendly votes you can count on are often as important as the budgetary numbers themselves.