Health care + pensions equal insolvent NJ

New Jersey has gotten a lot of publicity lately because Chris Christie has balked at meeting the state’s extraordinary pension burden, arguing that further reform of the system is necessary. But as a recent NJ report makes clear, Jersey really has a problem of expensive health care for workers and retirees on top of bulging pension debts, which have raised the cost of employee benefits in NJ well above the norm for states. The reason Jersey isn’t paying all of its benefit costs is because it couldn’t possibly afford to.

As I’ve said before,in order for Jersey to actually begin chipping away at its enormous pension debt, it would need to contribute about $5 billion a year out of a projected (and maybe overly optimistic) $34 billion in revenues. Now add the cost of health care, detailed in the chart below from the report I link above. Jersey has already reached the point where health care for retirees equals health care costs for its workforce. So Jersey is essentially paying health care for the equivalent of two state workforces. Without changes, in coming years retiree health care costs will explode, so that by 2021 the state will be paying $1.60 in health care for retirees for every dollar it expends in health coverage for workers.


nj health costs

What’s more startling is that when you add the real cost of paying off pension debt to the health burden, these two budget items alone would consume about one-quarter of the state’s budget. On average, states devote about 27 percent of their operating budgets to total compensation, that is, salaries plus benefits, according to the federal government’s annual census of state finances. But Jersey needs to be spending nearly that much just on pensions and health care for workers and retirees. The reason why it’s not is obvious. The rest of your budget doesn’t work if just two items (and two items that traditionally don’t make up the bulk of compensation) would gobble up such a big part of your budget.

The chart below explains how health care costs have ballooned in the state. The cost of insurance in NJ is more expensive than the national average, for a host of reasons, including that NJ had one of the most highly regulated and restricted insurance markets even before Obamacare. But the state has also for years offered Cadillac coverage, and employees traditionally contributed little. As you can see below, for a family policy costing $19,488 a year, state employees historically have contributed just 8 percent of the total. For public employees nationally the average is 18 percent, and for all workers the average is now 28 percent. When you pay that for what is essentially two workforces–your actual workers plus your retirees, the number comes up very big indeed, especially because NJ state workers retire well before they qualify for federal Medicare. The average retirement age of a state worker, according to the report, is 61.5 years. For a teacher it’s 61.9 years. For police and fire it’s 52 years old.

health costs2

The health care costs are just one more example of how the reforms that Jersey passed in 2011, which encompassed minor changes to both pensions and health care , were inadequate. The state has a benefits burden that is staggering relative to its budget, and to what other states pay. What Jersey is actually contributing is more in line with what other states must pay as a percent of its budget. But Jersey has achieved that by simply ignoring some of its costs.



Comments (5) Add yours ↓
  1. Tough Love

    Nice write-up Steve…………… keep it.

    Perhaps one day (hopefully soon) NJ’s workers will wake up and realize that a smaller promise that gets honored is better than a BIG promise that does not.

    October 16, 2014 Reply
    • anon

      This article is just another scare tactic by Christie ….we all know the state has the money but just refuses to pay what is due it’s workers .

      October 17, 2014 Reply
      • Tough Love

        Anon, I’m sure YOU think you are due the full amount of the grossly excessive promises granted NJ’s Public Sector workers, but as Taxpayers understand that those promises are the direct result of your Unions’ BUYING the favorable votes of our elected representatives (with campaign contributions and election support) there will be HUGE Taxpayer support to renege on the 50-75% share of those promises that would not have been granted in the absence of that Union/Politician collusion.

        Greed HAS consequences.

        October 18, 2014 Reply
        • anon

          Yes indeed ,greedy taxpayers witholding pension payments that must be made will pay .As to their being grossly excessive promises is irrevelant they were made in good faith and the workers came in every day and worked in good faith .Both sides made promises and both will be kept .

          October 19, 2014 Reply
          • Tough Love

            John Bury is a NJ pension actuary (by current profession). He writes a blog, a recent post of which is titled Too Late for the Truth. It can be found here:


            In that post, under the sub-heading … “If you want the truth” ….. were 3 points, the 3-rd of which is:

            “There is absolutely no possibility that the state of New Jersey will come up with any meaningful contributions ever again to even maintain the current level of benefits, much less to pay for the sins of the past.”

            Mr. Bury goes on to say that STATE Plan participants should expect to be paid 15 cents on the dollar, with LOCAL Plan participants likely receiving 25 cents on the dollar (due to sightly higher LOCAL than STATE funding).

            You pension is “toast”, and “Denial” is not a strategy.

            October 20, 2014

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