LEGISLATIVE FISCAL ESTIMATE
SENATE COMMITTEE SUBSTITUTE FOR
SENATE, No. 3756
STATE OF NEW JERSEY
220th LEGISLATURE
DATED: JUNE 23, 2023
SUMMARY
Synopsis: Permits SHBP and SEHBP to award contracts for more claims
administrators for each program plan; requires claims data and trend
reports to be provided to certain persons.
Type of Impact: Expenditure impact on State General Fund and local government and
school district funds.
Agencies Affected: Division of Pensions and Benefits in the Department of the Treasury;
certain local governments and school districts participating in SHBP
and SEBHP.
Office of Legislative Services Estimate
Fiscal Impact Annual
State Indeterminate
Local Indeterminate
School District Indeterminate
Total Indeterminate
 The Office of Legislative Services (OLS) finds that the fiscal estimate depends on whether
additional vendors bidding on the contract to be a third-party administrator for the State Health
Benefits Program and the School Employees’ Health Benefits Program have the ability to
affect costs because the State self-insures for the provision of health care benefits to public
employees who are enrolled in the programs and because State law and State policy determine
health benefits coverage, not the insurance carrier.
 The OLS concludes that the insurance carriers competing for the State and school health
benefits business are competing to administer the plans, not to insure the plans.
 If the State were to contract with more than one third-party administrator, the State would have
to pay for more than one administrative services contract, which would result in higher costs
unless competitive differences in the vendor bids including employee-per month rates, the
Office of Legislative Services Legislative Budget and Finance Office
State House Annex Phone (609) 847-3105
P.O. Box 068 Fax (609) 777-2442
Trenton, New Jersey 08625 www.njleg.state.nj.us
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number of employees enrolled in the vendors’ plans, other administrative cost differentiating
items, and separately the contractual provider reimbursement rates can result in overall lower
costs.
 The OLS notes that the move to contract with one third-party administrator each for active
health care benefits (2019) and retiree post-retirement medical benefits (2018) resulted in $30.9
million in third-party administrator savings.
BILL DESCRIPTION
This bill would require the State Health Benefits Commission and the School Employees’
Health Benefits Commission to contract with at least two third-party administrators who submit
responsive proposals to provide administrative services for the health benefit plans offered to State
Health Benefits Program and School Employees’ Health Benefits Program employees and retirees
unless only one vendor submits a responsive proposal. The bill would also require the Department
of the Treasury to furnish de-identified aggregate claims experience data for participating
employers in the State Health Benefits and School Employees’ Health Benefits programs to such
participating employers annually. The department will also make claims trend reports containing
certain categories of information publicly available for each program and to all majority
representatives of public employees for collective negotiation purposes with the State annually.
Finally, the bill requires the department to provide a feasibility study of strategies to lower the cost
of health care service for the participants of the programs to the State Health Benefits Plan Design
Committee and the School Employees’ Plan Design Committee no later than one year after the
effective date of the bill.
FISCAL ANALYSIS
EXECUTIVE BRANCH
None received.
OFFICE OF LEGISLATIVE SERVICES
The OLS finds that the fiscal estimate depends on whether additional vendors bidding on the
contract to be a third-party administrator for the State Health Benefits Program and the School
Employees’ Health Benefits Program have the ability to affect costs because the State self-insures
for the provision of health care benefits to public employees who are enrolled in the programs and
because State law and State policy determine health benefits coverage, not the insurance carrier.
A self-insured health plan is coverage offered by an employer in which the employer takes on the
risk providing coverage, instead of purchasing coverage from an insurance company. Self-insured
coverage means that the employer pays for enrollees’ medical care directly. Fully insured
coverage means that health insurance is being purchased from an insurance company by an
employer and the insurance company will be the entity responsible for paying for medical care.
Under current law, the State Health Benefits Commission and the School Employees’ Health
Benefits Commission negotiate with and arrange for the purchase, from licensed carriers, of
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contracts providing hospital, surgical, obstetrical, and other covered health care services and
benefits covering employees of the State, participating local governments and school districts and
their dependents. In addition, the State Health Benefits Commission and the School Employees’
Health Benefits Commission have the authority to establish rules and regulations for the
administration of the programs. Furthermore, the State Health Benefits and the School Employees’
Health Benefits Plan Design Committees have the responsibility for and authority over the various
plans and components of those plans, including medical benefits, prescription benefits, dental,
vision and any other healthcare benefits, offered and administered by the programs. Finally, the
committees have the authority to create, modify, or terminate any plan or component at their sole
discretion.
The State actuary projects plan year costs published annually in Rate Renewal reports, which
identify trends, project costs, and establish rates for each plan and plan type offered. Plan design
committees monitor, review, and analyze plan performance and, if necessary, recommend plan
design changes to control costs, as evidenced by the annual resolutions adopted intended to control
costs. Approved rates and plan designs are adopted by the commissions.
Administrative Services Only Fee
Vendors bid, in a competitive bidding process, to secure an administrative services contract as a
third-party administrator with the State to provide the healthcare plans at the approved rates.
Third-party administrators are paid on the basis of an “administrative services only fee.” The fee
is the only compensation due to the vendor under the contract unless otherwise mutually agreed to
by the vendor and the State contract manager. The vendor’s monthly compensation is a function
of the vendor’s fee multiplied by the number of participating public subscribers during the
applicable month.
What is Included in the Administrative Only Fee?
In the responses to the OLS FY 2019-2020 Discussion Points regarding third-party administrator
fees, the Division of Pensions and Benefits clarified administrative services only fees. “The fees
paid by the State Health Benefits Program and the School Employees Health Benefits Program to
the third-party administrators include fees for general administration, claim administration,
network management, medical management (precertification, concurrent review, discharge
planning, case management), and disease management (coronary artery disease, heart failure,
COPD, asthma, chronic kidney disease, diabetes, etc.). Administrative services only fees are paid
on an “employee-per-month rate.” In addition, the State Health Benefits Program and the School
Employees Health Benefits Program pay third-party administrators for a number of other
administrative services including: a 24-hour nurse line, which aids in reducing non-emergent use
of the emergency room; radiology management which directs members to the most cost effective
radiology service settings; pain management to reduce misuse of pain management services;
medical supply drug management services to guide injectable drug administration to the most
economic and clinically appropriate site of services; care coordination assistance to physician
group partners to manage better patient care to avoid acute episodes; and wellness program
support.”
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The Size of the Administrative Services Only Fee
In the responses the division provided a chart of the administrative service only fees paid to the
third-party administrators of the programs. At that time, of the actuarially equivalent 14 plans
offered by Aetna and the 13 plans offered by Horizon to active employees of State and local
governments and school districts, 83.4 percent of enrolled members (190,911 individuals) were
enrolled in Horizon plans. Out of the nine actuarially equivalent plans offered by both Aetna and
Horizon to State and local government and school district retirees 70 percent of the retired member
population were enrolled in Aetna plans.
Administrative Services Only Fees PY 2015 to 2018
Aetna ($) Horizon ($)
Fiscal Year ASO Fees Other Fees ASO Fees Other Fees
2015 $ 21,495,374 $ 855,659 $ 96,284,366 $ 29,639,998
2016 $ 20,764,220 $ 770,867 $ 95,094,475 $ 31,322,864
2017 $ 21,434,003 $ 992,131 $ 82,933,366 $ 33,012,000
2018 $ 20,470,857 $ 973,224 $ 83,441,811 $ 49,424,212
Subsequently, the State contracted with Aetna (2018) to administer the retiree plans and with
Horizon (2019) for the active employee plans, saving $30.9 million in third-party administrative
fees as given in FY 2022 responses to OLS budget questions.
Provider Reimbursement Rates
Current law requires the contract or contracts purchased by the commissions to base
reimbursement and payments on reasonable and customary charges, meaning charges based upon
the 90th percentile of the usual, customary, and reasonable fee schedule determined by the Health
Insurance Association of America or a similar nationally recognized database of prevailing health
care charges and must reflect the cost of the benefits provided based on principles which in the
judgment of the commission are actuarially sound.
The rates charged are determined by the carrier on accepted group rating principles with due regard
to the experience, both past and contemplated, under the contract, but within reasonable and
customary charges. Differences in contracted provider reimbursement rates would be limited by
the association’s fee schedule and judgement of the commission.
Summary
In summary, the OLS concludes that the insurance carriers competing for the State and school
health benefits business are competing to administer the plans, not to insure the plans.
Nevertheless, differences in vendor bids affecting the cost to the State can include the “employee
per month rate” charged by the carrier to administer the plans, other administrative services, and
separately the effect on plan costs resulting from any slight differences in the contracted provider
reimbursement rates paid to doctors for their services based on the carrier’s network.
If the State were to contract with more than one third-party administrator, the State would have to
pay for more than one administrative services contract, which would result in higher costs unless
competitive differences in the vendor bids including employee-per month rates, the number of
employees enrolled in the vendors’ plans, other administrative cost differentiating items, and
separately the contractual provider reimbursement rates can result in overall lower costs.
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Section: Legislative Budget and Finance Office
Analyst: Kim Clemmensen
Assistant Legislative Budget and Finance Officer
Approved: Thomas Koenig
Legislative Budget and Finance Officer
This fiscal estimate has been prepared pursuant to P.L.1980, c.67 (C.52:13B-6 et seq.).