Taxpayers have a right to expect that the government manages public funds carefully. At a minimum, we should expect the money we give elected officials to not be wasted. But when it comes to health benefits for local government employees in New Jersey, we see a lot of waste—often on a massive scale. 

This month will mark the end of my third year at the Office of State Comptroller. As I look back on my time as Acting State Comptroller, I see that wasteful spending on healthcare benefits is one of the most common issues we find. Our reports shine a light on these wasteful practices to promote transparency and accountability, but with so many local governments in New Jersey, we cannot investigate every entity to weed out the bad practices. 

Which is why I’m writing this blog. We want to help New Jersey taxpayers and elected officials take action to hold their governments accountable.

Below, we identify the three ways you can prevent your local government from spending more than necessary on health benefits. Our action plan includes the documents that should be reviewed, the questions that should be asked, the pitfalls that should be avoided, and the best practices that local governments should adopt.

As always, we are committed to rooting our fraud, waste, and abuse in New Jersey, and we welcome your assistance and tips. 

1. Make sure elected and appointed officials aren’t improperly receiving benefits.

Under state law, an elected or appointed official (hired after May 21, 2010) may be considered an “employee” and may receive state health benefits if the official works at least 25 hours per week.  Some municipalities, however, have policies that are more stringent, requiring employees to log as many as 35 hours a week.

To comply with this law, governments must track when elected and appointed officials work. Our audit of Berlin Township found the government didn’t keep time and attendance records. For instance, two Berlin Council members receiving benefits told OSC auditors that their hours worked ranged from 5 to 20 hours a week, making them ineligible for health benefits. 

Takeaway: Make sure your local government maintains time and attendance records. Review personnel manuals, policies, and local ordinances to ensure that the town is in compliance. If your municipality doesn’t have these records and is providing health benefits to elected and appointed officials, how does anyone know these officials are working the minimum number of hours needed?   

2. Stop health insurance waiver payments that amount to “double dipping.”

Municipalities have the discretion to offer an opt-out waiver payment to an employee who waives state health benefits insurance coverage.  Under state law, a municipality may pay up to 25 percent of the savings, but no more than $5,000.  However, municipalities should have policies and procedures in place to prevent “double dipping” when spouses or other relatives are also employed by the municipality. It is wasteful to pay an employee for opting out of health insurance coverage when the employee is actually still receiving health insurance coverage through a spouse or relative employed by the municipality.

OSC’s audit found that Brigantine made wasteful waiver payments of $64,000 to employees; these employees received the payment and also received the city-provided insurance coverage through a family member or spouse employed by Brigantine.  OSC’s audits of Berlin Township, the Borough of Keansburg, and the Borough of Roselle also revealed wasteful spending on waivers. In some cases, the payments violated the state law on opt-out waiver payments and local policies.

Takeaways:  Scrutinize the use of opt-out waiver policies and payments annually. Was everyone who received an opt-out payment eligible? Do your policies allow for double-dipping? Did anyone check to make sure that employees aren’t double-dipping?

If you’re concerned about this issue, you may want to review personnel manuals; forms submitted by employees requesting opt-out waiver payments; lists of payments made; and any analyses prepared that address how much is paid to employees who receive waiver payments.

Equally important, elected officials and local residents should consider whether these payments are a good use of taxpayer dollars. Keep in mind that such payments are not required by law and are not negotiable in contracts, which means that municipalities can unilaterally choose not to allow these payments.

Also, as the New Jersey Department of Community Affairs (DCA) has noted, public employees who have to contribute financially to their health insurance already have a sufficient incentive to avoid receiving health insurance that is not needed.  DCA “strongly recommends that the governing body of each local unit authorizing payments in lieu of health benefits annually review, and have a thorough discussion about, their policy, its impact on the local unit’s budget, and whether such waiver payments remain fiscally prudent.”

3. Scrutinize recommendations made by insurance brokers paid on commission.  

Local governments often rely on insurance brokers who have a built-in conflict of interest:  the broker gets paid a commission if the local government uses a private insurance company. The broker does not get paid if the local government chooses a state-sponsored health insurance program.

When local governments buy health insurance through a commission-only broker, they have to be mindful of the potential pitfalls. In one report, OSC projected that the Borough of Roselle would have saved $1.9 million if it had participated in the State Health Benefits Program. 

In our audit of Brigantine, we found that the broker’s pitch to use private insurance omitted a comparison of relevant rate plans, used inaccurate rates, excluded applicable contributions, and made unsubstantiated assumptions about medical waiver payments. In our audit of the Buena Regional School District, we found violations of state contracting and transparency laws, and that the broker had not disclosed its commission as required by law.   

Takeaways:  Check to see if your local government participates in the state health insurance programs by looking here for schools and here for other governmental entities – municipalities, counties, authorities, and commissions.  If the entity is not on this list, it is most likely obtaining health insurance from a private company. 

OSC recommends that officials use insurance brokers who are paid a flat fee for their service. That will help ensure brokers are making recommendations based on what is most beneficial for taxpayers and government officials. 

If you want to dig further, documents to review include: 

• Written correspondence required by N.J.S.A. 17:22A-41.1a, whether provided by an insurance broker or insurance company, that notifies the local government of the amount of any commission, service fee, brokerage, or other valuable consideration that the broker will receive as a result of the sale, solicitation or negotiation of the health insurance policy or contract.
• The contract or other agreement between the local government and the broker;
• Cost projections prepared by the broker and data used to make those cost projections;
• any auditor reports addressing health insurance costs.

Final tip: If you find a violation of law or waste, fraud, or abuse, we want to know.  You can share what you find with OSC online or by calling us on our confidential hotline at 1-855-OSC-TIPS (672-8477).