17-18 BOE Negotiations: 3 Major Takeaways

The NJSBA is the go-to source of information for New Jersey Boards of Education. On 12/22/17 the NJSBA released its most up-to-date "Settlement Rates in Perspective." Our team has reviewed the information and pulled the information relevant to Employee Benefits and Negotiations.

1. 32 BOE's have made the Direct 15 the base plan for all employees or for new hires.

In the words of meme generating millenials, "Y Tho?"

There is a reason many employees don't voluntarily enroll in the Direct 15 - there's just not enough savings to justify the switch from the Direct 10. Anecdotally, we have found that cost conscious employees tend to enroll in the direct 2030 or an HMO option. These employees have found that the 2030 plan for example, still provides a very rich level of benefits, while striking a favorable price point.

Decrements based on 2018, MMRx integrated, Single rates:

• Direct 10 to Direct 15: 4.8% savings

• Direct 10 to Direct 1525: 8.1% savings

• Direct 10 to Direct 2030: 12.8% savings

Decrements based on 2018, Standalone Rx, Single rates:

• Direct 10 to Direct 15: 3.8% savings

• Direct 10 to Direct 1525: 8.0% savings

• Direct 10 to Direct 2030: 12.0% savings

2. 9 BOE's have taken steps to make a plan lower than the Direct 15 the base plan for all employees or new hires.

Now we're talking. As outlined above, the decrement for the Direct 2030 plan is 12% or more versus the Direct 10. What does that mean for negotiations? Let's look at an example of a BOE that spends $4,000,000 on Medical/Rx benefits and has 150 employees enrolled in the SEHBP, Direct 10 MMRx plan.

Year 1 Direct 10 MMRx spend: $4,000,000

Year 1 Direct 2030 MMRx spend: $3,488,000

Year 1 Savings vs Direct 10: $512,000

Like interest, the cost of benefits compounds every year with a rate increase. What starts as $500,000 in Year 1 savings will rise in years two and three. Let's take a look at the effect of a 10% increase in years 2 and 3.

Year 2 Direct 10 MMRx spend: $4,400,000

Year 2 Direct 2030 MMRx spend: $3,836,800

Year 2 Savings vs Direct 10: $563,200

Year 3 Direct 10 MMRx spend: $4,840,000

Year 3 Direct 2030 MMRx spend: $4,220,480

Year 3 Savings vs Direct 10: $619,520

Cumulative savings vs Direct 10 Years 1-3: $1,694,720

That $1,694,720 is currently being spent on the employees as a part of their "total compensation." It stands to reason that the employees would bargain for all or most of that savings. This is a great way to meet or exceed the average salary increase without making cuts somewhere else in the budget.

3. Average salary increases are back on the rise. For those settlements that start with 17-18, the average increase of 2.91%.

Average salary increases are on the rise. While that is great for employees, it is a terrifying prospect for the business offices and Boards of Education. Budgets continue to be tight and considering the effect that the SALT deductions may have on taxpayer's willingness to accept a budget that exceeds 2%, it will stay tight.

Imagine a scenario where you have enough money to comfortably provide employees with a 2% increase in salary. Due to the increases that other BOEs have received, I would expect that your local EA would begin negotiations by asking for more than 3%.

Let's take a look at how the 2030 program may help you reach those numbers.

• Total Employees: 150

• Average Salary: $80,000

• Average $ Increase at 2%: $1,600

Year 1 Savings to distribute: $512,000

Additional Dollars available for employees, on average: (512,000/150) = $3,413

Average available salary increase ($): ($1,600 + $3,413) = $5,013

Average available salary increase (%): ($5,013/$80,000) = 6.3%

Of course, those savings (and then some) are available in years 2 and 3.

All these numbers got your head spinning? Don't worry, Liberty Benefit Advisors prepares all of the detailed financial analysis on your behalf. Check out our Budget Modeling Tool and full suite of negotiations services.

While a shift to the Direct 2030 plan will provide you and your employees with immediate savings, it is by no means a "fix" to the health insurance issue. In order to truly bend the cost curve, you must find ways to lower your claims spend without cost shifting to the employees.

Learn more about one of the premiere cost reduction strategies, Reference Based Reimbursement, here.