With the story of cash bribes and lucrative payouts to insurance brokers finally coming to a close in Hamilton Township, it would be too easy to move on as public attention inevitably shifts to other pressing matters. But we cannot afford to sit idly by while Mercer County cities and towns continue to waste tax dollars and leave themselves vulnerable to corruption because they fail to put in place real competitive procedures for purchasing health insurance. Let’s learn from what happened in Hamilton.
With the support of the Sandra Starr Foundation, The Citizens Campaign surveyed Mercer County’s towns and county government as to how they purchased health insurance and what safeguards existed to save tax dollars and prevent scandals like we saw in Hamilton.
We recently released our findings, which showed there is still much to be done in Mercer County.
Among the findings, eight Mercer County municipalities, as well as the county, currently receive health insurance for their employees from the State Health Benefits Plan. Since joining the SHBP does not require municipalities to pay brokers’ fees, it can often yield the lowest cost. The four remaining Mercer County towns — Hamilton, Hopewell Township, Robbinsville and West Windsor — purchased private health insurance through an insurance broker or consultant.
As the New Jersey State Comptroller’s Office found, “New Jersey local governments could save more than a hundred million dollars each year by opting for the state health plan instead of pricier alternatives.”
And the comptroller’s estimate does not include school boards or counties: When those potential cost savings are factored in, the projected savings are well over $200 million. Even though the SHBP is often the least expensive option because of its economies of scale, it often does not get due consideration. In Hamilton, last year, we calculated that the school board could have saved more than $5 million, had it switched from a private carrier to the state plan.
Even so, the state plan is not necessarily a magic bullet for cash-strapped municipalities, as it is not always the most affordable option. The only way to truly maximize savings and eliminate room for mischievous brokers is to require rigorous competition, beyond just issuing requests for proposals (RFPs). This is especially important for all municipalities, as we look to a future in which there are projected to be substantial increases in the cost of the State Health Benefits Plan.
Except for Hamilton Township, which adopted several strict procurement policies in the wake of the scandal, none of the local governments in Mercer County has instituted a rigorous or robust process for purchasing health insurance.
These towns and Mercer County are not alone. Most New Jersey municipalities use a process that creates incentives for waste. The way it traditionally works is that Small Town, New Jersey, will buy insurance through a broker or consultant, who then is paid a commission from the selected insurance company.
Many times, the insurance broker then makes large political contributions to the same elected officials who designated them as the broker of record.
One can instantly see why there is resistance to changing the process. It’s a win-win situation for brokers and elected officials, just not for the taxpayers.
The solution is quite simple, and history has shown that it works.
The first step is to adopt a policy making competitive procedures the permanent law in order to protect them from changing political winds. Several municipalities throughout the state have done this, including Mercer County’s Hamilton Township, as well as Camden, Newark, Hoboken and Perth Amboy.
Next, require the insurance broker or consultant to be hired in an open competition to work exclusively for the town/school district, with a contractual agreement that the consultant will be paid a flat fee and not receive any payments from any other source other than the town or county. Most towns already use an RFP process to select their broker or insurance consultant, and that is an important step.
It is also important to then hire the professionals on a flat-fee basis.
In Hamilton Township, they used this process for hiring an insurance consultant last year and saved $800,000.
Additionally, by hiring brokers directly as contracted professionals, they would be forced to abide by the same pay-to-play reform rules as all the other professionals.
Some may not realize that, in between the illegal bribes, legal pay-to-play donations were made to the local parties.
Further, stipulate that there be a minimum of three proposals for insurance coverage, including inviting a proposal from the State Health Benefits Plan and a regional joint insurance fund (JIF). Since insurance brokers don’t receive a commission if the town opts to join the SHPB or a JIF, they are not inclined to produce a comparison. By forcing a comparison, taxpayers and employees can have confidence in the decision and know that all options were exhausted.
Finally, towns and counties must provide complete transparency and openness, including making all the proposals public at the appropriate time.
Hamilton has now done its part to put in place strong, taxpayer-friendly protections. Now is the time for more towns and Mercer County to follow its lead.