Governor Phil Murphy used his final keynote address at the New Jersey League of Municipalities Annual Conference to issue a stark warning: the State Health Benefits Program for Local Government Employees (SHBP-LG) is nearing collapse, and sweeping reforms are needed to save it.

Murphy said the program has entered a classic actuarial “death spiral,” driven by rapidly rising costs and a steady exodus of participating local employers. Premiums have climbed roughly 60% in recent years while enrollment continues to decline.

“The State Health Benefits Program for Local Government is on the brink of collapse,” Murphy said. “Unless we take sweeping action now to shore up this program, there are tens of thousands of New Jerseyans whose access to health care will be in serious jeopardy.”

The Governor announced that his administration is prepared to put forward $260 million in near-term relief — including $180 million in loan forgiveness and $80 million to replenish the Claims Stabilization Reserve — in exchange for structural reforms that he says will stabilize SHBP-LG over the long term.

Key Elements of the Governor’s Proposal

Near-Term Relief

• $260 million total infusion to maintain solvency.

• $180 million loan balance forgiveness.

• $80 million replenishment for reserves.

Plan Modernization

• Replace more than 50 existing plans with three streamlined options:

  • A traditional PPO

  • A high-deductible plan with a Health Savings Account

  • A tiered network plan

Governance Changes

• Create a new seven-member State Health Benefits Program – Local Commission dedicated solely to SHBP-LG oversight.

• Restructure the State Health Benefits Program Plan Design Committee (PDC), limiting its authority to the state section and shrinking it to eight members.

• Give the State Treasurer binding tie-breaking authority to prevent governance gridlock.

Employer Retention Rules

• Require local employers to remain in — or stay out of — SHBP-LG for at least five years to reduce volatility caused by frequent exits.

Murphy emphasized the need for “hard decisions,” adding that good government “is all about making reasonable reforms to advance the public good.”

The announcement follows a 36.5% rate increase recommended this summer by AON, the program’s actuary, and approved by the State Health Benefits Commission. Analysts say SHBP-LG’s cost increases significantly outpace other public employee plans.

AON’s earlier studies noted that New Jersey’s public plans carry unusually rich benefits and minimal utilization controls, contributing to higher costs. A May Treasury report also outlined structural issues, including adverse selection, diminished participation, and static plan design features that have accelerated cost escalation.

Murphy’s proposal now moves to the Legislature, where lawmakers will decide whether to adopt the sweeping reforms aimed at rescuing one of the state’s largest public employee benefits systems.