A slow-moving fiscal catastrophe is unfolding in New Jersey, devastating school districts, strangling municipal budgets, squeezing county governments and leaving public employees and retirees facing unaffordable health care costs. The core of this crisis lies in the State Health Benefits Program and the School Employees’ Health Benefits Program, both entering what actuaries call a death spiral.
This local emergency is colliding disastrously with federal policy. The federal government’s One Big Beautiful Bill Act, signed on July 4, 2025, made billions of dollars in cuts to Medicaid, and New Jersey’s public employers and workers are staring down a double-barreled crisis that threatens the solvency of local government itself.
The state workers’ plan logged losses of $154 million in 2024 and $232 million in 2025, according to actuarial reports. The school employees’ plan ran deficits of $143 million in 2024 and $254 million in 2025, while the local government plan lost $75 million and $57 million in those respective years.
The consequence has been relentless premium increases, with local government worker premiums rising 115% over the past five years and school employee premiums climbing nearly 74%. The state’s actuaries recommended premium increases of nearly 32% for the school plan next year. State workers have endured premium hikes of more than 67%.
This is not standard health care inflation. It is an outright systemic failure.
$100,000-plus per year
For New Jersey’s school districts, health care costs are a budget-devouring monster, consuming precious dollars that would otherwise go to classrooms and student services.
New Jersey’s 2020 legislative change known as Chapter 44 largely insulated school employees from the steepest increases, though it shifted the premium costs to school districts and taxpayers. School boards are absorbing increases that far exceed annual state aid.
In the West Windsor-Plainsboro Regional School District, more than 60% of a recent tax levy increase was attributable simply to maintaining existing employee health insurance. If premiums continue increasing at a conservative 20% annually, a family plan costing just over $60,000 for the 2026-2027 school year would skyrocket to $103,680 by 2029-2030.
School systems will collapse under these strains, and the devastating cuts in service and staffing have only just begun.
New Jersey taxpayers, who face the highest property taxes in the nation, are bearing the brunt of this broken system. When middle-class families open their tax bills each year and see the number rise, the escalating driver is health insurance.
Superintendents are forced to eliminate positions, driving up class sizes. Across the state, districts large and small, urban and suburban, have been hit by deficits. The stories follow a painful arc: Parents pack auditoriums and administrators apologize before trustees vote to close neighborhood schools or cut programs because there is no other choice.
Every teacher laid off is a relationship lost and every school closed is a broken promise to families.
Municipal and county governments are equally trapped, having seen local government workers’ premiums rise by 59% cumulatively in 2022-2025. As costs rise, healthier municipalities flee the system; enrollment among active local government employees fell roughly 18% following a 2022 rate spike.
Each departure leaves behind a sicker, more expensive population, accelerating the death spiral.
Governance failure
To prevent insolvency, the state enacted legislation allowing the local plan to borrow $150 million from the state workers’ plan. That loan carries a 9.4% surcharge assessed on local governments. State workers are locked into the plan by law, meaning when premiums rise, their pay falls. Furthermore, state Medicare retirees face nearly 30% premium increases, while early local government retirees face hikes over 35%, forcing those on fixed incomes to make devastating financial choices.
This catastrophe is the direct product of structural design decisions that made New Jersey’s public health plans uniquely expensive.
Unlike other public-sector plans, New Jersey’s system lacks robust utilization management tools like prior authorization, tiered provider networks and mandatory generic drug substitution. This is compounded by the explosion in specialty drug spending, particularly for GLP-1 weight-loss medications like Wegovy and Ozempic, which are broadly covered without strict clinical guardrails.
Furthermore, the governance structure of the health benefit commissions, featuring equal representation from labor and management, has produced gridlock. Labor representatives block benefit modifications while management appointees avoid the political battles necessary for reform. Additionally, a 2020 law acts as a governance straitjacket, barring the state employee plan oversight committee from modifying benefits or implementing common-sense design changes until 2028.
Blow from Washington
Into this burning building, the federal government has thrown gasoline via the One Big Beautiful Bill Act. That law represents the largest rollback of federal health care support in U.S. history, cutting more than $1 trillion from Medicaid and health programs. For New Jersey, a state relying on a 50% federal Medicaid match, these reductions will force the state to either cut coverage or drastically increase spending.
The ripple effect will devastate hospital margins. As hospitals lose substantial Medicaid revenue, they will engage in cost-shifting, raising prices charged to private and public employee health plans to compensate for government underpayment. This cost shift will flow directly into New Jersey’s hemorrhaging school and state employee coverage, turning public employee health plans into a pressure-relief valve for the losses that hospitals absorb from federal cuts.
This crisis demands urgent action on multiple fronts, starting with major governance reform.
Gov. Mikie Sherrill and state legislators must convene a multiagency task force to aid in the complete redesign of the state’s health care system. New Jersey needs a reformed governance model with clearer authority to implement cost-control measures. The state must also develop a serious multiyear stabilization plan for the local government program that goes beyond emergency loans, and aggressively pursue prescription drug cost controls, particularly clinical criteria for GLP-1 medications.
At the federal level, New Jersey’s congressional delegation must fiercely fight the most harmful Medicaid cuts.
Finally, New Jersey needs an honest public conversation that acknowledges public employees are not the villains.
Educators, police officers, firefighters and retirees built their lives around benefit promises the state designed. This crisis is the result of decades of deferred reform, and stakeholders deserve honest leadership to enact durable solutions before the system collapses.
