Call for State Action as Insurance Costs Squeeze School Budgets

New Jersey school districts facing steep increases in employee health insurance costs are drawing down reserves, reconsidering staffing and programs, and asking taxpayers for more - pressures that local officials and state lawmakers say are exposing gaps in the state's education funding system.

A national survey by the School Superintendents Association (which goes by AASA) and the Association of School Business Officials found 98% of superintendents who responded felt rising health care costs were affecting their budgets. Ninety-two percent said employee health insurance consumed as much as 30% of their general funds, while more than one-quarter reported premium increases exceeding 20% during the course of two years.

Districts reported using reserves, cutting instructional materials and technology spending, delaying hires and reducing family coverage options to absorb the increases.

In Haddon Township, the school district initially projected a 25% overall increase in health care costs for 2026-27 before the final figure came in at 18%. The district also reduced a projected 30% increase in prescription costs to about 8% by changing plans through its broker while keeping benefits the same.

The relief was relative, said Kellie Hinkle, president of the Haddon Township Board of Education and founder of the New Jersey Fair Funding Collective. The NJ Fair Funding Collective is a group of educators, school board members, parents, and community members committed to making New Jersey's public school funding system more predictable, equitable, and stable.

"We felt so relieved at 18%, which is still a big number," Hinkle recalled.

Costs Exceed Districts' Room to Maneuver

Health insurance expenses are not directly incorporated into New Jersey's school funding formula, an issue the Fair Funding Collective wants the state to address as it reviews school aid.

"One of our recommendations is about healthcare because while it's not directly tied to the formula itself, it really deserves its own category because the costs are astronomical and they're really consuming a lot of districts' budget capacity," Hinkle said.

The collective is developing recommendations for the state Department of Education and the state legislature. Their proposals will include measures to limit payments for high-cost hospital procedures in New Jersey's school employee health plans, aligning these payments with Medicare rates.

They also plan to address issues with pharmacy benefit manager (PBM) markups, reform the governance of the State/School Employees' Health Benefits Program, and revise Chapter 44 to ensure payers have a say. Additionally, they aim to incorporate a healthcare cost-growth factor into the cost assumptions of the formula and emphasize that the issue should not be resolved by shifting costs onto districts, which could lead to reduced benefits or increased financial burdens on employees.

One proposal, the Property Tax Relief Act (S-4282/A-5086), would cap certain hospital payments at 165% of a reference price for in-network services and 150% for out-of-network services. Hinkle pointed to Oregon, where comparable measures were estimated to save about $107.5 million during their first 27 months.

New Jersey's proposed limits would be stricter, she said.

The act was proposed by Sen.

Joseph F. Vitale, a Democrat who represents District 19, in May of 2026.

The group also supports changes to pharmacy benefit manager practices, including more transparent pricing, fair dispensing fees, and restrictions on practices that can increase costs. The issue has become more prominent as prescription spending rises, including spending on GLP-1 weight-loss medications.

The Haddon Heights Board of Education cited GLP-1 drug costs among the factors contributing to a roughly $2 million budget gap this year.

The district adopted a 6.93% tax increase, cut 10 positions and increased student fees. Read more about the Haddon Heights budget at TheRetrospect.com.

Collingswood Business Administrator Beth Ann Coleman said the expected expiration of Chapter 44, the 2020 law that bases employees' health-benefit contributions on salary, adds urgency.

"While Chapter 44 changed contribution structures, it failed to curb the underlying cost of healthcare," Coleman said.

"With Chapter 44 set to expire in December 2027, Trenton must step up with real systemic reform, cost-containment measures, and plan-design flexibility before escalating insurance costs force deeper cuts into New Jersey classrooms." Under Chapter 44, school districts pay the remaining cost of health benefit contributions outside of school employees' shares. The law also applies to districts outside the State Employee Health Benefits Program when they select comparable plans.

State Benefits Program Faces Deficits

Assemblyman Lou Greenwald, a local Democratic representative for District 6 and the legislature's Assembly Majority Leader since 2012, stated to The Retrospect that local school districts are facing significant pressures.

"The School Employees' Health Benefits Program is in real trouble," Greenwald said.

"As districts with healthier employee populations leave for cheaper coverage, the districts that remain are forced to pay more." Greenwald said legislation included in this year's budget transferred money into the program to keep claims paid and avoid an immediate midyear premium increase. The budget also directs the State Employee Health Benefits Plan Design Committee to identify $75 million in savings.

As of December 31, 2025, the program's Claims Stabilization Reserve, a fund designed to buffer against unpredictable claims, was facing a deficit of $66 million. State projections indicated a planned transfer of $70 million in 2026.

Aon, the state's benefits consultant, recommended a significant increase in local education premiums for 2027: a 34.4% rise in overall active premiums, which includes a 32.4% increase in medical premiums and a 45.5% increase in prescription coverage.

The State Department of Education also said it recognizes the pressure that benefit costs are putting on districts. The department is examining the issue as part of a broader review of how school funding is distributed, spokesman Mike Yaple said.

The state's Fiscal Year 2027 budget includes $12.4 billion in K-12 aid and limits yearto-year aid changes to give districts more stability as funding shifts, state officials said. But Yaple said substantial revisions to the formula would require legislation and coordination among the administration, legislature and stakeholders.

Gov. Mikie Sherrill has directed the department to engage educators, families, community leaders, lawmakers and others in the funding formula review. The Fair Funding Collective plans to submit recommendations, though Hinkle said durable changes could take years and might not bring relief before the 2028-29 school year.

Republican state Sen.

Latham Tiver, who represents district 8, criticized the state's aid-increase cap and said the funding formula has treated districts inconsistently.

"New Jersey's school funding formula is broken, and the arbitrary cap on aid increases is only making it worse. For years, Trenton Democrats told districts they had to follow the formula no matter how painful the cuts were. Still, now that the formula calls for some of those same districts to receive more aid, suddenly following it is optional," Tiver told The Retrospect. "Republicans have been saying for years that we can fully fund our schools if we cut wasteful spending and stop pouring hundreds of millions of dollars into pork."

Congressman Donald Norcross, a Democrat who represents District 1 covering Camden County and parts of Gloucester and Burlington counties, said the state should address the causes of escalating costs.

"The answer is to address the root causes of rising healthcare costs while ensuring schools don't lose their already limited resources, and the billions of dollars in cuts to K-12 funding that President Trump and Republicans are pushing for will only suffocate local budgets further." Rep. Norcross said.

"The biggest thing we can do right now for school budgets is to kill those federal cuts." For school leaders, the immediate problem remains the same: Health costs are largely fixed in annual budgets, leaving fewer choices elsewhere.

"If nothing does change at the state level, we'd have to cut other things that are under our discretion, and that could mean student programming," Hinkle said.

Distributed by Newsbank, inc.