Governor Sherrill’s first budget proposal provides an early look into the administration’s healthcare affordability agenda. In her budget address, the Governor called healthcare “one of the biggest crises of our time.” The administration’s Affordable Healthcare Action Team has plainly stated that, “For far too many residents, healthcare is simply too expensive.”
We agree.
Governor Sherrill rightfully notes that the national healthcare system is a root cause of New Jersey’s problems. Nationally, per capita healthcare spending continues to grow rapidly. This trend has burdened people with private insurance the most, as costs for them rose much more over 2008-2024 compared to per enrollee costs for Medicare or Medicaid.
Notably, healthcare challenges are greater here. New Jersey spends more per resident on healthcare than all but nine other states (and the District of Columbia). In our earlier blog, we observed that rising prices, especially by hospitals, are a major driver of New Jersey healthcare spending. Without state action, these costs will continue to rise rapidly. Below, we offer perspectives on Governor’s Sherrill’s approach to healthcare affordability, as reflected in her budget priorities, and make recommendations to strengthen this approach. There are two main tasks that we have outlined for the governor’s administration to consider.
Task 1: Minimize the Damage from H.R.1
The most urgent cost challenge facing the state is the federal Budget Reconciliation law enacted last July, also known as the One Big Beautiful Bill Act (OBBBA) or just H.R. 1. The law effectively slashed funding for a wide swath of publicly financed health insurance coverage. This includes not renewing enhanced Obamacare subsidies and imposing severe restrictions on eligibility for Medicaid, the Obamacare insurance exchange, and even parts of Medicare. The Medicaid and Medicare restrictions exclude most non-citizen immigrants other than permanent residents (i.e., green card holders). This will hit New Jersey particularly hard, as nearly 1 in 4 residents is an immigrant, second only to California.
The Governor’s budget addresses H.R.1 and related issues in important ways. It maintains or modestly increases funding for the state’s healthcare safety net, including NJFamilyCare (Medicaid), Cover All Kids for children regardless of immigration status, Federally Qualified Health Centers, and hospital charity care for the uninsured. Some initiatives seek to improve the efficiency of care and treat problems early before they lead to more expensive medical episodes. This includes sustaining funding for the New Jersey Maternal and Infant Health Innovation Authority and expanding Family Connects NJ, which deploys registered nurses to visit with mothers and newborns two weeks after birth. The state will also receive a small portion ($147 million this year) of federal Rural Health Transformation Program funding. Although limited in amount and scope, it will help to expand the healthcare workforce, remote monitoring technologies, and preventive services. Each of these can help move the needle on affordability if done well.
These efforts can be enhanced by some of the recommendations of the Affordable Healthcare Action Team, which include creating an intergovernmental task force to coordinate with the private sector to use legal and administrative means to minimize the dislocations caused by H.R.1 and modernizing enrollment systems to ensure all eligible residents retain benefits in spite of new barriers created by the federal legislation.
In a tight budget year, it is good to see sustained commitment to the healthcare safety net. However, even with this commitment, federal cuts and restrictive enrollment rules will lead to a growing share of New Jersey residents with no health coverage, magnifying the affordability crisis for thousands.
Task 2: Reverse the Underlying Cost Trends
In the near term, tackling healthcare affordability requires subsidizing care for those least able to afford it, but no state can entirely subsidize their way out of the affordability crisis. The key to making healthcare more affordable for everyone, regardless of their source of coverage, is to reverse the underlying cost trends. Broadly, this would involve structural and regulatory changes throughout the state’s health sector. Such changes are technically complex and politically challenging.
This is where the governor’s budget offers a start. It continues to support the Office of Health Care Affordability and Transparency (OHCAT), which runs the Health Care Affordability, Responsibility, and Transparency (HART) program that in turn sets targets for healthcare spending growth statewide. Recent reporting by the HART program clearly illustrates the affordability challenge; statewide health spending growth per person from 2022 to 2023 was 6.1% compared to a target rate of 3.5%.
However, HART program targets are not binding on insurers or providers. While imposing fair yet binding targets is technically and politically challenging, several states have already done so. New Jersey should be next. The transition Action Team suggests codifying the HART program in law and establishing a hospital price growth benchmark. This would be an important step that the governor and legislature should enact as soon as possible.
Slowing healthcare costs requires timely tracking of prices and services. It also requires visibility into market acquisitions by monopolistic health systems or profit-seeking investors. Yet New Jersey is the only state with a program like HART that does not assemble comprehensive healthcare claims data, and we lack critical timely information about rapidly changing healthcare provider ownership arrangements. A stronger data infrastructure, including a comprehensive All-Payer Claims Database (APCD), is essential for tackling the affordability gap.
With an improved data infrastructure and stronger commitment to cost reduction, New Jersey could identify specific populations who use highly priced or avoidable services and connect them with more cost-effective services. This approach could build upon existing programs renewed in the governor’s budget such as the Quality Improvement Program-New Jersey (QIP-NJ). This pay-for-performance program incentivizes hospitals to improve care and reduce some avoidable costs for maternal and behavioral health patients. With the right data, powerful QIP incentives could be constructed to promote even more cost-effective, high-quality care.
Bold action is needed
Our recommendations to strengthen the governor’s healthcare affordability agenda are not easy or quick fixes. Some will object to greater scrutiny over privately negotiated prices, while others, particularly self-insured employer plans not regulated by the state, may decline to participate. Nevertheless, the financial and political costs of limited action will be much higher than those of the bold steps needed to achieve healthcare affordability in New Jersey. Financially burdened families deserve effective results.
Joel Cantor is a technical consultant for the NJ HART program. The views expressed in this blog are those of the authors and do not necessarily reflect those of the HART program or other sponsors of work by the authors.