Despite the fact that North Carolina already ranks near the bottom nationally in the generosity of its retiree health plan—better only than Georgia—Senate and House lawmakers met on Monday to mull over ways to address the plan’s looming unfunded liability, with some options including a reduction and even elimination of the state’s commitment to providing its workers with retiree health benefits.
Highlighting an unfunded liability of $25.5 billion for the Retiree Health Benefit Fund that is expected to grow at least another ten billion dollars by 2020, a new legislative report presented to the Joint Legislative Program Evaluation Oversight Committee suggests a number of ways to reduce that debt.
The top recommendation? Shift some of the cost of retiree health benefits to the feds by requiring retirees to enroll in Medicare Advantage Plans. That move could save the state up to $64 million annually, reducing the unfunded liability by an estimated $3 billion—and avoid shifting more health care costs to retirees.
But the report outlined a number of other ways to address the swelling debt that has developed thanks in part to a ‘pay as you go’ funding model that fails to pre-fund the state health plan as other states do.
Options include increasing funds for the program, shifting more costs to the retiree or eliminating retiree health benefits altogether for new hires—the latter of which the Senate has already proposed in their budget for 2015-17.
“Whatever we do, we need to go slowly and ensure we don’t have any unintended consequences down the road,” cautioned Rep. Pat Hurley as lawmakers weighed their options.
Shifting costs to the feds saves state more than eliminating benefit for new hires
The option of shifting retiree health benefit costs to the federal government by requiring retirees to enroll in Medicare Advantage plans would save the state more money than eliminating the state-funded retiree health benefit altogether for new hires, according to the report that was authored by legislative staff at the Program Evaluation Division.
With the Medicare Advantage option, North Carolina’s retirees would enter into a health care plan that provides coverage drawing from both the federal and state plans. There would not be an increased cost for retirees, and the state would see an 11.8 percent reduction to the projected unfunded liability.
Senate lawmakers, however, have endorsed another idea that’s also outlined in Monday’s report: get rid of state-provided health retirement benefits for all new state employees and teachers hired after January 1, 2016.
But that option would reduce the state’s unfunded liability by an estimated 10 percent — less than the option to shift costs to the feds, an 11.8 percent reduction as noted earlier.
Senator Jerry Tillman (R-Randolph) told N.C. Policy Watch last week he’s a proponent of the idea to eliminate retiree health care for prospective teachers and state employees.
“Once you get hundreds of thousands of people on that that are no longer teaching and no longer serving — nobody else that has something that will go on for life,” said Tillman. “I don’t know anybody.”
Flint Benson, a lobbyist for the State Employees Association of North Carolina, testified on Monday that eliminating the retiree health benefit could result in a serious recruitment problem.
In many states, health retirement plans are a guaranteed benefit to public employees who often serve at a lower pay rate than what the private sector can offer.
Already, said Benson, the state is losing out on talented labor thanks to more generous compensation packages offered in the private sector, and this move would worsen the problem.
Scrooges of the nation?
The legislative report signals out North Carolina’s State Health Plan for being one of the least generous in the nation.
Looking at the value of state health plans that are offered to retirees across the nation, North Carolina ranked 49th — only ahead of Georgia.
That means retirees bear a higher cost burden than their counterparts elsewhere when it comes to out of pocket expenses like deductibles, coinsurance and copays.
“So that means we are the scrooges of the nation?” asked Sen. Louis Pate (R-Mount Olive).
State Health Plan administrator Mona Moon also pointed out to lawmakers that part of what plays into the State Health Plan’s poor rating is the fact that unlike most states, North Carolina doesn’t subsidize health care benefits for state employees’ dependents.
But despite the fact that families already shoulder a huge burden before retirement by having to pay full freight for their dependents’ health insurance (unless a spouse has access to another plan), another option to reduce the state’s unfunded liability presented Monday is the option to switch to a defined contribution plan.
That move would shift the risk of rising health care costs and poor investment returns to the employees, and put clear limits on what the state will pay for health care.
The switch would also come after years state employees having to shoulder the burden of rising healthcare costs passed down to them already by the state.
“Premium surcharges and other expenses associated with the State Health Plan have occurred, resulting in a cost shift to members of more than $1,300 on average per state employee–active or retired–each year,” SEANC lobbyist Chuck Stone told N.C. Policy Watch.
That cost increase, said Stone, amounts to more than most state employees have seen in pay raises in recent years.
It’s unclear how lawmakers will move forward with the options presented Monday, but Senator Tillman told N.C. Policy Watch he believes the Senate’s proposal to do away with retiree health benefits for new teachers and state employees hired beginning next year will become law.
“I think it will,” said Tillman of the chances of the Senate’s proposal passing muster in the General Assembly. “But it will only be prospectively.”
Education reporter Lindsay Wagner can be reached at 919-861-1460 or firstname.lastname@example.org