What’s the Health of the State Health Plan?

Fall Edition 2024 | Living Power Magazine
By Tim O’Connell

A 2024 Forbes article listed North Carolina as the most expensive state in America for healthcare. This isn’t news to the North Carolina State Health Plan administrators, who operate within this reality combined with historical legislative underfunding. In the current budget, the legislature has elected to underfund the State Health Plan by $240 million despite a $987 million surplus. This underfunding issue isn’t just a distant large number, but a pressing concern as it directly undermines the benefits available to active employees, retirees, and the future workforce.

To be clear, this is not the first time a legislature has not fully funded the State Health Plan. Over the decades, Republican and Democratic General Assembly leadership has only sporadically provided the necessary full funding. Treasurer Dale Folwell inherited a 2% funding level of the plan’s liability, which at that time put North Carolina in competition as one of the nation’s lower-funded plans per capita. Its closest competitors for this dubious distinction were states plagued by declining populations, stagnating economies, high debt ratios, and revenue shortfalls.

North Carolina has been fortunate not to have most of these issues since its founding, and if it did, only for relatively brief periods. The State Health Plan funding issue has been the holy discontent of each State Treasurer since Harlan Boyles before the turn of this millennium. Folwell has railed against the rising cost of healthcare, prescriptions, and, at times, the legislature for this predicament

As a state with a certain amount of pride for one of the lowest debt ratios in the country while maintaining its AAA bond rating through the decades, it’s difficult for most to find logic or reason for legislative leaders to choose to neglect this liability when resources have been available more often than not. A current example is not relieving the burden of expenses the State Health Plan incurred with COVID-19. At the time of the Living Power Fall 2024 issue, the state had received $110 billion in federal pandemic relief funds. Having only spent 40% of these funds, $65 billion remains that could be used to offset the costs the State Health Plan absorbed to combat the COVID-19 pandemic.

The legislature’s indecision and financial stranglehold on funding for the health plan are to the detriment of the state’s finances, public servants, retirees, and the health and wellbeing of a significant portion of its population. Here are just a few examples:

  1. State employees hired after January 2021 are no longer eligible for healthcare retirement benefits. When these career public servants reach retirement eligibility, they will be faced with committing a significant portion of their retirement income to healthcare costs. For a comparison point, at the time this decision to end the healthcare benefit was made by the North Carolina legislature, 89% of states still offered healthcare benefits to their retirees under age 65. (US Bureau of Labor Statistics National Compensation Survey 2021).
  2. In 2023, a bill was included in the State budget, removing UNC and ECU healthcare workers entirely from the State Health Plan and, subsequently, the pension plan. The most recent actuarial reports indicate this decision has created an additional $1 billion liability to the State Health Plan. This amount will now have to be paid out by all other employers within the state.
  3. The 2025 increase in Medicare Advantage cost plans for some retirees and their dependents is just the most recent negative outcome. The appropriate State Health Plan funding level would mitigate this expense, so retirees on fixed incomes would not be forced to absorb it.
  4. With nearly 15% of the state’s population (actives, retirees, and dependents) receiving benefits through the State Health Plan, the impact on the healthcare of North Carolinians is being weakened, when we have ample opportunity to strengthen it.

Proper funding from the state legislature is essential to ensure the long-term viability of the State Health Plan and to provide adequate healthcare coverage for the state’s employees, retirees, and dependents. By addressing these issues and securing the necessary funding, North Carolina can work toward a more sustainable and equitable healthcare system for its public servants.

Want to learn more? Click here for a deeper look into the finances and scenarios Health Plan Trustees are considering.