People who go to work for the state beginning January 2021 will no longer qualify for state health insurance when they retire, a provision in the budget that caught critics by surprise.
Republican state senators want limits on future retiree benefits to control costs and get the state more in line with perks private-sector employees get. The state employee health plan has a $42.2 billion unfunded liability, estimated future costs that are outpacing revenue.
The retiree health care provision is in the budget the legislature passed this week. Republican senators filed a bill limiting future state employees’ retirement benefits that received a committee hearing earlier this year. That bill never went to a vote.
The change will not affect current employees or retirees, or anyone hired before 2021.
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Representatives from state employee, retiree and teacher organizations said eliminating the retirement benefit will hurt recruitment and retention. State salaries don’t compete with private-sector wages, they said, so retiree benefits are an important lure.
Mark Jewell, executive director of the North Carolina Association of Educators, said everyone thought the proposal to end retiree benefits was dead. “Then, it sneaks up buried in the budget,” he said.
Ending state health coverage for retirees is going to make it harder to hire teachers, he said. New teachers won’t want to stay in the profession for 30 years.
“We have a statewide teacher shortage crisis,” Jewell said. “This is going to exacerbate it.”
Employees hired on or after Oct. 1, 2006, receive state health insurance at no cost when they retire with at least 20 years of service.
For retirees who are 65 and qualify for Medicare, the state pays $278 per month for a supplemental health care plan called Medicare Advantage. Alternatively, retirees who qualify for Medicare can use one of the state health plan options as supplemental insurance.
State retiree health care costs $892 million a year, according to the state Treasurer’s Office, with retirees 65 and older costing $634 million.
Senators did not return calls seeking comment, but one of the main proponents of the idea, Sen. Andy Wells, a Hickory Republican, has written about it extensively.
“Right now, a state employee can retire after working for the state for 20 years, and the state will continue to pay for his health insurance,” Wells wrote in a May email to constituents. “He could retire at fifty and get free health insurance for 15 years – until he applies for Medicare – then gets a free supplement.”
Leaders of employee groups, and one recent retiree, said the end of retiree health insurance will make state jobs hard to fill.
“I think it’s going to be devastating, to tell you the truth,” said Bonita Johnson, 55, who retired in February from a job in food services at the Murdock Developmental Center in Butner. “That’s the reason people want to work for the state to begin with, for the benefits.”
Ardis Watkins, a lobbyist for the State Employees Association of North Carolina, said the state has increased salaries for certain jobs, correctional officers who work in prisons, for example, and that higher pay still isn’t enough to attract as many people as the state needs.
Ending retiree health benefits compounds the problem, she said.
“It’s a simplistic effort without addressing the real issue, which is the overspending in the health plan over years and years,” and which new state Treasurer Dale Folwell is addressing, Watkins said. “Rather than allowing those to be addressed, this knee-jerk reaction is going to create a bigger problem.”
Folwell said he did not ask for the provision and was not consulted on it. He wouldn’t say whether he liked the idea – “I will obey the law” – and added that he is concentrating on strengthening the health plan.
The Office of State Human Resources said it, too, was concerned about the loss of retiree health care hurting the ability to recruit and keep employees.
“We believe this is particularly true for hard to fill positions like healthcare technicians, nurses and other challenging jobs,” the agency said in an email.
“We value state employees, and reducing benefits for them potentially sends the wrong message about the important work they do and the services they provide for the people of North Carolina. We would appreciate an opportunity to openly discuss, study and collaborate on this important issue.”
Richard Rogers, executive director of the N.C. Retired Governmental Employee Association, said the organization is going to try to get the decision reversed before 2021.
“There’s no doubt in my mind – having retiree health brings the best and the brightest to the state,” he said.