North Carolina lawmakers are reckoning with a $25.5 billion problem – and it isn’t a draft of the state’s annual budget, though it’s nearly that size.
It’s an unfunded liability from the state’s retiree health program, and the figure is growing.
But as officials weigh options to bring it under control, they see a quandary.
North Carolina’s senior population is growing, and a retirement boom is expected nationally. At the same time, legislators are hesitant to make major changes in state retiree health benefits, as many employees view them as an important part of their compensation.
“Whatever we do, we need to go slowly and ensure we don’t have any unintended consequences down the road,” said Rep. Pat Hurley, an Asheboro Republican who sits on a legislative oversight committee eyeing the issue.
The 30-year unfunded liability, projected to grow to $37.5 billion by 2020, is in the state’s Retiree Health Benefit Fund, which contributes the state’s share of retiree premiums to the State Health Plan, which gives coverage options to retirees.
Former employees of state government, the UNC system, community colleges, schools and some local governments – legislators, too – are among those eligible.
The $25.5 billion figure, from 2013 but the focal point of a new legislative report, is attributable partly to the program’s “pay-as-you-go” approach and many workers’ eligibility for 100 percent premium coverage from the state.
The new report, from the legislature’s Program Evaluation Division, informed lawmakers that North Carolina in fiscal year 2012-13 had the nation’s 41st highest unfunded liability per state resident for retiree health benefits. Options to shrink that liability include reducing the number of people eligible or increasing premiums and out-of-pocket costs.
The State Employees Association of North Carolina warns against changes that might impact the attractiveness of compensation packages, particularly as state agencies compete with the private sector for young, committed talent. “Already, we’re losing people in many professions,” said association lobbyist Flint Benson.
What the Program Evaluation Division recommends is shifting costs to the federal government, by requiring retirees to be on Medicare Advantage Plans, which could save the State Health Plan about $64 million a year. Medicare is the federal health insurance program for people at least 65 years old. Advantage Plans are offered by private companies that contract with Medicare and can offer extra coverage.
According to Kiernan McGorty, a legislative program evaluator, retirees on Medicare Advantage Plans would pay either the same or lower premiums and receive benefits comparable to State Health Plan options.
But her office isn’t recommending any quick moves, advising lawmakers from the House and Senate to instead form a joint committee to explore all options.
Rep. Nelson Dollar, a Cary Republican, said there’s a bigger picture at stake.
“One thing that probably ought to be looked at and evaluated is, before any major change is made … we need to look at our overall compensation package, what we’re doing, what we’re getting for that,” he said. “Are we getting the quality of employees that we want for what we’re offering?”
The retiree health coverage gulf isn’t confined to North Carolina. A 2012 report from the Pew Center on the States described a $627 billion gap in what states had set aside for retiree health care and other non-pension benefits and what they’ve programmed for beneficiaries.
“While the economy and state revenues are improving, states are still struggling to manage the bill coming due for promised benefits,” Pew researcher David Draine said in a press release at the time.
Benjamin Brown: 919-832-8358, @benbrownmedia