Future state employees could lose one of the biggest perks of government work: Free health insurance in retirement.
The proposed change appears deep within the Senate’s 500-page budget bill and attracted little notice when the budget was debated last week. Senate leaders say the state must rein in rising costs associated with retiree health coverage.
“North Carolina has a massive $26 billion unfunded liability for retiree medical coverage, and the Senate budget is a prudent way to address the long-term viability of the State Health Plan,” said Shelly Carver, a spokeswoman for Senate leader Phil Berger.
Benefits wouldn’t change for any current state employees, but anyone hired after Jan. 1, 2016, wouldn’t be eligible for health care benefits in retirement. That, Carver says, “would ensure that current state employees are not affected and maintain their coverage throughout their retirement.”
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Currently, state retirees can enjoy fully subsidized health care coverage if they’ve worked at least 20 years for the state and meet age requirements. Employees who retire after 10 to 20 years pay half the cost of their coverage.
Sen. Tom Apodaca, who chairs the Pensions, Retirement and Aging Committee, said he couldn’t comment on the proposal because it came from the Senate’s top budget writers – not his committee. And Sen. Harry Brown, one of the chamber’s lead budget writers, walked away from a reporter without speaking when asked about the change.
The State Employees Association of North Carolina, or SEANC, says killing the retirement benefit is a bad idea.
“Once you take that away, what incentive is there to work for the state?” said Chuck Stone, a SEANC lobbyist on health care issues. “We are in a rush to have the worst State Health Plan coverage in the United States of America.”
Stone says that between stagnant wages and other cuts, “we are having trouble recruiting and retaining career level state employees,” adding that the retirement change could mean top university professors and other sought-after professionals could head to other states or the private sector.
A number of states offer employees subsidized insurance for their spouses and children, but North Carolina doesn’t. “North Carolina’s response has been, ‘But we provide retiree coverage,’” Stone said, adding that he estimates about half of states have a similar offering for retirees.
Even without the elimination of retiree health coverage, SEANC points out that the legislature isn’t putting additional money into the State Health Plan for the next fiscal year.
“Neither the House nor Senate budgets appropriate an amount of money adequate to provide for health care inflation,” Stone said.
For example, the House spending plan would cap monthly employer contributions at $5,479; the Senate’s plan would lower the cap by about 2 percent, to $5,378.
The House budget would direct $71 million to the State Health Plan’s reserves in fiscal year 2016-2017 – but only if State Treasurer Janet Cowell adopts “sufficient measures to limit projected employer contribution increases during the 2017-2019 fiscal biennium.” The Senate wouldn’t add new money to reserves, but its budget would require the health plan to maintain reserves equal to 20 percent of its annual costs.
SEANC worries such a mandate will lead to higher costs for employees and retirees in the program as its administrators pinch pennies to fill the reserves.
The group is backing the House’s budget as the two chambers begin to work toward a compromise spending plan. “We hope that the Senate will take the sacrifices and the dedication of public employees into consideration,” Stone said.
For now, SEANC is getting a late start lobbying against the elimination of retiree health benefits. Stone said he was “caught off guard” and heard about the provision around the time the Senate voted on the budget last week.