Civitas Review

Much More Needed to Address NC's $25.5 Billion Unfunded Retiree Health Benefit Liability


At a Joint Legislative Program Evaluation Oversight Committee meeting Monday, legislators discussed ways to address the state's $25 billion unfunded liability for state retiree health care benefits. The primary recommendation at the meeting was to "force all retirees on the State Health Plan to enroll in Medicare Advantage. The federal plan, a basic version of which is free to retirees over 65, offers some drug coverage.Backers say the move would save the state up to $64 million per year by shifting costs from the State Health Plan to the federal government."

While its a good sign that legislators are recognizing this massive and growing liability, this proposal hardly amounts to a drop in the bucket. I wrote back in 2012 about this topic and how the generosity of NC's health benefits for retirees is a driving force behind this growing taxpayer liability:

For the (State Health Plan) SHP offers perks that many employees in private industry and even in government in other states might well envy. Consider the following:

  • The active employees’ portion of the SHP premium they are now asked to share for the 80/20 plan is roughly 5 percent of the total cost of the premium (the state picks up the rest of the costs). For the basic 70/30 plan, employees can still enroll at zero cost to insure themselves. For comparison:

    • Employees of large private sector firms pay an average of 19 percent of premium costs for their individual health coverage.

      State and local government employees in the South Atlantic region pay an average of 13 percent of premium costs.

    • Few employers in the private sector offer medical benefits to both active workers and retirees, as North Carolina state government does. In 2010, only 28 percent of large private sector firms offered medical benefits to both employees and retirees.

      • Of those large private employers that do offer medical benefits to both active workers and retirees, 40 percent require the retiree to pay the full premium for coverage while another 30 percent have capped the employer’s subsidy at a fixed dollar amount.

      • Roughly 70 percent of states require retirees to contribute more than a nominal premium, which is all NC now asks.

      • Only seven other states offer to pay 90 percent or more of retiree’s health insurance premiums – even after a maximum qualifying number of years of service.

      • North Carolina is one of only ten states that offer retirees a significant health insurance premium subsidy after only 20 years of service.

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