Civitas Review

Senate Budget Would Eliminate Retiree Health Benefits for Future State Workers

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Jun
25

A major provision in the Senate budget plan has received little attention before now. The Char-O has the details:

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.”

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.

The state's massive unfunded liability for retiree health benefits is a topic I've been writing about for years.

Indeed, this 2012 article closely examined the State Health Plan, with a focus on the retiree benefits. Some findings from that report include (data was current as of 2012):

  • The total unfunded liability for retiree health benefits was $33 billion – ranked 9th highest nationally on a per capita basis
  • More than half a billion taxpayer dollars ($516 million) were required to finance the health benefits of retirees in the FY 2012-13 budget
  • 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

The unfunded liability for state retiree benefits is massive and has been growing rapidly. North Carolina's practice of offering both heavily subsidized health insurance for current workers and fully subsidized coverage to qualified retirees is far more generous than most large private companies and most other state governments.

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