North Carolina Health Plan with Less Than 5 Percent Funded Ratio New Report from S&P Global Ranks NC as One of the Worst in the Nation

(Raleigh, N.C.) –State Treasurer Dale R. Folwell, CPA, announced today that according to S&P Global, North Carolina's other postemployment benefit (OPEB) liabilities as a combined funded ratio, are less than five percent funded. The November 28, 2018 report confirms previous research by the Pew Charitable Trusts which explains that the state's unfunded retirement/health care costs as a share of personal income are one of the worst in the country, right behind Illinois.

“This new report underscores our immediate need to get medical and pharmaceutical costs for the State Health Plan under control," said Treasurer Folwell. “Every man, woman and child in the state would have to pay almost $3,200 each to cover our current promises of health care for state and local government retirees. We're having to act because others haven't."

The new report noted that “the majority of state plans fund these long-term liabilities on a pay-as-you-go (pay go) basis, which defers contributions until the moment benefits are due and is intensified by medical cost trends outpacing inflation[emphasis added]." The report places North Carolina's total OPEB liability at $34.4 billion.

North Carolina spends more than $3.4 billion annually on health care for active and retired state and local government employees. Medical and pharmaceutical costs are increasing five to nine percent annually and current spending projections estimate that the Plan will be insolvent by 2023 unless action is taken.

“Both S&P and Pew confirm that our current path is unsustainable," added Folwell. “For every dollar spent by state employees and taxpayers like them on things like Wall Street fees or unreasonable health care or prescription costs, is another dollar that can never be spent on education, public safety or roads."

The report notes that by 2030 all baby boomers will be older than 65 with one out of five residents at retirement age. It went on to say that “[W]ithout action to either prefund OPEB liabilities or reduce benefits, OPEB liabilities will likely escalate."

The S&P Global analysis comes as the Plan is pursuing a new provider reimbursement strategy that will save the Plan $300 million and members more than $65 million. The new strategy, to go into effect January 1, 2020, will move the Plan away from a commercial-based payment model to a reference-based government pricing model plus, on average, a 77 percent profit. This effort is aimed to keep rising health care costs under control while promoting quality care, transparency and affordability.

The State Health Plan, a division of the N.C. Department of State Treasurer, provides health care coverage to more than 720,000 teachers, state employees, current and former lawmakers, state university and community college personnel and their dependents, including non-Medicare and Medicare retirees.