NC State Health Plan expects to spend $1 billion more than planned. Here’s why

The North Carolina State Health Plan, which serves hundreds of thousands of retired and active state employees, is currently in the second year of a contract with Aetna and projects it will spend more than $1 billion over what was originally planned for its three-year contract.

According to State Health Plan Executive Administrator Tom Friedman, the increase is largely due to higher-than-expected health care costs.

“Unit costs are higher than we thought. People are using more services than we thought. People are using services in more expensive places,” he said in an interview with The News & Observer earlier this month, adding that even small miscalculations can lead to billion-dollar differences over time.

Phillip Blando, an Aetna spokesman, said on behalf of the insurer that through negotiations, it “has secured the most competitive discounts in the state.”

“While our negotiations have successfully lowered total cost, we understand that across the span of any long-term contract, there will be fluctuations in cost — and we saw that in 2025 with overall hospital costs increasing more than expected across the entire industry,” Blando said in an email.

The United States spends nearly twice as much per capita on health care as comparable countries, yet has worse health outcomes, a gap driven primarily by higher payments to hospitals and physicians, according to the Peterson-KFF Health System Tracker, a nonpartisan health policy initiative.

The U.S. also spends nearly four times more on health administration than peer countries, $925 per person compared to $245, driven largely by overhead from private insurers and government programs like Medicaid and Medicare, according to Peterson-KFF. The U.S. also spends significantly less on long-term care.

Aetna replaced Blue Cross Blue Shield of North Carolina in 2025 as the plan’s third-party administrator after a competitive bidding process led by former Republican State Treasurer Dale Folwell. Brad Briner, also a Republican, took over as treasurer in 2025.

Blue Cross NC sued over the loss, but a judge ruled the process was fair, and Aetna ultimately won the contract.

The contract with Aetna included an option to extend for two additional years, but the state instead opened a new bidding process on March 20.

And on April 15, the State Health Plan announced it was restarting that process after none of the bidders met the minimum requirements of the contract.

A new request for proposals was posted on Tuesday.

The $1 billion difference comes from the gap between State Health Plan projections and Aetna’s bid in 2022, which outlined its projected contract value.

For the 2025 contract, Aetna projected a total value of about $9.9 billion over three years, including $293.6 million in administrative costs and the remainder in claims costs.

Beth Horner, speaking on behalf of the plan, wrote in an email that the latest projection for medical claims in the first three years of the contract is $10.96 billion due to increased costs in 2025, with administrative fees expected to reach $373 million based on “participation in additional administrative programs.”

She said the plan added two savings programs offered by Aetna that together added about $30 million more a year in administrative costs. One was a program that applies contracted or negotiated rates to out-of-network claims and another ensures claims are coded properly, Horner wrote.

For Friedman, “Trying to predict big numbers over a long period of time, I kind of think about it like a spaceship project. If you go off like an inch, you wind up having a billion-dollar difference.”

Increasing costs “are in part a symptom of the hospital system consolidation that’s happened around the country and especially in North Carolina,” Blando said, “along with an overall increase in utilization of higher cost services.”

Friedman said they estimated costs would continue increasing by about 6% to 7% annually.

In a March State Health Plan board of trustees meeting, data was presented that showed the plan’s medical cost trend reached 15.8% in 2025 — nearly double an industry benchmark of 7.9% and significantly above the public sector benchmark of 10.2%. Medical trend is a measure of how much more or less is being spent on health care compared to the prior year.

Emma Turner, the chief economist for the plan, said in March that the high cost trend in 2025 “did accelerate through the end of the year significantly.”

“Under a new TPA contract, there’s a lot of uncertainty, especially once people hit their out-of-pocket max and there’s these costs that come in at the end of the year, and they come in very high,” she said. She said they projected that high cost trend would come down.

Data she presented showed that the State Health Plan is projected to lose $8.1 million in 2026 — a $144 million swing from the $136 million profit that was originally budgeted. The loss primarily came from lower-than-expected premium revenue and higher-than-expected medical claims costs, data shows.

But the plan does not expect to ding Aetna on claims costs from 2025.

In their 2022 bid, insurers were scored on pricing guarantees that set savings targets and required them to put up a portion of their fees as a penalty if those targets were not met.

Loretta Boniti, a spokesperson for the plan, said the plan has not yet received Aetna’s 2025 pricing guarantee report, which is expected later this quarter, and does not anticipate Aetna will fall short.

But the plan collected $5 million from Aetna in 2025 for missing other performance guarantees, she said.

Aetna will “remain steadfast in our commitment to lowering costs of care and are confident that we will drive cost savings over the entirety of the three-year contract while continuing to provide our members with the quality care and support they deserve,” Blando said.

Friedman told The N&O earlier this month that under Folwell, the health plan “ initially wanted the lowest possible administrative fee and then, the next year had to buy a few more services to make sure the plan could run smoothly.”

He said, “I am not trying to pay materially more for administrative fees unless I am getting materially more,” adding that the plan wants to focus on population health and patient navigation.

“I don’t want to be penny wise, to be dollar foolish,” he said.

He also said in a contract, he wants more flexibility to pay doctors directly instead of paying insurers: “How can we carve out services where we want to, where we think we would rather pay doctors in North Carolina to deliver care than pay an insurance company to deliver some services?” Friedman said.

He added, “I want the flexibility to be able to kind of attack problems. And I think that’s a very different way to think about administrative fees.”

On potential issues should the State Health Plan shift to a third-party administrator that is not Aetna, Friedman said, “transitions are, by nature, a little bit rocky, and we’re going to try to learn the lessons we learned last time, continue to get feedback from members and try to address the issues.”

He said that out of millions of claims, there were less than 1% with issues, but “that’s still unacceptable, and it’s still our job to solve them.”

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