What if the State Health Plan goes broke?

For as long as most of us can remember, North Carolina's employee State Health Plan has been troubled, often described as being in crisis. In 2010, the plan had reported unfunded liabilities of $29.3 billion, almost as much as the total state budget.

The liability soared to a reported $40 billion in 2016, but State Treasurer Dale Folwell worked diligently to improve the plan and succeeded in reducing liabilities, but not permanently. As of June 30, 2024, the liability had risen to $34 billion.

Why has the health plan for public employees been in such a threatened position more than 20 years?

Just saying that the problem is complicated is an understatement. The flow chart of receipts and expenditures looks like a spider web of constituencies, entities and recipients. Some 740,000 current and retired public employees are members of the plan that has annual receipts of more than $4 billion and pays out slightly more than that amount in claims, according to the 2024 Annual Report of the State Health Plan.

The plan's history has contributed to some portion of the liability. When first started, the office of management and budget administered the plan, but OMB ascertained it wasn't capable of managing it and the administration of the health insurance plan was transferred to the Insurance Commissioner's office. The legislature grew dissatisfied with that department's oversight and took over the management itself for a while. After some years of problems and liabilities growing even larger, lawmakers grew frustrated and cajoled the State Treasurer to take charge, since that agency also managed the public employee retirement systems.

The plan has undergone many changes and revisions. At its inception, employees didn't pay any monthly premiums and after five years of employment, they got their personal health insurance provided for life at no charge, beginning at age 65. It became obvious this was unsustainable. But it wasn't until 2018 that employees were first charged premiums of $25 per month. It has escalated greatly since then. And since 2021, new employees have a tiered percentage of health insurance provided at retirement, based on how many years they worked in government.

We know what has happened to healthcare costs over the past decade. The Peterson Center for Healthcare reports that in 1970 the per capita cost of healthcare was $353. By 2000, it had risen to $8,253 and by 2023, was $14,570. Forbes reports that healthcare costs in NC are the highest of any state in the nation.

In addition to the current and retired members, there many other players with roles and interests. Healthcare providers, like doctors and hospitals; insurance companies; pharmaceutical companies; the legislature, passing laws and funding the plan; federal regulations and programs like Medicare; third-party administrative fees; and administrative and claims fees from the Treasurer's office. It's complicated!

Through the years there have been serious attempts to at least staunch the bleeding. It's not that nothing has been done. But despite those efforts, the problems persist and even grow, resulting in lots of finger-pointing.

What happens if the State Health Plan problems continue to grow as they have? Does there come a point when the legislature, which contributes $3.4 billion annually, decides to reduce or refuses to increase funding as costs increase? If the State Health Plan went broke, the state would likely lose its coveted Triple A credit rating, making it harder to borrow funds at attractive interest rates. And recruiting and retaining public employees would be extremely difficult.

What would happen to the roughly three-quarter of a million current public employees and retirees? Without health insurance, a large number would leave their jobs in government. Where would they get healthcare? Would they resort to already crowded hospital emergency rooms for treatment? Federal law requires that hospitals serve anyone who comes to them for healthcare. And besieged by a flood of new emergency department patients, many already uninsured, would hospitals be able to stay solvent, or would they just increase prices for the rest of us?

None of us hope these or other scary scenarios ever happen but problems don't just go away.

We almost want to urge all the interested parties to lock themselves into a room with a pledge they won't leave until they have either resolved the problems or at least made significant progress.

Transparency is essential to any solution, as is truthfulness and a willingness to compromise. If things can't continue as they are, there must be changes. There must be compromise and everyone must have skin in the game. No one party can make all the sacrifices.

The one undeniable truth is we can't continue kicking the can down the road. For the betterment of public employees and the entire state, solutions need to be found. The status quo isn't acceptable.