Folwell touts $7 billion drop in State Health Plan retiree liability

North Carolina has seen a $7 billion improvement over the past year in the shortfall for government retirees’ health benefits. That’s according to a new report from The Segal Group.

“This is a positive report, as we are benefiting from the tailwinds of high interest rates, but facing headwinds of inflation and the exorbitant costs of health care,” said State Treasurer Dale Folwell in a news release promoting the report. “Despite the progress, more work remains to be done to achieve even greater stability in the fund.”

The unfunded liability in the state Retiree Health Benefit Fund had been projected to hit $32.44 billion as of June 30. The unfunded liability dropped instead, from $30.92 billion in June 2021 to $23.75 billion as of June 30 this year. Along with the $7 billion decline in unfunded liability, the plan’s funding level increased from 7.72% in June 2021 to 10.58% this June 30, according to Folwell’s release.

The plan’s funding ratio stood at just 2.4% when Folwell first won statewide election as treasurer in 2016. He “inherited a system mired in financial hardship,” according to the release. The funding level has increased “more than fourfold” since that time.

The treasurer credits higher discount rates for much of the health benefit fund’s improvement. Discount rates are interest rates used to assess present values of future cash flows. Folwell also cites savings tied to a new pharmacy benefit services contract that takes effect Jan. 1, along with a renegotiation of Medicare Advantage services.

A state Unfunded Liability Solvency Reserve Act now steers more money toward retiree health benefits. The General Assembly can appropriate money directly toward the unfunded liability. The act also steers money toward unfunded liabilities after the state reaches its rainy-day fund legal requirements.

“There is a long-term solution to decreased liabilities,” Folwell said. “Hospitals need to be transparent in posting their prices. And they should do the right thing by cooperating with us in reducing costs to the health plan by weeding out $300 million annually in waste and inefficiencies in health care delivery.”

More than 609,000 people either use benefits now or are eligible for benefits in the future. Government employees hired after Jan. 1, 2021, are not eligible for retiree health benefits.