North Carolina state employees soon will have to pitch in a bit more for their health insurance, but that won’t be enough to save the State Health Plan For Teachers and State Employees from insolvency, says one budget expert.
In an effort to salvage the program, which faces a $30 billion unfunded liability, Senate Republicans in March introduced a Senate Bill 265, putting the state health plan under the control of the state treasurer and requiring state employees to pay a monthly premium for health insurance. Gov. Bev Perdue vetoed the bill, calling it a pay cut for teachers and other state employees.
Even that fix would be temporary, as the $30 billion shortfall must be accounted for. State policymakers may be tempted to dump the State Health Plan entirely if the federal health care reforms known as ObamaCare are implemented fully. Doing so would reduce the state’s immediate obligation to employees by more than $1,000 per worker annually. And if the health plan disappeared, its unfunded liability would vanish as well.
The overall cost of covering state workers would not diminish — indeed, it could expand. But the funding would be spread among all federal taxpayers, hiding some of the cost to North Carolinians.
The delayed premium became possible because state employees used about $7 million less in health care services than expected last year. Republican lawmakers and the governor agreed to use the savings to cover the full cost of premiums for basic insurance plans through July 2013, or until the money runs out. After that, state employees choosing basic 70/30 health insurance will contribute about $10 a month. Employees choosing the premium 80/20 coverage plan will contribute about $20 a month immediately.
No time for delay
Instead of using the $7 million as a short-term patch, lawmakers should’ve applied it to the health plan’s $30 billion unfunded liability, said Joe Coletti, director of health and fiscal policy studies for the John Locke Foundation.
The $7 million might seem like a drop in the bucket, Coletti said, but they have to start somewhere.
“It’s like saving for retirement. The sooner you start — even if it’s just a couple of dollars here and a couple of dollars there — through the magic of compound interest that accrues to a lot,” Coletti said.
“Everybody agrees state employees are going to have to start paying premiums eventually,” Coletti added. “The governor’s argument is ‘let’s just delay it as long as possible.’ And if she can put it off until after the 2012 election, she’s accomplished her goal.”
Although there was a small amount of savings this year, there was a $500 million deficit just a year before that, Coletti said.
“Medical expenses are really hard to gauge year-to-year,” he said. “So they might have saved a little this year and be in the hole again next year.”
Republican Senate leader Phil Berger agrees. He would have preferred saving the money rather spending it, but “sometimes when you’re dealing in the political realm, what you have to deal with is what you are able to accomplish, not with what you want to accomplish,” he said.
“Unfortunately, the governor wouldn’t sign a bill that had that kind of provision,” Berger said. “We were unable to pass a bill with sufficient majorities to override a veto.”
The fact that state employees eventually will be required to pay a portion of their health coverage is a “huge step in the right direction,” Berger said.
Having state employees pay monthly premiums, higher deductibles, and higher co-pays on prescription drugs are all steps in the right direction, Coletti said, but they are Band-Aids on a gaping wound.
Without changing the entire structure of how insurance works, the State Health Plan is doomed, he said. It should allow for health savings accounts or health reimbursement arrangements allowing state employees to shop for insurance of their choice.
Berger said those are great ideas, but the federal health law limited what changes state lawmakers could make. The State Health Plan currently is exempt from the new mandates set forth in ObamaCare, he said. But any drastic changes would cause the plan to lose its grandfathered status, subjecting it to new federal requirements. The cost of meeting those requirements could outweigh any savings from structural changes to the plan.
“The fact that we were constrained in that way prevented us from having a full discussion about what those broader changes might be,” Berger said.
Coletti also praised lawmakers’ decision to turn over management of the health plan to the state treasurer’s office, saying she was better trained and equipped than the General Assembly to sort out the plan’s budget and that her decisions might be less politically driven.
“But given the structural impediments to the state health plan, it really doesn’t matter who’s in charge of it,” he said.
With little leeway to fix the health plan’s financial troubles, Coletti said the state simply could choose not to insure its employees when ObamaCare fully takes effect. It would have to pay a $2,000 penalty per employee per year for doing so, but that’s small potatoes compared to the $6,000 per employee per year the state now spends on health coverage.
State employees then would have to purchase insurance from a health insurance exchange, a pool of federally approved health insurance policies.
Most state employees — those making less than $80,000 for a family of four — would receive a $2,000 annual federal subsidy for purchasing insurance from the exchange.
Coletti figures that federal subsidy, plus a $2,500 salary increase, should be enough for state employees to purchase their own health insurance. This would leave the state spending about $4,500 per employee per year on health care, significantly less than the $6,000 it spends now.
Tennessee ran the numbers last year and decided the state could make money off the deal, Coletti said. Many states likely will follow suit.
Dumping state employees into a federally subsidized insurance program might sound good to state taxpayers, but that move simply would offload the cost to federal taxpayers — in other words, everyone.
In the meantime, Coletti expects the temporary fix will keep the State Health Plan afloat for a few more years.
Sara Burrows is an associate editor of Carolina Journal.