The state of North Carolina has unfunded liabilities for its retiree health benefit fund totaling $25.5 billion, a legislative oversight committee learned Monday.
“We found the unfunded actuarial liability for the retiree health benefit is large, but the state could save up to $64 million annually by shifting costs to Medicare Advantage plans,” said Kiernan McGorty, principal program evaluator for the General Assembly’s Program Evaluation Division.
McGorty gave the report to the Joint Legislative Program Evaluation Oversight Committee, which evaluates whether public services are delivered effectively and in accordance with the law.
North Carolina ranks 41st in the nation in unfunded liabilities per state resident, McGorty said. Eight states are worse off than North Carolina. Nebraska, which didn’t provide data, was not included in the evaluation.
While the state should have no problem paying retiree health care benefits in the near future, if no action is taken, payments could be jeopardized at a later time, McGorty said.
McGorty said several options would put the state on better footing. However, she said, all require higher payments by the state, more contributions by retirees, or reduced benefits. Some alternatives also could pose legal challenges, she said.
Those options include moving some retirees to Medicare Advantage plans; increasing the state contribution to the fund; moving to defined contribution plans such as Health Reimbursement Arrangements or Health Savings Accounts; reducing the number of individuals eligible for benefits; or requiring active employees to pay for retirees’ benefits.
Increasing the amount of time employees are with the state before they qualify for retiree benefits could reduce the number eligible for benefits, McGorty said. For example, a state retiree now needs 20 years of service to receive retiree health benefits. Some states require 25 to 30 years of employment before qualifying, McGorty said.
McGorty said the potential for litigation exists if the state changes benefits for current state employees.
Rep. Pat Hurley, R-Randolph, recommended that the state proceed cautiously.
“Whatever we do, we need to go slowly and be sure that we’re not going to have unintended consequences down the road, because I know many of us were told when we were hired that we would have health [benefits] forever,” said Hurley, a retired deputy clerk of court and teacher.
After the meeting, Rep. Nelson Dollar, R-Wake, senior chairman of the House Appropriations Committee, said the retiree health plan liability is a long-term issue.
“It is an issue that we need to take a look at,” Dollar said. “We need to be attentive to it and working toward long-term solutions. There’s no way you’re going to resolve all of it in any sort of short time period. It’s a liability that’s projected out over 30 years. We need to work on solutions that are long-term solutions.”
Flint Benson with the State Employees Association of North Carolina said lawmakers need to keep in mind that such benefits help in employee recruitment.
“If you want to attract and retain new employees, you need to take a hard look at that before you make a decision,” Benson said.
The committee took no action on the recommendations. Committee members said they wanted to review the report more before making a decision.
Barry Smith (@Barry_Smith) is an associate editor of Carolina Journal.