By Rose Hoban
In the first of what the new state Treasurer calls “ask me anything” phone calls with the media, Dale Folwell characterized the finances of the health insurance plan that covers more than 650,000 state employees, retirees and their family members as being “on life support.”
Treasurer Dale Folwell told reporters on Monday morning that the proposal for the coming year was to increase premiums by 3.4 percent, which he said would take $680 million out of the plan’s reserve fund of about $921 million over the next two years.
“Prescription drug costs are going up by double digits, medical costs are going up 8 percent,” Folwell said. “You cannot go up on a premium by 3.5 percent and not take that money from somewhere else.”
After several years where revenues were more than earnings, in 2015 and 2016 the plan ran a deficit. In 2015, that deficit was only $7.7 million, but in 2016, the deficit totaled $94.4 million, less than the budgeted deficit of $258 million, but a deficit nonetheless.
An even bigger concern for Folwell is the longer term liability for retiree health costs. Many state employees are eligible for retirement before they’re old enough to qualify for Medicare at 65 years old. Those older retirees, who tend to be sicker, get their health care costs covered by the plan.
According to an actuarial study done last year, the liability for future health care costs runs about $32 billion, something Folwell said he should focus on paying down, especially as Baby Boomers start retiring.
‘Number one desire’
State employees don’t have to pay any premium for their own health insurance. All an employee has to do is sign up for the “traditional” 70/30 plan, and they have no premium and have about $1,000 per year as a deductible. About a third of state employees are signed up for this plan.
A study done by the state treasurer’s office in the beginning of 2016 showed only one other state that’s comparable to North Carolina in size and benefits had a $0 employee premium on offer.
“If you were a single person in North Carolina, you’d think it’s terrific,” said Maria Schiff, who compiled a report for the Pew Charitable Trusts on state employee health plans that was published in 2014.
Another 42 percent of employees choose, to pay a relatively small premium in exchange for lower deductibles and more choice of doctors in the next level 80/20 plan.
And if a state employee needs to cover a spouse, kids or other dependents, all of a sudden, North Carolina’s State Health Plan gets very expensive indeed. To cover just a spouse can be as much as $669 per month and to cover an entire family can cost as much as $709 per month above the cost of the employee him or herself.
“It’s tragic that we have beginning troopers… and beginning teachers, who make 37,000 or 40,000 bucks a year and they choose the family premium on the State Health Plan, they’re going to have to work five days out of every month of this year to pay the family premium,” Folwell said.
Aside from the expense, those high premiums are a problem because a state employee who has the option will find another way to get their kids covered. Usually that’s done through a spouse’s insurance.
It also means that young healthy people, who, as a rule, pay more in premiums than they cost in expenses, are not in the State Health Plan. The plan ends up losing any revenue those younger, healthier people generate for the plan.
“We have got to figure out how to attract young healthy people back to the State Health Plan,” Folwell said. “That’s my number one desire.”
Out of the pool
One of the problems with high premiums for spouses and families in the plan is that those folks get pushed out of the risk pool for the State Health Plan.
And risk pools are important, noted Duke University health economist Don Taylor.
“Any kind of insurance has got to have a pool of people big enough to have enough healthy people in it to subsidize the sick, same as car insurance and homeowner insurance,” he said.
Folwell worried Monday about the way the State Health Plan’s risk pool skews older and sicker. So, he wants to make the plan more stable, with more younger, healthier people getting – and staying – in the plan.
Otherwise, he said, “You dip into reserves, you dip into reserves and go off the financial cliff and then we have to go to the General Assembly for hundreds of millions, if not billions of dollars.”
And, last year, the premiums paid by employees and their employer, the state of North Carolina, were not enough to cover all the costs of insurance. So the state dipped into reserves.
Law and policy makers in the state may fret about how much it costs to cover more than a half million state employees – including teachers – but compared to many other states, North Carolina is on the low end of what it pays per employee. In the Pew study, North Carolina ranked the state 35th in the nation in 2013 in what it paid for employees.
And the state pays a flat rate. In 2017, no matter what option an employee chooses, the state will pay $479.48 per employee each month for their insurance.
In contrast, most other states’ the government pays more of the premium when the worker pays more too. And when workers pay more toward their insurance, they often get better benefits in exchange. In other states, out-of-pocket costs for spouses and children end up lower, because they’re shared by the state and the worker.
Nonetheless, in North Carolina, stakeholders representing state employees have staunchly resisted increased premiums for their members. Their argument is that state employees make less than they could in the private sector, they should get decent benefits in exchange for less salary.
“Neither way is right or wrong, but it’s different ways to allocate state dollars,” said Pew study author Schiff.