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Unfunded Actuarial Liability for Retiree Health is Large, but State Could Save Up to $64 Million Annually by Shifting Costs to Medicare Advantage Plans (July 2015)

Summary

North Carolina’s Retiree Health Benefit Fund contributes the State’s share of retiree premiums to the State Health Plan. Unfunded liability for the fund is $25.5 billion, and North Carolina is not a strong performer on measures used to compare the funded status of states. Several options to reduce the unfunded liability exist: increasing appropriations, shifting costs to the federal government, transitioning to a defined contribution model, reducing the number of individuals eligible, requiring contributions from active employees, and increasing the amount retirees pay for the benefit. To address the unfunded liability, the General Assembly should direct the State Health Plan to shift costs to the federal government by requiring eligible retirees to be on Medicare Advantage plans, generating an estimated savings of up to $64 million annually, and could appoint a joint committee to determine which other options to pursue in light of financial and legal considerations.

Final Report

Executive Summary

Presentation

Relevant Legislation:

  • House Bill 24/Senate Bill 22 (2017–18): An act to establish a joint committee to study the unfunded liability of the Retiree Health Benefit Fund, as recommended by the Joint Legislative Program Evaluation Oversight Committee.
  • House Bill 1027/Senate Bill 808 (2015–16): An act to establish a joint committee to study the unfunded liability of the Retiree Health Benefit Fund, as recommended by the Joint Legislative Program Evaluation Oversight Committee. This legislation was not enacted.

Agency Actions:

  • The Department of State Treasurer agrees that maximum participation of eligible retirees in the Medicare Advantage plans can generate value to participants and the State. The State Health Plan intends to improve Medicare Advantage participation rates by auto-enrolling all Medicare primary retirees in a Medicare Advantage Plan during each annual open enrollment period. This enrollment strategy can be implemented by the State Treasurer and does not require legislative action.
  • The Department of State Treasurer supports any forum charged with investigating options for reducing the unfunded liability of the Retiree Health Benefit Fund.

Press Coverage:

Related Evaluations:

PED Contact:

Program Evaluation Division, North Carolina General Assembly
Legislative Office Building, Suite 100
300 North Salisbury Street , Raleigh, NC 27603-5925
919-301-1404