Unless you’re a fiscal policy wonk (don’t be ashamed if you are), you may not know that North Carolina needs to figure out how to keep a more than $25 billion promise.
House Bill 24 and Senate Bill 22 would create a committee to study options for covering the future cost of paying for the future health care costs of retired state workers. There is no easy fix, but here are a few things to keep in mind as this debate unfolds.
We’re not in crisis yet, but this is a serious concern. Like most states, North Carolina currently relies on a pay-as-you-go model for covering the health care costs of retired state employees, meaning that we are paying now for the health costs of retired state workers, essentially paying for service to the state that has already been rendered. This also means that we have not set aside funds for future retiree health care costs, which is commonly referred to as an “unfunded liability.” North Carolina’s unfunded obligation to state workers has increased over the last few years and it is projected to continue growing. Unfunded retiree health benefits are not broadly seen as a crisis yet, but the current trajectory is toward needing larger and larger yearly appropriations to pay for retired state workers’ healthcare.
We should not balance our books on the backs of people who have served our state. HB 24 and SB 22 identify several possible options for reducing the size of North Carolina’s unfunded obligation to retired state workers (all of which were previously studied by the Program Evaluation Division of the General Assembly in a 2015 report). Unfortunately, several of the specified alternatives would impose the costs on current and retired state workers, the people who teach our children, pick up our mess, safeguard our communities, and do myriad other jobs that make North Carolina a great place to live. In the future, these moves could dramatically undermine our ability to recruit dedicated and talented people into public service. Many state employees have not seen a meaningful raise in years, which is already making it hard to recruit workers, and that challenge would only compound if we start walking back promises we have made to secure the retirement of state workers.
We need to consider a wider range of options than are currently identified in current bill. HB 24 and SB 22 technically allow the consideration of options not explicitly identified in the language of the bill, but there is a danger in narrowing the focus too early in the process. While some of the options have real merit, the scope of the potential problem requires putting a wide range of viable alternatives on the table.
Recent tax cuts are partially to blame for the fix we are in. North Carolina’s unfunded obligation for retiree healthcare is just one example of the hole that we’ve dug after the last several years’ rash of tax cuts. We could have shored up the state retiree health care system substantially over the last several years, but instead chose to cut taxes on wealthy North Carolinians and profitable companies. Had we actually paid for future retiree costs along the way, this unfunded obligation would not be threatening to upend the state’s fiscal cart.
Changing the Affordable Care Act and other federal health programs could make North Carolina’s problem much worse. A few of the options identified in HB 24 and SB 22 could save the state of North Carolina money by shifting more of the cost to federal programs, but radical changes to these programs could reduce our state’s room for maneuver. First, North Carolina could save by providing incentives for retirees under the age of 65 to purchase insurance on the Affordable Care Act exchanges. Second, shifting retirees over the age of 65 onto Medicare Advantage plans could also reduce the state’s bill. Together, the Program Evaluation Division of the General Assembly estimated that these moves could save the state more than $60 million annually. We have not yet seen a credible plan to replace the Affordable Care Act, but many of the options currently making the rounds in Washington D.C. would make it harder for the state to save money by shifting retirees onto federally-funded programs.
These bills may seem wonky, but the stakes entailed in HB 24 and SB 22 are high. Retired state workers should not have to shoulder the burden of fiscal decisions made in North Carolina over the last several years, or suffer grievous fallout from federal fights over healthcare, so the question is whether North Carolina will do right by the people who have done right by our state.