North Carolina Governor Vetoes Bill to Require State Employees to Help Pay for Coverage

Published May 2, 2011

North Carolina Gov. Bev Perdue, a Democrat, vetoed a measure which would have filled a major budget shortfall by requiring teachers and state employees to pay a monthly premium for their health insurance plan for the first time.

North Carolina’s State Health Plan for Teachers and State Employees faces a $515 million budget shortfall over the next two years and a $30 billion unfunded liability over the next 30 years. Lawmakers voted to balance the budget by making state employees pick up more of the tab and placing the plan under the supervision of the state treasurer, the goal of Senate Bill 265, which was passed by the Senate and House before being vetoed by Perdue.

Draconian Burden or Fiscal Responsibility?

Under SB 265, for the first time ever, state employees would have been asked to pay a monthly premium for their health insurance—about $20 for the best plan and $10 for a basic plan, or about 5 percent of the total cost of coverage. They also would have had slightly higher deductibles and co-pays for office visits and prescription drugs.

Senate President Pro Tem Phil Berger, R-Rockingham, noted private-sector employees almost always are expected to pay premiums for their health care.

A heated debate over the bill broke out on the House floor when Democrat Jennifer Weiss of Wake County said the bill would impose “draconian costs” on state employees, many of whom make between $30,000 and $40,000 per year. She suggested instead implementing a $1-per-package cigarette tax to close the budget gap.

Despite such arguments, the measure passed the House 66-53, and the Senate by a 29-16 vote.

Divided Public Employees

The measure divided the two largest public employee organizations in North Carolina. The North Carolina Association of Educators staunchly opposed the bill, but the State Employees Association of North Carolina largely supported it.

In a press release, SEANC said, “the positive portions of this bill far outweigh the negative.” They criticized the NCAE for its opposition to the bill, saying the premium is a small price to pay for a bill that will give state employees “a strong voice and real ability to reclaim the State Health Plan.”

Severe Lack of Oversight

A lack of oversight may have allowed the health plan to get into serious financial trouble, says Joe Coletti, director of health and fiscal policy studies for the John Locke Foundation. He maintains the executors of the state health plan have had little to no oversight. They were expected to make periodic reports to a legislative committee, but the committee didn’t meet often and may not have known what questions to ask.

In December 2008, the manager of the plan, George Stokes, reported to the General Assembly the plan was on track financially, predicting a $25 million surplus. A few months later, Stokes reversed course, reporting a $200 million deficit, which turned into a $400 million deficit by the end of the 2009 fiscal year, and an additional $300 million deficit projected for 2010.

“They were running into cash-flow problems, trying to manage whom they pay when, and how they pay it,” said Coletti. “The General Assembly had to scramble to find the money.”

Under SB 265, administration of the plan would have been transferred from a legislative committee to the state treasurer.

“The General Assembly is one of the few legislatures in the country that oversee[s] the state health insurance,” Berger said.

Treasurer’s Broader Portfolio

The state health plan operates on a “pay-as-you-go” basis, with contributions only enough to handle current benefits. According to Coletti, health plan managers don’t even think about how to pay for a retiree’s health benefit “until he’s 55 and starts using it.”

Today the plan needs $3.6 billion to provide health care to state employees through 2013. To meet the projected $30 billion it will cost to provide health care to all current state employees from now until their deaths, the state has set aside just $500 million.

Sen. Tom Apodaca (R-Henderson), the bill’s sponsor, called putting the state health plan in the state treasurer’s hands a “natural fit,” as the treasurer already controls the state pension plan.

Coletti agreed, saying state employee benefits should be looked at as a whole and calculated in the same place.

“This would let the treasurer decide what payments should be made now, how much will be needed in the future, and what comprises the best combination of compensation,” Coletti said.

Veto Override Vote Possible

Since the treasurer has actuaries and budget experts on staff, Apodaca maintains the treasurer’s office is better equipped than the legislative oversight committee was to keep track of the plan’s financial health. He plans to push to override Perdue’s veto in the coming weeks.

“They’ll be able to monitor it on a daily basis, where we only met a couple of times a year,” Apodaca said. “What we need to be doing is not managing the health plan. We need to be doing legislative matters.”

State Treasurer Janet Cowell agreed.

“Having the Plan under the executive branch is a good way to ensure accountability and good governance,” Cowell said.

Sara Burrows ([email protected]) is an associate editor of Carolina Journal, where portions of this article previously appeared. Used with permission.