Vast Majority of Decrease Due to Renegotiation of Medicare Advantage Contract That Could Result in Nearly $1 Billion in Savings
RALEIGH –State Treasurer Dale R. Folwell, CPA, announced that the state’s Net Other Post-Employment Benefits (OPEB) has been reduced by almost $3.3 billion. The actuarial report from Segal Consulting places the state’s Net OPEB Liability at $27.74 billion from its previous valuation of $31.64 billion. OPEB are benefits (other than pensions) that U.S. state and local governments provide to their retired employees. These benefits principally involve health care during retirement.
Much of the decrease is due to the renegotiation of the Medicare Advantage Fully Insured Plan and Related Services. In March, Treasurer Folwell and the State Health Plan (Plan) announced that the contract for those services was awarded to Humana as a result of a required competitive bid process. The potential annual cost savings under the new contract is approximately $197 million or almost $600 million over the course of the three-year contract. If extended, the contract could save $1 billion. The renegotiation lowered the OPEB liability by $6.15 billion but after considering offsets due to Discount Rate Assumptions, that net savings comes in at around $3.2 billion.
“This is great news for state and local employees, retirees and taxpayers,” said Treasurer Folwell. “It’s another example of taking advantage of our largeness and putting the savings toward one of the largest unfunded health care liabilities in the country.”
The reduced long-term liability comes on the heels of an historic allocation of $32 million per year for the state’s Retiree Health Benefit Fund (Fund) – the trust that pays for health insurance for retired teachers, state employees, and other public servants. The allocation was passed this year as part of bipartisan legislation (House Bill 1218 and Senate Bill 818) to address the state’s $50 billion in unfunded pension and health care liabilities.
This money was in addition to $475.2 million that was made available to the Fund also as a result of the renegotiation of the Medicare Advantage contract. It was the first time any funds have ever been set aside to address these liabilities.
“We’ve made great strides in reducing health care and pension liabilities in four years,” said Treasurer Folwell. “Since 2017, the percentage of the Plan that is funded has almost doubled from 3.52% to 6.92%. In contrast, the pension fund is over 88% funded. Now, the hard work of getting rid of secret health care contracts, lowering the cost and increasing access to medical care begins.”
The N.C. Department of State Treasurer (DST) serves the people of North Carolina through a variety of functions related to the financial health of the state and its citizens. Treasurer Folwell serves as the state’s banker and chief investment officer and is responsible for approximately $200 billion in assets. The department administers the employee retirement systems for more than 900,000 public workers, along with their 401(k), 457 and 403(b) plans. DST also oversees the State Health Plan, which provides health care coverage to more than 727,000 teachers, state employees, retirees, current and former lawmakers, state university and community college personnel, and their dependents.