retiree health report

8/20/2019 Retiree Health Report

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Unfunded Actuarial Liability for Retiree HeLarge, but State Could Save Up to

$64 Million Annually by Shifting CostsMedicare Advantage Plans

Final Report to the Joint LegislativeProgram Evaluation Oversight Committee

Report Number 2015-05


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Program Evaluation Division

North Carolina General AssemblyLegislative Office Building, Suite 100

300 North Salisbury StreetRaleigh, NC 27603-5925

919-301-1404www.ncleg.net/PED

75 copies of this public document were printed at a cost of $46.95 or $0.63 p


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Program Evaluation Division300 N. Salisbury Street, Suite 100Raleigh, NC 27603-5925

Tel. 919-301-1404 Fax 919-301-1406

John W. TuDirector

NORTHC AROLINAGENERAL A SSEMB

Legislative Services Office

Beverly Adams, Interim Legislative Services Office

July 27, 2015

Senator Fletcher L. Hartsell, Jr., Co-Chair, Joint Legislative Program Evaluation ORepresentative Craig Horn, Co-Chair, Joint Legislative Program Evaluation Overs

North Carolina General Assembly

Legislative Building

16 West Jones Street

Raleigh, NC 27601

Honorable Co-Chairs:

The 2013–15 Program Evaluation Division work plan directed the division to com

funding status of North Carolina’s Retiree Health Benefit Fund to other states’ fun

explore options for improving its funding status.

I am pleased to report that the Department of State Treasurer, including the Stat

Plan, cooperated with us fully and was at all times courteous to our evaluators du

evaluation.

Sincerely,

John W. TurcotteDirector


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PROGRAM E VALUATIONDIVNORTHC AROLINAGENERAL A SSEMBLY

July 2015

Unfunded Actuarial Liability for Retiree Health is LState Could Save Up to $64 Million Annually by SCosts to Medicare Advantage Plans

Summary The Joint Legislative Program Evaluation Oversight ComWork Plan directed the Program Evaluation Division to estatus of North Carolina’s Retiree Health Benefit Fund. Ththe State’s share of retiree premiums to the State Healthseveral health plan options to non-Medicare-eligible (yoMedicare-eligible (65 and older) retirees. In 2004, the Accounting Standards Board began including in its stand

governments report liabilities for retiree health benefits

North Carolina’s unfunded actuarial liability for the RFund is $25.5 billion. Several factors explain the largebenefits are funded on a pay-as-you-go basis (meaningwhen they are provided rather than prefunded during aemployment); retirees with sufficient contributory servicenon-contributory benefit (meaning the State pays 100%and benefits are available to essentially all retirees withnumber of years of service.

North Carolina is not a strong performer on any of thecompare the funded status of states. In Fiscal Year 201Carolina ranked 41st in unfunded liability per state residhealth benefits, with only eight states performing worse. states with a funded ratio of 10% or less for its retiree hone of 26 states that paid less than 50% of its annual re

The General Assembly could consider the following ounfunded liability of the Retiree Health Benefit Fund:appropriation to the fund, (2) shift more costs to the fedetransition to a defined contribution model, (4) reduce theindividuals eligible for the benefit, (5) require active emto the fund, and (6) increase the amount retirees pay for


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Retiree Health

Purpose and

Scope

Through its 2013–15 Work Plan, the Joint Legislative Oversight Committee directed the Program Evaluationcompare the funding status of North Carolina’s Retiree

Fund to other states’ funds and explore options for impstatus.

This study addresses six research questions:1.

Who makes decisions about North Carolina’s rbenefits, and how are they funded?

2.

What is the funding status of the Retiree Health3.

How does the funding status of the Retiree Heacompare to the funding status of other states’ f

4.

What options exist for improving the funding stHealth Benefit Fund?

5.

What is the legal feasibility of making changefunding status of the Retiree Health Benefit Fun

6.

How should the General Assembly proceed in mreduce the unfunded liability of the Retiree He

The Program Evaluation Division collected data from s

including national data from the Center for State and Lo

Excellence, Medical Expenditure Panel Survey,of State Retirement Administrators, and Pew;

research on other states;

interviews with and data from the Department and State Health Plan; and

interviews with the Retiree Health Benefit Fund

experts at North Carolina State University.


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Retiree Health

BackgroundIn addition to being eligible for pension benefits,1 retiCarolina state government are eligible for retiree heaform of comprehensive medical benefits received from

Plan. The retiree health benefit is available to former State (including legislators), the University of North Cacommunity colleges, Local Education Agencies, charter Carolina Housing Finance Agency, and a limited numbgovernments.2 Based on an average salary of $43,84employees and teachers, the annual value of the retirewas approximately $3,727 per active employee in 20

History of Retiree Health BenefitsState governments across the country began offering htheir retirees in the 1960s and 1970s, coinciding with plans by large, unionized firms in the private sector foestablishment of Medicare in 1966.4 Employers offer benefits to improve recruitment, retention, and transitioExhibit 1 shows the timeline of how retiree health beneevolved into what they are today.

The retiree health benefits discussed throughout this reavailable under current law. The current eligibility criteby the General Assembly, and the current benefits areTreasurer subject to the approval of the State Health PTrustees.5 N.C. Gen. Stat. § 135-48.3 states the Generreserves the right to alter, amend, or repeal any sectioregarding the State Health Plan. The legal ramificatioto the current eligibility criteria or benefits are not cleahas not ruled whether there is a contractual obligationbenefits.


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Retiree Health

Retiree Health Benefits for Individuals Younger than

Retirees younger than 65 have access to the same Stabenefits as active employees. The State Health Plan o

Provider Organization (PPO) plans to retirees youngeoffer freedom of choice among in-network providers, costs, and a strong emphasis on preventive health.6 Allprescription drug coverage.

Traditional 70/30 Plan (70/30). This plan is pretiree-only coverage when service time requirexchange for higher deductibles, coinsurance, Affordable Care Act preventive services and m

copays under this plan.

Enhanced 80/20 Plan (80/20). This plan has hexchange for lower deductibles, coinsurance, aAffordable Care Act preventive services and mcovered at no charge.

Consumer-Directed Health Plan (CDHP). This deductible health plan that is accompanied by

Reimbursement Arrangement. Affordable Careservices and medications are covered at no cha

When individuals younger than 65 retire, they are autin the health plan in which they were enrolled as activechanges to plan elections can be made during the nexperiod.7


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Retiree Health

Exhibit 1: Timeline of Retiree Health Benefits for North Carolina State Employees


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Retiree Health

Retiree Health Benefits for Individuals 65 and Older

When individuals turn 65, they become eligible for Mehas four parts:

Part A. Part A covers most medically necessarynursing facility, home health, and hospice care.directly by the federal government. There is nowho have worked and paid Social Security taxthere is a monthly premium for those who havetaxes for less time.

Part B. Part B covers most medically necessary

preventive care, durable medical equipment, hservices, laboratory tests, x-rays, mental healthhome health and ambulance services. It is provfederal government, and recipients pay a mon

Part C. Part C is a policy that allows private hecompanies to provide Medicare benefits. Theseare known as Medicare Advantage plans. Medplans must offer at least the same benefits as P

do so with different rules, costs, and coverage Advantage plans also may include Part D covemay charge a monthly premium. Medicare Advtypically offer richer benefits than Medicare.

Part D. Part D covers outpatient prescription d

by private insurance companies that have contgovernment.

The State Health Plan mails a Medicare eligibility lettedays prior to a member’s 65th birthday to confirm the for Medicare benefits.9 If members are retired, Medictheir primary insurer, and the State Health Plan becominsurer.10 As the primary insurer, Medicare pays up to coverage. The State Health Plan pays the remainder olimits of its coverage.11 Some medical services are covHealth Plan and are not covered by Medicare. For ex

does not cover annual physicals and the shingles vaccinHealth Plan’s Traditional 70/30 plan does.

8 Individuals qualify for Medicare at age 65 or older if they are U.S. citizens or permanent legal residents anhave worked long enough to be eligible for Social Security—usually having earned 40 credits from about 10


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Retiree Health

Retirees 65 and older can enroll in the State Health Pl70/30 Plan, which includes prescription drug coverageinsurer.

Traditional 70/30 Plan (70/30). This plan is pretiree-only coverage when service time requirAffordable Care Act preventive services and mcopays under this plan.

Alternatively, retirees 65 and older can enroll in Mediplans as their primary insurer. The State Health Plan coand UnitedHealthcare to offer two levels of MedicareBoth levels are open-network PPO plans that allow ret

services from any provider that accepts Medicare, andprescription drug coverage. The Medicare Advantageall services covered by the Traditional 70/30 plan (e.but they do cover previously unavailable services (e.g.disease management).

Medicare Advantage Base (MA Base). This plfor retiree-only coverage when service time re

in exchange for higher coinsurance and copaymcomparable in value to the 80/20 plan in placState Health Plan requested bids from contractplan in Fiscal Year 2011–12).

Medicare Advantage Enhanced (MA Enhancehigher premiums in exchange for lower coinsuracopayments.

Employees who are 65 or older who submit their retirefewer than 60 days prior to their retirement date are enrolled in the Traditional 70/30 Plan. Employees whowho submit their retirement paperwork 60 days or moretirement date are automatically enrolled in a Medicplan.12 Changes to plan elections can be made duringenrollment period.13

Exhibit 2 depicts the number of retirees and their depe

each of the plan options as of January 2015.


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Retiree Health

Exhibit 2: North Carolina Retiree Membership by Plan, January 2015

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

70/30 80/20 CDHP 70/30 MA Base

N

u m b e r E n r o l l e d

Health Plan

Ret irees Dependent s

Retirees DependentsNotes: CDHP stands for Consumer-Directed Health Plan; MA stands for Medicare Advantage.

Source: Program Evaluation Division based on data from the State Health Plan.

The cost to retirees for health benefits depends on thyears of service. N.C. Gen. Stat. § 135-48.40 defineslevels of retiree health benefits based on the number o

Non-contributory coverage. Retirees are eligicontributory” health benefit—meaning the Stapremium cost—if they were hired before Octohave at least five years of service or they wereOctober 1, 2006 and have at least 20 years o

One-half contributory coverage. Retirees are half contributory” health benefits—meaning ththeir premium cost—if they were hired on or a

2006 and have 10 but fewer than 20 years o Fully contributory coverage. Retirees are elig

contributory” health benefits—meaning the Stapremium cost but they have access to State Heif they were hired on or after October 1, 2006than 10 years of service 15


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Retiree Health

Exhibit 3: Monthly Premium Rates for Retirees and Spouses by Plan, 2015

Retiree

Non-ContributoryPremium

One-half ContributoryPremium

Fully ContributoryPremium

Years of Service Hired before 10/1/2006with 5 years of service orhired on or after10/1/2006 with 20 yearsof service

Hired on or after10/1/2006 with 10 butfewer than 20 years ofservice

Hired on or after10/1/2006 with fewerthan 10 years of service

L

MedicareEligibility Non-Medicare Medicare Non-Medicare Medicare Non-Medicare Medicare

70/30 $ 0 $ 0 $ 224 $ 174 $ 448 $ 348

80/20 $ 14 Not offered $ 238 Not offered $ 462 Not offered

CDHP $ 0 Not offered $ 224 Not offered $ 448 Not offered

MA Base Not eligible $ 0 Not eligible $ 115 Not eligible $ 115 N

MA Enhanced Not eligible $ 33 Not eligible $ 148 Not eligible $ 148 N

Notes: CDHP stands for Consumer-Directed Health Plan; MA stands for Medicare Advantage. Rates are rounddollar. The Enhanced 80/20 Plan and CDHP offer financial incentives for taking steps to improve one’s health.members completed all three wellness activities—smoking attestation, primary care provider selection, and hereduce their premiums as much as possible. The table does not include the premiums for coverage of children o

Source: Program Evaluation Division based on information from the State Health Plan.

The cost to the State Health Plan to insure retirees diwhether retirees are eligible for Medicare. As shown not yet eligible for Medicare (younger than 65) are mState Health Plan than retirees enrolled in Medicare (aLoss ratios compare the cost of providing health servicgenerated by premiums.16 A group with medical costs premiums collected on its behalf has a loss ratio greatewhereas a group that has lower medical costs than the

on its behalf has a loss ratio less than 100%. As shownretirees had a loss ratio of 162% in 2014, meaning thcosts exceeded premiums collected by 62%; for everycollected, the State Health Plan paid $1.62 in expenseMedicare retirees had a loss ratio of 48%.

Similarly, coverage for non-Medicare retirees plus the


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Retiree Health

had a loss ratio of 146% in 2014, meaning the groupexceeded premiums collected by 46%; for every $1 ithe State Health Plan paid $1.46 in expenses. In contrretirees plus their spouses had a loss ratio of 80%.

Exhibit 4: Loss Ratios Are Higher for Non-Medicare versus Medicare Retirees, 20

80%

48%

146%

162%

0% 50% 100% 150% 200%

Medicare Retiree+ Spouse

(n = 16,329)

Medicare Retiree Only

(n = 121,694)

Non-Medicare Retiree + Spouse

(n = 8,138)

Non-Medicare Retiree Only

(n = 44,461)

Notes: “n” denotes the total number of individuals covered by the plan. The chart does not include the loss ratiochildren or families.

Source: Program Evaluation Division based on data from the State Health Plan.

As more individuals retire and healthcare costs contimportance of controlling retiree health benefit costs2012 report, the PEW Center on the States drew attenof retiree health benefits on a nationwide scale, reporgap between states’ assets and their anticipated expehealth benefits in Fiscal Year 2009–10.17 National he

expected to grow, on average, 1.1% faster between the expected average annual growth rate for the GroProduct.18 These rising costs coincide with a forthcominamong the U.S. population, as the percentage of U.S. and older is expected to rise from 13.7% in 2012 to 2The combination of these factors has prompted states tfund account for and provide health benefits to their


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Retiree Health

Questions and Answers

1. Who makes decisions about North Carolina’sbenefits, and how are they funded?

Five state entities make key decisions regarding reti(see Exhibit 5). The General Assembly has legislative all aspects of the State Health Plan, including its adminhealth benefits. The General Assembly stipulates who participate in the plan and reserves the right to alter, any section of state law regarding the State Health PlAssembly delegates management of the State Health Treasurer and oversees the State Treasurer, the State

of Trustees, and the State Health Plan Executive Adminthe Appropriations Act, the General Assembly funds thBenefit Fund, which is used to pay retiree premiums to Plan.

The State Treasurer establishes State Health Plan beneemployee contributions, and out-of-pocket costs subjecState Health Plan Board of Trustees. The State Treasurinvests the money in the Retiree Health Benefit Fund. O

include setting the allowable charges for medical and benefits, establishing and operating fraud detection aand implementing and administering pharmacy and mmanagement programs. The State Treasurer may entewith the U.S. Department of Health and Human Serviceplan’s benefits with those provided by Medicare.

The State Health Plan Board of Trustees performs straState Health Plan and approves contracts with a value

$500,000. The board must approve benefit programsemployee contributions, and out-of-pocket costs propoTreasurer before implementation. The board provides State Treasurer on the creation of administrative rules implementation of procedures regarding prior medicareviews, and internal grievances.

The State Health Plan’s Executive Administrator is appTreasurer and handles the day-to-day operations of thExecutive Administrator’s responsibilities include negoticontracts on behalf of the plan, managing staff, and sureports and recommendations to the President Pro Temand the Speaker of the House of Representatives. The Administrator and the Board of Trustees jointly decidegrievances are subject to external review and adjudic


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Exhibit 5: Oversight, Management, and Administration of Retiree Health Benefits

Notes: According to N.C. Gen. Stat. § 135-48.12, the Committee on Actuarial Valuation of Retired Employees'Controller, State Treasurer, and Executive Administrator of the State Health Plan. According to N.C. Gen. Stat.members: the State Treasurer serves as chair and only votes to break ties, the Director of the Office of State Bappointed by the Governor, two members are appointed by the State Treasurer, two members are appointed

appointed by the Speaker of the House of Representatives. The appointees must include a current and retired Source: Program Evaluation Division based on general statutes.


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Retiree Health

The Committee on Actuarial Valuation of Retired EmplBenefits, sometimes referred to as the OPEB Board, is maintaining data for and contracting with an actuariaannual actuarial statements of the Retiree Health Bene

North Carolina funds its retiree health benefits on a basis. The Retiree Health Benefit Fund is a trust fund, tmay be used only for payment of retiree health benefadministrative costs.20 The State funds the Retiree Heapay-as-you-go basis, meaning the State funds the trusprovided during retirement rather than prefunding theemployee’s active employment. In general, the amountdesignates for the fund each year is the amount needehealth benefit costs for that same year. Since 2005, thhas appropriated enough for the fund to have an aveof $92 million in its reserve. However, because the Stathe Retiree Health Benefit Fund in any meaningful waythe trust fund to accrue funds and earn interest is limiteState could decide to make contributions during emplocareers so that when employees retire those contributioinvestment income would pay for the entire cost of em

a portion thereof.

As shown in Exhibit 6, the Department of State TreasurGeneral Assembly with an annual actuarial estimate oincrease in the employers’ share of retiree premiums. Tuses historical claims experience to estimate the amounanticipated increases in cost and utilization and anticipto benefit changes.21 This estimate also assumes the bumaintenance of an adequate reserve, typically 9% of costs, to cover fluctuating cash flows and fiscal year-enFuture premium rates are impacted by the State Healtfinancial performance. If claims experience is less thancash reserves increase during the year, and the requirin the next year will be lower than originally projectedclaims experience is higher than projected, the plan wcover the increased cost, and the required premium incyear will be higher than originally projected. Based on

estimate, the General Assembly set the maximum emppremiums at $448 per month for non-Medicare retireemonth for Medicare retirees in Fiscal Year 2014–15.


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Exhibit 6: Process for Funding the Retiree Health Benefit Fund

Source: Program Evaluation Division based on the 2014 Appropriations Act.


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Retiree Health

The General Assembly’s Fiscal Research Division then dincrease is needed in the employer contribution rate toadditional amount of funds projected to be paid out inRetiree Health Benefit Fund. The employer contribution

keep the inflow and outflow to and from the Retiree Hbalance; the employer contribution rate is not meant toany meaningful way or to generate investment income

The General Assembly does not appropriate funds dirHealth Benefit Fund. Instead, it provides operational fuagencies, universities, community colleges, and school dAppropriations Bill, the General Assembly stipulates thwill amount to a certain percentage of employees’ salupcoming fiscal year. Each participating employer takfrom each of its fund sources and contributes that amoHealth Benefit Fund based on the salaries of its activeYear 2014–15, the General Assembly set the employto the Retiree Health Benefit Fund at 5.49% of covere

North Carolina’s pay-as-you-go method of funding benefits does not promote intergenerational equity.

North Carolina, fund their share of the cost of retiree hpay-as-you-go basis. State governments report they dhealth benefits for several reasons:22

retiree health benefits typically began as an eemployee health benefits, which are usually fuyear’s available revenue;

retiree health benefits were established at a tcosts were more affordable and hence paying

a yearly expense was less burdensome;

the inflation rate for healthcare is less predictapensions, making it difficult to calculate the cur

specific retiree health benefits are generally nlaw (as compared to pension benefits) so empmodify retiree health benefits; and

changes in national healthcare policy and heacan affect what benefits states cover.

Nevertheless, failure to prefund retiree health benefitsbetween generations of taxpayers. Intergenerational concept that each generation pays the costs of the serUsing a pay-as-you-go method to fund retiree health current taxpayers are paying for benefits for retirees serving the State In contrast prefunding retirement be


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Retiree Health

The State’s General Fund is the primary source (68%) covered salaries (see Exhibit 7) and thus the primary scontributions to the Retiree Health Benefit Fund. As shoportion of General Fund revenue spent on the Retiree

is projected to grow during the next decade. As a resupay an increased amount to fund health benefits for reserving the State, and less money will be available foaffecting taxpayers, such as education and Medicaid. Carolina spent an estimated $514.6 million dollars, orFund revenue, on retiree health benefits.23 Projections Fund will expend $807.6 million dollars, or 3.1% of Grevenue, on retiree health benefits in 2020.

Exhibit 7

Funding Sources forCovered Salaries, 2014

Notes: Federal and local funds are for school salaries. Other fundenterprise funds, institutional funds, internal service funds, special

Source: Program Evaluation Division based on data from the Fiscal

Office of State Budget and Management.


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Retiree Health

Exhibit 8: Percentage of General Fund Revenue Spent on Retiree Health Benefit

Notes: General Fund Revenue is calculated on a fiscal year schedule and Retiree Health Benefit Fund Expenditcalendar year schedule, but the difference in timing does not materially affect results.

Source: Program Evaluation Division based on data from the 12-31-2013 Actuarial Statement, Fiscal Research DState Budget and Management.

2. What is the fund ing s tatus of the Retiree Hea

Ten years ago, accounting standards began includin

governments report unfunded liability for retiree heaaccrual basis. State governments have been providingbenefits since the 1960s and 1970s, but the long-termbenefits received relatively little attention until 2004. Governmental Accounting Standards Board (GASB), wstandards of financial accounting and reporting for staAnnual Financial Reports, approved Statement 45. Stagovernments to calculate the long-term actuarial liabil

benefits, called “other post-employment benefits” (OPapproach similar to the one used for pension benefits. is typically retiree health benefits, but states also maydental, disability, and other non-pension benefits in reNorth Carolina offers two OPEBs: the Disability IncomeRetiree Health Benefit Fund.24

2.6% 2.7%2.8%

2.9%3.0% 3.0%

3.1%

$0

$5

$10

$15

$20

$25

$30

2014 2015 2016 2017 2018 2019 2020

B i l l i o n s

General Fund Revenue Retiree Health Benefit Fund Expenditure


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Retiree Health

between the actuarial value of plan assets and the actliability of plan benefits.

Use of the terms “liability” and “accrued” throughout t

intended to imply any unalterable obligation. The Genretains the right to alter, amend, or repeal the State HHowever, so long as the State is offering a health benis important to understand its projected costs, which thi“liability.”

Exhibit 9: North Carolina’s Retiree Health Benefit Had $25.5 Billion in Unfunded L

Source: Program Evaluation Division based on data from the 2014 Comprehensive Annual Financial Report.

North Carolina’s most recent actuarial statement estliability for the Retiree Health Benefit Fund is $25.5 this value could grow to $37.5 billion by 2020. As sthe first actuarial statement of the Retiree Health Beneproduced in 2005 and estimated the unfunded liabilityUnfunded liability rose rapidly in the late 2000s as menumber of retirees increased. The actuarial estimate fopeaked at $32.8 billion in 2010.

Subsequently, North Carolina reduced the unfunded liby leveraging federal dollars. In 2011, the State Heaprovide prescription drug benefits to Medicare-eligiblemployer group waiver plan beginning in 2013. This cState to take advantage of federal reimbursement anunfunded liability by $4.9 billion. Then, in 2012, the S

chose to start offering Medicare Advantage plans begwhich decreased the unfunded liability by another $4.the Medicare Advantage plans include prescription drreplaced the employer group waiver plan. Even after cost-saving measures were taken, the unfunded liabilitHealth Benefit Fund stands at $25.5 billion according

l Th f d’ h


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Exhibit 10: Current and Projected Unfunded Liability of Retiree Health Benefit Fu

Note: No actuarial statement was produced in 2006.

Source: Program Evaluation Division based on actuarial statements.

$0

$5

$10

$15

$20

$25

$30

$35

$40

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

B i l l i o n s

Unfunded liability roserapidly in the late2000s as medical costs

and the number ofretirees increased.

By providing prescridrug benefits throug

federal employer grwaiver plan and by Medicare Advantagthe State Health Planlowered unfunded lia$9.5 billion betweenand 2012.

In 2005, the first actuarialstatement estimatedunfunded liability at $23.8billion. Actuarial statementshave been producedannually since 2007.

As of Decemb2013, unfundwas $25.5 b


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Retiree Health

Experts caution against North Carolina increasing itreduce its unfunded liability for the Retiree Health Bstates have lowered their reported unfunded liability discount rate, which is used to convert projected future

investments into liabilities in today’s dollars. GASB dirediscount rate in their actuarial projections that is consison funds used to pay retiree health benefits. Accordingfund their plans on a pay-as-you-go basis use a discouand 5%. However, some states with trust funds use a hcalculate their retiree health liabilities.

The Retiree Health Benefit Fund’s actuary currently use4.25% in its projections. According to actuarial estimaincreased its discount rate from the current rate of 4.2unfunded liability of the Retiree Health Benefit Fund w$7.2 billion.28 However, North Carolina would violate used a higher discount rate without prefunding the trustime, sound fiscal policy suggests North Carolina shoulddiscount rate which is appropriate to the funding statufund and the yield on assets from which funds are drawbenefits for retirees.

Forthcoming changes in accounting standards for thother variables will likely increase North Carolina’sfor the Retiree Health Benefit Fund. In June 2015, GAOPEB reporting requirements in Statement 75, which r45. GASB has specifically stated the new OPEB reportfor accounting purposes only and are not for the purpofunding standards. Instead, the new policies in Statemeto increase transparency, consistency, and comparabil

Adherence to Statement 75 will require states to use arate as follows.

For projected benefit payments for which planprojected to be sufficient, the discount rate willong-term expected rate of return.

For projected benefit payments for which planprojected to be insufficient, the discount rate w

bond rates.29 According to preliminary actuarial estimates, this new substantially increase the unfunded liability of the RetiFund.


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Retiree Health

Other requirements of Statement 75 have implicationsstatus of the Retiree Health Benefit Fund.

States will have to use the entry age normal co

States will have to factor several causes of chachanges in benefit terms) into the calculation ofimmediately in the period in which the change

Other requirements of Statement 75 have implicationsstatus of the State.

States will have to report retiree health benefibalance sheets rather than just in the notes sectComprehensive Annual Financial Reports, disclo

at the same level they report long-term obliga States will have to report the impact on liability

percentage-point increase and decrease in thehealthcare cost trend rate.

Finally, a Statement 75 requirement has implications foof universities, community colleges, and school districts.

Governments that participate in a cost-sharing administered through a trust will have to repor

their proportionate share of the collective OPEentities participating in the cost-sharing plan.

This change will lower the State’s unfunded liability fobenefits in the Comprehensive Annual Financial Reportuniversities, community colleges, and school districts paRetiree Health Benefit Fund, they will have to disclose unfunded liability in their financial records. This changeaffect the financial status of these entities, which could

detrimental to the State because it provides a substanfunding.

North Carolina’s unfunded liability for the Retiree Hcould affect the State’s bond rating. Bond rating ageComprehensive Annual Financial Reports to determine aspire to have high bond ratings from the three ratingInvestor Services, Standard & Poor’s Corporation, andbond ratings affect the interest rates paid when state

general obligation bonds.31 North Carolina and nine othe highest rating from all three bond rating agencies

OPEB liability is one of the factors that bond rating agstates’ long-term liabilities. However, at least one bondtreats OPEB liability as less significant compared to de


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Retiree Health

easier for bond rating agencies to compare OPEB liabAs a result, North Carolina’s unfunded liability for its rrelative to other states is important to the State’s overa

3.

How does the funding s tatus of the Retiree HFund compare to the funding status of other

All states offer health coverage to at least some of theHowever, the comparability of the financial status of sretiree health benefits is limited due to variations in hotheir benefits and how actuaries estimate unfunded lia

in states where retirees are required to pay a premiumstate’s unfunded liability may only reflect a small implresults from allowing retirees (who are older and therecover) to participate in the plan with active employeesschool employees, including North Carolina, a portion unfunded liability for the state is actually attributable than the state, such as school districts. The comparabiliplans also is limited because actuaries may use differeassumptions to calculate liabilities. Furthermore, actuarincorporate forecasts of healthcare costs well into the forecasting differences can lead to variability in liabil

Although comparability across states is limited, expertto compare the funding status of states’ retiree health Carolina is not a strong performer on any of these me

A common way to compare unfunded liability acrosin population size, comparing unfunded liability per

liability per capita indicates how large of a burden it off its liability relative to the size of its population. As North Carolina ranked 41st in unfunded liability per cahealth benefits in Fiscal Year 2012–13. Only eight staon this measure.


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Retiree Health

Exhibit 11

North Carolina Ranked

41st in Unfunded LiabilityPer State Resident forRetiree Health Benefitsin Fiscal Year 2012–13

Rank StateUnfundedLiability

per CapitaRank Sta

1 Oklahoma $1 26 Michigan2 Arizona $33 27 Pennsylva

3 Idaho $34 28 Kentucky

4 Indiana $48 29 Ohio

5 Oregon $60 30 Maine

6 North Dakota $66 31 New Hamp

7 South Dakota $80 32 Maryland

8 Utah $92 33 California

9 Kansas $96 34 New Mexi10 Minnesota $120 35 Georgia

11 Wisconsin $166 36 Louisiana

12 Iowa $170 37 Texas

13 Mississippi $231 38 South Caro

14 Florida $250 39 Massachus

15 Colorado $252 40 West Virg

16 Virginia $258 41 North Car

17 Tennessee $261 42 Vermont

18 Wyoming $376 43 Illinois19 Nevada $423 44 New York

20 Montana $440 45 Alaska

21 Missouri $442 46 Delaware

22 Washington $532 47 Connecticu

23 Alabama $665 48 New Jerse

24 Arkansas $695 49 Hawaii

25 Rhode Island $816

Notes: Nebraska is not included because it carries an OPEB liabimmaterial for purposes of reporting. The latest data availablefrom Fiscal Year 2011–12.

Source: Program Evaluation Division based on data from the Natio

Retirement Administrators and the Center for State and Local Gove

Another way to compare state funding of retiree hea

comparing funded ratios. As shown in Exhibit 12, the actuarial value of assets and actuarial accrued liabilitto which a government has enough funds set aside to pwhich employees are eligible. In Fiscal Year 2013–14Carolina’s liability for retiree health benefits was fund

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Exhibit 12: North Carolina’s Retiree Health Benefit Fund Was Only 3.4% Funded

Funded Ratioextent to which enough funds are set

aside to pay for benefits for which

employees are eligible

Actuarial =

value of b

employe

Actuarial Value of Assetsvalue of cash, investments,

and other assets that are set

aside to fund benefit

3.4% $26,4$890,755,562

/

Source: Program Evaluation Division based on data from the 2014 Comprehensive Annual Financial Report.

Most states have a low funded ratio for their retiree hin Exhibit 13, 20 states had a funded ratio of 0%, andincluding North Carolina—had a funded ratio betweeFiscal Year 2012–13. The national average was 11%was 2%.

Exhibit 13

North Carolina Among38 States With FundedRatios of 10% or Less inFiscal Year 2012–13

Notes: Nebraska is not included because it carries an OPEB liabilimmaterial for reporting purposes. The latest data available for Fiscal Year 2011–12.

Source: Program Evaluation Division based on data from the Natio

Retirement Administrators and the Center for State and Local Gove

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Carolina, the legislature determines how much the Statcontribute. Most states do not base their annual contribhealth benefits on the ARC because they fund annual cyou-go basis. If a state meets the ARC, the state contri

ARC. If a state does not meet the ARC, the closer its pe100%, the closer its contribution is to meeting the planrecommendation. Percentage of ARC paid is one indicare using funding as a way to reduce liabilities.

Exhibit 14: North Carolina Paid 36% of the Annual Required Contribution in Fisca

Notes: The amortization period is the span of time the plan has to fully pay its unfunded actuarial accrued liabother states, the amortization period for North Carolina’s Retiree Health Benefit Fund is 30 years.

Source: Program Evaluation Division based on data from the Comprehensive Annual Financial Report.

As shown in Exhibit 15, when the first actuarial statemeHealth Benefit Fund was produced in 2005, the state c

amounted to 19% of the amount needed to fully fund Year 2013–14, the General Assembly set the state comillion, which amounted to 36% of the ARC. The fund’sthat at current funding levels, the state contribution wilthe ARC in 2020. Although the percentage of ARC paiincrease is being driven by the cost of retiree health b

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Retiree Health

Exhibit 15: On Average, North Carolina Has Paid a Third of i ts Annual Required C

Notes: No actuarial statement was produced in 2006. The dip in the State Contribution in 2009 and 2010 waHealth Benefit Fund’s actuary using a different method for calculating the contribution.

Source: Program Evaluation Division based on data from actuarial statements.

Exhibit 16

North Carolina Among 26 States thatPaid Less than 50%of Annual RequiredContribution in FiscalYear 2012–13

Percentage ofARC Paid

Less than 50%

50-75%

76-95%

Over 95%

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

M i l l i o n s

Fiscal Year

Annual Required Contribution

State Contribution

In 2005, thestate contributionamounted to19% of the ARC.

In 2014, the

state contributionamounted to36% of the ARC.

In 2020, thestate contribis estimatedamount to 4of the ARC.

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4. What options exist for improving the fundingRetiree Health Benefit Fund?

Several factors explain why North Carolina’s unfunded

health benefits is large.

The benefits have always been funded on a pa

Retirees with sufficient contributory service arecontributory benefit, meaning the State pays 1premium.

The benefits are available to essentially all retrequisite number of years of service, regardlesretire before age 65 or retire directly from sta

The General Assembly could take actions to change socontributing to the large unfunded liability of the RetirFund. As shown in Exhibit 17, several options exist to eamount of funding for the retiree health benefit or redbenefit. Some of these changes require action by the Gand some can be made by the State Health Plan with

from the General Assembly. More details about each below.

1. The General Assembly could increase the amounRetiree Health Benefit Fund through appropriation. ACarolina has a trust fund, retiree health benefits are stas-you-go basis. The low funded ratio of North Caroliother states’ retiree health trusts. Although 32 states hamost states still funded annual costs on a pay-as-you-g

Currently, the annual required contribution for the RetiFund amounts to 15% of payroll, but the General Asse5.49% of payroll in Fiscal Year 2014–15. According tthe General Assembly would need to appropriate 10%considered to be prefunding the trust. Although an incrwould not eliminate North Carolina’s unfunded liabilityincrementally build the trust fund and generate more i

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Exhibit 17: Ways to Decrease North Carolina’s Unfunded Liabili ty for Retiree Hea

Option

Impact

Increase funding Reduce valueof benefit toemployees

GeAss

State Federal

1. Increase appropriation

2. Increase the costs borne by the federal government

2a. Shift all Medicare-eligible retirees to Medicare

Advantage plans

2b. Encourage retirees to opt for coverage from thehealth insurance exchange or TRICARE

3. Transition to a defined contribution model Depends onstate’s

contributionrate

Depends onindividual

circumstances

4. Reduce the number of individuals eligible

4a. Increase service time requirements for the benefit

4b. Eliminate benefit for eligible employees

4c. Eliminate benefit for employees not yet eligible

4d. Eliminate benefit for new hires

4e. Eliminate benefit for individuals not directly retiring

4f. Eliminate benefit for individuals younger than 65

4g. Eliminate benefit for individuals 65 and older

4h. Eliminate the benefit for spouses

5. Require active employees to make contributions

6. Increase the amount retirees pay

6 I i

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2. The State Health Plan could increase the amount obenefit costs borne by the federal government, pote$64 million annually. One of the easiest ways to redliability of the Retiree Health Benefit Fund would be fo

Plan to require all Medicare-eligible retirees to enroll Advantage plans. In 2015, 27% of Medicare-eligibleenrolled in the Traditional 70/30 Plan. The State Heathese individuals to Medicare Advantage plans, underpay either the same or lower premiums and receive bevalue to an 80/20 plan. Retirees could opt out of the appeal process if individual circumstances warranted aGeorgia State Health Benefit Plan takes this approach

Medicare-eligible retirees to choose among plan optiosubsidizing the Medicare Advantage option.

Based on estimates of past savings, the State could sav$50 million annually if the remaining 35,000 to 40,00on the Traditional 70/30 Plan were enrolled in Medicaplans.36 A comparison of per capita medical costs bornMedicare and Medicare Advantage plans presented iactuarial valuation indicates this savings may be as hig

The shift toward requiring participation in Medicare Acould produce a 10-year savings of approximately $5reduce the State’s unfunded liability for the Retiree Heup to $3 billion.38

In addition, the State could consider offering financial encourage early retirees to obtain insurance through thexchange created by the Affordable Care Act.39 The could provide a supplement to retirees younger than 6

additional costs of obtaining their health insurance throrelative to the cost of premiums for coverage through tPlan.

According to preliminary analyses, shifting retirees andhealth insurance purchased on the exchanges would samoney, approximately $18 billion to state and local gcollectively over 10 years.40 Other states are explorinselective divestment. For example, when retiree healthSouth Dakota in 2015, State Human Resources sent a lencouraging them to compare their state rates to ratesinsurance exchange.

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During the 2013 Session, the Speaker of the North CaRepresentatives established an interim House Select CoCosts for the State’s Obligations for Pensions, Retiree HHealth Plan, and Unemployment Benefits. The committe

State explore the possibility of encouraging non-Medito transition from State Health Plan coverage to privatprovided on the health insurance exchange. Although tSenate considered a bill during the 2013 Session to aTreasurer to pay premiums for retirees for alternative the State Health Plan, the bill was never heard by comAppropriations Act had not passed at the time of this rthe Senate’s version of the budget authorized the Stat

to pay or reimburse premiums for retirees with alternaplan coverage in lieu of coverage under the State Hea

The committee also recommended the State explore thencouraging eligible retirees to utilize TRICARE coveraHealth Plan coverage. TRICARE is the U.S. Departmenthealthcare program for active duty service members, NReserve members, retirees, and their families. It offers health plans that all meet the coverage requirements o

Care Act. Georgia and South Carolina offer access to supplemental insurance plans to retirees on TRICARE thof the participants’ balance of covered medical expenpays.

3. The General Assembly could reduce the State’s futransitioning to a defined contribution model. North health benefit is a “defined benefit” in the sense that temployer specifies a determinable benefit—doctor vi

pharmacy and so on, but the level of benefits providedyear to year.41 Defined benefit plans cover determinauncertain annual costs to states.

By contrast, in a defined contribution plan, the employemployees a health insurance allowance, and the emprisks of rising healthcare costs, poor investment returns,account assets. Providing a fixed subsidy through a deplan can help reduce a state’s unfunded liability by decosts. Two types of defined contribution models that caretiree health benefits are Health Reimbursement ArraSavings Accounts.

Health Reimbursement Arrangements (HRAsemployers can set up a fund to reimburse emp

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North Carolina already uses an HRA as part oDirected Health Plan (CDHP) available to empMedicare-eligible retirees, which can be viewea defined contribution approach. Although it o

medical services as the Enhanced 80/20 and Tplans, the CDHP is a high-deductible health plaState Health Plan funds each employee or retibeginning of the calendar year with $500. If tretiree does not spend all of the HRA, the monto the next period. If the employee or retiree sHRA, he or she has to pay healthcare expensesis met, after which point co-insurance costs are

Health Savings Accounts (HSAs). An HSA is aaccount established to accumulate funds on a tsimilar to a 401(k) retirement plan, and it musta high-deductible plan. An HSA can be fundedand employee contributions, which must remainestablished by the Internal Revenue Service. Umay be difficult for an employee or retiree to they are needed to pay for current-year healt

The Minnesota State Retirement System beganRetirees are reimbursed from the plan for eligiexpenses. For example, the plan can be used twhich are fully contributory for Minnesota retirelects to contribute either a specified dollar ampercentage of employees’ salaries into employcontributions are funded by additional employbeyond salary and other employee benefits, m

contributions through reduced salaries, and/or as unused vacation or sick leave. Assets in a paplan accumulate on a tax-free basis, and partia variety of investment options.

4. The General Assembly could reduce the number oeligible for retiree health benefits by increasing the requirements for the benefit or eliminating the benegroups. The General Assembly reduced the number offor retiree health benefits in 2006 by increasing the reservice to 20 for the non-contributory health benefit anhalf contributory health benefit for employees hired o2006. This increase in service time requirements reduceliability by $78 million in 2006. The General Assembly

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Another way for the General Assembly to reduce the eligible for retiree health benefits is to eliminate it for Exhibit 18 shows the rationale for and against eliminahealth benefit for a certain group, examples of states

benefit to that group, and the percentage of the unfuncould be reduced by eliminating the benefit to that grAppropriations Act had not passed at the time of this rthe Senate’s version of the budget eliminated retiree hemployees hired on or after January 1, 2016.

5. The General Assembly could require employees tRetiree Health Benefit Fund. Currently, active employto contribute toward prefunding their retiree health be

state employees have been contributing to the TeacheEmployees’ Retirement System (TSERS) for pension beninception in 1941; currently, employees pay 6% of thethe duration of their employment with the State.44 Thecontributions along with employer contributions and invpay the cost of providing retirement benefits to membhad a funded ratio of 98% in 2013.

In Fiscal Year 2013–14, the cost of retiree health beneor 8.49% of payroll, but the General Assembly appropayroll in Fiscal Year 2014–15. The General Assemblemployees to contribute a certain percentage of their Retiree Health Benefit Fund to help prefund their retire

Several states require their employees to contribute tohealth funds.

Connecticut. Connecticut state employees hired

2009 and eligible for state-paid health insuracontribute 3% of their compensation to offset tretiree health benefits.

Kentucky. In 2008, Kentucky passed a law to county employees, state police members, and tin the retirement system hired after September1% employee contribution to its trust fund for r

benefits. New Mexico. In New Mexico, employees part

retirement system have been required to contrihealth fund since 2002, with contributions increto up to 1.25% of employees’ salaries in 2012

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Exhibit 18: Potential Groups for Which to Eliminate Retiree Health Benefits

Group ofEmployees

Rationale for Eliminating Rationale for Not Eliminating

Examples oStates NotProviding

BenefitEligibleemployeesand retirees

Employees do not place a highenough value on retiree healthbenefits to affect their behavior

High probability of lawsuit

Eliminating benefit without increasingcompensation may hurt retention

--

Employeesnot yeteligible

Employees do not place a highenough value on retiree healthbenefits to affect their behavior

Potential lawsuit

Eliminating benefit without increasingcompensation may hurt retention

--

New hires Employees do not place a high

enough value on retiree healthbenefits to affect their behavior

Eliminating the benefit without

increasing compensation may hurtrecruitment

--

Those whodo not retiredirectly fromstate service

Individuals who go to work forother employers following theirstate service could get healthinsurance from their newemployers or through the newhealth insurance exchangeunder the Affordable Care Act

May discourage retirees youngerthan 65 from seeking subsequentemployment

Potential lawsuit

Eliminating the benefit withoutincreasing compensation may hurttransition to retirement

CA, FL, LA,MD, RI, VA,

VT, WV

Youngerthan 65

Individuals who retire from stategovernment before they reachage 65 could find employmentelsewhere or could get healthinsurance from the new healthinsurance exchange under theAffordable Care Act

Costs of non-Medicare retireesexceed the premiums collected

May discourage employees fromretiring before age 65

Potential lawsuit


--

65 andolder

Medicare coverage is sufficientfor retirees

Costs of Medicare retirees are lessthan the premiums collected

May discourage employees fromretiring

Potential lawsuit


ID, IN, NE

Spouses Spouses did not work for state

government and thus should notbe eligible for a benefitoffered to former employees

Costs of non-Medicare retireesplus their spouses exceed thepremiums collected

Retirees enroll their spouses on a

fully contributory basis, meaning themember pays the full premium costof dependent coverage

Costs of Medicare retirees plusspouses are less than premiumscollected

--

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Another possibility is for the General Assembly to enaoffers employees a choice between contributing or givhealth benefit. The legislation could stipulate that empretiree health benefit as long as they contribute a cert

their pay for the remainder of their employment with tcan choose to stop contributing at any time if they signforfeit all future retiree health benefits. If employees dretiree health benefit, they would choose to forfeit thesignificantly reduce the unfunded liability of the RetireFund.

6. The State Health Plan could increase the amount rhealth benefits by increasing premiums or out-of-po

the State Health Plan’s ability to change provider reimutilization rates is limited,45 there are actions it could taamount the plan spends on healthcare. The State Healthe value of the health benefit by requiring retirees topercentage of premium costs.

Scholars have found that a state’s subsidization of retimost robust determinant of a state’s unfunded liabilityCarolina, that subsidize between 50 to 100% of retire

have higher unfunded liabilities than states that pay lepremiums. In 2006, North Carolina was one of 14 statyounger than 65 a non-contributory health plan option

In some cases, states offer retirees health insurance bucontributory basis. In 2006, 14 states required retireespay 100% of the premium cost. For example, Iowa anretirees to enroll in a state employee health plan but d

of the premium cost. Although Virginia requires its retirthe health plan premium cost, it contributes a fixed submonth for every year of service for retirees who have service. According to the National Association of StateAdministrators (NASRA), 25% of state governments suretiree premium amounts from 2008 to 2013.

Although the State Health Plan currently spreads any needed to cover its expenses evenly amongst active e

and dependents, it could choose to uncouple these preCurrently, if a 5% increase is required, the General Aincrease the employer contribution by 5%, and the preparticipants are increased by 5%. Accordingly, the emonly, and dependent premium rates are increased equ

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ratios indicate certain groups cost the State Health Plaexample, active employees had a loss ratio of 89% afor non-Medicare retirees and 48% for Medicare retiuncoupling premium increases would place the burden

on the populations that cost more to cover, creating a for retirees could increase their premium costs substant

When pricing the different retiree health plans, the Stadecide how to encourage retirees to enroll in the best acting in a cost-effective manner for the State. Retireecontributory service are eligible for a premium-free beState Health Plan could shift some costs to retirees if rein health plans with a premium. The State Health Plan

enrollment information to determine what type of planretirees to choose a premium option over a premium-f

Another way the State Health Plan could decrease thecosts borne by the State is increasing out-of-pocket cocoinsurance, and copayments) for its different health pAccording to the NASRA survey, more than 20% of stasurveyed increased retirees’ copayments from 2008 tothan 15% of state governments increased retirees’ de

Although the State Health Plan could shift medical costincreasing out-of-pocket costs, North Carolina alreadyplan compared to other states. Plan richness reflects thsharing between a health plan and enrollees based ondeductibles, coinsurance, and copayments. The richnesson its actuarial value, which represents the proportion plan pays for an employee. Health plans in the federaexchange are categorized as follows:

platinum plans cover 90% of medical costs;

gold plans cover 80% of medical costs;

silver plans cover 70% of medical costs; and

bronze plans cover 60% of medical costs.

The Program Evaluation Division applied these federathe average actuarial value of state health plans (see 2013, North Carolina’s State Health Plan had an aver

of 82%, which made it a gold plan. Of the 49 states chad platinum plans.49 Of the 11 states with a gold plaa lower average actuarial value than North Carolina.

Moreover, increasing out-of-pocket expenses would imfor active employees because they participate in the s

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Exhibit 19

North Carolina Among

11 States With GoldPlans in 2013

Notes: Platinum plans cover 90% of medical costs, and gold plancosts. No data was available for Pennsylvania.

Source: Program Evaluation Division based on data from the Pew C

D. and Catherine T. MacArthur Foundation.

5. What is the legal feasibili ty of making changefunding s tatus of the Retiree Health Benefit Fun

There could be legal ramifications if the General Assedefined contribution model, makes changes to retiree eligibility, or requires employee contributions. To date

exists regarding the State’s obligation, if any, to mainretiree health benefits. The issue of whether retiree heentitled to the same protections as have been found tostate pension benefits is the subject of a pending lawsu

Lake v. State Health Plan for Teachers and State Emplawsuit was filed by a group of retirees with at least fcontributory service.50 The plaintiffs allege breach of cbased on the

elimination of a non-contributory 80/20 health2011;

forced election of a significantly reduced 70/3plan to receive a non-contributory benefit in 20

elimination of a contributory 90/10 health insu

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The plaintiffs allege that because they had amassed ayears of service before 2011, they are “vested” and receive health insurance benefits from the State Healthnon-contributory basis for an 80/20 plan as well as a

90/10 plan.The State’s main defense for the case is N.C. Gen. Stat48.3, which stipulates the General Assembly reserves talter, amend, or repeal any section of state law regarState Health Plan.

If the plaintiffs are successful, the damages may exceemillion, which does not include the cost to the State Heacomplying with the plaintiffs’ demands going forward.of the case is unlikely, inasmuch as any potential settlepresent claims—even if such damages could be compragree upon—would leave unresolved the underlying iwhether the State Health Plan could make adjustmentslevels and plan premiums for retiree health benefits in

The issue of whether the State could make other alteraretiree health benefits, such as the options discussed in

(i.e., changing to a defined contribution model, increastime requirements, eliminating the benefit, requiring emcontributions) is not under consideration in the pendingThese changes could be made for new hires without thelawsuit, but it is unclear what the legal ramifications woGeneral Assembly made these changes to retiree heafor eligible or not-yet-eligible employees. The fact thapremises of the plaintiffs’ allegations is they have the number of years of service to be eligible for benefits plaintiffs may expect the court to treat employees eligbenefits differently than employees not yet eligible fo

6. How should the General Assembly proceed ito reduce the unfunded liability of the Retiree HFund?

The General Assembly should take action immediatup to $64 million dollars annually by directing the SState Health Plan Board of Trustees to shift all Medicto Medicare Advantage plans. Transitioning the 27%retirees who are in the Traditional 70/30 plan to the M

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Advantage base plan.52 The State Health Plan would implement an appeal process for retirees who do not Medicare Advantage plans because of Medicare elig

The General Assembly could establish a joint comm

other ways North Carolina could best address the $2unfunded liability of the Retiree Health Benefit Fundcould consist of 13 members:

five members of the Senate appointed by the Tempore of the Senate, with one serving as co-

five members of the House of Representatives Speaker of the House of Representatives, with chair;

the State Treasurer as an ex officio, nonvoting

the Executive Administrator of the State Healthofficio, nonvoting member; and

a representative of the State Health Plan Boarthan the State Treasurer, as an ex officio, nonv

The purpose of the joint committee could be to examinthe six options presented in this report and any other o

develops—for reducing the unfunded liability of the RFund. The joint committee could start by requesting thaPlan report on the feasibility and impact of increasing pay by increasing premiums and out-of-pocket costs. Tcould meet for six months and then make a final reporAssembly. The report could contain any legislation neeany recommendations of the committee. The committeeafter it issues its report.

Agency Response A draft of this report was submitted to the Departmenreview. Its response is provided following the report.

ProgramEvaluation DivisionContact and Acknowledgments

For more information on this report, please contact the

Kiernan McGorty, at [email protected] members who made key contributions to this repoKunde and Sara Nienow. Fiscal Research staff membeVanderweide also contributed. John W. Turcotte is theProgram Evaluation Division.


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retiree health report

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