September 28, 2001

For the typical state worker, the higher cost 
of their health insurance will exceed the $625 raise 
most state employees will receive this year – a major reason
why state employees have been on the war path recently.

Budget prescribes tough medicine 
for ailing state employees’ health plan

Escalating health care and drug costs, coupled with a generally aging population, has left the ailing state employees’ health plan is in such poor shape that the $150 million infusion from the new state budget won’t be nearly enough to keep the indemnity plan alive, according to analysts.

The executive administrator of the Teachers’ and State Employees’ Comprehensive Major Medical Plan told lawmakers that the program’s self-insured indemnity program needs more than $927 million in additional financial support to remain solvent and maintain minimum claim stabilization reserves over the biennium. It could be worse. The $927 million is a net figure after including $192.7 million in reduced outpatient prescription drug claim costs, according to a fiscal note attached to the budget document.

To keep the plan solvent, the General Assembly essentially has decided to split the higher costs between the state and its employees. For the state, that means kicking in a total of $187.9 million in cash into the plan this fiscal year ($150 million in additional direct contributions, $7 million from the Highway Fund and $30.9 million from other state funds) and $250.2 million next year ($200 million in additional direct contributions, $9 million from the Highway Fund and $41.2 million from other state funds). That amounts to a total state infusion of $438.1 million over the biennium.

The other half will come out of state employees’ pockets and the health care professionals who treat them. Most significantly, the state on Oct. 1 will impose a 30 percent across-the-board increase in employee health care premiums. The increase will apply to the premiums paid by the employees and to the dependent coverage plans for the employees’ families. The 30 percent hike in premiums will generate $49.9 million this fiscal year and $66.5 million next year. 

In addition to higher monthly premiums, the state will raise the health care plan’s annual deductible from $250 to $350 per individual and from $750 to $1,050 for employee and dependent coverage. The co-pay for prescription drugs will rise from $15 to $25. Other limitation on benefits also are included. For the typical state worker, the higher cost of their health insurance will exceed the $625 raise most state employees will receive this year – a major reason why state employees have been on the war path recently. See last week’s story on efforts by the State Employees Association of N.C. to seek collective bargaining rights.

Higher premiums still will leave the state health plan more than $95 million in the red this year and $147 million next year. To make up the difference, the state intends to negotiate lower fees with doctors, hospitals and pharmacists. Those reductions include:

An additional 20 percent discount on hospital outpatient charges, saving $19 million this year and $27 million next year.

An additional 3.45 percent discount on hospital inpatient charges, saving $5.7 million this year and $7.6 million next year.

An additional 13 percent discount on charges for non-primary care physician services, saving $23.7 million this year and $46.8 million next year.
u Dispensing fees for pharmacists will be lowered from $4 to $1.50 per prescription.

There are 277,340 active state employees covered by the state health plan, plus 152,171 of their dependents. Another 107,490 retired employees are covered by the plan, as are 18,530 retired employee dependents, for a total of 558,780 covered by the plan.