North Carolina could see a drastic reduction in its obligation to pay health care and other benefits for retired public workers within the next two decades, according to a new study released Thursday.
A Manhattan Institute researcher, Daniel DiSalvo, said North Carolina should be a model for other states to follow. The state will start to reduce its Other Post-Employment Benefits (OPEB) in 2021, and he projects the benefits nearly could be phased out by 2041.
“OPEB reform is particularly difficult because it requires untying a political Gordian knot,” said DiSalvo, who also is a political science professor at the City College of New York. “To make these programs sustainable, governments or workers or both must make greater contributions to the plans, or benefits must be cut.”
OPEB refers to the other benefits government employees receive after retirement besides their pension. The benefits often include medical, dental and vision insurance. The Federal Reserve estimates the long-term liability for providing health-care coverage for retired public workers is more than $1 trillion nationwide.
North Carolina’s State Health Plan covers more than 730,000 employees and has a $34.4 billion obligation. However, by raising the retirement threshold and with an approaching elimination date, lawmakers have saved the state billions in rising debt.
In 2006, the General Assembly increased the number of service years needed to qualify for retirement health-care coverage from five to 20 years. Republicans, in 2017, passed a budget bill that will cease the coverage for employees hired after 2021.
Sen. Harry Brown, R-Onslow, the senior budget writer in the Senate, said the changes were necessary to safeguard the state from an “economic downturn.”
“The General Assembly took a thoughtful, methodical approach to reduce our liability,” he said in a statement. “These policy decisions weren’t easy to make, but we were able to ensure that no current state employees would lose out on these benefits.”
Legislatures also attempted to tackle the debt by raising the premiums for workers before proposing an end to the benefits. Only 9 percent of the state’s employees belong to labor unions, which usually can create legal obstacles for cutting benefits.
DiSalvo recommended that states with high union enrollment opt to promote Retiree Medical Trusts, where government employees can buy into health-care benefits through their employers or unions.
Three other states – Nebraska, Kansas and South Dakota – have erased their OPEB liabilities.
Kansas had a retiree health-care liability of only $472 million in 2015, and South Dakota had a liability of $67.8 million in 2013, the report said. Both states eliminated subsidies for the coverage, and workers inherited the employers’ portion of the premium plans.