To address a cash crunch caused largely by escalating healthcare costs, leaders of North Carolina's State Health Plan are turning to a fund that helps pay for state employee retiree healthcare.
The Health Plan's Board of Trustees voted unanimously on Tuesday to increase the monthly Retiree Health Benefit Fund contribution to the plan from $300 per retiree to $600 for the months between July and December.
Board members voted after hearing that the plan's cash balance had dipped to $298 million at the end of September, well below its $420 million target stabilization reserve. Health Plan staff warned that without action, on current spending trends there was a chance the plan would run out of cash entirely later this year or in early 2027.
"Those costs continue to go up and up and up at a rate much higher than we predicted despite making benefits less generous and less rich. So if that continues on the same track, we will be very much limping into 2027," Tom Friedman, the Health Plan's executive administrator, told reporters during a Monday briefing.
Through August, the State Health Plan had spent $3.22 billion in 2026, about $148 million more than its financial analysts had projected. Much of the unexpected increased spending — $131 million — came in the form of medical expenses driven in part by an increase in members requiring expensive care for cancer, cardiac and neurological conditions.
Friedman and other health plan leaders believe that escalating healthcare costs are a clear sign that they can't address the plan's financial issues solely by asking members to pay higher premiums or further degrading their benefit.
"If there was a silver bullet, we would have solved it. But I think resetting the prices, which we're functionally doing next year, is how we get the runway to do those things," Friedman said during Tuesday's board meeting.
To that end, the Health Plan will launch its preferred provider program in 2027, which is meant to offer the members the chance to save both themselves and the plan money by choosing to see providers in certain networks, namely Novant and UNC Health.
Drawing from Retiree Health Benefit Fund
The board voted to address the short-term cash problem by doubling payments to itself from the Retiree Health Benefit Fund for a six-month period, with the intention of paying that money back. As of June 30, 2025, the Retirees' Health Benefit Fund had about $4.5 billion in it, said Mark Collins, the Health Plan's director of finance.
"So framing it in that context, it's roughly a tenth of the assets in the Retiree Health Benefit Trust we're talking about," Briner said.
Units of state and local government send about 5.3% of their salary base to the Retiree Health Benefit Fund before the health plan draws down monthly contributions.
For 2026, the Benefit Fund was supposed to pay premiums of $300 per month per retiree before rising to $378 per month next year. Now, it will pay $600 per retiree per month for the period between July and December.
As part of its vote, the Health Plan board agreed to pay the $415 million back with interest.
At least one member of the Health Plan's board viewed the increased premiums with skepticism. Kristin Walker, the director of North Carolina's Office of State Budget and Management, is a non-voting member of the board.
"I would like to see the math behind why we think the plan is going to be in a position to pay this back, because it's not an insignificant amount of money, this $400 million. So without that, it's hard. It's just hard. We don't have enough to go on right now," Walker said.
Walker also warned that the statute that establishes the Retiree Health Benefit Fund says it should only be used to pay for healthcare for retired or disabled state employees, not active employees. The plan should, she suggested, track how the $415 million is used to ensure it abides by those requirements.
Sam Watts, a Health plan board member who also oversees the state's retirement systems, said there have been at least three times that the state has dipped into the retiree health fund with a mixed track record of paying it back.
Any time the Health Plan reaches into the fund, Watts said, it poses a threat to retirement security.
"I don't think I'm happy about it or I should be happy about it or any of us should be happy that this is a solution, but it is a viable way to get us over this bump," Watts said before making a motion to increase the premiums.
Ultimately, the board's eight voting members decided unanimously to move forward with the increased payments.
The Retired Government Employees Association said in a statement that it plans to continue monitoring the fiscal health of the State Health Plan.
"It is important to recognize that using assets dedicated to retiree healthcare to address other funding needs does not eliminate costs. Instead, it shifts those costs into the future while weakening the prefunded resources available to meet retiree healthcare obligations," read a statement the association posted on social media.
