A recent Fayetteville Observer story provides an informative update on North Carolina’s massive unfunded liability for state retiree health benefits.
For those not familiar with this growing liability, state employees hired before Oct. of 2006 need only work 5 years for the state to become eligible for fully paid (by taxpayers) health insurance coverage upon retirement (thanks to a law passed in 2006, employees hired after Oct. 2006 must work 20 years for fully paid insurance; those with 10 to 20 years experience will have 50% of the benefit paid for).
As noted in the Fay-O article, North Carolina’s unfunded liability to finance this benefit for retirees is now being calculated at an astonishing $32.8 billion (see the report here). The $32.8 billion is calcluated as of the end of 2009, and is up almost $10 billion from the $23.8 billion calculated in the first report on the liability as of the end of 2005. That’s a stunning 38% increase in this massive liability in just four years.
Retirees are enrolled free of charge (like current state employees) in the State Health Plan. The growing burden of financing retiree benefits has no doubt contributed to the Health Plan’s economic troubles.
The health plan, which operates on a pay-as-you-go basis, needed a $675 million bailout from taxpayers in 2009. The plan could require another $572 million in 2011 from taxpayers to stay afloat for another two years, according to legislative analysts.
Funding for retiree health benefits amounted to $800 million in FY 2010 and will quickly exceed $1 billion annually (and grow rapidly). Such a massive expenditure will exceed total state appropriations for North Carolina’s Community College system.
The new leadership in Raleigh needs to act now to tame this runaway liability.