NC State Health Plan Doubles Retiree Fees to Cover $148 Million Overage

The North Carolina State Health Plan spent $148 million more than projected in the first eight months of 2026, forcing leaders to draw heavily from a fund that pays for retiree healthcare. To stop the cash from running out, the Board of Trustees voted unanimously on Tuesday to double the monthly contribution from the Retiree Health Benefit Fund. The payment will rise from $300 to $600 per retiree for the six months between July and December.

Staff warned that the plan's cash balance had dropped to $298 million at the end of September. That figure sits well below the $420 million target for the stabilization reserve. Without new money, the plan could run out of cash entirely later this year or in early 2027. The unexpected spending surge was driven largely by medical expenses, with $131 million coming from higher costs for cancer, cardiac, and neurological care.

Tom Friedman, the health plan's executive administrator, told reporters that costs are rising faster than predicted. He noted that the plan has already made benefits less generous. Despite those changes, expenses continue to climb. Friedman said that if the trend continues, the plan will limp into 2027. He argued that the plan cannot solve its financial issues just by asking members to pay higher premiums or by degrading benefits further.

The board also plans to launch a preferred provider program in 2027. This program will let members save money by choosing providers from specific networks, including Novant and UNC Health. Friedman described this as a way to reset prices and create financial runway for other necessary adjustments.

Mark Collins, the plan's director of finance, stated that the Retiree Health Benefit Fund held about $4.5 billion as of June 30, 2025. The board agreed to pay back the $415 million in increased contributions with interest. State and local government units currently send about 5.3% of their salary base to this fund before the health plan draws monthly payments.

Kristin Walker, the director of the state's Office of State Budget and Management, voiced skepticism about the move. Walker is a non-voting board member. She said it is hard to justify the action without seeing the math that proves the plan can repay the debt. She also warned that the statute governing the fund says it should only cover retired or disabled state employees, not active ones. Walker suggested the plan track exactly how the $415 million is spent to ensure it follows those rules.

Sam Watts, a board member who oversees the state's retirement systems, acknowledged that dipping into the fund poses a threat to retirement security. He noted that the state has used the fund at least three times before with a mixed track record on repayment. Watts called the move a viable way to get over the current financial bump.

The Retired Government Employees Association said in a statement that it will continue monitoring the plan's fiscal health. The group argued that using assets dedicated to retiree healthcare does not eliminate costs. Instead, it shifts those costs into the future while weakening the resources available for future obligations.

The board's eight voting members finalized the decision unanimously on Tuesday.