DIGGING OUT OF A $34 BILLION HOLE.

• Author: Martin, Edward

The state's banker is itching to fix North Carolina's biggest long-term financial problem. Will state workers and retirees bear the brunt?

A round the perimeter, razor wire sparkles in the sun, but inside, there's little cheer at Maury Correctional Institution in eastern North Carolina's Greene County. One wing here is for those with psychiatric issues, another for the physically sick. There's one for those with nothing left to lose.

"I worked in the lockup unit where inmates would get upset and throw urine and other stuff at you," says a former guard. Statewide, on average, a guard is assaulted every shift. "I wasn't paid enough for the risk." Entry-level pay is less than $700 a week.

There was one bright spot. "Great benefits," he says, including health insurance.

Now, that benefit for nearly 500,000 North Carolina state employees and another 220,000 retirees is at the heart of upheaval in the $70-billion-a-year Tar Heel health care economy.

This year, for the first time, even basic health insurance, free for employees such as the prison guard for more than three decades, will end. It'll now cost $25 a month. While less than many private-company premiums, that expense and other changes are triggering protests from active workers and retirees. Starting in 2021, new hires at Maury and other state agencies will no longer receive health insurance upon retirement.

The pain of cutting benefits is occurring because North Carolina dug itself a $34 billion hole by not reserving money to make good on its pledges to state workers. That's a contrast with the state's retirement pension plan, which had $98 billion in assets on Dec. 31, covers 900,000 workers and ranks 10th-best in the U.S. with an 85% funding ratio as of 2016.

Sooner or later, the health-plan deficit has to be addressed, almost certainly at the cost of redirecting money that otherwise would pay for public safety, schools, universities, social services and other programs.

Reducing the deficit also has implications that stretch beyond the highway employees, teachers, patrol officers and others who collect state paychecks. The State Health Plan is North Carolina's biggest nonfederal purchaser of health care, spending about $3.3 billion a year. It's suffering, in the view of the state treasurer who oversees it, from years of neglect by N.C. officials and lawmakers.

The bomb isn't just ticking, says Dale Folwell, a CPA and former legislator elected in 2016 to mind the state coffers. "It's actually going off right now." While the state is spending 4% more on the plan this year, medical claims and drug costs are increasing at a 7% to 8.5% rate, he says.

Folwell promises to bend that curve by marshaling the plan's purchasing power to jawbone and cajole the state's hospitals, doctors and other health care providers into helping it climb out of the hole. Members aren't exempt, either. He's cracking down on fraud, and he's pressuring them to repent unhealthy habits--smoking, for one--and snitch on suspicious billing, duplicated tests and unnecessary services.

More than 65% of the plan's cost is borne by state government, which appropriated $2.26 billion for the plan during this fiscal year. The insured pay the balance. To put that into perspective, Folwell says, "The amount I'm going to spend on the State Health Plan this year exceeds the entire General Assembly appropriation for the state's university system." The 17 campuses...