Audit finds State Health Plan has serious deficit

A new performance audit from the North Carolina Office of the State Auditor (NCOSA) concurs with State Treasurer Brad Briner and the North Carolina State Health Plan Board of Trustees that the State Health Plan (SHP) is in serious financial trouble.

The State Health Plan provides health coverage to nearly 750,000 state employees and retirees.

North Carolina State Treasurer Brad Briner and SHP administrators have said the plan’s projected deficit was $507 million in 2026 and between $800 million and $900 million in 2027.

As a result, the SHP Board of Trustees voted in favor at their May meeting to raise deductibles, among other changes.

The audit, based on actuarial projections from 2024, which were used for financial forecasting by the State Treasurer’s Office, showed net losses for the SHP of $199 million, $507 million, and $862 million for 2025 through 2027. Ultimately, the projections showed the State Health Plan having a $949 million cash deficit by the end of 2027.

“At the request of State Treasurer Brad Briner, the State Auditor’s Office provided our expertise with an independent examination of the financial forecasting of the State Health Plan,”  State Auditor Dave Boliek said in a press release. “The work of our team verified the prior assessments. With the projections confirmed accurate and in accordance with professional standards, the scope of the issue at hand is now demonstrably clear.”

In the report, he said that actuarial models, by their nature, make assumptions based on surveys and data that consider current conditions. Also, there is always a level of uncertainty, but the models show, through his office’s independent analysis, that costs will outpace the current rate of inflows.

HOW THE SHP GOT HERE

NCOSA provided background on how the SHP ended up in the situation that it is in.

On Oct. 3, 2023, the state enacted Session Law 2023-134, establishing employer and employee contribution rates to the SHP for fiscal years 2024-2025. The statutorily established contribution rates were less than recommended by the SHP, resulting in reductions in requested contributions of $50 million and $190 million in fiscal years 2024 and 2025, respectively.

At their meeting on Oct. 23, 2023, the board was presented a comparison of the SHP’s actual results to budget projections through August 2023. This comparison showed that the SHP had a net loss of $109.3 million through August 2023, which exceeded the projected loss by $83.1 million.

During their meeting on Apr. 25, 2024, the board was presented a financial projection of the SHP indicating projected net losses of $107 million, $323 million, and $452 million for the calendar years 2024 through 2026. These projected losses would result in an estimated $211 million cash deficit for the SHP by the end of 2026.

During their meeting on Oct. 24, 2024, the board was presented a financial projection of the SHP indicating projected net losses of $199 million, $507 million, and $862 million in calendar years 2025 through 2027. These projected losses would result in an estimated $949 million cash deficit for the SHP by the end of 2027.

The SHP attributed the projected net losses to the following factors:

• Medical and pharmacy costs increases
• The state biennial budget for fiscal years 2023-2025 providing $240 million less funding than requested
• More than $316 million in COVID-19 expenditures that were not reimbursed by the state

Auditors said the objectives of the performance audit were to determine:

• If the SHP’s financial projection for calendar years 2025 through 2027 was performed in accordance with practices prescribed by the Actuarial Standards Board, and whether qualified actuaries performed the actuarial calculations in accordance with accepted actuarial procedures
• The reasonableness and accuracy of the actuarial assumptions, methods, and results of the plan’s financial projection for the calendar years 2025 through 2027

Auditors performed the following audit procedures:

• Reconciled the June 2024 cash basis revenues and expenditures used in the projection to the June 30, 2024, Annual Comprehensive Financial Report

• Ensured the claims and enrollment underlying data used in the projection were complete and accurate

• Utilized an independent actuary to review the plan’s projections for the calendar years 2025-2027

Conclusions

Auditors concluded that the SHP’s actuarial projection for the calendar years 2025 through 2027 was prepared in accordance with practices prescribed by the Actuarial Standards Board, and the actuarial calculations were performed by qualified actuaries in accordance with accepted actuarial procedures.

In addition, they found that the actuarial assumptions, methods, and results of the SHP’s financial projection for the calendar years 2025 through 2027 were reasonable and accurate.

Briner agreed with the findings.

“Ensuring the financial solvency of the State Health Plan has been a top priority for me since day one in office,” he said in the press release. “I appreciate the Auditor’s team verifying the size and scope of the deficit that we are facing. State employees, retirees, and their families deserve a transparent assessment of the finances of the Plan they rely on, and the information provided in this audit confirms that we are on the right path.”

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