RALEIGH — During his monthly call with reporters earlier this month, State Treasurer Dale Fowell warned about the changes made to the participation of UNC Health Care and East Carolina University (ECU) in North Carolina’s pension and health care plans.
Folwell warned that the changes included in the 2023 Appropriations Act, which take effect Jan. 1, 2024, might leave state employees and taxpayers with significant liabilities.
“This is a direct attack on the state pension system and the state health care system that UNC Health and East Carolina University have been married to for over half a century,” Folwell told reporters.
The alterations, first proposed in Senate Bill 743 and later integrated into the budget, prevent new employees from joining the Teachers’ and State Employees’ Retirement System (TSERS) and mandate their enrollment in the UNC Optional Retirement Program (ORP) or a similar, yet undefined, plan. Moreover, the legislation could potentially jeopardize the tax-exempt status of the pension system, subjecting members to significant back taxes if the IRS deems the new plan as not meeting the requirements for a “governmental plan.”
The treasurer also expressed concern for new and returning hires.
“What if you have somebody who is working at UNC Health Care who has been there eight years, they’re vested in the pension system, they decide to go out on maternity leave or some other leave for a few years and then they want to come back into the system?” asked Folwell, adding “They will not be allowed to earn service credit inside the pension system.”
Additionally, Folwell indicated that the changes might enable UNC and ECU to avoid making contributions to the Retiree Health Benefit Trust Fund, leading to potential liabilities exceeding $1 billion and $40 million, respectively.
The billion-dollar liability issue was one of the focus areas of a letter Folwell sent to UNC Health and East Carolina University in October. In a press release announcing the letter, Folwell said, “UNC Health Care and ECU want to leave taxpayers the check while they go make some sweetheart retirement deals for their executives.”
Fowell criticized the changes, highlighting the burden they might impose on taxpayers and the negative impact on the pension system’s stability. He emphasizes that his agency manages the pension plans for more than 1.1 million members and distributes around $600 million monthly to over 360,000 benefit recipients, with investments totaling over $109 billion.
“My job as the keeper of the public purse is to protect and defend our pension and State Health Plan,” Folwell said. “I’ve done that at every turn and I’m definitely going to do that in this particular case.”
Folwell also said he will be urging the Boards of TSERS and the State Health Plan to address the impending issues and work toward a resolution.
During the call, the treasurer also addressed the financial impact of certain obesity drugs on state health plan costs. Citing costs to the plan and projected deficits, the State Health Plan’s Board of Trustees voted on Oct. 23 to place a moratorium on two such drugs; Wegovy and Saxenda.
An August report by the State Health Plan’s pharmacy benefit manager to the board of trustees found the state has spent more on the GLP-1 obesity drug Wegovy than any other drug this year. Wegovy is manufactured by the Danish company Novo Nordisk.
“To put this in context, the General Assembly just appropriated a 4% bonus for all retirees – hundreds of thousands of retirees,” Folwell said. “The amount of money that we’re expected to spend on this drug, for just a few thousand people next year, is equivalent to the 4% bonus paid to hundreds of thousands of retirees.”
“That should just give you a sense of the scale of this and not only where it is today,” Folwell continued. “But where it’s headed, our projections are that we could spend $170 million on this drug next year, which is not covered by Medicare, which is not covered by Medicaid, where Barron’s has done and extensive report about the profitability of this drug and how it could bankrupt public service health plans like ours.”
Fowell explained that the drug costs quite a bit more in the United States than it sells for in other countries.
He said Wegovy is estimated to cost less than $275 dollars in Denmark and the retail price for this drug United States could be upwards of $2,000. Folwell said that even after “a very aggressive rebate,” through the plan, the drug was still costing around $809.
Per a statement after the Oct. 23 trustees meeting, Folwell called on Novo Nordisk to make responsible price reductions.
“It defies logic that Novo Nordisk can sell the exact same product in the Netherlands for $296 per month and in the United States for more than $800 per month,” said Folwell in the release. “They should be investigated by the Federal Trade Commission for unfair and deceptive business practices.”
Novo Nordisk responded at the time by calling the board’s recommendations for the drugs “irresponsible” and that the company is “committed to finding meaningful, workable solutions to manage costs, but we steadfastly oppose leaving patients without coverage.”
The Oct. 23 release also noted the plan spent $52.3 million on Wegovy and Saxenda during the first half of 2022.
The release said that dollar figure was “accounting for 2.6% of the manufacturer’s entire North American profits on these products,” and during that time members of the NC State Health Plan “accounted for approximately 2% of the prescriptions filled each month for these medications in the United States.”
In his remarks to reporters, Folwell reiterated the board of trustees was not “questioning the efficacy of the drugs,” only that the price was too high and unsustainable.
