Legislative Report

Report 09-02
Feb. 6, 2009

Legislators Attend Briefings

The General Assembly scheduled important briefings this week for members on the outlook for the state budget and the financial condition of the State Health Plan. The briefings were conducted by staff experts from the General Assembly’s Fiscal Research Division.

The State Budget

On Tuesday, legislators received the most recent budget forecast for the current fiscal year and projections for 2009-10. State revenue collections for the first 6 months (July to December) were $625 million below the target figure of  $9.5 billion, a 6.6% shortfall. This gap is expected to grow to 10% by the end of the year. The Governor has ordered significant reductions in state spending to partially offset the decline in revenues.

The projections for 2009-10 also show a serious budget shortfall. The staff of the Fiscal Research Division estimated a gap of $2.1 billion between projected revenue collections and expenditures. This estimate assumes no revenue growth and no increase in budgeted recurring expenditures. The projections do not include such expenditures as funding for enrollment growth in public schools, community colleges, and universities or additional Medicaid expenses resulting from the recession.

North Carolina may receive significant financial assistance through the Federal economic stimulus package (the American Recovery and Reinvestment Act of 2009). The House has approved this bill and it now is under consideration in the U. S. Senate. Initial estimates suggest that North Carolina could receive $2.2 billion in additional Medicaid funding spread over this year and next year. Also, the bill contains general assistance that could provide as much as another $2 billion to the state. This Federal Aid could help to close the state’s revenue gap.

Status of the State Health Plan

On Wednesday, the General assembly staff presented an update on the financial condition of the State Health Plan. The Plan faces a $300 million shortfall this year and as much as a $1.2 billion during the 2009-11 biennium given current trends. These shortfalls are the result of faulty assumptions regarding savings through provider discounts in the PPOs, higher member utilization of medical and pharmacy services, less money than expected generated by member co-pays and deductibles, and slightly higher than expected administrative costs.

Legislators were told by staff that they must appropriate $300 million early in the current session to keep the Plan operating through June. These funds probably will be transferred from the State Saving Reserve (Rainy Day Fund). The long range corrections to the Plan will involve a menu of changes that might entail benefit reductions, premium rate increases for dependent coverage, and other operational changes. The General Assembly is expected to begin discussions of potential changes to the Plan in the next several weeks.

Bills Introduced This Week

Two identical bills of interest to retirees were introduced on Thursday. This legislation is summarized below.

Senate Bill 58/ House Bill 62: State Health Plan – Hendersonville
(Sponsors: Sen. Apodaca, Rep. Justus)

These local bills are identical and would authorize the Town of Hendersonville to join the State Health Plan. Currently, there are fourteen other municipal and county governments authorized to participate in the State Health Plan.