For Durham resident Doris Baldwin, life has grown increasingly uncertain. She lost her husband, John, to lung cancer in November–just 11 months after he retired from his teaching job with the state. And now she’s worried about her own health.

The prescription medication she takes to control her diabetes costs $40 a month. Baldwin, 74, keeps a close check on her diet, tests her blood sugar twice a day and, so far, has escaped the complications that many diabetics face. Right now, her monthly income of $3,100 provides enough to live on comfortably. But she worries about what will happen in the future, especially if she gets sick.

Legislators in Raleigh are talking about raising premiums and slashing services covered under the state employee health plan. If premiums go up as much as administrators have proposed–anywhere from 22 to 48 percent–Baldwin’s $143 monthly insurance bill could rise to $211.

“I just don’t know what I’m going to do,” she says. “I’m trying to conserve as much as I can. I might live another 15 years. What if I need that savings for an emergency?”

Right now, the health plan that covers 550,000 state employees and retirees is facing an emergency of its own in the form of a $170 million shortfall for this year alone. When the fiscal year ends in June, the plan will have reserves totaling only $17 million–just enough to cover one week’s worth of claims payments.

Rising health-care costs are the problem, state officials say, especially the spiraling costs of prescription drugs. Last year, claims payments under the plan for prescription drugs rose 34 percent, according to the state Office of Fiscal Research. And prescriptions accounted for 41 percent of the plan’s total $1 billion in medical costs.

“Pharmacy costs are the greatest risk to the system,” says Jack Walker, executive director of the state employee health plan.

The plan is administered by Blue Cross and Blue Shield of North Carolina but its terms are set by the General Assembly. In a tight budget year, plan administrators have proposed some difficult choices for state legislators: Cut payments to doctors and hospitals, or shift the burden–in the form of higher premiums and fewer covered services–to state employees.

Advocates for state workers argue that with premiums for family coverage already running between $300 and $400 a month, the health plan isn’t all that affordable now for state employees–most of whom earn annual salaries of less than $30,000. The state’s indemnity plan pays monthly premiums for employees, but workers must pay for health care for their dependents. About 171,000 dependents are currently enrolled in the state employee health plan.

“A lot of people won’t be able to work the [proposed] increases into their family budgets,” says Sherry Melton, a lobbyist for the State Employees Association of North Carolina (SEANC).

The threat of higher premiums comes on the heels of Gov. Mike Easley’s recent announcement that state employees will receive a mere 2 percent pay hike this year–one of the lowest raises since 1995. Although Easley has said health care is his top priority for state employees, the budget recommendations he presented to the General Assembly in March included only partial funding for the state employee health plan.

Easley has recommended an appropriation of $150 million this year and $200 million for 2002–less than half of what plan officials say is needed to keep the health-care program in the black. The General Assembly appropriated $51 million in reserves for the state health plan last year, but that money has since been reverted to the general fund in an effort to ease North Carolina’s nearly $1 billion budget deficit.

State employees’ advocates say solutions put forward for closing the budget gap–including raising health-care premiums for state workers–are unfair to low- and moderate-income families.

“State employees are always the first ones the legislature looks to for cutting the budget,” says Paula Schubert, immediate past president of SEANC and a state employee for 21 years at the University of North Carolina at Chapel Hill. “And we’re always the last ones they look to when they have a surplus.”

The state employees association will hold a rally in Raleigh on May 16 to oppose any out-of-pocket increases in health-care coverage for state employees.

The crisis in the state employees health plan has unfolded within the larger context of rapidly rising health-care costs. The reasons for that are complex, but state officials agree that higher prices for prescriptions and medical services, combined with a larger number of prescriptions being filled, are at the core of the plan’s current fiscal woes.

Walker, the plan’s director, says the $6 fee the state pays to pharmacists for prescriptions for state employees is three times what most health maintenance organizations pay. Reducing those payments could save $224 million. The state employee health plan has already raised co-payments on prescriptions and ended payments for lifestyle drugs such as Viagra–which accounted for $2 million in claims last year. And, in another effort to manage mounting drug claims, the plan has hired a pharmacy benefit management company, AdvancePCS, to help identify more ways to reduce expenditures.

Another key cost-cutting strategy Walker has proposed is reducing payments to doctors and hospitals by $155 million this year. He says the state plan pays more for doctors’ and hospital visits than private insurers do, and he wants the authority to seek better deals.

“The state has been a sugar daddy to hospitals, pharmacists, physicians and commercial insurers,” Walker told The News & Observer in February. “Now the candy store is closed.”

Dana Cope, SEANC’s executive director, supports the concept of keeping payments to providers in line with what they receive from private insurers. “What we keep asking is, why, just because you happen to be a state employee, retiree or teacher, are you charged more for your services than the private sector?” he says.

But Don Dalton, a spokesman for the North Carolina Hospital Association, warns that cuts in payments to hospitals will hamper their ability to serve patients. One-third of the state’s hospitals are already operating with profit margins below 5 percent. And with costs increasing three times faster than revenues, Dalton says, many others are being pushed to the fringes of fiscal health.

“Hospitals in North Carolina are in serious trouble,” he says. “They can’t afford to take cuts in reimbursements.”

Another argument made by state officials–that the state employee health plan is expensive because it covers an aging work force–isn’t supported by demographics. According to the state’s own figures, 29 percent of the plan’s enrollees are 29 and younger; another 21 percent are 30 to 44; and only 14.3 percent are 65 and older.

Costs aren’t the only problem facing the state employee health plan. Further complicating the picture is a dispute with WellPath Select, a health maintenance organization that covers state employees in 22 counties. The HMO attempted to drop coverage in select counties–mostly rural areas where providing care to fewer members is more expensive–even though its contract with the state doesn’t end until Sept. 30. WellPath has reached a settlement with the state Department of Insurance to continue coverage until then. Nearly 50,000 state workers will be affected when WellPath pulls out this fall.

Advocates for affordable health care say there are no simple answers to easing the budget crunch facing the state employee health plan. But by focusing on cutting benefits and raising premiums, they say, state leaders are ignoring other options–namely, a tax increase.

“The state is simply going to have to entertain the idea,” says Dan Gerlach of the N.C. Budget and Tax Center, which lobbies for low-income citizens.

Cope, of SEANC, believes money could be found within the state’s $14 billion budget to keep health care affordable for state employees.

“The legislature continues to prioritize things like parking lots and buildings rather than putting money into human resources,” he says. “We do the state’s business day in and day out. We shouldn’t be treated like second-class citizens.” EndBlock