Raleigh, N.C. — The man who oversees the health insurance plan for state employees told lawmakers Wednesday that the plan will need an infusion of $400 million to $500 million late next year or early in 2012.

Jack Walker said rising medical costs have led to significant losses at the State Health Plan, and officials cannot stop the bleeding, according to House Majority Leader Hugh Holliman.

"The problem is our costs are rising approximately 10 percent a year at a time our reserves are decreasing," said Holliman, D-Davidson.

The health plan provides coverage for 667,000 state employees, retirees, teachers and their dependents.

Holliman said lawmakers plan to work with all of the stakeholders in the plan to resolve the situation through some combination of insurance rate increases and cash from the state.

"We have to look at our plan – what we're offering, how we could design the plan differently maybe to save some costs," he said.

Last year, the state spent $300 million in taxpayer money propping up the State Health Plan. A state audit said mismanagement had led to steep losses in the plan.

The cash infusion was part of a $687 million package lawmakers approved that included higher deductibles and co-payments for state workers, increased premiums for dependent coverage and lower benefits for people who smoke or are obese.

Dana Cope, executive director of the State Employees Association of North Carolina, said insurer Blue Cross Blue Shield of North Carolina needs to share in the cost of putting the health plan on sound financial footing. Lawmakers also need to stop managing the plan, he said.

"There has to be some shared sacrifice in this. It can't just be from the employees perspective," Cope said.

"It's ridiculous to have a body of 180 people by committee manage a plan that is bleeding money and hurting the very people that it's intended to help," he said.

Walker's dire forecast adds to the future budget concerns of lawmakers. A penny increase to the state sales tax rate approved last year is scheduled to expire next June, and the state also will lose more than $1 billion in federal economic stimulus funds that has helped plug holes in the state deficit.

"Things are bad this year, but unfortunately, next year is even worse," Senate Minority Leader Phil Berger said. "We need to do something now (with the State Health Plan). If we wait, you're just putting off the situation, and you're making the situation worse."