Auditor: State Health Plan needs more oversight

The State Health plan experienced a financial meltdown in recent months, going from projections of a $50 million surplus to a $65 million shortfall. Analysts have projected a $250 million deficit within a year.

The plan provides medical insurance for almost 650,000 state workers, public school teachers and retirees. It also administers N.C. Health Choice, which provides coverage for 122,000 uninsured children statewide.

“In a majority of states, the legislative branch creates the health plan, and the executive branch provides the day-to-day oversight," Merritt said in a statement. "Their system avoids the pitfalls of separation of powers issues and potential conflicts of interest between health care providers and legislators."

Thirty-five states operate their state health plan under an executive branch agency, while 13 operate their health plan under boards of trustees, according to an audit Merritt's office conducted after the financial problems surfaced with the North Carolina plan. A second audit being done on the plan focuses on the financial causes of its growing deficit.

The primary authority over North Carolina’s health plan is a legislative body – the legislative Committee on Employee Hospital and Medical Benefits. The plan’s Board of Trustees provides some oversight but operates in an advisory role.

The committee’s influence over the plan’s management could violate the state constitution’s separation of powers clause, and it creates the potential for undue political influence in the plan’s administrative decisions and contract negotiations and the opportunity for conflicts of interest, according to the audit.

The audit noted the same shortcomings were identified in a 1994 audit, but that no changes were made.

“There is clearly a problem when the health plan is running a deficit and facing tough economic times ahead," Merritt said. "North Carolina’s teachers and state employees need to know that the health plan that they’re paying for is being properly managed and will be there when they need it."

Jack Walker, executive director of the State Health Plan, declined to comment about the audit's findings in his formal response. In a two-sentence response, he wrote that neither he nor his staff had any questions or comments.