In five years the State Health Plan’s billion-dollar surplus became a deficit.

by Rose Hoban, North Carolina Health news
December 17, 2025

By Rose Hoban

When new state treasurer Brad Briner walked into his new office at the beginning of 2025, he had a problem. 

After almost a decade of no premium increases for 750,000 state employees and their dependents, outgoing treasurer Dale Folwell had left the State Health Plan — one of the programs embedded in the treasurer’s office — with a deficit. 

“We came in with a $500 million deficit for ’26 and over a billion-dollar deficit for 2027,” Tom Friedman, the new director of the State Health Plan, told the plan’s Board of Trustees at a Dec. 5 meeting.

The good news is that the deficit has been whittled down through changes to the plan that Briner, Friedman and the trustees have been implementing throughout the year. 

The bad news, for state employees, is that they’re going to pay more for their health care in 2026.

The new board’s strategy is a striking departure from the approach taken by Folwell, who railed against what he called hospital “cartels.” He was also vocal about his frustration with the lack of price transparency from hospitals and from the former third-party administrator of the plan, Blue Cross and Blue Shield of North Carolina. (Insurance giant Aetna took over as the plan administrator in January.) 

In 2020, Folwell implemented a program he called the Clear Pricing Plan, which was supposed to drive down costs and save hundreds of millions of dollars. Instead, the plan ended up driving a deficit of about $150 million a year for the past three years, Friedman said. 

Friedman, Briner and their team have largely erased many of Folwell’s policies. Now they’re taking a different approach: negotiating lower rates with providers in exchange for exclusivity and volume. They’re also nudging state employees into programs that are intended to improve their health.

That’s coming at higher cost to the teachers, correctional officers, transportation workers and nurses who haven’t seen a salary increase this year because the General Assembly has not passed a state budget. 

Eroding cash balance

In April 2019, financial presentations to the plan’s board of trustees showed that the State Health Plan had a cash balance of $1.234 billion. 

By mid-2024, that reserve had dwindled to $619 million, and the board was convening extra meetings to discuss how to address a looming budget deficit. This summer, the cash balance was down to about $420 million, dangerously close to a legislatively mandated minimum reserve benchmark of about $390 million.

Folwell’s team floated some cost-saving ideas last year that included having state departments shoulder a greater share of the cost of their employees’ health care, removing coverage for blockbuster GLP-1 weight-loss medications, and modestly increasing premiums for retirees.

Across-the-board premium increases for members were not on the table, even though premiums had been flat since 2018. Nowhere did the documents mention that the Clear Pricing Plan, Folwell’s signature initiative, had been hemorrhaging money and was driving a substantial portion of that deficit spending annually. 

Instead, according to presentations made to the trustees in mid-2024 while Folwell was still in office, major drivers of the growing deficit were costs from the pandemic that had not been reimbursed, unexpected federal increases in retiree Medicare rates and less money from the General Assembly than requested. 

The Clear Pricing Plan, initiated in January 2020, was intended to incentivize health care facilities and providers to be more transparent about their costs. In exchange for that transparency, providers received reimbursement indexed to about 160 percent of what Medicare paid for the same services. The State Health Plan also pushed plan members to those providers by requiring lower — sometimes no — copays. 

“Ultimately, it’s like there was no new revenue, and there was significant new cost,” Friedman told NC Health news. 

The pricing strategy, in effect, provided a pay raise to many providers, particularly behavioral health practitioners, who traditionally received lower reimbursement. However, other providers such as doctors and hospitals — those who were already getting more for their services — didn’t participate and kept their higher reimbursement anyway.

Folwell, who responded to emailed questions from NC Health news, said the program built on an executive order signed by President Donald Trump during his first term “to increase transparency in healthcare and reward health care professionals like primary care physicians, physical therapists and mental health specialists who are closest to the wellbeing of our state employees at lower costs.”

The combination of higher rates for providers and lower copays from members with little financial upside for the State Health Plan was initially projected to cost $100 million over two years and then provide savings. The theory was that health systems would eventually join in and accept lower reimbursement in exchange for the State Health Plan’s business.

That’s not what happened. None of the state’s large health systems signed onto the Clear Pricing Plan. 

According to Folwell, the large hospital systems “boycotted” it. 

So instead, the Clear Pricing Plan ended up costing the state between $75 million and $150 million annually, nearly $450 million more over the past three years than projected. 

“The SHP director’s comments are misleading which leads me to pray that treasurer Briner and the board are getting accurate information,” Folwell wrote. “Our previous administrator BCBS of NC and their millionaire executives and lobbyists also resisted telling people what Healthcare really costs. 

“They can’t hide the horrific fact that NC has the highest cost healthcare in the United States,” continued Folwell, referring to a widely touted Forbes magazine analysis. “I’m pretty good at following the money but failed in fighting the money interest in healthcare on behalf of the invisible victims who are being hurt while others laugh all the way to the bank.” 

Prices rising for members

Coming into their new jobs, Briner and Friedman knew there was a big problem. 

“Within the first week, the first thing we did was say we were ending [the Clear Pricing Plan] after this current year,” Friedman said. “We had to cancel it. I mean, there was no math where it made sense.

“We were both very aware that you cannot give everything away for free and pay doctors more money and expect to save money.” 

In addition, they decided they needed revenue from members. 

Since 2018, premiums for participants in the State Health Plan have been steady, with the only changes coming, primarily, for retirees who receive their Medicare through the plan. Those retiree increases were driven by the federal government, not the State Health Plan. 

“We wouldn’t be in this mess at all if we had tied [premium increases] to salary increases earlier,” Friedman said. 

“Premiums were frozen for years, and state employees were made to believe that they would be that way forever,” Briner said in a YouTube video that he posted after plan trustees voted for the premium hikes in August. “But we were actually spending more than we were taking in the whole time.

“Cash reserves for the plan were being used to keep prices stable rather than actually doing the hard work with providers and making adjustments to provide better service at lower prices for our members. Now those reserves are nearly gone.”

Even an increase of two or three dollars a month in premiums each year would have staved off much of the deficit, Friedman said.  

NC Health news asked Folwell to comment on premium rates and the cash reserve. He did not respond to those questions.

“We wouldn’t even have any of the conversations we have today,” Friedman said. “That’s part of the rationale of tying it to salary increases is that you at least know it can go up in a way that’s more manageable for people because it’s something they can anticipate.”

That’s changing going forward with the implementation, for the first time, of premiums indexed to members’ salaries, something that’s rankled many members. 

Ardis Watkins, head of the State Employees Association of North Carolina spoke during the public comment period at the Dec. 5 meeting. Watkins had been a supporter of Folwell’s criticisms of hospitals and said that if hospitals had accepted trims in payment from the plan, it likely still wouldn’t significantly affect their bottom lines. 

Hospitals “are absolutely robbing us blind as members of the plan and taxpayers,” she said. In her comments to the board, she talked about how hospital rates had skyrocketed in recent years, even as hospital systems have not been transparent about their costs and profit margins. 

“We don’t know what we’re paying them, but we still go to the state employees and tell them, ‘Well, we might have premium increases on y’all next year too,’” she continued. “There has been no raise for state employees and nothing for retirees. And guess what? They’re paying more in premiums, and we can’t justify it to them.”

In recent years, Friedman said, the legislature increased what was put into the State Health Plan per employee each year, increasing what the state, as an employer, covered in premiums year over year. They did not, however, provide enough funds to plug the accumulating deficit.

“For six, seven years, they did a good job. They put more money in,” he said, noting that lawmakers added 3.3 percent on average over recent years. 

But costs were ticking up faster than that.

“When your costs are increasing 5.7 percent a year, you need more revenue than 5.7 percent,” Friedman said.

Opting in anyway

Despite the hike in premiums for the first time in eight years, many members opted into more expensive plans, according to Caroline Smart, the deputy executive administrator of the State Health Plan. 

“We actually saw people continuing to go into the 80/20 or the new Plus-PPO plan,” Smart said, referring to plans that almost doubled the average monthly premiums at every salary range. “What we thought might happen was with the premium changes, folks [may be] staying in that lower paying plan. We did not see that.”

Instead, more than 146,000 signed up for the higher-priced plans.

“Given what we had heard about the premium increases, I had assumed that number would be significantly lower,” Friedman said.

Friedman said participants seemed willing to shoulder more upfront costs in exchange for fewer financial surprises — in the form of copays, coinsurance and deductibles — later.

“People stayed with what they were comfortable with, and maybe were less influenced to make a change by the changes in the benefit design or premium,” he said.

NC Health news reporter Ashley Fredde contributed reporting to this story. 

This <a target=”_blank” href=”https://www.northcarolinahealthnews.org/2025/12/17/state-health-plan-deficit-explained/”>article</a> first appeared on <a target=”_blank” href=”https://www.northcarolinahealthnews.org”>North Carolina Health news</a> and is republished here under a <a target=”_blank” href=”https://creativecommons.org/licenses/by-nd/4.0/”>Creative Commons Attribution-NoDerivatives 4.0 International License</a>.<img src=”https://i0.wp.com/www.northcarolinahealthnews.org/wp-content/uploads/2021/10/cropped-favicon02.jpg?fit=150%2C150&amp;ssl=1″ style=”width:1em;height:1em;margin-left:10px;”>

<img id=”republication-tracker-tool-source” src=”https://www.northcarolinahealthnews.org/?republication-pixel=true&post=65237″ style=”width:1px;height:1px;”><script> PARSELY = { autotrack: false, onload: function() { PARSELY.beacon.trackPageView({ url: “https://www.northcarolinahealthnews.org/2025/12/17/state-health-plan-deficit-explained/”, urlref: window.location.href }); } } </script> <script id=”parsely-cfg” src=”//cdn.parsely.com/keys/northcarolinahealthnews.org/p.js”></script>