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Joint | July 27, 2015 | Committee Room | Legislative Program Evaluation Oversight

Full MP3 Audio File

OK let's get started if we might, let me call the meeting to order. And first I'll introduce our Sergeant at Arms for today. We have from the House, Regi Sills, Warren Hawkins, David Linthicum and Jim Moran[sp?]. And from the Senate, Steve Wilson, Terry Bernhardt, Canton Lewis, Larry Hancock and Dale Huff. Welcome to each of you, we do appreciate your being here. We don't have any pages yet, OK. So [xx] that. Mr. Co-Chair have you any words of wisdom for us? You're too tired from trip? I had none. In your agenda package you have copies of the June 22, 2015 minutes. Senator Randleman. Move to adopt the minutes. Motion to adopt the minutes Questions, concerns? All in favor please say aye, opposed no so ordered. Next item, we have the Honorable Beth Wood, returning to us again to make a presentation on an audit that we as a committee had requested some I guess on the first of this year relating to the Department of Public Construction. Actually the request on October the 15th and actually the auditor signed on to that very quickly and was able to put this together. The DHHS audit which was part of the package was completed and was presented to us on April the 13th. DPI's to be presented today. We will still be seeing sometime in the not too distant future similarities for the department of public safety and the department of transportation but let me recognize Beth wood, and thank you, welcome again Madam Arthur   Thank you Mr. Chairman and thank you members of the committee for allowing me to present this audit to you today. As the chairman said, what I have in front of you is the financial statement audit for the department of public construction and just as a quick reminder, this type of audits have not being done for a couple of decades for Art separate agencies we have put up the audit on the total financial statements for the state of North Carolina but in a and in a couple of decades we have not put out audits on an agency level and so this is the second in a series of six that we'll be doing if you look at just the second page of the audit, there's no page number on it, it's just the second page of the audit and it says an overview of how to use this report. One thing I'd also like to say is that we began looking at doing this audits for the different we did meet with the office of state budget, we met with performance evaluation and we met with physical research to ensure that the audits that we're putting together that we're putting the information in and putting it in a format though the user friendly for those that are interested in this information so we put on the second page of the report is an overview of how to use this In the second paragraph we talk about the fact that the department of public construction has two major funds and so you'll see the information presented it in two fund. We have a governmental which is a general fund and we have a proprietary, which is an insurance Premium Fund, and I'll talk a little bit more about what that is in a minute. Also what we've tried to do in this report is we've tried to make it easy, very easy to get to the information and not having to flip through the report as you would need it. So we started with the requirements information it's very summarized. The required information is what reporting standards will require you to see in an agency financial statements. Then we put together supplementary information, again it's based on conversations with Fiscal Research, Office of Budget Management and PED like to see that ties to the audited financial statements and that would make it easier for them to work with the information in this report. So under Required Information, so what you're going to see is very summarized at the beginning and much more detail as you move through the report where there is more detail on account balance you'll see a

reference to either a note or another schedule. So we've broken the tabs down the grey tabs are Required Information, Supplementary Information, Report on Internal Controls, and Findings and recommendations. Then behind each one of those grade tabs will be the breakdown of information along the way. So under required information you have the independent auditor's report, that is our opinion on the financial statements that you'll see. Make a note, the management's discussion and analysis is DPR's response to any financial variances that are significant enough that need to be discussed. This is not audited information, their response is theirs, and it is not audited information. Exhibit A is going to be a balance sheet and an income statement if you will for the General Fund. Exhibit B is going to be a balance sheet, an operating statement/income statement for the Insurance Fund. You have notes to the financial statements that break down the numbers in more detail and then exhibit C will be the budget to actual. Again under the supplementary information we'll have different schedules and when a number needs more explaining, or OSPM, or research or PEDs that we like to see more detail about what's in those numbers, you will see those in schedules D one through six, and again and we have a tab for each one of those to make it easy to get to. So if you would go over to the required information, again the first tab is independent auditors report, and again that is our opinion on these financial statements, the agency financial statements. The tab NDNA again is DPIs, this is an explanation for any financial variances that they wish to discuss, and that information has not been audited. If you go over to exhibit A, this is the first financial statement and these are the numbers as they've been audited. On exhibit A-1 is the balance sheet for the general fund obviously assets, liabilities, and fund balance. And you'll notice under assets we see cash and cash equivalents, you'll see note two. So if you want to go and see more detail about the cash and cash equivalents, you could flip over, there's a tab for notes to the financials, and then you can flip over to note two and read more information. You have intergovernmental receivables, if you wanted to the inter-government receivables who those are from, you can go over to the tab notes to financials, and find note three and read more about that. If you move down to fund balance, more detail as to what's in those different categories is in note nine, but also you want to make a note, here if you want to know the definition of a non spendable, restricted, what that is, committed what that is, unassigned what that is, you go to page 20 on the notes and read the definitions of what each of those mean. If you want to look at non-spendable that would be inventory for instance that kind of information is going to be on node nine on page 27. We have audited the financial statements the general funds balance for 2014 and 2013 and this is for the general funds. If you look on page 12 this is a statement of revenues, expenditures and changes in fund balance, this is for the general fund. Exhibit A-1 is cumulative for the department after all this years. A-2 is for the years 2014 and 2013, 2013 is un-audited, 2014 is audited you'll see a breakdown here of revenues, federal funds, revenues from other State agencies, again if you want to see what where those revenues from other state agencies and how much much from each agency you could just go to the tab notes with the financials and find note 10 and you'll get the detail there. If you look down, total revenues for 2014 are 2.1 billion dollars and you can now go over to schedule D-1 and see further breakdown of what kinds of money's came the federal fund and what kind of money's came from revenues from other state agencies

those two numbers was so large it was though there was more detail necessary for those dollars and so if you go to schedule D-1 you'll see more detail on the 1.5 billion from the Feds and 607 million from other agencies but if you look top to bottom on that schedule you'll come back to the $2.1 billion. Under expenditures, there's a total of 9.9 billion and the first item under expenditures on page 12, you'll see grant, state and federal aid $9.5 billion. So this is what the state of North Carolina, what DPI gave to the school systems grants, state and federal aid, and again if you go to D-3 you'll be able to see a breakdown on what those monies are and the different categories. What I think is important that I just wanted to point out, if you move down page 12, you'll see other financing sources, state appropriations of $7.8 billion of state appropriations are shown here, sale of capital assets and insurance recoveries are in this other financing sources number. Which brings you down to your total other financing sources and then you'll see a net change in fund balance. Fund balance beginning of the year and then the fund balance in the end of the year while D. P. I has a positive fund balance for 2013 and 2014. I think it's important to note that the net change of fund balance was negative over both of those years. So unlike D. H. H. S who had a negative fund balance but they had a positive change during the year, D. P. I is the opposite. So while they still are holding an overall positive financial position. They have had a negative change in fund balance two years in a row. This is kind of information that unless you have these financials on an agency by agency perspective no one would ever know that what everybody is contributing to an overall state fund balance and you don't really know who's contributing on a negative perspective who's coming out from a positive perspective. By having these financial statements, you would have that. Exhibit B-1 and -2 are the financial statements for the public school insurance fund. What this fund does it insures the property assets of the public school's system and the community college that choose to participate and both the community colleges and the public school systems pay premiums. These public insurance fund insures 88 out of the 115 school systems and 31 out of the 58 community colleges. So this is the proprietary fund for DPI, and again as I said the tab notes to the Financial Statements will take you through, it's more detailed information on numbers that are in this required information on those four financial statements. If you go to exhibit C, this is the budget to actual exhibits A and B are full accrual, that means all the cash transactions that happened are recorded there plus any expenditures that were incurred but have not yet been paid, those are on schedules A and B, Exhibit A and B. If there's any revenues that are due, it was differed again they're there, they're attributed to those years. What you'll see on its schedule C is budget to actual, this is the cash basis owned. And what we have here is the certified budget, the authorized budget and then the actual, and then the favorable, and unfavorable comparison. How many of the community colleges did you say? 31.31? Thank you. So then as you start to move

through some of the exhibits, let's go to page 40 which is the Exhibit D-1 and as I was saying in the General Fund you're looking at total revenues of $2.1 billion, but all you saw was a Federal Revenue of 1.5 billion well now you can see the types of programs from the federal perspective out of which those monies are coming, and then revenues from other State agencies you see a breakdown of the State Budget Management 510 million, Department of Revenue, Department of Transportation and then brings you down to the total of 2.1 billion. The other thing that we did that we heard would be useful information, that we understood would be useful information if you look at page 41 which is Exhibit D-2. On its Schedule D-2 we have expenditures, which is the line item caption, and then immediately under that we have expenditures paid by the department to schools, or on their behalf, $9.7 billion. About middle way the page you see the 9.7, just below that you'll see expenditures paid for department operations and administration, so what we try and do is breakdown what DPI and the top part of this schedule is paying either to or on behalf of the school systems. And then middle way the page down, and on the next page 42, are really the expenditures incurred for the operations of DPI themselves and then you can see the breakdown of the kind of things that DPI is paying for themselves and there operations, and then above that you can see the information on what's paid to the schools or on the behalf. Now if you go back to page 41, you look at the very top, expenditures paid by the to schools to or on the behalf of the schools, you'll see grants, state and federal aid to schools then  you can go over to D-3 and you'll see a breakdown of how those expenditures have been paid, what categories, what line items. So again as you move through this report, you'll find more and more and more detail depending on the schedule that you're on. So you're very summarized in the front Exhibits A-C, and then starting with D1 and you move through to D6 you find more and more breakdown. Again something that we thought would be useful information if you go to schedule D-4, that's page 45, that huge number of Schedule of Grants and Aid paid to school districts, we have the school district listed alphabetically and then you can see state funds, federal grant funds and in different programs and the different schools systems that those monies were paid to. If you go to D-5 it is the same expenditure but it's been sorted, the first one was sorted alphabetically so you could find your county. Schedule D-5 has been sorted from largest to smallest. So again, different legislators can see the types of money and how much money is being spent or given to their school districts, and that also includes the charter schools. If you go to the tabs finding, recommendations responses we did have a finding for DPI in this financial statemens audit and the finding is basically that they were not providing the proper review of their financial information before they are turning them into, their information into, the office of the state controller. This finding, because the level of materiality, or the level of significance number from the State wide perspective is so huge this was a finding for an agency level audit. And again, what we found is that they were providing the review to make sure they had the numbers in the right places and that the classifications between the account balances had done properly. So on page 57, those two

bullets show you the specifics of the mistakes that we found, the department understated the premium revenues and overstated their an unearned by 7.6 million and then the department overstated their accounts payable and claims payable by $586, 000, and these figures would have been considered material to these financial statements done at an agency level, and behind these findings recommendations you'll find DPI's response. So again thinking about who our users were going to be for these financial statements, obviously the legislators and PD, Fiscal Research, and the Office of State Budget. And again trying to make this a very user friendly report so that people can very quickly get the numbers and won't have to search or ask questions but we hopefully have ticked and tied these numbers back and forth between schedules so that very easily you can find the detail of what goes into those very summarized financial statements in exhibits A, B, and C. Mr. Chairman that concludes my presentation. OK, questions from the committee, how they audit, Senator Hise? Thank you Mr. Chairman. I guess the first thing I wanted to look at on page 42 of the department, and I know the things overall in the budget and those kind of things have been tied across the board, but the expenditures for department operations and administrations from 13 to 14 have increased 13.6% in a year going from the 226 million to 257 million in a year. I think we find that inconsistent with any other increases in the education budget that we've kind of gone through and maybe best for the department to kind of answer this, why in these cuts have we seen such a great increase in the department's operation cost within that year. Mr. Chairman that would be a better question for the Department of Public Instruction. Do we have someone from the department who wishes to speak to this particular issue? Rachel Beaulieu, Legislative Director for the Department of Public Instruction. Thank you Senator Hise for the question. We have Sarah Harris here of our Finance and Business Accounting Services Division to answer or address the question. You refer to page 41 or 42, and 42 I believe is the entire agency including the LEA's. 41 gives it's [xx] department and it's administration. Anything that you were to see would be the result of any kind of federal funding that we would have gotten. And federal do carry over so what could be more expenditure of federal funds, and the next year in 2014. The agency definitely will not be spending additional funds because additional funds were not appropriated. Federal funds carry over from year to year. Senator Harris you have a follow up? I think I'm just more confused with the answer. I'm looking through it there's all kinds of increases in networks, software agreements, a lot of it seems to be data processes services, those type increases that are there but I'm really seeing that as a LEA spending for administration That is federal probably because of the rest of the top grant, a lot of those items were not carried out or contractual agreements where they did not actually the obligation did not liquidate until 14 instead of 13. So there are a lot of I. T. Type contracts for that are placed for the top grant and I'm sorry it is 41 and 42, sorry. So a different area of [xx] I

do think is this the last of the race to the top funds? Yes, it ends in August. As far as the audit finding I guess it's the other question I wanted to ask, I find it a little troubling that it's basically stated the error has occurred because the management had not performed a complete and thorough review of financial statements and if I believe it goes on it specifically says that the way I would summarize it is, no one looked to see that the sub-groups added up to the total as part of their reviews that are coming through and these financial statements have kind of gone on for years and it's the first time we've actually had an audit in them and I think we also had another overstatement of 195% of an unearned Revenue, 56% understatement of Premium Revenues those aren't small misses in those operations or in those directions, I guess I was just looking for someone for the department to say I think we may teach some accounting in this State, so the question is how did we get here? Well, you certainly have your opinion, but we do look at the information. I believe, and as we had stated in our exit conference that we needed more thorough review, and some of the things that are listed in the responses are what we're going to do. I think one of the biggest things that probably was missed or not done thoroughly was comparative reviews. Another follow up? Miss Chair, and I just state and I understand that to say that I'm entitled to my opinion I think it would be more accurate just to say that I was reading they said the review procedures did not validate that the support documents totaled the accurate accrual amount. It didn't add up to the totals, would be the way I sum that that I didn't come up with that as an opinion, I'm merely reading what it says about the statement in your procedures. Our procedures are that we do review, the biggest thing is that we did not do is we did not do comparative reviews. Had we done comparative reviews we would have come to the correct numbers. Madam Auditor, do you have anything you'd like to add to that? I do. I think it comes back to when we talked the financial statements for the state of North Carolina as a whole, agencies have gotten comfortable with how much you have to be off before it's finding. We're more looking at the financial statements as a whole, now that we are zeroed in more at an agency level, we're finding things that an overall statewide $44 billion wouldn't necessarily uncover. So I think it adds more ammunition if you will, over these audits are important. OK Representative Dollar. Just so I can kind of close the loop in my mind. Madam Auditor if the department on an ongoing basis is doing the comparative review that was mentioned back here and they were to be doing that on an ongoing basis, with that catch in the future what was caught here, or do they do they need to do other things to make sure that you would have the material finding of this nature in the future. I can't say what it would take for them to do if that's what they feel like they should have done then that's what their policies would be. Again, I think it gets back to, we have been auditing with such a huge level of materiality that a lot of agencies have gotten comfortable that, if this account was wrong totally, it wouldn't get caught because it's not big enough the materiality for the financial statements for the State of North Carolina is plus or minus $900 million. And so when you're looking for errors that would get caught in audit of that magnitude, you have a tendency not to pay so much attention to things that would make a difference to those not just an agency level audit Follow up. You just follow up with the department.

So it's understanding from what you have said today that the department is now implementing this comparative, I may have termed it incorrectly, process that you discussed previously that's going to be part of the ongoing procedure so that an error of this nature would not occur in the future, is that correct? That is correct and I do agree with Auditor Wood is that, so many years this has not been done and we do welcome it, so that definitely we want to do what we need to do and comparative reviews are some items that we do. This one was not done, and so I do think that this will help along with other things that we need to pay attention to for this Fund and not only this Fund, for everything. Final?  Just to follow up, what are some of the other things you are going to be putting employees to ensure that the accounts are correct. There are different analysis that we need to do. We in some of our accounting areas have been short of staff and we have now gotten more help to help us with these things So, I believe that that will resolve these type issues. Okay Representative Haley. Thank you Mr. Chair and I guess is for the department. I noticed, with the software, different things, will this help you customize spreadsheets and things you can make, you can balance, you can make sure whether you're right or wrong. So is this also coming into play? Yes, and I think that that's mentioned in the analysis as well, I mean in the response as well. Thank you because figures don't lie and it's important that they balance. Yes, thank you. Okay, Senator Pratt. Thank you Mr. Chair, Madam Auditor, can you explain the purpose of the public school insurance fund and how it might operate that's a new term for me. It is a fund that's supposed to be insuring the property assets for the public school systems and any community colleges that wish to participate and I know there's like 31 community colleges that choose to participate and I forget how many, 88 thank you. 88 school systems of the 115 that participate, but they themselves will pay premiums to that fund and then the claims are paid from that. So this is for materials that are in the public schools in the various LEA's that is still owned by the DPI or I'm I totally confused? What are we Insuring? I've to defer to the department, we're insuring school properties, buildings mostly it's buildings, property at schools. OK Madam Auditor just a question, do you have in this report the identity of the 88 school systems and 31 community colleges is that listed in this report [xx]? Mr. Chairman it is not but I can get that information. OK if you can get that, I think it will be very helpful. OK. Senator Tarte. Mr Chair thanks, Madam Auditor this is going to be a little broad but if I'm interpreting this in some of the questions, would it be accurate or inaccurate to state that what we've been receiving from a financial perspective is an accurate information not necessarily intentional but inaccurate is that fair or not to represent this research? When you say what you've been receiving, from the agency or the financial statements that have been audited year after year, what? the statements, none other than the statements from the agencies. It's difficult, it's hard to say whether they're inaccurate or not unless I do an audit and do a comparison. So it's hard for me to say that it's inaccurate. I know in this situation if you were given the financial statements from the DPI you would have had errors like the ones that we just shown you. Follow up? Follow up. And then what's the disciplinary or the actions that need to take place going forward to increase the

accuracy of the financial statements being provided by the agencies, and in this case DPI? In all agencies and I recognize, again you have to look at the cost benefit, but particularly for the larger agencies certainly knowing you're going to be audited every year, and to what level you're going to be audited, makes everyone more careful in double checking their numbers. One last follow up Mr. Chair? Follow up. Madam [xx], do you have or suggestion on the frequency in which we should be going through this exercise? I think this committee made the right choice in picking the top six largest agencies in our state government and having these kinds of audits done. And just clarification then, are you suggesting one and done is good for another decade or two, or should we do this more frequently, or a suggestion, or a recommendation as such? Annually to be done in conjunction with larger statewide audit of the [xx] and single audit that we have to do simply because the users of the two reports are different. The statewide from it is important to a bond rating agency and the federal government. Neither of them care how DPI, or DOT, or DHHS is doing individually. What they're looking for is the financial stability of state North Corina as a whole. The General Assembly is much more interested in an agency by agency Mr chair one last power one. The last one. Could you give the committee a sense of the relationship between the detail and the [XX] and how that middle men contribute to the work that goes on when you do this level of detail on the I can. When we are doing the cover it is over states cash pulled together its all the states recieverable pulled together its all the states payable, pulled together and so we may just look at at who's the top two agency and go look at their payable's. We may look at the receivables at two different agencies. we may look at a different account balance at a fifth agency, with this we gain the understanding of every account over $100, 000 and then we brought a materially level of way down from 900 million and looked at lot of more detail of and we looked at the financials in their entirety as opposed to maybe payables and receivables at this agency cash at four other agencies and that kind of thing. Rep. Dollar One other follow up and that is for example Department of Public Construction saying they're going to change their procedure so they don't miss, make the same types of material errors in future so I guess my question is, is along this line. If you were doing this detail on an on annual basis as I understood your answer to the question it's going to be sort of incorporated in with pulling together materials on the [xx], can also be be sort of, I don't want to use the word assume on anything but will it also be sort of annual followup something material from a prior year found then they're going to need to demonstrate that they do not have those same types of material defects and that they've put in place sufficient procedures, control, reviews, what have you, to ensure that next year DPI won't have the same problem with this fund or in other funds. You are correct in that. If we took on the six agencies that this committee recommended that we do we would do, we would do a follow up next year when we do are auditing DPI making sure that the finding they have went away. Any other questions from the committee? Any further comments from DPI? And Madam Auditor do you have any concluding remarks? No, I do not, thank you Mr. Chair. Thank you. Let me ask one question, you're looking at several other agencies, do you have any idea when we might when you might be able to report on those other agencies [xx] I would say it's probably going to be, it will be for the fiscal year ended 2015, and we should have the audit work complete and the reports done by December 31st, because the coffers to the

bond rating agencies and federal government that work has to be finished and turned in by December 31st, which includes the universities, and so I'm looking at having the all six done by December 31st for 2015. Thank you so much. Thank you madam, so much. Now, next we. [xx] accept this report? We can if we want, do you want to make that motion? I don't know, is that not normally what we've done in past? No. You can say anything you want. Mr. Chairman I move that we accept the report from the State Auditor as presented commending them for their work and their diligence in this detail, but also asking that they be available as we attempt to digest all this. We may have some more questions and we'll come back to you with those, but I move that we accept the report. OK, have such a motion, I think Senator Tarte since he asked so many questions seconded that. The discussion, all in favor please say aye? Those not, thank you. OK, next we're going to have a PDD Report presented by Miss McGorty. Unfunded Actuarial or Liability for Retiree Health, and after this report is given, Mr. Solari from the Department of State Treasurer will provide an agency response. Hi, good afternoon Chairman and members? I'm Kiernan McGorty, a Principal Evaluator with the Program Evaluation Division, and today I'll be presenting you with our study of the Retiree Health Benefit Fund in which we found the unfunded actuarial liability for the Retiree Health Benefit is large, but the State could save up to $64 million annually by shifting costs to Medicare Advantage Plan my presentation will take about 20 minutes after which I'd be happy to answer questions at the direction of the Chair. you should have in front of you a copy of the report and today's slides in yellow. This committee's 2013/15 work plan directed the Program Evaluation Division compare the funding status of the retiring health benefit fund to other states fund and explore options for improving it's funding status. we want to acknowledge the excellent cooperation we've received from the department of state treasure which includes the state health plan Meg Candy[sp?] and Sarah now join me now in this evaluation team and David Vanderwide[sp?] from Fiscal was exceptionally helpful to us. Unfunded liability is the amount of claim liabilities that exceed plan assets. North Carolina's unfunded actual liability for the Retiring Health Benefit Plan is $25.5 billion. North Carolina ranks 41st in unfunded liability per state resident for retiring health benefits with only eight states performing worse. I'll present several options to reduce the unfunded liability, but a pending lawsuit and the threat of future lawsuits needs to be considered when weighing options. The good news is the General Assembly can direct the State Health Plan to shift cost to the Federal Government by requiring eligible retirees to be on Medicaid advantage plans, generating enough estimated savings of up to $64 millions annually. Before making any other changes we suggest the General Assembly appoint a joint committee to determine which of the reports other options to pursue in light of the financial and legal implications discussed in our report. I now provide some background information on the retiree health benefit fund. Just to warn you this is a complicated issue and in the interest of brevity I won't be able to explain all the new answers but at the bottom of each slide you'll see the corresponding report page number if you want more detail. The general assembly does not appropriate funds directly to

the retiree health benefit fund. Instead it provides operational funds to public employers such as state agencies, universities, community colleges and school districts. In the appropriations bill the general assembly stipulates how how much those public employers will contribute to the Retiree Health Benefit Fund as a percentage of their covered salaries. Each participating employer takes that percentage from each of it's fund sources for active employees, and pays it to the fund. The fund is then used to pay the employer share of premiums to the state health plan with the employer's share being set by the General Assembly. Retirees also pay their share of premiums to the state health plan. The three reasons retirees pay premiums is if they choose enhanced plans, are cover independents, or have contributory coverage which I'll discuss next. It's important to understand that employees retiree health benefits vary depending on their date of hire and years of service. Retirees are eligible for a non-contributory health benefit meaning the state pays their full premium cost if they were hired before October 1st, 2006 and have at least 5 years of service, or they were hired on or after October 1st, 2006 and have at least 20 years of service. Retirees are eligible for a one-half contributory health benefit meaning the state pays half of their premium cost if they were hired on or after October 1st, 2006 and have 10 but fewer than 20 years of service. Retirees are eligible for a fully contributory health benefit meaning the state pays none of the premium cost, but they have access to the state health plan if they were hire on or after October 1st, 2006 and have fewer than 10 years of service. The other important factor to keep the mind is the age of retirees. First we will go over the benefits available to retirees younger than 65. This group has access to the same state health options as active employees. As you can see 21, 000 retirees are enrolled in the traditional 70/30 plan which is premium free for retiree only coverage when service time requirements are met. You can see the one-half contributory premiums for employees for 10 but fewer than 20 years of service is $224 a month, and the fully contributory premium for retirees with fewer than 10 years of service is $448 a month. 31, 000 retirees are enrolled in enhanced AD-20 plan which costs $14 a month for retiree only coverage when service time requirements are met. This plan offers lower deductibles, co-insurance, and co-pays. A few retirees are enrolled in the new consumer directed health plan which is a high deductible plan accompanied by a Health Reimbursement Arrangement, or an HRA. Because retirees over 60 5 are eligible for Medicare their health plan options are different. As you can see 37, 000 of them have enrolled in the Traditional 70/30 Plan which is premium free for retiree only coverage when service time requirements are met. The difference is Medicare acts as their primary insurer paying up to the limits of its coverage, and then the 70/30 plan acts as the secondary insurer paying the reminder of the bill up to the limits of its coverage. 60, 000 retirees over age 65 are enrolled in the Medicare Advantage Base Plan. The state health plan contracts with Humana and United Health Care to offer two levels of Medicare Advantage Plans. These plans allow retirees to obtain services from any provider that accepts medicare, and are comparable in value to an 80/20 plan. The Base Plan is premium free for retiree only coverage when service time requirements are and the enhanced plan costs $33 a month for a retiree only coverage when service time requirements are met, but it offers lower co-insurance and co-pays. Now we'll see how North Carolina's funding status for retiree health benefits compares to other States.

North Carolina like most States funds its retiree health benefit on a pay-as-you-go basis, meaning the State funds the trust when the benefit is provided during retirement rather than pre-funding the trust during active employment. 10 years ago the Governmental Accounting Standards Board or GATSBY, began including in its standards that State governments report unfunded liability for retiree health benefits on an accrual basis. The new standards required States to produce an actuarial statement that recognises the cost of retiree health benefits when an individual becomes eligible for these benefits. Remember unfunded liability is the amount of plan liability that exceed plan access. The first actuarial statement of the retiree health benefit fund was produced after those new standards were put in place in 2005 and the estimated unfunded liability at that time was $23.8 billion. There's a gap because no statement was completed in 2006. The most recent actuarial statement in 2013 estimates the unfunded liability is $25.5 billion and projects this value could grow to $37.5 billion by 2020. North Carolina performs poorly on the three measures used to compare the funding status of state retiree health benefits Unfunded liability per state resident indicates how large the burden it is for a state to pay off its liability relative to the size it's population. When we rank states from smallest to largest unfunded liability per state residents North Carolina ranked 41st with only eight states performing worse in fiscal year 2012/13. Nebraska did not have data for inclusion so it doesn't add up to 50. Low funded ratios or the ratios between assets and liabilities indicates a fund may be in jeopardy of not being able to make payments at a later time. Most states have a low unfunded ratio for the Retiree Health Benefits. 20 states had a funded ratio of zero percent and 18 states including North Carolina had a funded ratio between 10% in the fiscal 2012/13. The annual required contribution is amount of money that an actuary calculates the government needs to contribute to the plan during the current year for benefits to be fully funded in the long run. North Carolina was one of 26 states that paid less than 50% of its annual required contribution in fiscal year 2012/13. Several factors explain why North Carolina's unfunded liability for retiree health benefits is large. The benefits have always been funded on a Pay As You Go basis. Retirees with the requisite service time are eligible for a non contributory benefit meaning the state pays 100% of their premium, and the benefit are available to essentially all retirees with the requisite service time, regardless of whether they retire before age 65 or whether they retire directly from state employment. I will now provide some options for improving in the funding status of the Retiree Health Benefit Fund. We identified six options to improve the funds funding status. I will go through each in detail, but the big picture idea is that each option either involves increasing the amount of funding, for the benefit, or reducing the value of the benefit to employees. As you can see the first two options involve increasing funding from the state or federal government. The impact of transitioning to a defined contribution model depends on how the benefit is structured in an employee individual circumstances. The last three options all involve reducing the value of the benefit to employees by reducing the number eligible, requiring them to contribute, or increasing the amount they pay in premiums and out of pocket cost. The first option is the

General Assembly could increase the amount of assets in the Retiree Health Benefit Fund through the appropriation process. The General Assembly set the employer contribution rate at 5.49% of payroll in fiscal year 2014/15 which amounted to almost $800 million. However, the amount needed to fully fund benefits over the 30 year amortization period was 15% of payroll or about $1.3 billion. In an interview, the Fund's actuary told the General Assembly we would need to set the employer contribution rate at least 10% of payroll to be considered pre-funding the Trust, rather that funding it on a pay-as-you-go basis. One the easiest ways to reduce the unfunded liability of the Retiree Health Benefit Fund would be for the State Health Plan to require all Medicare eligible retirees to enroll in the Medicare Advantage Plans. In 2015 over 35, 000 individuals, or about a third of Medicare eligible retirees independents were enrolled in the Traditional 70/30 plan. The state health plan could shift these individuals to Medicare Advantage plans under which they would pay either the same or lower premiums, and receive benefits comparable in value to an 80/20 plan. Based on actual real data the Program Evaluation Division estimates this shift could save the state $44-64 million annually, and reduce the state's unfunded liability for the Retiree Health Benefit Fund by $3 billion. The state could further leverage federal dollars by offering financial incentives to encourage non-medicare retirees to obtain insurance through the health insurance exchange created by the Affordable Care Act. To this end the Senate's version of the Budget Bill authorizes the State Treasurer to pay or reimburse premiums for retirees with alternative coverage in lieu of this in State Health Plan coverage. Another option is the General Assembly could reduce the State's future liability by transitioning to a Defined Contribution Model. In a Defined Contribution plan the employer provides his employees a health insurance allowance through a Health Reimbursement Arrangement or HRA or through a Health Savings Account or HSA. Providing a fixed subsidy through a defined contribution plan can help reduce the State's unfunded liability by defining the limits of its cost, and it shifts the risks of rising healthcare costs and poor investment returns to employees. The fourth Option is the General Assembly could reduce the number of individuals eligible for retiree health benefits in two ways on the one hand it could increase service time requirements for the Benefit. In 2006, the General Assembly increased the requisite years of service for the non-contributory health benefit from 5-20 years of service for employees hired on or after October 1st, 2006. The General Assembly could increase that time to 25 or 30 years which are the service requirements in at least four other states. The other way the General Assembly could reduce the number of individuals eligible is eliminating the Benefit for certain groups, which I'll discuss in detail next. This table shows estimates of how much the unfunded liability would be reduced in 2026 based on eliminating the benefit for certain groups. As you can see, eliminating the benefits for retirees current employees with the requisite service time would reduce the liability by 78%. We'll discuss the legal implications of this a little later. Eliminating the benefit for current employees that do not yet have their requisite years of service would reduce the liability by 22%. The senate's version of the budget bill eliminates retiring health benefits for new hires, defined as employees hired on or after January 1st 2016. And this action would reduce the liability by 10%. If instead the General Assembly wanted to target elimination for certain subgroups of individuals, such as those who do not retire directly from the state, those who are younger than 65,

those that are 65 and older or spouses, we have those estimates as well in the report. Another option is the General Assembly could require employees to contribute to the Retiring Health Benefits Fund currently active employees are not required to contribute to a pre-funding their retiring health benefits. In contrast state employees have been contributing to the teachers and state employees retirement system or TESAS, for pension benefits since its inception in 1941. Currently employees pay 6% of their compensation to the pension. We found examples of four states that require their employees to contribute to state retirees health funds, with amounts ranging from 1-3%. Another possibility is for the General assembly to enact legislation that offers employees the choice between contributing or giving up their retiree health benefit. The final option is the state health plan could increase the amount retirees pay for their health benefits in two ways it could increase premium And it could increase out of pocket cost which include deductibles coinsurance and copays. The State Health Plan make these types of increases on a regular basis. When thinking about each of the options, it's important to understand the legal considerations. To date, no legal precedent exists regarding the State's obligation to maintain certain levels of retiree health benefits. The issue of whether retiree health benefits are entitled to the same legal protections as the court has found for State pension benefits, is the subject of a pending lawsuit. In 2012, the State Health Plan was sued by Lake and a group of retirees with at least five years of contributory service before 2011. The plaintiffs alleged breach of contract by the State based on elimination of a non contributory 80-20 plan in 2011 forced the election of a significantly reduced 70-30 plan to receive a non-contributory benefit and elimination of the contributory 90-10 plan. The plaintiffs allege they are entitled to a non-contributory 80-20 plan and access to a contributory 90-10 plan. The state's main defense is, statute states the general assembly reserves the right to alter, amend or repeal any section of state law regarding the state health plan. If the plaintiffs are successful, the damages may exceed $100 million. The discovery phase of litigation is expected to continue into early 2016. When the case is finally finished, we should know whether the state health plan can make adjustments to premiums and cost share levels meaning the 70-30, 80-20 splits. The issue of whether the state could make other alterations to retiree health benefits such as the options I presented like changing to a defined contribution model, increasing service time requirement, eliminating the benefit, and requiring employee contributions is not under consideration in the pending law suit. It's unclear what the legal ramifications would be if the general assembly made these changes to the retiree health benefits for current employees that are eligible or not yet eligible for benefits. These changes could be made for new hires without the threat of a law suit. Because of these legal considerations, the general assembly needs to proceed with caution. The good news is the general assembly can direct the state health plan to shift from government by requiring eligible retirees to be on medicare advantage plans. Remember retirees would pay either the same or lower premiums and receive benefits comparable in value to an 80/20 plan. And this shift would generate up to $64 million in savings annually. Before making any other changes, besides the ones being considered in the Senate's version of the budget bill, we suggest the General Assembly appoint a joint committee to determine which of the reports other options to

pursue in light of the legal implications discussed. At the end of the report you will find the treasurers response to this study. she agrees with the major conclusions of the report and representatives of her office are here today if you would like them to make additional comments. As members of this committee you have a few options in response to this report. The committee may accept the report, refer it to any appropriate committees and or instruct staff to draft legilsation based on the report Before I conclude I jut want to correct, I miss-stated before. 15% of covered salaries would amount to about 2.2 billion dollars and I think I said 1.3 and that was incorrect so its 2.2 billion for a 15% payroll. that concludes my presentation. Mr chairman I will now take questions at your directions okay. Do you have any questions from the committee at this point? let me ask, we will probably come back to that. Let me ask Mrs [XX] if you have any comments you would wish to make treasurer office. Yes Mr chairman members of the committee again my names are Tony [XX], I'm the director of government relations, for the department of the treasure, I have a couple of very brief remarks to make. First on behalf of the treasure and the department I want to thank Mr Toka[sp?] and I want to thank the staff is [xx] for this timely report, we appreciated the opportunity very much to provide technical comments to an earlier draft of the report and as always working with the PED staff has been a great experience for us, so I want to say thank you to all for that. As mentioned on page 18 and by [xx] the treasure and the board have worked hard over the last five years to reduce the unfunded liability of the plan, doing so by over 9.5 billion over that last five year period. However though as the report notes that unfunded liability is still well over $25 billion. The treasure is committed as we know the General Assembly is to administering the plan in a cost effect manner and to providing an attractive benefit to employees at a cost that the taxpayers can afford. So I know that the treasure and the board are going to want to take a good look at this report and especially its recommendations, and on behalf of the treasure, I can say that she and the board look forward to working with you, our partners, as  you have been since the plan came the department to addressing the issue raising the report, and that concludes my comments and I or staff from the plant will be happy to answer questions if we can. Okay let's Representative Dollar and [xx] if you would remain at the podium because I'm not sure where this questions are going to be addressed to. We have to be very careful. Well this one was changed, but it used to be for Mr. Solari, or may be for the report. I guess I'm just not seeing it. So the agency response is not in here. Which page is it on? You've got it open just right there, 68. OK well let me ask this question Mr. Solari is there more details other than the letter here, is there more detailed response offered by the treasury or there's not going to be any more treasured response. Representative Dollar, no not at this time the board and treasury would like to have a chance, take a look at the report, look at it carefully and then at that point be able to make a comment or suggestions to the General Assembly about what they think the way to proceed would be. Okay Senator Tarte. Yes Mr. Chair, I guess I'm looking for clarification what the first recommendation to shift to Medicaid advantage plans, one how do we incur the additional saving, but I thought we had started doing this a couple of years ago, does this mean that we want the only Medicare advantage to be the only only options and obviously each county has different plans, there's multiple plans in each county. What's the mechanics to how do we make this work? So the medicare advantage plans came on in 2014 they are not required right now

so if you you are over 65 and medicare eligible you have the choice between the 70-30, the medicare based and the medicare enhanced and is that you eliminate the choice of the 70-30 plan because the medicare advantage base plan is value to an 80-20 plan and its a premium free plan for retirees as well and the cost are a lot less to the state with the medicare advantage plan. First is the state having the 70-30 medicare combination that about a third of medicare eligible retirees are currently choosing obviously in these recommendation does the treasure office concur with these recommendation completely to it now. with the Chair's indulgence I'd like to see if I can have Monmon who's the plan administrator to come in and answer the question. By all mean and welcome. back Mona. Thank you, Mr. Chairman. I'm Mona Moon, I'm the Executive Administrator, Deputy Treasurer for the Department of State Treasurer. With respect to the recommendation regarding Medicare Advantage Plans, as Kiernan told you those were created in 2014. They do have up to this point a fairly good incentive for members to select those. Members are auto enrolled when they turn 65 into one of those plans depending on when they submitted their retirement paperwork if they're a new retiree, but if they're not they're auto-enrolled in those plans. For 2016, cost sharing in our 70/30 plan will increase dramatically for retirees who've selected that option, so there will be an incentive to give a second look to the Medicare Advantage Plans at that time. I'm not sure that I can say the Treasurer or the board of trustees is ready to say Yes, let's require all retirees to go into a Medicare Advantage Plan, we continue to look for ways to incent that, but as the report notes we would need some kind of process for folks who don't meet certain Medicare eligibility requirements. So if you have problems with your Medicare eligibility, even if you've enrolled in that plan right now you get kicked back to the 70/30 plan. Some states do require their retirees to go into Medicare Advantage plans, but I don't know how they compare to the State of North Carolina in terms of their vesting requirements and other covering options for their retirees. So I think at this time Mr. Chairman respectfully, we would like to have an opportunity to discuss it in particular with the board as to whether or not they would take it, now is a good time to make that a requirement the retirees enroll in the Medicare Advantage plans. OK. Senator Hise then Representative Holley. Thank you Mr. Chairman. The first question I kind of have is could you kind of give us a better explanation of what unfunded liability is? What is the time period over which you're looking for those cost and, for example, $25.5 billion what and I guess ultimately how do we get a structure for the state that says these are the amount of funds we're going to have to come up with, over what years that would sum to the $25.5 billion. OK, I'll refer you to page 18 on the report, of the report where we have the formula there which is pretty simplistic it's liabilities minus assets produce the unfunded liability but what's very complicated behind these numbers is they're computed by an actuary. And what goes in to the actuary's determinations is the cost of benefits in the current year plus how much you would need to pay in benefits this year to fully fund the benefit over an amortization period and the amortization period that the state has chosen which is pretty common is 30 years. So that unfunded liability is how much you would need to pay to off to fully fund all the benefits that employees are eligible for in the long run. Follow up. Just to follow that up so if we had $25.5 billion sitting in an account right now we could put it to this and it would fully fund it but that's not the the amount that we need next year to play all the benefits or the following year to pay all the benefits but it is if you go 30 years over a time period

it's a summation of all those differences. That is correct. The amount you would need, the number I misspoke about, the $2.2 billion is what you would need to pay this year to fully fund it to be on track to fully fund it in the long run. To be sure and just as a, I guess, as a comment and other for these, there are a couple of options on the table and I know they've also talked about sub committee and others, working with the Treasurer's office, but I think what I would like to see as long term, on a year to year basis what changes we need in the plan, what may be additional appropriations we are going to need in that process to make sure that we don't run into one of these where the cost of the plan exceeds $2 billion in a year. We just think we've seen budget holes to this point and others coming in, so if we could begin to put those together and may be a 30 year plan for funding for the state that would cover the entire $25 billion. Okay, Representative Hurley[sp] Thank you Mr. Chair and thank you for this report. As a retiree but also as an active member of The General Assembly we cannot supposedly be on medicare. Not in part b yet, if they don't do that until you retire, could be doing at any time then six months you're supposed to give notice. So how do we know how many who may be retired now, but who are still actively working, and may be their jobs say that the State Health Plan has to be your primary and the Medicare has to be your secondary? So we didn't look at active employees, we focussed on retirees. But you are correct that if you are an active employee who is over age 65, Medicare becomes your primary, and let me make sure I get the, State Health Plan becomes your secondary automatically. I think we put it in a footnote in the background. did that answer your question? So I don't know off the top of my head how many active employees are over age 65 and on Medicaid but in the State Health Plan but maybe Mona does. Ms Mona, would [xx] Mr. Chairman I'm not sure off the top of my head we'd have to get that for you I will say that, just to clarify. If you're an active employee, so you're working but aged 65 and older under Federal Law the State Health Plan is primary. So that may be one of the reasons why someone has told you not to select part B yet. Just follow up. Yes follow-up. But we do have many retirees who are teaching again and I guess, whatever we do we need to go slowly and be sure that we're not going to have unintended consequences down the road because I know many of us were told when we were hired that we would have health forever at no charge and of course that has changed, I meant so but that is on the books and years go. So I just think we need to go slowly, and definitely think we need to study and not just jump at doing something really quickly, thank you. Okay, Senator Payton. Thank you Mr. Chair. I'm wondering, I don't know if it was covered, if it was I missed it but how generous is our health plan compared with other States for State employees? So we did look at that, I'll refer you in the report it should be, well I'll just tell you off the top of my head. So what we did is since the data that's available on a national level is for the active State Health Plan, so we're talking the 70s, 30, 80, 20s and I don't think the CDHP existed at the time that PEW did this study, but that point in time we had the second least generous health plan, so Georgia came in worse than us but that was all. In terms of what they call

Plan Richness which is the cost-share levels of how much the employees pay in versus the employer. And now I remember where it is in the report, it's on page 35 towards the bottom. OK. Follow up, Senator Payton. So that means, thank you Mr. Chair. So that means that we are the scrooges of the nation and I always thought we had a very generous plan, but if I understood your answer we are next to the last. According to national data collected by PEW back in, that was 2013, we ranked second to last with Georgia for [xx] Another follow up? Just one more. So what do they look like in other states as far as the unfunded nature of their plans with us? OK. So I didn't memories all those numbers but they are on page 23, and what we have for you is unfunded liability per state resident because if you look at unfunded liability by itself it's not really telling you how bigger burden it is relative to the size of a state. So Georgia is at 35 and we're at 41. Mrs. Martin do you've any comment on that series of questions? With respect plan richness Mr. Chair I'm only familiar with the details of the p-report, the state health plan, staff, actuary and and Board of Trustees did do some evaluations of how our plans compared to other states we did not look at every state in the Nation, but we did look at a fair number of states. They looked at it a couple of different ways to try to get at richness for benefit value. Our results merely looking at out of pocket costs, very similar to the p-report, are 70-30, 80-20 plans or the far at the low end of the spectrum relative to other states. So they are less rich than other states. Fairly new consumer-directed health plan is a little better off. When you take into account the employer contribution plan, so when you take into account the premium's out of the equation. Our plan richness jumps to the other end of the spectrum, so it really does depend on how you're making that comparison. So out of pocket cost is certainly something that employees were concerned about, they're also concerned about the premium that they pay on a monthly basis, and because historically North Carolina has had no premium requirement for active employees, we obviously will be richer when you compare us to other states. Even with the addition of premium contributions that we started in more recent years, we still compare favorably when you look at the total value of the benefit, that out of pocket cost and the premiums. The story is dramatically different though if you're looking at dependent coverage because North Carolina really does not contribute to the cost of dependent coverage. Dependents in the plan, the employees purchasing that coverage get the benefit of the risk pool, so they may get actually cheaper covers than they could find on the private market, or even through some other employers, but because the state doesn't heavily subsidize that the story is different. So our dependent plans look very expensive compared to other states. So generally speaking other states from the premium side require employees ways to pay more than we do, other States generally speaking on the premium side contribute more for dependent coverage. OK. Mr. Vanderweide, would you care to add anything to that? David Vanderweide, Fiscal Research Division. I think Mona covered most of the points I was intending to make. I will point out the Fiscal Research Division issued a report this Spring comparing the benefit value of the Retiree Medical Benefit, the pension, the active medical to other States and the private sector, and that report is available on the Fiscal Research Division website. OK. Representative Dollar. Thank you. Mr. Chairman, just a couple of things. One, I do think tying together some comments that were made previously Representative Hurley, Senator Payton, I think some others, but one thing that probably ought to be looked

at in and evaluated is before any major change is made we need to look at as employers, we need to look at our overall compensation package. What we're doing, what we're getting for that, are we getting the quality of employees that we want for what we're offering, for that compensation package? And I think that we do need to be careful about the changes that we make, but that aside for a moment, I do have a question. Back on slide 14 you show a rather significant drop in the liability, and I think it was around $33 billion, something like that, somewhere in that range and it went down to one thing, one time I think it was below 25 billion at one point in time. So there was a 2/3 year period there that the unfunded liability dropped very substantially, now it's my understanding and I may have this incorrect it's the reason I want to ask, it's my understanding that, that was partly due to moving to the Medicaid advantage and so I'd like some further comment on if you moved the other individuals to Medicaid advantage. Would we see the same kind of dramatic long term drop in liability because obviously that would be a whole lot better than trying to come up with 2 billion dollars a year to fund them. I guess I'm really asking Ms Moon I suppose. OK, because we estimated that it would produce a $3 billion reduction in the unfunded liability to that one? Yes, I can't say yes that's the exact amount or no it's not. It would definitely reduce it further, how much I'm not sure, but because we have moved most of the folks who were eligible to the Medicare Advantage plans. So we've seen really the bulk of the impact of that but certainly more movement will generate some savings. So just to explain it, there was a $9.5 billion reduction and there was kind of this two steps they did this Employer Waiver plan and then they found the Medicare Advantage plans were actually more fruitful so there was $9.5 billion drop from that action. A third of Medicare eligible folks are still on the Traditional 70/30, and we used to actuaries numbers to come up with a $3 billion estimate if you've got the rest of the third under the Medicare Advantage plan. Other questions, Senator Randleman. Thank you Mr. Chair. Hold on, do we have a follow up? Or do you want, OK Senator Randleman. Thank you, do we have someone here from the State Employee Association or the Retirees Association that would like to speak on this proposal? Let me ask another spokes from state employees here? Feel free please. Thank you Mr. Chairman. Flynn Benson with State Employee's Association. We would just ask that you very carefully study all as it's been explained very well by Mr. Moon. The plan is very rich when you look at what the employees contribute, but when you put the dependent care coverage in, I think Senator Pate that's what you get or where you're looking at, we're next to last in the country and thats a very big thing to look at Also need to look at how you're going if you cut out all retiree medical benefits for those starting 2016, how do you start recruiting and retaining younger employees, the ones which you've now who were promised that maybe when they went to work a year ago. Already we're losing people in many professions and corrections and undertakings profession that cannot afford to pay the Medicare coverage because it's almost some $100 a month when they put a spouse and children on there. So if you want to retain and attract new employees you need to take a hard look at that before you make any quick decisions. Thank you Mr. Chairman. Any? Yes. I'm Lacy Presnell with the North Carolina Retired School Personnel.

Since you have had a board working on this for the past several years they've done a magnificent job and continue to do so. As you know the signing up for the next year is coming up number[sp?] one, and they have done a magnificent job, our members are the happiest they have been in recent years. All of the things that have been said about dependent coverage is accurate true, but we commend you providing this benefit for the employees and retirees, thank you. OK. Representative Dollar, I think we're back to you. I was just curious with the plan, if the plan had been looking at and I don't know to what extent you can comment on this at this time, but if the plan had been looking at a variety of potential options for addressing the long term liability question? Because clearly the General Assembly is not going to appropriate $2 billion a year, and so it seems to me that they will have to be a number strategies, presumably put in place, to address that over the course of time and to get the trend back on a downward trajectory. So have you costed out and do you all have that sort of actuarial work options in hand that you're looking at as a board and if so what's the timetable for addressing that? So I would say that yes the board and the treasure planned staff definitely are looking longer term. We have already established our 2016 benefits. Those who are put in place with some ideas in mind of what changes might be coming in 17 and our board is looking at forecast that would go out into the 17-19 or 19-21 fiscal buying[sp] taking a longer term approach than has been talked about. Now obviously 5, 6 years is very small in comparison to a 30 year liability. Representative Dollar I would agree with you that the treasurer and the board need to be looking long term, we need to be doing the things that we can do to reduce overall cost for plan participants as well as the state, but I would say that solving the problem of the unfunded liability is beyond the scope of the State Health Plan Board of Trustees. We really only have authority around the current benefit program and contributions to that benefit. So one of the things that's included in the report references different laws ratios. In other word, s how much money is coming in in a premium for a particular type of employee, or plan member and how much is being paid out in benefits or claims for those members. Our non-Medicare population receives more in benefits than is paid in on their behalf from both the retirement system in anything they're contributing for themselves or for their dependents. On the Medicare side is the opposite, and it's been that way for a very long time because of the high cost of non-medicare retirees. So on the medicare side more money is coming in from the retirement system for this medicare retiree than is being paid out in benefits, or in claims cost. That is true even with the Medicare Advantage. So we have a modified the contribution from the retirement system because of lower cost for Medicare Advantage. That's something that we're looking at as to how we actually balance all of that out, but all that means is we're modifying how much is coming in for a particular group, it's not going to generate more money overall and particularly with Medicare Advantage, we cannot require dependents to pay more than the cost of that premium, that's a fully insured option. So one of the things when we were talking about dependents earlier that I failed to mention is the Medicare Advantage plans have been a very good option for Medicare primary dependents. They can get that in a base plan for about $115 a month. It's going to go up in 16 but it's still going to be less that $130 a month. That's significantly cheaper than what the 70/30 plan was charging them, but really in terms of the long term liability we're looking at those things, but again it's really beyond the scope of what the State Health Plan Board of Trustees can do. It has to have, as well

as what we can do, there has to be some state funding mechanisms or some other funding mechanisms to come in to help address that. It may actually require a combination of some of the options that are listed in the report. OK. Other questions from the committee? You'll see on, if we could get slide 35. Those are the options that we have as a committee at the moment, the easiest being the first one. So let me ask if we have anyone who wishes to make a motion that we accept the report? Sure. Mr. Chairman could we defer that, do we defer any action to the next month to give members time to read the report because we may have more, senators may have more questions. The first item is simply a matter of accepting it. The others I think it's probably appropriate to defer. Well could we defer accepting the report from [xx], just so we have time to, not that there's anything necessarily deficient in the report, but just so we'll have more time to digest it and fully understand it before we accept it. If that's the pleasure of the committee, certainly. Well can I make a motion to that? You can. Mr. Chairman. Before motion to defer action to our next meeting. Mr. Chairman I would move that we defer acceptance to the report to the next subsequent meeting of the  committee. Okay, we have a motion? Do I have a second from Senator Tarte, discussion can I make a comment? Please. I just wanted you to know on page 38 of the report my contact confirmation is listed there as you're reading the report if you have any questions feel free to email me and I can come meet with you and answer questions because I I know next month is going to have a different in the agenda so I don't know how much time there would be. Okay, Senator Payton. Question for Representative Dolar you don't contemplate any action taken place other than us in the interim getting ourselves more acquainted with what this report say, is that correct? So we can feel more comfortable making decisions at the next meeting yes Sir. Okay. Motion before and all in favor please say, aye oppose no, the motion is adopted and thank you ever so much for the this extraordinary encouraging report is the verdict. One final matter is not on your agenda, I want to ask, as you may know we actually have a sub-committee that is working, relating to state property and I just want to ask Senator Gaines is the chair of that sub-committee, if you have any report for us at this point, this is called to you, but if you have any thing you would like to report Thank you Mr Chair, just briefly we are in the process now for the internet looking for specific dates, I would say we then literally just in a matter of weeks we should have a schedule and I will probably be in a position to I'll give you more detail at the next meeting.  Is there anything else anyone else from the committee wishes to say regard to any of the matter discussed today or reports anticipated.  Mr Chairman. Our next meeting is tentatively schedules for August the 24, probably in this room at the same time, the question is will the rest of the General Assembly be here, and I think we all know the answer to that question. okay without any further, then this meeting is adjourned.