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State Health Plan costs will rise in 2026 for most Wake County school employees.<\/p>\n
Parra<\/p>\n
MCT<\/p>\n
The North Carolina State Health Plan, which serves hundreds of thousands of retired and active state employees, is currently in the second year of a contract with Aetna and projects it will spend more than $1 billion over what was originally planned for its three-year contract.<\/p>\n
According to State Health Plan Executive Administrator Tom Friedman, the increase is largely due to higher-than-expected health care costs.<\/p>\n
\u201cUnit costs are higher than we thought. People are using more services than we thought. People are using services in more expensive places,\u201d he said in an interview with The News & Observer earlier this month, adding that even small miscalculations can lead to billion-dollar differences over time.<\/p>\n
Phillip Blando, an Aetna spokesman, said on behalf of the insurer that through negotiations, it \u201chas secured the most competitive discounts in the state.\u201d<\/p>\n
\u201cWhile our negotiations have successfully lowered total cost, we understand that across the span of any long-term contract, there will be fluctuations in cost \u2014 and we saw that in 2025 with overall hospital costs increasing more than expected across the entire industry,\u201d Blando said in an email.<\/p>\n
The United States spends nearly twice as much per capita on health care as comparable countries, yet has worse health outcomes, a gap driven primarily by higher<\/a> payments to hospitals and physicians, according to the Peterson-KFF Health System Tracker, a nonpartisan health policy initiative.<\/p>\n The U.S. also spends nearly four times more on health administration than peer countries, $925 per person compared to $245, driven largely by overhead from private insurers and government programs like Medicaid and Medicare, according to Peterson-KFF. The U.S. also spends significantly less on long-term care.<\/p>\n Aetna replaced Blue Cross Blue Shield of North Carolina in 2025 as the plan\u2019s third-party administrator after a competitive bidding process led by former Republican State Treasurer Dale Folwell. Brad Briner, also a Republican, took over as treasurer in 2025.<\/p>\n Blue Cross NC sued over the loss, but a judge ruled the process was fair, and Aetna ultimately won the contract.<\/p>\n The contract with Aetna included an option to extend for two additional years, but the state instead opened a new bidding process on March 20.<\/p>\n And on April 15, the State Health Plan announced it was restarting that process after none of the bidders met the minimum requirements of the contract.<\/p>\n A new request for proposals was posted on Tuesday.<\/p>\n Over $1 billion difference<\/p>\n The $1 billion difference comes from the gap between State Health Plan projections and Aetna\u2019s bid in 2022, which outlined its projected contract value.<\/p>\n For the 2025 contract, Aetna projected a total value of about $9.9 billion<\/a> over three years, including $293.6 million in administrative costs and the remainder in claims costs.<\/p>\n Beth Horner, speaking on behalf of the plan, wrote in an email that the latest projection for medical claims in the first three years of the contract is $10.96 billion due to increased costs in 2025, with administrative fees expected to reach $373 million based on \u201cparticipation in additional administrative programs.\u201d<\/p>\n She said the plan added two savings programs offered by Aetna that together added about $30 million more a year in administrative costs. One was a program that applies contracted or negotiated rates to out-of-network claims and another ensures claims are coded properly, Horner wrote.<\/p>\n For Friedman, \u201cTrying to predict big numbers over a long period of time, I kind of think about it like a spaceship project. If you go off like an inch, you wind up having a billion-dollar difference.\u201d<\/p>\n Increasing costs \u201care in part a symptom of the hospital system consolidation that\u2019s happened around the country and especially in North Carolina,\u201d Blando said, \u201calong with an overall increase in utilization of higher cost services.\u201d<\/p>\n Friedman said they estimated costs would continue increasing by about 6% to 7% annually.<\/p>\n In a March State Health Plan board of trustees meeting, data was presented that showed the plan\u2019s medical cost trend reached<\/a> 15.8% in 2025 \u2014 nearly double an industry benchmark of 7.9% and significantly above the public sector benchmark of 10.2%. Medical trend is a measure of how much more or less is being spent on health care compared to the prior year.<\/p>\n Emma Turner, the chief economist for the plan, said in March that the high cost trend in 2025 \u201cdid accelerate through the end of the year significantly.\u201d<\/p>\n \u201cUnder a new TPA contract, there\u2019s a lot of uncertainty, especially once people hit their out-of-pocket max and there\u2019s these costs that come in at the end of the year, and they come in very high,\u201d she said. She said they projected that high cost trend would come down.<\/p>\n Data she presented showed that the State Health Plan is projected to lose $8.1 million in 2026 \u2014 a $144 million swing from the $136 million profit that was originally budgeted. The loss primarily came from lower-than-expected premium revenue and higher-than-expected medical claims costs, data shows.<\/p>\n But the plan does not expect to ding Aetna on claims costs from 2025.<\/p>\n In their 2022 bid, insurers were scored on pricing guarantees that set savings targets and required them to put up a portion of their fees as a penalty if those targets were not met.<\/p>\n Loretta Boniti, a spokesperson for the plan, said the plan has not yet received Aetna\u2019s 2025 pricing guarantee report, which is expected later this quarter, and does not anticipate Aetna will fall short.<\/p>\n But the plan collected $5 million from Aetna in 2025 for missing other performance guarantees, she said.<\/p>\n Aetna will \u201cremain steadfast in our commitment to lowering costs of care and are confident that we will drive cost savings over the entirety of the three-year contract while continuing to provide our members with the quality care and support they deserve,\u201d Blando said.<\/p>\n The next contract<\/p>\n Friedman told The N&O earlier this month that under Folwell, the health plan \u201c initially wanted the lowest possible administrative fee and then, the next year had to buy a few more services to make sure the plan could run smoothly.\u201d<\/p>\n He said, \u201cI am not trying to pay materially more for administrative fees unless I am getting materially more,\u201d adding that the plan wants to focus on population health and patient navigation.<\/p>\n \u201cI don\u2019t want to be penny wise, to be dollar foolish,\u201d he said.<\/p>\n He also said in a contract, he wants more flexibility to pay doctors directly instead of paying insurers: \u201cHow can we carve out services where we want to, where we think we would rather pay doctors in North Carolina to deliver care than pay an insurance company to deliver some services?\u201d Friedman said.<\/p>\n He added, \u201cI want the flexibility to be able to kind of attack problems. And I think that\u2019s a very different way to think about administrative fees.\u201d<\/p>\n On potential issues should the State Health Plan shift to a third-party administrator that is not Aetna, Friedman said, \u201ctransitions are, by nature, a little bit rocky, and we\u2019re going to try to learn the lessons we learned last time, continue to get feedback from members and try to address the issues.\u201d<\/p>\n He said that out of millions of claims, there were less than 1% with issues, but \u201cthat\u2019s still unacceptable, and it\u2019s still our job to solve them.\u201d<\/p>\n This story was originally published April 27, 2026 at 8:00 AM.<\/p>\n Related Stories from Raleigh News & Observer<\/p>\n