Keeper of the public purse: State Treasurer Folwell challenges the status quo

Published 12:00 am Sunday, June 10, 2018

By Elizabeth Cook

Dale Folwell can stun an audience with big figures.

As North Carolina’s state treasurer, Folwell is responsible for managing and distributing billions in taxpayers’ dollars.

“We’re in the check delivering business,” he says.

For example:

• Some $2 billion in pension checks went out in the first four months of this year.

• Nearly $750 million goes out every 30 days for pensions, health care and pharmaceutical benefits for active and retired employees.

• About $2.5 billion is spent on the State Health Plan each year to provide medical services to more than 720,000 people.

Like his predecessor, Democrat Janet Cowell, Folwell has a behind-the-scenes job that affects nearly every citizen of the state, as either a government employee or a taxpayer.

That may be all that Cowell and Republican Folwell have in common, though. Folwell has tackled steering the state’s benefit programs as an opportunity to reshape the way the state handles these funds— and how health providers who bill the State Health Plan run their businesses.

“Every day I poke,” Folwell told the Salisbury Rotary Club recently. “I poke at Wall Street. I poke at Big Pharma and I poke at big health care. And the reason is a lot of things are not sustainable — are on an unsustainable course.”

He is whittling away Wall Street management fees, adjusting expectations for pension funds and pressuring health care providers to reduce charges for the state insurance plan by 15 percent.

•  •  •

Since taking office, Folwell has reduced the $700 million a year the state pays Wall Street firms to manage retirement funds by $75 million and intends to cut more fees. He’s moving the state toward less expensive, mostly indexed investments and managing them in-house. 

That’s one of the reasons the political wing of the State Employees Association of North Carolina (SEANC) backed Folwell in 2016 over Democrat and former investment banker Dan Blue III.

“Our endorsement of Dale Folwell has been one of the greatest our association has done,” says Tony Smith, chairman of the SEANC Employees Political Action Committee. “He has done a wonderful job in the time he has held his office. He has taken on Wall Street, all for making better investments of state employees retirement.”

Folwell is also working tirelessly on health care for state employees, Smith says.

“Dale Fowell is a man of his word, and has proven that his campaign promises means so much to him and all state employees,” Smith says.

Mitch Kokai, senior political analyst at the John Locke Foundation, says he gives Folwell “an A+ for effort and a solid A-/B+ for accomplishments.

“He’ll move firmly into the A camp if lawmakers address his goals for long-term structural fixes on retiree benefits.”

Kokai says the treasurer deserves high marks for raising the profile of the office, cutting costs and taking on thankless tasks such as trying to convince policymakers they need to address unfunded liabilities.

“His biggest challenge will be to turn publicity into action,” Kokai says. “Until North Carolina faces some sort of crisis, other elected leaders are likely to consider Folwell’s warnings to be overblown. He will have to make the case repeatedly that inaction now is no longer an acceptable course of action.”

 But he has rubbed some people wrong, Kokai says.

 “The biggest mark against Folwell is that his dogged determination in pursuit of his goals can rub some of his colleagues the wrong way,” Kokai says. “He butted heads with some of his colleagues during his days in the General Assembly, and that style continues to influence how some lawmakers react to his pronouncements.”

•  •  •

All told, Folwell is managing the 26th largest pool of public money in the world.

“One out of 10 adult North Carolinas get a check from us in some way, shape or form every 30 days, and we take that seriously,” he says.

The North Carolina pension funds face some headwinds, Folwell says. The pension fund has not reached its assumed rate of return on average for the past 20 years. Meanwhile, life expectancy is going up and pensions have to stretch out further. Folwell says the number of state pensioners age 90 and above has risen from 248 in 1977 to 7,200 last month.

Still, North Carolina has one of the five best-funded pension plans in the United States, he says.

The picture is decidedly worse on the health care front.

“The health plan, unlike the pension plan, is one of the five most insolvent health plans in the United States,” Folwell says, citing Pew Research figures. North Carolina’s health plan right behind Illinois, which is notorious for financial problems.

How can that be? Folwell has a line he uses often. “The answer is not political and it’s not emotional; it’s mathematical,” he says.

“For almost 40 years, promises were made to state employees, eligible for health care for the rest of their life, and no money was ever put aside for that purpose,” he says. The result is the state’s $35 billion unfunded health care liability.

Folwell explains his strategy with an analogy. A friend, David Sprinkle, was an all-conference defensive back on Davidson College’s football team even though he was 5-foot-7 and 155 pounds and went up against much bigger players, according to Folwell. Asked about how he did that, Sprinkle reportedly shared advice he got from his father: “Son, if I were your size, I think I’d focus on the ankles.”

Folwell says that’s what his office is trying to do, focus on the ankles, because trying to tackle a $35 billion problem all at once could be paralyzing.

•  •  •

“The first set of ankles we’re focusing on is the fact that we’re going to educate the state employees about the true value of these benefits,” Folwell says.

Most state employees do not understand the value of having a lifetime pension with no minimum retirement age, he says — a benefit that is disappearing in the private sector. According to a Towers Watson study, from 1998 to 2013, the number of Fortune 500 companies offering traditional defined benefit plans dropped 86 percent, from 251 to 34.

Nor do they know how much the state spends each year on health care; until last year, in fact, individual coverage under the plan included no premium.

“First thing we’re doing is we’re developing an employee benefit statement that’s going to show the present value of our future obligation to them.”

Second, the state health plan card is also changing, showing not just what the holder owes in co-pays but also the total cost of the state health plan and the portion paid by employees.

The state is self-insured and pays Blue Cross Blue Shield to administer the plan, Folwell says, but most state employees don’t realize that when they use their insurance card.

“So every time they pull it out of their pocket, they think they’re sticking it to Blue Cross Blue Shield. They’re sticking ti to themselves. This is and it has always been a self-insured plan. … It’s money that’s coming out of their pocket.”

The card will note that the State Health Plan is “A Division of the Department of State Treasurer” and that it is, “Paid by YOU and other NC Taxpayers.” Folwell hopes employees get the message and take more responsibility for spending wisely in health care.

“Behaviorally, all I need is to turn these 750,000 participants in the state health plan into watchdogs.”

They can only do that, though, if they know what they’re paying for.

So Folwell’s staff redesigned the explanation of benefits, the statement people receive after going to the doctor that says what the doctor did, what the insurance company covered, and what the patient has to pay.

“No one in this room, no matter how smart you are, can understand an explanation of benefits,” Folwell said at Rotary. One doctor raised his hand and said that he could.

Folwell pressed on: “The explanation of benefit doesn’t explain the benefit of anything. Why does someone not want you to know the value or price of what they’re charging you?”

He takes particular issue with facility fees and equipment fees that hospitals and hospital-owned clinics frequently bill patients —sometimes when the patient didn’t use that particular facility.

He says a seven-page bill he received for gallbladder surgery was loaded with facility fees. And he says one person on the state health plan was charged a $165 facility fee for an $11 flu shot.

Folwell is getting pushback. Blue Cross said in a statement to the Winston-Salem Journal that while it shared the treasurer’s concern about cost, the goal is to have health care services “affordable for all consumers, not just the State Health Plan.” And the N.C. Healthcare Association said reducing payments to providers is not a long-term solution to rising costs. 

Folwell, whose office is negotiating contracts with some of the state’s largest health care providers, is not swayed.

“I’ve got a business to run and so do they. I can no longer be in the business where, every bill that gets presented to us, we pay it without any scrutiny.”

The State Health Plan is the largest purchaser of health care in North Carolina, he says.

“What we’re going to do is bring transparency and clarity to the value and the cost of health care,” he says. “We have enough people, we have enough health care providers, we’re spending enough money, we should be able to do it better and cheaper on behalf of our participants.”

•  •  •

Compared to other states, North Carolina’s state-run pensions are faring well, but Folwell warns that retirees can’t pay bills with relativity if the money runs out.

He recently reduced the expected rate of return on the pension fund investments, from 7.2 to 7, to be more realistic about what the plan’s going to earn going forward.

He did so, he says in conjunction with the League of Municipalities, the N.C. County Commissioners Association, the state Senate and house and the governor’s office.

He has their support because his investments are six times larger than the state budget.

“When I succeed, they succeed,” Folwell says. “When I fail, they fail.”

And failure affects more than state retirees. If the state and local governments have to put large sums into their retirement plans to keep them going, that’s money that won’t be going toward classrooms or police cars or other core functions.

Folwell frequently quotes Microsoft co-founder Bill Gates on this subject. “The single biggest threat to public education in the next two decades,” Gates once said, “is how states account for their unfunded health care and pension funds.”

So, asked to grade his performance as state treasurer so far, Folwell gives himself an A for doing the things he promised on the campaign trail — cut Wall Street fees, reduce the complexity of state investments, freeze family health insurance premiums and bring transparency to the office. 

But he gives himself only a C — albeit a C-plus — “on making the invisible visible” when it comes to convincing policymakers and voters alike that there’s danger lurking in the state’s unfunded liabilities. 

“I haven’t been able to take the importance of the Bill Gates quote and combine it with the real numbers that we’re looking at in North Caroline and make it all work,” Folwell says.

“It’s not enough to say something needs to be done. Somebody eventually has to do it. That’s sort of my responsibility.”

•  •  •

The late Harlan Boyles, state treasurer from 1977 to 2001, wrote a book titled “Keeper of the Public Purse.” Boyles used to say state treasurer was the most important office that nobody new much about, according to Tom Campbell. 

Campbell served as assistant treasurer under Boyles and says he’s been impressed by the new treasurer. Folwell’s work to reduce investment management fees will pay dividends as the savings help keep the retirement system strong, he says. 

“He is also finding ways of reducing costs, waste and fraud in both our State Health Plan and retirement systems,” Campbell says.

Wiping out the $32 billion unfunded liability Folwell inherited in the State Health Plan will take time, Campbell says, and it presents a ticklish situation. State employees didn’t create the liability, and neither did taxpayers, so no one wants to pay for it. 

“This is a delicate issue and will require great statesmanship to solve,” Campbell says “Treasurer Folwell fully understands the issue and I believe, as a solution-oriented person, will help us find a solution. However, in his time in office he hasn’t come been able to convince legislators of a proper solution.”

Folwell can be intense, Campbell says, and is prone to “getting into the weeds” as far as what the average person can understand.

“Further, as an accountant, it is sometimes easy to dwell on numbers and not the human side of the equation.”

But those are very minor issues, he says.

“My personal feeling is that Dale is upholding our longstanding tradition as ‘The Keeper of the Public Purse.’ … I have confidence he will serve us well.”