Who pays if PEEHIP’s rising health care costs outpace state funding?

MONTGOMERY, Ala. (WBMA) — Alabama’s public education health insurance plan says it needs another $222 million in funding next year just to maintain current benefits, raising questions about who could eventually bear the cost if state funding does not keep pace with rising health care expenses.

The Public Education Employees’ Health Insurance Plan Board approved a request for about $1.531 billion in fiscal year 2028 funding, equal to $1,226 per active member per month.

The request comes after PEEHIP sought a $380 million increase for fiscal year 2027 but received a $180 million increase from the Legislature. The board has already authorized up to $200 million from its retiree health care trust to help close that gap.

Sen. Arthur Orr, who chairs the Senate Finance and Taxation Education Committee, said he expects the solution to the latest funding request could again involve both lawmakers and the trust.

“I would imagine today, it would be a combination of an increase in appropriation from the legislature to meet that $222 million shortfall,” Orr said. “And some usage of our trust fund assets, the $3 billion that is sitting on the sidelines that can be used to help in cases like this as we see large premium increases year over year.”

The retiree trust had a market value of about $2.955 billion as of Monday, according to information presented at PEEHIP’s board meeting.

Orr said the fund has experienced significant growth in recent years and can be used to help address rising costs, but cautioned against becoming dependent on it.

“The trust fund’s seeing some really healthy gains in it. It’s grown significantly in the last five years and, if it’s there, we need to access it as we need to,” Orr said. “But we don’t need to rely upon it if we can make up these shortfalls in the regular budget.”

Orr also acknowledged there are other options available if costs and funding do not align.

“You always can look at the plan design. That’s always on the table,” Orr said. “Another is the plan participants contributing more.”

Orr repeatedly stressed he was not suggesting either of those options would be used to address the fiscal year 2028 request. He said he currently expects a combination of an increased legislative appropriation and another potential withdrawal from the trust.

What could rising costs mean for employees?

David Becker, an associate professor in the UAB School of Public Health, said the pressures facing PEEHIP reflect a larger trend in health care.

“It’s a familiar story about rising healthcare costs across the board,” Becker said.

Becker noted PEEHIP is different from a typical employer-based insurance plan because it provides coverage involving both current education employees and retirees, creating multiple potential sources of financial pressure.

If funding does not keep pace with health care costs, Becker said the alternatives available to health plans can eventually affect the people receiving coverage.

“There’s always a set of unattractive alternatives in terms of dealing with rising health plan costs,” Becker said. “Obviously, employer-based plans typically, if there’s substantial cost growth, you can try to alleviate premium growth for employees by increasing co-payments, increasing deductibles, potentially reducing the coverage of services.”

Becker said those alternatives still carry a cost for employees.

“That’s not costless to employees that will pay higher costs for out-of-pocket services that they receive,” Becker said.

He also cautioned that using trust fund money can address an immediate problem without necessarily providing a permanent answer.

“In the short run, you may be able to migrate money out of a trust fund to kind of see us through,” Becker said. “But it’s certainly possible at some point we’ll just recognize that these benefits may not be fully sustainable.”

Becker called making changes to longstanding benefits for public employees and retirees “a tricky business.”

Employee advocates warn of household impact

Adam Keller, Worker Power Campaign Director for Alabama Arise, said additional costs for employees could be particularly significant for lower-paid education workers.

“Too many Alabamians are already priced out of health care,” Keller said. “Like most working families these days, educators are stretched thin in this economy, where it seems like everything’s going up but our paychecks.”

Keller specifically pointed to cafeteria workers, custodians and other school support employees who could have less room in their household budgets to absorb additional health care expenses.

“Any kind of increase out of pocket is going to be really significant,” Keller said.

Keller also argued increasing health care costs for workers could compound existing challenges for school systems trying to recruit and retain employees.

“We’re already facing a crisis in recruiting and retaining school staff, from teachers to bus drivers,” Keller said. “So if we make health care less affordable for these workers, our local schools absolutely will suffer.”

Keller said the impact could extend beyond the employees themselves.

“To care for our kids, we have to care for our public education workers,” Keller said. “They shouldn’t have to choose between gas, groceries, and going to the doctor.”

What happens next

PEEHIP’s $1.531 billion request will be sent to the Executive Budget Office and Legislative Fiscal Office as the state prepares for the next budget cycle.

Orr said another potential source of future education revenue could come from gambling or lottery legislation if lawmakers and ultimately voters approve it. He said he doubts any potential revenue would specifically be earmarked for employee health care, but additional education revenue could give lawmakers more flexibility to address costs like PEEHIP.

For now, Orr said he expects lawmakers to consider an increased appropriation while PEEHIP could again turn to its retiree trust.

Exactly how much would come from either source has not been decided.

And while no new increases in employee premiums, copays or deductibles have been proposed as part of the fiscal year 2028 request, the growing cost of maintaining the current plan is putting renewed attention on how long Alabama can continue absorbing those increases without changes for the people covered by PEEHIP.