Commission grapples with budget shortfall for employee health care

MONTGOMERY — Members of a new study commission began to grapple Monday with a significant budget shortfall forecast for Alabama's health care plan for educators, with one member warning lawmakers to "plan for the worst."

"Our worst is cut out for us in some way, and I think we've got to make sure people are aware of the degree of difficulty and the way it's going to afflict us," said Sen. Greg Albritton, R-Range.

"We've got to plan for the worst, because the best usually ain't going to happen."

The board that manages Alabama's educator health care plan, known as the Public Education Employees' Health Insurance Plan, or PEEHIP, held a meeting last week where it ultimately voted to ask lawmakers for a $134 million funding increase in fiscal year 2026, and to request up to $118.9 million from a reserve account.

Even with those measures, PEEHIP could still be short $243.5 million in 2027, according to Diane Scott, CFO of Retirement Systems of Alabama, which includes PEEHIP.

At the commission meeting, lawmakers were briefed by RSA and health insurance industry representatives of the severity of the anticipated budget shortfall, one they attributed largely to two things: lower-than-anticipated Medicare payouts, and the 2022 Inflation Reduction Act.

The Inflation Reduction Act, as explained by Dave Wales, PEEHIP director, caused the government's cost share of brand prescription drugs to drop from 80% to 20% for Medicare Advantage plans, which PEEHIP uses.

"The frustration comes in how do we explain this to our employees?" Albritton asked. "We are looking at having to increase their costs and on taxpayers because costs are going up. We're looking at hundreds of millions of dollars of increased costs, where's that coming from?"

"Drugs," said Jill Cullen, commission member and vice president and chief actuary for Blue Cross Blue Shield of Alabama.

The impact was also felt on the Alabama State Employees' Insurance Board, or SEIB, which manages state employees' health care, though to a lesser extent than on the much larger PEEHIP.

"We are seeing our costs double in that area, so we're going to see on an annual basis about a $30 million increase just on the Medicare Advantage product," said William Ashmore, commission member and SEIB CEO.

Ashmore said that SEIB will request a 5% increase in state funding in fiscal 2026.

Making a few suggestions as to how lawmakers could cut costs for the two boards, Albritton floated the possibility of combining the two boards, or potentially consolidating some of their functions.

"If we have two legal departments, is there some way we could combine the overlap on that?" he asked.

On consolidating components of the two boards, Ashmore suggested SEIB's current staff was already stretched thin, but that he was still open to exploring options.

Cullen advised against consolidation, telling Albritton that doing so could allow members to "lose the flexibility to manage their plans and to try new and innovative benefits and interventions that we sometimes will try with one group over the other."

Alabama Daily News asked Albritton after the meeting what his thoughts were on the additional $134 million ask from PEEHIP, to which he said he didn't see a way of fulfilling that ask without increasing the cost burden on either PEEHIP members or Alabama taxpayers.

"It's astounding how much that money is being pushed down to us to pick up the tab on, and we've got to get it either out of taxpayers' money, or the beneficiaries' money," he said.