Changes by the federal government affecting Medicare Advantage plans are driving up Alabama’s cost for health insurance for teachers and education employees.
The Board of Control for the Public Education Employees’ Health Insurance Plan (PEEHIP) on Wednesday approved a proposal to request a $130 million increase from the Legislature, a 13% increase, to $1.13 billion, for fiscal year 2026. The Legislature will consider the request during its annual session, which begins in February.
In addition to seeking more money from the Legislature, the PEEHIP Board approved a withdrawal of up to $119 million from the Alabama Retired Education Employees Health Care Trust. The trust has a balance of about $2.3 billion, and the law allows withdrawals of up to 10% to help cover the cost of retirees’ insurance.
PEEHIP’s request for more funding from the Legislature comes after years of stable funding. The amount requested per active employee per month remained at $800 per month from fiscal year 2017 through fiscal year 2025. The request per month per active employee for fiscal year 2026 will be $904.
Overall, PEEHIP covers about 350,000 members and their dependents, including about 80,000 retirees and dependents covered by PEEHIP’s Medicare Advantage plan.
PEEHIP’s total funding in fiscal year 2023 was $1.5 billion. Of that, taxpayers provided $987 million, or 64%. Members paid $388 million, or 25%.
PEEHIP’s need for more money did not come as a surprise at Wednesday’s meeting. PEEHIP Director Dave Wales told the Board of Control in July that the cost of PEEHIP’s Medicare Advantage plan was rising dramatically because of federal changes. At that time, Wales said PEEEHIP would know more by this month’s meeting how it would propose to adjust to the changes, at least for the next couple of years.
Wales said there were two main factors that increased costs. Medicare cut federal funds to Medicare Advantage plans. And Congress increased the share of prescription drug costs paid by Medicare Advantage plans when it passed the Inflation Reduction Act.
“So, two things both moving in the wrong direction for all Medicare Advantage plans,” Wales said. “One, the funding not what we thought it would be. It’s a lot less. Two, the cost for drugs is a lot higher than we thought it would be.”
Wales had announced in July that PEEHIP renegotiated the final year of its contract with its Medicare Advantage provider, United Healthcare, to adjust to the increased cost, which he said went up about four-fold.
Diane Scott, chief accountant and financial officer for the Retirement Systems of Alabama, which operates PEEHIP under the board’s direction, said PEEHIP would seek a new Medicare Advantage contract that will start in 2026. She said the outlook could be affected by changes in the federal administration after the presidential election.
The vast majority of PEEHIP members will not see increases in their premiums under the plan approved by the board Wednesday.
The initial plan proposed at Wednesday’s meeting called for increases in premiums for Medicare-eligible members who had coverage for spouses or dependents. It would have taken less money from the trust fund – $79 million.
State Superintendent Eric Mackey proposed eliminating the premium increases and offsetting that by taking more from the trust fund. The board voted to approve Mackey’s alternative.
“I hate to hit retirees with that additional cost with three-months notice,” Mackey said. The premium increases would have taken effect in January. Mackey thanked the RSA staff for its strong management of the trust fund.
A small number of PEEHIP members will pay more.
About 2,000 PEEHIP members who are surviving spouses older than 65 will see their monthly premiums increase from $65 to $260 effective Jan. 1, 2025. State law requires those plans to be priced at cost.
“Unfortunately, the PEEHIP Board and staff do not have the discretion to lower that premium as it is required to be set by law at the cost of coverage,” Neah Scott, legislative counsel for the RSA, said in an email. “This is another reason why we must continue to work on strategies to lower plan costs without reducing benefits.”
This story was edited at 4:50 p.m. to correct information about the state’s cost of PEEHIP in recent years in the fourth paragraph.
