BIRMINGHAM, Ala. – Alabama’s health insurance program for public education employees plans to ask lawmakers for about $222 million in additional funding next year as rising health care costs continue to strain the program’s finances.
The Public Education Employees Health Insurance Program’s Board of Control on Tuesday approved a request for just over $1.5 billion in state funding for fiscal 2028, up from $1.3 billion for fiscal 2027.
If lawmakers approve the request, that would raise the employer contribution rate from $1,048 to $1,226 per active education employee per month. PEEHIP officials said there are about 104,000 active members.
State Finance Director Bill Poole warned board members that PEEHIP’s rising costs are colliding with a tightening state budget picture.
“We see some converging pressure points,” Poole said.
“We’ve had a remarkable run with the ability to contain costs for an extended period of time,” Poole said. “But with inflationary costs of healthcare increasing, that’s creating significant headwind.”
Poole said he expects a “very, very challenging budget next year on the General Fund side” that could lead to reductions in costs for state agencies.
Even though PEEHIP is funded through the Education Trust Fund, Poole said pressure on the General Fund matters because lawmakers will be weighing the health insurance needs of both education employees and state employees as they build the state’s two budgets.
This is the third consecutive year PEEHIP has requested an increase in the employer contribution rate to address projected health care funding shortfalls.
The rate paid by participating education employers, including K-12 public school systems, community colleges and three public universities, remained at $800 per active employee per month from fiscal 2017 through fiscal 2025. It increased to $904 in fiscal 2026 and will rise to $1,048 in fiscal 2027.
The new request would increase it another $178 per month to $1,226 in fiscal 2028.
The latest request comes after lawmakers declined to fully fund PEEHIP’s $380 million requested increase for fiscal 2027, approving $180 million instead.
The PEEHIP board has authorized up to $200 million from its retiree health care trust to cover that gap.
Senate education budget chairman Arthur Orr, R-Decatur, had said ahead of the session that lawmakers could help if the PEEHIP board would “meet us halfway” on the increase.
The fiscal year 2028 request assumes lawmakers provide the full additional amount and that no money is withdrawn from the retiree trust for that year. If lawmakers provide less, PEEHIP officials could again turn to the trust or make changes to the health plan to close the gap.
PEEHIP is already turning to the trust for additional money to finish the current fiscal year.
PEEHIP on Tuesday recommended withdrawing up to another $25 million from the Alabama Retired Education Employees’ Health Care Trust for fiscal 2026, on top of $118.9 million already authorized.
The trust board, which met immediately after the PEEHIP board, unanimously approved the additional withdrawal.
The additional authorization brings the maximum amount PEEHIP can withdraw from the trust this fiscal year to $143.9 million.
RSA Chief Financial Officer Diane Scott said the additional money is needed so the program can end the fiscal year with the board-required 8% in working capital, or about $146 million.
Scott clarified that PEEHIP would still be able to pay benefits without the additional $25 million, but its working capital reserve would fall below the board’s required level and the program probably would not pass its audit.
The trust also has already authorized PEEHIP to withdraw up to $200 million during fiscal 2027.
Poole also cautioned against relying on the retiree health trust to close future gaps.
“I don’t think healthcare costs are suddenly going to decline,” Poole said, adding that he also does not expect ETF revenue to suddenly increase.
That leaves the board facing either continued reliance on the trust or “some difficult decisions,” he said.
“I think there are realities at play that are going to make some difficult decisions face the board here over the next year and beyond,” Poole said.
“I think some of those flashing yellow lights are fairly clear as we look forward.”
Requests for the fiscal year 2028 budget are due to the Executive Budget Office before Nov. 1.
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