MONTGOMERY, Ala. — A commission of Alabama state lawmakers and state officials came up short on answers Monday on the question of how to address a major projected budget shortfall in the state’s health care program for teachers.
In September, the board for the Public Education Employees’ Health Insurance Plan, or PEEHIP, the government entity that manages the state’s health care program for teachers, voted to ask state lawmakers for an additional $134 million in fiscal year 2026 to help plug a projected $283 million budget shortfall.
Meeting at the State House, the Joint PEEHIP Study Commission, meeting for its third time since being established earlier this year, came no closer to finding a creative workaround other than allocating PEEHIP the additional $134 million next year, with lawmakers predicting a potentially dire situation for the state’s finances.
“Our (Education Trust Fund revenue) is down 10%, demands are up,” said commission member Sen. Greg Albritton, R-Range. “This is not going to be an easy matter, we’re headed towards some issues that on both sides, the ETF and the General Fund, are not going to be pretty.”
The projected budget shortfall was caused, PEEHIP Director Dave Wales has said, by policy changes on the federal level, including a new cut in Medicare payouts and the 2022 Inflation Reduction Act, which reduced the federal government’s cost share of prescription drugs for select health care plans, such as those through United Healthcare, which PEEHIP uses for teachers.
During the commission’s previous meeting in September, members suggested the idea of consolidating the administrative services of PEEHIP and the Alabama State Employees’ Insurance Board, or SEIB, which manages non-teacher state employees’ health care, as a potential cost-saving measure.
Earlier this year, SEIB leadership said they will request a 5% increase in state funding in fiscal 2026.
With a new analysis in hand, Patrick Dean, assistant director for the Commission on the Evaluation of Services, poured cold water on the idea that such a consolidation could produce any meaningful cost savings.
“First, let’s just establish the scope and the scale of what we’re talking about: we’re talking about roughly $2 billion in annual expenditures,” Dean said, showing the commission a presentation on annual PEEHIP and SEIB expenditures.
Dean said that in 2023, PEEHIP saw expenditures that totaled $1.44 billion. Of those expenditures, just 0.3% went towards administrative services. For SEIB, of its $494.1 million in expenditures that same year, roughly 2.3% went towards administrative costs.
A more detailed breakdown of administrative costs between the two entities was difficult, Dean explained, as the two entities “operate very differently,” he said, and categorize administrative service expenditures in different ways.
“We’re trying to make comparisons, (and) it’s difficult because they are completely separate,” Albritton said. “They do completely different things, they call the same thing by different names; that makes it hard for anyone of my education to sort through.”
Rep. Rex Reynolds, R-Hazel Green, appeared to conclude that merging the two entities would likely not produce the desired cost-saving outcome, and could potentially hurt support for teachers and state employees.
“Does a potential merger of these boards reduce the cost of benefits to the employer or retiree, and I think the answer is no; we’re getting the maximum scale on our pricing for our insurance policies as it is,” Reynolds said. “…Could a merger of these two decrease support to our employees and retirees, and I suggest it could.”
Whatever the ultimate solution may be to plugging the budget shortfall, Eric Mackey, Alabama State Superintendent, said what should remain is the commitment to provide health care benefits to teachers and state employees, and that cutting benefits for teachers should be avoided at all costs.
“I don’t feel like I have the expertise to say in the end, would (merging the two) save the state a quarter of a percent, a half of a percent, one percent, but I do think we want to send a clear message that we are committed to a strong health care program for all of our employees,” Mackey said.
This story was edited on Nov. 5 to clarify that the Monday meeting of the Joint SEIB/PEEHIP Study Commission was its third meeting.