MONTGOMERY, Ala. – The health care program that insures more than 100,000 Alabama state employees is projected to lose $38.5 million by the end of the fiscal year, officials said at a board meeting Wednesday.
The State Employees’ Insurance Board is expecting revenue to fall short of expenses for the 2026 fiscal year, a trend that could create serious problems for the long-term stability of the program. Because the program started the year with a positive balance, it will stay in the black this fiscal year, but that likely won’t be the case going forward.
Program CEO Stephanie McGee Azar told board members the revenue problem is the result of increasing healthcare costs and changes in the federal healthcare landscape, including a cut to Medicare payouts and a reduction of the federal government’s cost share of prescription drugs.
“The issue that the plan has really experienced, which is not uncommon, is that our revenue, our expenditures, our expenses are exceeding our revenue for multiple year after year after year,” Azar said. “This is not uncommon at all, considering the issues with healthcare inflation that this country is experiencing.”
Recognizing rising costs and the potential shortfall, the Legislature in April appropriated $18 million to the program for fiscal year 2027, raising its contribution to $1,175 per member per month. The state currently pays SEIB $1,025 per member per month.
The SEIB also pulled $30.5 million from its trust fund last year. Azar said she anticipates a $15 million withdrawal before the end of FY27.
Efforts to shore up SEIB revenues have so far not included a premium increase for state employees. While that option was not explicitly stated Wednesday, board members did allude to “tough decisions” in the months ahead.
The last across-the-board premium was more than a decade ago, Azar said.
‘We don’t have a net’
As of the end of May, the program’s expenses total $366.6 million since Oct. 1. It has brought in only $341.5 million in revenue during that time.
The program started fiscal year 2026 with $73.1 million in the bank, but projections estimate that it will start next fiscal year with only $34.6 million.
Preliminary forecasts shared on Wednesday predict that the program will end with $500,000 in debt after the next fiscal year.
“We’re estimating a $35 million difference in the expenses exceeding the revenue (in FY27). At first blush, you think, ‘Well, that’s not too bad: if we hit the projections, we’re only $500,000 in the red,’” Azar said. “That’s not good at all because we don’t have a net. That’s a very, very scary place to be, and we’ve got to get this plan over the next several years not to be faced with this problem unless we’re just knocked out of our feet, as we are often with things we can’t control.”
She said that debt could be even worse because of annual rebate reconciliations.
Azar explained that she is looking at past ways the SEIB has dealt with budget shortfalls to understand the options on the table that minimize the impact on members. This is all in an effort to find long-term stability, she said.
“Our benefit plan is extremely rich and it’s a very affordable plan, and SEIB is going to do everything it can, working with this board, to ensure that that remains,” Azar said. “Even if there has to be some premium or other benefit changes, it still can be in those confines a very affordable, very rich benefit plan.”
Board member and Retirement Systems of Alabama CEO David Bronner also warned the board that they have a tall task ahead of them with a new governor and administration coming in soon.
He said that in his decades-long career, new politicians are eager to cut down longstanding programs and that the board will need to fight hard to maintain the size and scope that it currently has.
“Stephanie (Azar) has a job ahead of her, and all of us as well, communicating with politicians because I’ve been around a few years too, and I’ve seen some changes, and it’s likely to be some pushes to make some changes that may not always be in the best interest of state employees,” Bronner said. “We have to keep that in mind, so do what we can to try to protect what we have, not give up too much as a result of a change in leadership if there’s any way to sustain what’s in place.”
SEIB enrollment
Azar also shared that enrollment is down by 206 people overall since February, but the state rate is tied to active employees, which is up.
“Fortunately, the blue here, which is the active employees, went up by 20,” Azar said. “So that’s where the state rate is tied to, as well as to our opt-outs. Opt-out means someone, as a state employee, opts out and takes other coverage somewhere else. We’re not having to pay the claims. When they opt out, we still receive a state rate for those, but they’re not a covered lot.”
The program’s current enrollment is 101,938, Azar said.
The SEIB covers state employees outside education. Teachers and other education workers are covered by the Public Education Employees’ Health Insurance Plan, which is also facing serious budget issues going forward.
Humana contract renewal
The SEIB renewed its Medicare Advantage and Prescription Drug Plan contract with Humana for the 2027 calendar year on Tuesday.
In the past, SEIB would agree to three-year contracts with two one-year renewals, but because of changes in the healthcare industry, this will be the board’s last three-year renewal, Azar said.
The one-year renewal amount for 2027 is $50 million, up 4.7% from 2026.
“That (increase) is not surprising at all,” Azar said. “As a matter of fact, we’re very pleased that it didn’t increase more than it did.”
The other large change with the contract is an uptick in members’ out-of-pocket caps. The cap on certain prescription drug spending for members is $2,100 but will increase to $2,400 next calendar year.