PEEHIP Faces Massive Shortfall

January 1, 2014

By Brandon Moseley
Alabama Political Reporter

The Patient Protection and Affordable Care Act (PPACA) of 2010, popularly referred to as “Obamacare” is changing much of what we know about the health care insurance industry and there are both winners and losers with the landmark health insurance reform legislation.  One of the losers is the State of Alabama where increasing costs of insurance combined with medical inflation (particularly in drug costs) and early retirements by teachers and education employees leading to an increasing number of educators, retired educators and dependents on the plan means that the Public Employees Health Insurance Plan (PEEHIP) is facing a projected $220+ million shortfall in the 2014/2015 budget year which goes into effect on October 1.

According to original reporting by “The Alabama School Journal” the Chief Counsel of the Retirement Systems of Alabama, Leura Canary, estimates that $65 to $75 million of that shortfall is directly related to the PPACA, Obamacare.  Canary expects costs to rise about 11% next year.

Obamacare affected PEEHIP in several ways: the PPACA eliminated the $one million lifetime limit on PEEHIP insurance coverage now PEEHIP’s liability is unlimited.  It also eliminated pre-existing conditions for dependents under 19.  Previously there was a 270 waiting period before PEEHIP would pay for a preexisting condition for new enrollees.  Free preventive care for seniors, more coverage in the donut hole for seniors, allowing young adults to stay on the plan until they turn 26, free preventive care (like colonoscopies and mammagrams) without a deductible all mean greater costs for the PEEHIP program.

There are three ways to deal with the shortfall: the State can contribute more money to the plan; the teachers can pay more for their insurance in higher premiums, copays, and deductibles; or the shortfall can come from the PEEHIP Retiree Reserve Fund.

The Executive Secretary of the Alabama Education Association, Henry Mabry, favors (if the State legislature does not fully fund PEEHIP) taking the money from the PEEHIP Retiree Reserve Fund.  The law allows PEEHIP to take up to 10% of the reserve in any fiscal year.  The fund currently has a $1.15 billion balance.

Some in the RSA have reportedly suggested that this is not possible due to requirements under the Rolling Reserve Act, which Secretary Mabry says is false. Mabry said in the Alabama School Journal, “I know how I would vote if I was still a member of the PEEHIP board.  I would move to take money from the PEEHIP Retirement Trust Reserve to protect our beleaguered educators by not taking more money from their pockets.”  The Republican Super-Majority removed the AEA Executive Secretary from the Board during the 2013 legislative session.  Previously the AEA Executive Secretary held an official post on the board.

If the PEEHIP shortfall is passed on to the education employees and retirees then it will mean an average increase in out of pocket costs of $750 per educator and retiree, eating up much of the 2% raise which teachers and education support personnel received in the 2013/2014 budget.  The retirees did not get any raise in the current budget year and have seen their pensions stagnate over the last five years.

PEEHIP has been level funded for the last three years saving the state $118.8 million  year in what the state contributes towards teacher and state employees’ healthcare benefits.  After the legislature determines how much money to allocate to PEEHIP for the next fiscal year, the TRS/PEEHIP Board of Control will meet in May to determine how to address the remaining shortfall.

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