Members of the Retirement Systems of Alabama’s Public Education Employees’ Health Insurance Plan Control Board discussed rising costs during their meeting on Wednesday.
Recapping fiscal year 2024’s PEEHIP budget, RSA CFO Diane Scott reported that $1 billion, or 68 percent of the program’s funding, was received from the legislature; $400 million, or 27 percent, was raised from PEEHIP active members $45 million, or 3 percent, stemmed from Alabama universities; and $30 million, or 2 percent, from investments.
Scott reported that PEEHIP raised $800 per active member per month in FY 2024, with $720 of each member’s payments going back to retirement for active members and their dependents. $76 of active members’ payments went to retirees and their dependents, while $4 went to administrative costs.
Scott also presented an overview of PEEHIP’s total medical and pharmaceutical costs over the past 22 years, alongside projections for costs from 2025 to 2028. She reported that the annual growth in costs over the 25 years has remained at roughly five percent.
However, Scott reported that year-over-year increases in medical and pharmaceutical expenses indicate an overall yearly 6.2 percent growth rate from 2021 to 2028.
Scott cited that, in 2025, federal funding decreases for PEEHIP’s Medicare Advantage Prescription Drug Plan offered through United Healthcare caused a “skyrocket” in the program’s rates, to over four times their 2024 level. Blue Cross Blue Shield costs, meanwhile, have increased by 10 percent.
Scott also pointed to a Wednesday announcement that the Alabama Department of Insurance approved Affordable Care Act rate increases for 2026 for Blue Cross Blue Shield, United Healthcare and Celtic Insurance Company.
“We’re not talking about nationally; we’re talking right here at home in Alabama,” Scott said. “Those premiums wouldn’t go up if the costs weren’t going up—the underlying costs were not going up.”
“We’re not alone,” Scott continued. “We are a member of the public sector healthcare roundtable, and everything that we get week after week is telling us that other plans around the nation are experiencing these same types of increases.”
Scott said PEEHIP has seen “increases in utilization across the board” when explaining increases in hospital medical costs, which have driven up insurance costs. She cited that 2025 is the first year of full implementation of the “Mental Health Parity Act” as well as citing that the average inpatient length of stay has increased.
She went on to cite that the legislature approved an increase in PEEHIP’s per active employee per month rate, for the first time in nine years, raising the cost from $800 to $904. Scott said the increase in rates would equate to an additional $120 million for PEEHIP in 2026. However, she said increased insurance rates could potentially require PEEHIP to raise more money for 2026.
“We had not anticipated—and I don’t know that we could have ever seen—the increase in 10 percent of Blue Cross and active costs. They’ve just not been running at 10 percent,” Scott said.
The board approved at a previous meeting withdrawing $118.9 million from PEEHIP’s retirees trust, should it be needed in FY26. However, Scott reported that projections indicate the potential need for an additional $74 million.
“At this point, I will not know whether I will really need that until later into 2026, and if I do then I will have to come back to you and ask for more money from the retiree trust,” Scott told the board. “That, ladies and gentlemen, is exactly the reason that we do not ever want to bank on, out the gate, that we’re gonna use 100 percent of what the retiree trust allows us to use, because we don’t know if we’ll have a situation like this, where we won’t have any other way of coming up with funds.”
“That doesn’t mean I’m gonna have to. I really, really hope that the 10 percent trend is gonna cool off,” she added.
Scott added that the Medicare Advantage Plan’s final subsidy amounts were announced since the board’s last meeting, with the amount PEEHIP must pay per person beginning January being $15 per person less than projected, amounting to a $15 million reduction in projected costs.
“I just wanted to let you know some good news that we had gotten,” she said.
Scott also reported that, due to rising costs, per active member rates for 2027 will have to be increased to within the range of $1,185 to $1,231 per month.
The board voted to submit their request to the budget office asking the legislature to grant PEEHIP $1,209 per active member per month for FY27.
PEEHIP’s benefits programs are also tracking rising costs, according to a report from AL PEEHIP Director David Wales and Assistant Director Erica Thomas.
Wales gave a breakdown of rising year-over-year costs, citing that data showed more frequent, expensive and on average lengthier hospital stays and procedures for PEEHIP members in 2024, had led to upticks in year-to-year expenses.
He also cited that the “Mental Health Parity Act” had led to improved mental health benefits for PEEHIP members, but at a higher cost to the organization.
Meanwhile, PEEHIP’s spending on drugs was below average compared to other state-run public healthcare plans, according to Wales. He reported that, if the program’s annual drug spending was level with average state rates, PEEHIP would incur an additional $197.8 million annually in drug costs.
RSA CEO Dr. David G. Bronner also spoke before the board, emphasizing to the board the importance of being able to adjust to factors beyond their control, such as the impacts of increases in hospital, drug and insurance costs; rural hospital closures; global events, like the COVID-19 pandemic; or how and how often members choose to utilize PEEHIP’s services.
“We are in charge of an insurance program, yet we are in control of nothing,” Bronner said.
“We have no control over the members, we have no control over the doctors, we have no control over the hospitals, and the hospitals are in trouble in this country,” Bronner continued, pointing to the 2024 closure of Thomasville Regional Medical Center, after less than five years of operation.
According to Bronner, drawing investors to counties without hospitals has proved to be difficult.
“I cannot convince—I tried—and it only took a couple bites on my butt from these CEOs, saying, ‘David, I cannot, I can’t help it. Even if you send me a helicopter to pick me up or my secretary up, if we have a heart attack or if we do something, what am I doing with my 200 workers, my 300 workers, my 500 workers?’ It doesn’t work. It just doesn’t work without a hospital. I have no ability to recruit any type of industry there, and it’s getting worse,” Bronner said.
Bronner also discussed a proposed tariff of up to 250 percent for imported medications that U.S. President Donald Trump has endorsed.
“If you put a 200 percent tax on drugs, you can see what that will do to our insurance program. It’ll blow it right out of the water,” Bronner said. “You know, he has fun blowing up drug ships; well, hell, you’re gonna blow up the whole country with 200 percent.”
Bronner urged the board to remain informed regarding the governor, Legislature and Washington’s policy priorities and their impact on their work, and to remain patient with shifts in public policy— criticizing the Trump administration’s withholding of Legislature-approved funding.
“Even when you get through those priorities, the next administration comes in and says, ‘Hey, you guys can’t do what you did, I want it back.’ That’s what’s happening with billions of dollars, which the legislature in Washington approved and he’s got the political strength to do it, so you take back what you even promise people,” Bronner said.
