Statewide changes lead to higher costs for Alabama’s health insurance plan for teachers
Statewide changes lead to higher costs for Alabama’s health insurance plan for teachers

After holding costs stable for more than a decade, Alabama’s education employee and retiree health insurance plan could need hundreds of millions of dollars more from the state in the next few years due to changes at the federal level.

The Public Education Employees Health Insurance Plan (PEEHIP) insures over 350,000 members and their dependents.

This includes approximately 80,000 retirees and dependents covered by PEEHIP’s Medicare Advantage plan.

The federal changes will increase PEEHIP costs for Medicare Advantage by more than fourfold by 2025, said PEEHIP Director Dave Wales.

PEEHIP revised the final year of a three-year contract with its provider, United Healthcare, as Medicare Advantage plans faced financial hits in both directions: lower growth in federal funding and an increased share of prescription drug costs. PEEHIP solicited bids from other companies, but Wales said United Healthcare remains the best option for next year.

A major factor leading to the changes at the federal level was the Inflation Reduction Act passed by Congress.

The impact and long-term prospects for members and taxpayers are unclear.

“We still have a lot of work to do to fully understand the ultimate impact and measure any future changes in terms of program strategy, benefits, etc.,” Wales said. “It’s difficult to fully quantify the long-term impact. It’s certainly a very difficult challenge, a unique challenge that we’ve never faced before, particularly in the Medicare space.”

Wales said officials should know more by the time the PEEHIP board holds its quarterly meeting in September.

“We’re working as hard as we can every day to answer that question, but ultimately we’ll make concrete decisions on any plan changes or member premium changes at our board meeting in September,” Wales said. “So I think September will be the next milestone when more information is available.”

If the board approves changes to the plan in September, such as higher premiums, they would not take effect until January.

The increased costs for Medicare Advantage plans would affect not just PEEHIP and Alabama, but public and private plans across the country, Wales said.

“This is not something that is happening to PEEHIP specifically or is the result of any action taken by PEEHIP, our board or the Alabama Legislature,” Wales said. “This is a change at the federal level where the federal government is trying to more or less restructure how drugs are funded and paid for in Medicare Advantage and in Part D (Medicare’s drug plan). So it’s not just PEEHIP that’s trying to make progress here. It’s affecting all Medicare Advantage plans out there.”

The stakes are high for PEEHIP members and taxpayers. State funding for PEEHIP is a big item each year when lawmakers pass state budgets. Taxpayers cover about 64% of the program’s roughly $1.5 billion cost, while member contributions cover about 25%.

Annual legislative appropriations for PEEHIP are $998 million for this year and for fiscal year 2025. The good news is that the cost to taxpayers has remained stable, increasing 8% over the past decade.

But taking into account the new federal changes and without an increase in funding, PEEHIP estimates there will be a deficit of $211 million to $281 million in fiscal year 2026 and $643 million to $699 million in fiscal year 2027.

Also, the medical and drug costs that PEEHIP pays its members have remained stable for about a decade, at about $1.3 billion per year. But a chart presented at PEEHIP’s last board meeting in June projects those costs will rise to $1.78 billion by 2027.

PEEHIP representatives met Tuesday with Senator Arthur Orr (R-Decatur), chairman of the Senate Education Budget Committee.

Orr said it was the first time he had heard a detailed explanation of the changes at the federal level. Orr said he expects political pressure on Washington because Medicare Advantage plans affect so many people.

“My preliminary impression is that the word is getting out across the country that retirees are going to see significant increases in their Medicare Advantage programs,” Orr said. “The state will obviously be affected by this as well. That tells me that in an election year, the public or the retirees who are affected by this change will start to understand the financial consequences and will be very angry and calling their members of Congress.”

“Before we panic, we should wait and see whether a solution is found in Washington that helps offset these costs,” Orr said.

Orr also noted that the state has about $1.9 billion in assets in the Alabama Retired Education Employees’ Health Care Trust. Those funds could be used to offset some of the cost increases. But he said that’s not a long-term solution.

Wales said PEEHIP will solicit bids from providers for a new three-year contract for Medicare Advantage after 2025. He said PEEHIP will try to minimize the impact of the federal changes on members.

“We obviously want to look after our members first,” Wales said. “So we’re going to do everything we can to continue to provide them with the best possible service and try to mitigate cost increases as much as possible. So that’s the main goal when we want to make changes.”

By Aurora