Discussion on Rising Costs by Alabama Public Education Employee Health Insurance Plan Board
During a meeting on Wednesday, members of the Alabama Public Education Employee Health Insurance Plan Management Board addressed the growing costs related to their retirement plan.
Diane Scott, the CFO of RSA, shared insights about the 2024 Pehip budget, highlighting that 68% of its funding comes from Congress. To break it down further, $400 million, which is 27%, is from the University of Alabama, while Peep Active members contribute $45 million, accounting for 3%. There’s also $30 million, or 2%, stemming from investments.
Scott mentioned that there was an increase of $800 per month in 2024 for Peehip, with $720 of each member’s fee going towards the retirement funds of active members and their dependents. Additionally, only $76 of the active member payment was allocated for retirees and dependents, while $4 went toward administration.
She presented a summary of Peating’s medical and drug costs over the last 22 years, with predictions extending to 2028. The yearly cost increase over 25 years has remained fairly stable at approximately 5%.
However, a closer look reveals that medical and drug costs have been escalating at an annual rate of 6.2% from 2021 to 2028, which is somewhat concerning.
In 2025, Scott pointed out that federal funding for Peehip’s Medicare Advantage prescription drug plan—provided through United Healthcare—would result in a “surge” in program rates, exceeding four times the rates from 2024. Meanwhile, costs for Blue Cross Blue Shield have risen by 10%.
On another note, the Alabama Department of Insurance recently approved a rise in the Affordable Care Act rates for 2026. This affects companies including Blue Cross Blue Shield, United Healthcare, and Celtic Insurance.
“We’re focusing on what’s happening right here in Alabama,” Scott stated. “These premium increases reflect underlying costs that have also risen.” She added, “We’re not alone. Many public sector health plans across the country are experiencing similar trends.”
Scott explained that Peehip has noted an uptick in the utilization of health services, which has contributed to the rise in hospital costs. Notably, 2025 marks the full implementation of the Mental Health Act, leading to increased hospital stays.
In a significant development, Congress approved the first increase in the Peehip per active employee monthly fee in nine years, raising it from $800 to $904. Scott noted that due to rising interest rates, Peehip could require an additional $120 million in 2026, suggesting that premium hikes might be necessary to cover these expenses.
In discussing these trends, Scott said, “I didn’t foresee a 10% surge in Blue Cross and active costs.”
The board previously approved a motion to consider withdrawing $118.9 million from Peehip’s Retirees Trust if needed in 2026. However, forecasts now indicate a possible need for an extra $74 million. “I can’t accurately gauge our needs until later in 2026,” she explained. “That’s why it’s crucial not to exhaust all resources too soon, as future situations might arise.”
“I hope that the situation improves,” she added, with a hint of optimism.
Scott also updated the board on the subsidy amount for the Medicare Advantage Plan, noting that a recent reduction had resulted in costing about $15 less per person than anticipated since January, which translates to a $15 million reduction in forecast costs.
She emphasized that rising costs may lead to active membership fees increasing in 2027, estimating a range of $1,185 to $1,231 per month.
The board agreed to request $1,209 monthly for Peehip from Congress for fiscal 2027.
Additionally, the Peehip benefits program faces rising costs, as highlighted in a report from Al Peehip Director David Wales and assistant director Erica Thomas. Wales noted that in 2024, the costs were not only increasing but becoming more frequent and expensive, particularly concerning average hospital stays and procedures.
Wales shared that while the Mental Health Act has enhanced benefits for Peep members, it has also raised costs for the organization.
Interestingly, Wales pointed out that Peehip’s drug spending is below average when compared to other national public health programs. He added that if the spending matched the average, it would add $198.8 million annually to drug costs.
RSA CEO Dr. David G. Bronner addressed the board, stressing the need for adaptability regarding factors beyond their control, like hospital costs, prescription prices, and other influencing external issues, including rural hospital closures and global circumstances like the COVID-19 pandemic.
“We manage the insurance program, but we don’t control the inputs,” Bronner remarked. He mentioned the closure of Thomasville Regional Medical Center in 2024, reflecting ongoing challenges in the healthcare landscape.
Bronner lamented the difficulty in attracting investors to areas lacking hospitals. He shared, “I’ve tried—you send me a helicopter for emergencies, but if the hospital isn’t there, it complicates things significantly.”
He also commented on proposed tariffs that could reach 250% on imported medications and warned about their potential impact on insurance programs. “An increase like that could devastate our whole system,” he cautioned.
Bronner encouraged the board to remain patient and attentive to evolving public policies, reiterating that future administrations may alter current priorities, affecting funding and support.
