Alabama’s public educator health insurance program is heading into the fiscal 2027 budget cycle with a projected $380 million shortfall in that year’s health plan funding, creating a significant challenge for lawmakers as they work to finalize the state’s Education Trust Fund budget this spring.
The Public Education Employees’ Health Insurance Plan, known as PEEHIP, covers roughly 104,000 active education employees and approximately 350,000 total individuals when spouses and dependents are included. Administered under the Retirement Systems of Alabama, the program serves K-12 teachers, two-year college employees, and some university staff.
The shortfall stems from steadily rising medical and prescription drug costs that have more than tripled since 2003 and could push annual program costs toward $1.8 to $2 billion by 2027-2028. To close the gap, the PEEHIP board has requested raising the employer contribution rate from the current $904 per active employee per month to $1,209 — an increase of $305 per employee per month.
Governor Kay Ivey’s fiscal 2027 Education Trust Fund recommendation funds the employer rate at $1,073 per month, well below the board’s actuarial request. RSA officials have said the program can meet its near-term obligations even if the full request is not funded, but warn that relying on reserves or stopgap measures threatens the program’s long-term stability.
The gap between the board’s request and the governor’s proposal leaves lawmakers with a difficult set of choices: increase state funding at the expense of other ETF priorities like teacher pay raises, raise member premiums and copays for educators, reduce benefits, or draw down the program’s reserve fund.
PEEHIP has already turned to its reserve fund. The retiree health care trust fund authorized a transfer of $118.9 million for FY2026 to help cover rising costs, with an additional $31 to $74 million in withdrawals projected as potentially needed during that same year. RSA materials note that trust fund withdrawals were also used in 2015 and 2016 to address similar shortfalls.
Last year, lawmakers increased the employer contribution rate from $800 to $904 per month starting in October 2025 in an attempt to address projected gaps heading into the current fiscal year. That increase, funded through the ETF, represented a significant budget commitment — and the board is now asking for an even larger jump just one year later.
The stakes for the broader education budget are considerable. According to RSA estimates, roughly 72 percent of employer PEEHIP costs are paid with ETF dollars, meaning any large increase directly competes with teacher pay raises, classroom funding and other education priorities that lawmakers on both sides of the aisle have championed this session. ETF support for PEEHIP has been in the mid-$700 million range as recently as FY2025, with requests now pointing toward well over $1 billion in the coming years.
Budget committee chairs are expected to take up ETF appropriations in the coming weeks as the Legislature moves into the back half of the session.
Thursday is the 19th day of the legislative session.
Sawyer Knowles is a capitol reporter for Yellowhammer News. You may contact him at [email protected].
