PEBB board approves more conservative 2026 rates, setting aside funds for 2027

The Public Employees Benefits Program (PEBB) Board on March 25 approved plan-year 2026 premium rates under staff’s recommended scenario 2, a more conservative funding option intended to preserve reserves and reduce the risk of larger premium increases in the second year of the state biennium.

Board members said rising medical and pharmacy cost trends and uncertainty about second-year state contributions motivated the decision. Executive Officer Celestina Glover said PEBB will ask the Interim Finance Committee for $33,000,000 to cover an expected shortfall in claims for the current year. “We will be going to IFC on April 3, asking for $33,000,000 to bump up our claims category because that is the shortfall we’re projecting for now to the end of the year,” Glover said.

The board heard a technical presentation from Richard Ward of Siegel on cost trends and the methodology used to set rates. Ward noted persistent increases in medical and specialty pharmacy costs and explained the difference between gross pharmacy claims and net costs after rebates. “This pharmacy trend is just for claims. It doesn't consider the effect of rebates, which will show the effect of rebates on costs and trend here in a few slides,” Ward said, and added rebates materially reduce net pharmacy costs in some years.

Why it matters: Board members said using scenario 2 reallocates more state funding to the early part of the biennium and retains additional reserves to blunt a projected second-year funding drop. Board member Michelle Kelly, who made the motion to adopt staff’s recommendation, described the action as conservative fiduciary stewardship. “My motion is to approve staff’s recommendation scenario number 2,” Kelly said.

What the board approved: The motion to adopt scenario 2 passed; Laura Rich seconded. The recorded vote showed six in favor and one opposed. Board member Jim Barnes said he opposed the motion: “Yes. I’m voting against that,” he said during the roll call.

Board discussion and context: Siegel’s presentation showed multi-year increases in PEBB medical and pharmacy trends and highlighted drivers such as specialty drugs, rising provider contract costs, and higher utilization across several disease categories. Ward told the board that pharmacy claims trends have moderated recently but remain an important driver of overall cost. PEBB staff also noted that the state’s preliminary governor’s budget contains a higher funding assumption for the first year of the biennium, but the second-year AEGIS (state employer contribution) projection is lower and could create pressure in plan year 2027.

Next steps and fiscal notes: Glover said staff will proceed with the adopted rates and will take the IFC request on April 3. She also warned that other changes scheduled for the 2027 plan year — including how rebates and certain benefit-authority items are applied — could affect base rates starting in 2027.

Votes at a glance: Motion to adopt plan-year 2026 rates under scenario 2 — approved. Motion: approve staff’s recommendation (scenario 2). Mover: Michelle Kelly. Second: Laura Rich. Vote record (as captured during roll call): Grimmer — yes; Michelle Kelly — yes; Jim Barnes — no; Jennifer McClendon — yes; Janelle Woodward — yes; Theresa Karsten — yes; Laura Rich — yes. Betsy Strasberg — absent. Outcome: approved.

Funding detail excerpt: For plan year 2025 the AEGIS active-employee funding rate noted in materials was $780 per employee; preliminary governor’s budget showed an increase to roughly $1,022 in year one of the biennium with a possible decline in the second year to about $982, a change staff said could materially affect employee premiums if unaddressed.

The board adjourned from the item after adopting the rates and will pursue the IFC request and additional analysis of rebate and funding changes ahead of the 2027 plan-year decisions.