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PHIP seeks $124 million employer-rate increase; board plans $120 million withdrawal from retiree trust for FY26
Summary
Ms. Scott told the Senate the PHIP board is seeking an employer-rate increase that would add about $124 million to the fiscal 2026 budget and plans to use up to $120 million from the retiree health trust to avoid raising member out-of-pocket costs in FY26.
Ms. Scott presented the PHIP (public-employee health insurance program) funding request during the Senate briefing and described a substantial near-term ask and the federal drivers behind it.
The PHIP board is requesting an increase in the employer contribution to $9.004 per member per month (from a previously funded rate of $8.00 per member per month since 2017), which Ms. Scott said equates to a roughly $124,000,000 increase for fiscal year 2026. To smooth the immediate impact on members, Ms. Scott said the board plans to apply up to $120,000,000 from the program's retiree health trust for FY26; she said that measure should prevent the board from increasing active-member out-of-pocket costs for that fiscal year.
Ms. Scott told senators that federal changes are the largest driver of the projected cost increase for Medicare-eligible retirees. She cited changes tied to the Inflation Reduction Act and recent Centers for Medicare & Medicaid Services (CMS) adjustments to Medicare Advantage prescription drug funding as shifting more cost to the state plan. For fiscal year 2024 Ms. Scott said PHIP spent $57,000,000 on the Medicare-eligible group; she estimated fiscal year 2025 costs for that population could be between $240,000,000 and $250,000,000.
The presenter outlined PHIP funding sources and constraints. By law, retiree-trust funds can be used only for retiree healthcare and the board may use up to 10% of fair market value in a year for those costs; the retiree trust balance she cited was $2,300,000,000. For fiscal year 2024 the total employer contribution to PHIP, she said, was about $1,000,000,000 and members paid roughly 26% of premiums and cost-sharing.
Ms. Scott described pharmacy benefit management as a central cost-control focus. She said consultants and a PBM negotiated roughly $160,000,000 in rebates in fiscal year 2023 and that PHIP's non-Medicare active pharmacy per-member-per-month cost was $96, compared with an average of $160 for other states, a figure she said the plan closely monitors. Senators pressed staff on PBM transparency and rebate flows; Ms. Scott said PHIP has contractual provisions and consulting oversight to capture rebates and manage the PBM contract but acknowledged the complexity of those arrangements.
Ms. Scott said PHIP is conducting an RFP for Medicare Advantage coverage and expected bids in April, which will clarify the trajectory of Medicare-related costs. She and senators discussed the multi-year nature of the problem: using trust funds in FY26 will reduce available trust balances for FY27 and beyond, and rising Medicare prescription costs create ongoing funding pressure.
No formal vote was recorded. Senators asked follow-up questions and staff signaled further briefings once the RFP and final actuarial numbers are available.
