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PHIP warns of large Medicare Advantage cost increase; seeks higher employer contribution and one-time trust withdrawal
Summary
PHIP officials told the committee changes in CMS funding and the Inflation Reduction Act are driving a projected sharp rise in Medicare Advantage prescription drug plan costs for retirees, prompting a request to raise the employer contribution rate and to withdraw up to $119 million from the retiree healthcare trust.
Officials from the Public Education Employees' Health Insurance Program (PHIP), governed with the Retirement Systems authority, told the Ways and Means Education committee that federal changes and drug-cost shifts are driving a sharp increase in costs for Medicare-eligible retirees and prompted a funding request in the governor's budget.
Nia Scott of RSA/PHIP presented the program's finances and said the program has managed with a flat employer contribution rate of $800 per member per month since 2017. She told the committee that PHIP spent about $57 million on its Medicare Advantage prescription drug plan (MAPDP) in fiscal year 2024 and that, because of changes tied to the Inflation Reduction Act and recent Centers for Medicare & Medicaid Services adjustments, PHIP projects MAPDP costs for fiscal year 2025 could increase substantially — from roughly $57 million to about $240 million–$250 million in PHIP's estimate. Scott said those federal changes shifted costs toward plan sponsors and reduced federal funding available to the plan.
To address the projected shortfall, Scott said PHIP's board approved a two-part approach: a requested increase in the employer contribution rate from $800 to $904 per member per month (a change that staff estimated would generate roughly $124 million) and authorization to withdraw up to $119 million from the retiree health-care trust (the transcript states the trust's current balance at about $2.357 billion and that statute limits withdrawals to up to 10% of market value in a year). "We are asking for an increase in the employer contribution rate for the first time since 2017," Scott said. She also told the committee PHIP plans to re-bid the MAPDP contract and is pursuing longer contract terms to secure better pricing; RSA staff said some states obtain better pricing on five-year MAPD contracts than three-year deals.
Committee members asked technical questions about the numbers and procurement timeline. Chairman and senators' staff previously filed a bill to allow five-year contracts for the Medicare-eligible retiree portion, and PHIP representatives said they welcomed the flexibility. PHIP stressed staff would continue to pursue pharmacy-management and hospital-cost savings while the RFP is processed.
No committee vote was taken on the funding request during the presentation. The governor's budget, Scott said, reflects the PHIP request. Committee members asked for additional detail on RFP timing and vendor proposals as PHIP moves forward.
