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Actuary Warns School Health Fund Could Run a Deficit by Late 2020s; Recommends Higher Base Contribution and CPI Indexing
Summary
A Segal Group actuary told the Senate Education Committee that Arkansas' school employee health insurance fund, while currently well-resourced, faces projected deficits by 2028–2029 without funding changes; he recommended raising the base contribution and indexing increases to medical CPI. Key questions from legislators focused on pharmacy rebates and utilization trends.
Patrick Klein, an actuary with the Segal Group, told the Senate Education Committee that Arkansas' public-school health insurance fund currently holds about $250 million in assets but is projected to move into a structural deficit in the late 2020s unless funding or cost trends change. "The trajectory of the fund in 2025 and beyond is in a negative position," Klein said, citing Milliman's cost projections and a medical cost trend he described as roughly 6 percent versus a long-term target medical CPI of 4 percent.
Klein described three primary funding levers for the plan: employee contributions, district contributions and a flat Department of Education amount. He presented projection scenarios showing the fund remaining stable through 2024 but becoming negative by 2028 in a baseline scenario and by 2029 under a scenario that assumes Department and district funding grow at CPI. To stabilize the fund, Klein recommended reestablishing a higher base contribution (his presentation framed this as lifting the base from the prior level and then growing that amount at medical CPI) and increasing Department of Education funding at medical CPI.
Committee members pressed for details. Representative Long asked about the share of employees on high-deductible plans; Klein said about 20 percent use those plans and that he did not model migration into them for his scenarios. Representative Beck questioned pharmacy rebate assumptions; Klein said the new pharmacy benefits manager, Navitus, provided a higher rebate run rate—about $10 million more than Milliman projected—and that he incorporated Navitus' data into his analysis. Klein also cited changes in rebate patterns for large drugs such as Humira as a driver of year-to-year rebate variability.
Klein said his projections rely on Milliman's actuarial work for claim forecasts but incorporate updated rebate information from the PBM and conservative timing assumptions (district contributions changing on Jan. 1, Department funding on July 1). He emphasized that managing long-term costs (through procurement and programmatic strategies) alongside calibrated funding increases is necessary to keep expenses and revenues aligned.
Next steps discussed by the committee included follow-up on model assumptions (utilization and plan migration), closer review of PBM rebate projections and potential legislative decisions on whether to raise the statewide funding baseline. The chair did not call a vote on funding changes during the meeting.
