Alabama lawmakers face a tough decision this legislative session: whether to fund a pay raise for public school teachers or cover a major gap in the state’s health insurance program for educators.
The Public Education Employees’ Health Insurance Plan (PEEHIP) is projected to face a $380 million shortfall for the 2027 fiscal year. The plan, which provides coverage for Alabama’s teachers and other education employees, is struggling with rising health care costs after several years of financial stability.
Neah Scott, legislative counsel for the Retirement Systems of Alabama (RSA), said that growing medical expenses, especially for Medicare retirees and hospital care, are driving the deficit. “We’ve had a long period of stability,” Scott said. “We want to continue offering strong benefits at a low cost to our members.”
She noted that the increase is not caused by one factor alone. Inflation, more frequent use of health services, and longer hospital stays have all contributed to higher costs across the board.
PEEHIP has asked the state legislature to provide extra funding, a request similar to last year’s. In 2024, lawmakers chose to allocate $124 million to support the insurance plan instead of approving teacher pay raises. This year, the requested amount is even higher, which could make the decision more challenging.
“The legislature didn’t do a pay raise for teachers and funded insurance last year,” Scott said. “Now we’re making a larger request in a year when teachers may expect raises. It’s a difficult issue.”
Richard Franklin, president of the Birmingham chapter of the American Federation of Teachers, said supporting insurance should be the higher priority. “We would love for them to do both,” he said. “But if it comes down to one, I’d rather see the state invest in insurance so it doesn’t fall on educators.”
Scott said discussions are already underway to find the most practical solution. “The question is how to solve the funding problem when there isn’t much money in the Education Trust Fund and still keep a strong insurance plan,” she said.
After the legislature reaches a decision, the RSA board and PEEHIP will meet to finalize changes. Any adjustments would take effect on October 1, 2026.
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