School Employees Health Benefits Plan Midyear Projections Indicate Likely Double Digit Premium Rate Increases for Plan Year 2027

Treasury Issues Report Outlining Cost Drivers & Need for Reform

(TRENTON) - The Department of the Treasury issued a report yesterday from Aon, the plan actuary for the School Employees Health Benefits Plan (SEHBP), which signals the plan will likely experience double digit premium rate increases in Plan Year 2027 due to outmigration of healthy members, rising costs of prescription drugs, and other significant structural challenges.

The report, which was discussed at yesterday’s meeting of the SEHBP Commission, provides a snapshot of the plan’s financial situation and cost trends. Although the report does not predict forthcoming rates, the information it presents strongly indicates a likely rate increase when the actuary makes its rate recommendations for the upcoming plan year in July. The report’s discussion of the depletion of the claims reserve points to the potential for a midyear rate increase for some school districts.

Following the trend of the last few years, local school districts with healthier employee populations continue to leave the SEHBP in favor of lower-cost health benefits plans obtained on the private market. These departures leave the districts with less healthy, and thus more costly, employees in the SEHBP, while also decreasing the premium revenues coming into the SEHBP.

The exodus from the SEHBP of healthier school districts has been worse than the plan actuary had previously projected. The plan actuary is reporting losses in PY 2024 of $126M and $207M in PY2025, totaling $333M over the past two plan years. These losses could result in higher Plan Year 2027 rate increases and could necessitate a midyear rate increase for those districts that remain in the SEHBP.

In addition to this outmigration of healthier members, the report identifies several factors causing the costs of the SEHBP to outpace revenues, leading to likely high premium rate increases for 2027:

·         The actual health benefits claims experience of those members remaining in the SEHBP has been higher, and more expensive, than had previously been predicted. For active members, medical and prescription drug claims have increased 12% and 24%, respectively.

·         For early retirees (those retirees not yet Medicare-eligible, whose benefits are paid by the State rather than local school districts), medical and prescription drug claims have increased 11.5% and 22%, respectively.

·         For both groups, the high trends are the result of increased utilization and rising unit costs in key medical and drug categories, including higher inpatient and outpatient facility spending, increased specialty physician and behavioral health utilization, and high increases in GLP-1 prescription drug utilization.

·         There has been migration of members away from the older legacy plans to the lower-cost plans put in place in 2020. Because those plans are still very generous, the net savings to the SEHBP are significantly offset by the reduction in premium revenues to the plans as a result of the migration.

·         Across all members groups, prescription drugs claims are trending at rates nearly double those of medical claims costs, with higher use of costly anti-inflammatory specialty drugs and GLP-1 drugs for weight loss driving the trend.

·         The popular GLP-1 drugs for weight loss in particular are a key cost driver for the SEHBP, despite the fact that the net plan prices of the drugs have remained flat or decreased. For active members, plan spend for GLP-1 drugs on a per member, per month basis increased nearly 95% in one year. For early retirees, that increase is over 126%.

The midyear reports are the latest public report issued by Treasury that warn of the serious financial issues facing the SEHBP. In its report published last May, Treasury noted that while the SEHBP was not yet in the dire situation faced by the State Health Benefits Plan-Local Government plan, it faces similar structural challenges that could throw it into an actuarial “death spiral” if significant reforms to contain spending and cost growth are not implemented soon.