State school insurance fund warns of steep premium increases driven by GLP‑1 drug spending; officials present options including reference‑pricing and wrap‑round

Patrick Sandoval (identified in the hearing as the Authority’s presenter) and Debbie Donaldson, an actuary with Segal/Siegel Benefits Consulting, told the committee that the school insurance fund faces persistent losses driven by sustained medical trends and a rapid surge in GLP‑1 (weight‑loss and diabetes) medication spending. Donaldson said pharmacy spend increased by roughly $30 million from fiscal 2023 to 2025 and that GLP‑1 drugs have produced an "88% cumulative trend" in pharmacy spending over three years in the Authority’s experience.

Donaldson said the plan has compounded shortfalls because premiums have risen more slowly than claims and because prior appropriations have addressed prior losses without restoring a sustainable premium structure. She said a 9.95% premium increase is currently scheduled for FY2027 and presented a breakeven scenario that would require an effective premium increase of about 26.5% to stabilize reserves by fiscal 2028. "The breakeven was 26 and a half, which is scenario a," she said, adding the compounding effect means one‑time infusions alone will not solve the structural imbalance.

The presentation outlined multiple contributors: legislative bills that shifted cost share to plans without general‑fund offsets, higher intensity of medical claims, geographic dispersion that raises rural reimbursement relative to Medicare, and a sudden rise in GLP‑1 utilization. Donaldson and staff said GLP‑1 spending jumped sharply starting in Q3 of FY2024 and that allowed cost (before rebates) for those drugs rose several‑fold over a year.

Committee members raised technical and policy questions: several legislators asked why fiscal‑impact reports (FIRs) for bills such as SB51 underestimated the longer‑term cost, and whether point‑of‑sale rebate rules had unintentionally made brand GLP‑1 drugs more affordable to members. Donaldson said SB51’s point‑of‑sale rebate implementation made some brand drugs effectively free at the pharmacy counter, which shifted members away from lower‑cost generics and raised plan spend. "One of the unintended consequences is ... members are getting these medications for 0 cost because the point of sale rebates are covering the member cost share," she said.

Officials described mitigation steps: reference‑based pricing for hospital reimbursement in some counties (expected to yield savings), plan design changes, a new PBM contract effective 07/01/2026 with GLP‑1 wrap‑around controls, and targeted wellness and cardiometabolic programs delivered through vendors (Amada Health and others). Sandoval said the Authority will request special appropriations in 2027 to supplement cash flow and reduce the magnitude of any 2028 rate shock.

On coverage policy, Sandoval and Donaldson said the Authority plans to implement wrap‑around programs that require clinical verification for GLP‑1 use (type‑2 diabetes codes for diabetic uses; enrollment in lifestyle programs and periodic weigh‑ins for weight‑management uses) and could remove GLP‑1s from the formulary if mitigation proves ineffective. Donaldson estimated that excluding GLP‑1s entirely would reduce required premium increases by about 3–4 percentage points, but would not close the total funding gap.

Donaldson summarized the immediate fiscal picture: the fund used about $36 million of a prior $65 million appropriation in FY2025 and is projected to exhaust the remaining balance in FY2026; a negative FY2027 balance of roughly $42 million is the working estimate under current trend assumptions if premiums are not adjusted to match claims. Sandoval said the Authority will present refined scenarios to its board in July and may seek legislative support for one‑time funding and longer‑term premium adjustments.

Next steps: NIMSIA/NPSIA will update actuarial projections with more recent claims, implement PBM and programmatic mitigations, finalize the APS integration analysis, and present options and potential special‑appropriation requests to the board and the Legislature.