West Virginia’s Public Employees Insurance Agency (PEIA) provides health coverage to state and local government employees as well as public school educators and staff, with total employee enrollment of about 75,000 active members and over 200,000 enrollees once counting dependent family members and retirees.
With the start of the new PEIA plan year this week, those enrollees are being hit with significant health insurance cost hikes including monthly premium increases, higher deductibles and out-of-pocket costs, and, for some, a much larger surcharge for their spouse’s health insurance coverage. And for the first time in a few years, their increases in health coverage costs will not be offset by pay raises. In fact, in most cases, this year’s health insurance cost increases for public employees will cost significantly more than households have “saved” from multiple state income tax reductions in recent years. State leaders have long wrestled with the cost of funding the state’s employee health program and a special session is expected to happen later this year to discuss the matter.
Here are three key considerations for the public and lawmakers to bear in mind amid PEIA program discussions.
During the 2023 state legislative session when lawmakers were simultaneously considering significant new employee costs for PEIA enrollees alongside deep personal income tax cuts, then-Governor Justice framed his tax cut proposal as a way to reduce the pain of increased health coverage costs, stating at the time, “It’s not too bad a tradeoff in my book.”
Just two years later, the reality is that tax cuts were not a tradeoff for the average PEIA employee. For most enrollees, this year’s PEIA cost increases more than erase the income tax cut they received from the two rounds of tax cuts implemented on January 1, 2025.
In fact, once accounting for two years of significant premium increases, most PEIA enrollees are absorbing greater health care cost increases than the annual tax benefit received from all rounds of the state’s deep income tax cuts. Half of the new plan year health cost increases highlighted in the examples above are greater than the average household benefit from all three rounds of tax cuts (less than $400/annually) and once also accounting for health insurance premium increases in 2024, that tax benefit is more than wiped out for the majority of PEIA enrollees.
After the 2018 teacher and school employee strikes, driven in large part by flat wages and rising health insurance costs for state workers, Governor Jim Justice and state lawmakers sought to find a long-term plan for PEIA. After failing to find legislative consensus on the PEIA Task Force’s recommendations, Governor Justice made a promise to state workers: no PEIA premium increases during his time as governor. This promise is commonly understood as shielding workers from the true cost of their share of health insurance, up until 2023’s PEIA reform legislation was passed which proponents said was necessary to rightsize PEIA’s cost balance.
But that promise also shielded the state—the employer—from seeing its true share of PEIA costs, as well. With premiums frozen, one-time money was used to cover normal and ongoing PEIA cost growth between 2019 and 2023. During those same years, Governor Justice’s administration stopped producing long-term budgeting forecasts while repeatedly pressuring lawmakers to enact deep income tax cuts with the promise that the state budget could stay flat (or decoupled from the true inflation-adjusted costs of state programs) well into the future.
Without a true sense of ongoing and future PEIA costs, lawmakers cut too deeply into the state’s largest source of general revenue, the state income tax, risking their ability to pay for base budget costs even as the tax cuts themselves generated little benefit for the average West Virginia household—because as quickly became apparent, the budget cannot stay flat indefinitely.
Lawmakers now find themselves facing the pressures of a perfect storm: declining state revenues hitting just as the delayed implementation of costly legislation begins impacting the state budget. But there are reasonable and fiscally responsible measures that can be taken to continue fulfilling the promise of PEIA to public employees, as outlined in a recent report highlighting ways state lawmakers could raise hundreds of millions of dollars annually without raising taxes on any households making less than $100,000. In fact, just forgoing the 2024 income tax cuts (the four percent triggered cut and the additional two percent cut passed in September) would have given state lawmakers nearly enough revenue to fund the state’s share of PEIA growth for three years.
The tax cut the average West Virginia family gets will never be enough to offset the deep cuts and costs they are forced to absorb as a result, as exemplified via the meager tax cuts households received compared with their increased health care costs.
All states are grappling with effective ways to manage rising costs in their state employee health plans. Nearly all states report having undertaken multiple cost containment measures in recent years including benefit design initiatives, provider payment structure changes, and utilization management initiatives. PEIA officials in West Virginia report having undertaken more than ten cost containment efforts since 2019 including wellness initiatives, risk-based contracting, primary care-based initiatives, and disease management programs.
However, there are some cost containment strategies that would go too far—harming state workers and undermining our economic and job market strategies—while also likely failing to rein in costs.
Reducing the share of health costs covered by the state would make West Virginia less competitive with its neighbors and would fly in the face of the recommendations of the 2018 PEIA Task Force, which recommended the state increase its share of health insurance costs. Among West Virginia’s neighbors, all states offer some coverage that is more generous than PEIA in both actuarial value and employer contributions.
As we’ve highlighted previously, privatization efforts are another often referenced strategy that, once looking under the hood, is misguided to address either cost or benefits quality. Only three states have privatized state employee health insurance plans, with all others offering self-insured, state administered plans. One reason few states have privatized is because commercial employer insurance has far higher administrative costs than publicly run plans do. According to the most recent PEIA finance plan, administration is expected to cost just three percent of total plan costs, far below the cost with private insurers, where administrative costs cost five times that (ranging from 15 to 20 percent).
Despite significant increases in deductibles and out-of-pocket costs for the new plan year, PEIA has much lower out-of-pocket costs for employees than the average employer-sponsored health plan in West Virginia. The average deductible for employee only coverage in PEIA in the 2026 plan year is $715, compared with nearly $2,000 on the commercial employer-sponsored coverage market in West Virginia. Similarly, the average deductible for employee plus dependent coverage in PEIA this year is $1,450, compared with nearly $4,500 on the employer-sponsored coverage market.
The current structure of PEIA is a good deal for both the state and enrollees, with better out-of-pocket costs and slower plan growth than that seen on the commercial market. While some cost-containment strategies are warranted, lawmakers should stay away from efforts to privatize or weaken benefits, as both will have broader impacts on the state’s economy and workforce. In any proposal, lawmakers must acknowledge that raising sufficient revenue must be part of the discussion and that the state budget pressures resulting from recent tax cuts have increased costs rather than savings for many West Virginia households.
