Government budget strain: Health plan reform might help
Travis County is staring down a projected $13 million budget shortfall, and the primary driver is not a new project or an unexpected emergency. It is health insurance.
Last year, the county spent $2.6 million on health insurance premiums for its employees. This year, health care is estimated to cost somewhere between $14 million and $17 million. The increase is severe enough that the county is asking departments to identify 5% spending cuts to close the gap.
Travis County’s spike is dramatic, reflecting a broader trend of rising health care prices placing growing pressure on government budgets. State and local officials should consider reforming their employee health benefit plans if they want to save taxpayer dollars.
Rising Health Care Prices Are Squeezing Employer and Government Budgets Alike
Health care prices are rising rapidly across both public and private employers. Nationally, KFF’s 2025 Employer Health Benefits Survey found that the average annual premium for family coverage reached almost $27,000. This is up 6% from the prior year and 26% over the past five years. As Travis County’s experience shows, government employers are not insulated from these trends.
Hospital consolidation has accelerated across Texas, and research suggests that reduced competition in some markets can contribute to higher prices. The result is that health care spending is growing at a pace that outstrips both wage growth and general inflation.
Texas State Health Plans Face the Same Pressure
At the state level, the dynamics are similar. Teacher Retirement System-ActiveCare, which is the state health benefit plan for current public education employees, required $369 million above baseline funding from the Texas Legislature this past session just to hold average premium increases to 9.7% for the 2025-2026 plan year. In addition to this $369 million above baseline funding, the Legislature has appropriated a mixture of federal and state funds totaling almost $1.6 billion since FY 22-23 to slow the impact of premium increases.
These rising costs are landing directly on educators. Teachers with family coverage on plans like ActiveCare Primary+ can face employee premiums exceeding $1,329 per month, almost $16,000 a year out of a teacher’s paycheck. TRS has even stated that “health care costs continue to outpace income growth in the public education sector.”
Options Available to Reform How Governments Pay for Care
Rather than addressing the prices being charged for care, governments have responded by absorbing higher costs, providing additional funding above baseline, or passing the burden on to their employees. But there are alternatives to this current trajectory.
State and local governments can adopt concrete reforms to control health care spending without cutting benefits for employees. These include rethinking how health plans reimburse providers, increasing transparency around the prices being paid for services and redesigning plan incentives so that both the plan and its members benefit when lower-cost, higher-value care is chosen. The tools exist, and the Texas Legislature has the option to implement them.
A Path Forward for Texas State Health Plan Reform
Rather than continuing to provide supplemental funding to offset rising premiums, Texas could look to address underlying cost drivers by reforming the design of public employee health plans. Travis County’s $13 million shortfall is a symptom of a system where health care prices may be higher than necessary. Addressing those cost drivers is one path governments can take to protect their budgets, their employees and the taxpayers who fund them.