State worker health benefits would fall under proposed budget, cabinet says
Kentucky’s top personnel official warned lawmakers in a letter Wednesday that the current GOP House budget proposal would “have a devastating impact” on pay for more than 310,000 state workers, dependents and retirees.
A 5% increase cap on employer health plan contributions per year would lead to decreased benefits for members of the Kentucky Employee Health Plan (KEHP) program — about 6.8% of all Kentuckians — according to a letter to all members of the General Assembly from Personnel Cabinet Secretary Mary Elizabeth Bailey.
Bailey wrote that only allowing state contributions to go up 5% each year, language contained in the current budget plan House Bill 500, would cause a shortfall, which would then lead to increased premiums or decreased benefits.
“If the General Assembly passes this proposed change, it will have a devastating impact on all Kentucky Employee Health Plan (KEHP) members and their dependents, resulting in a possible 78% increase in employee premiums over the two years. HB 500 limits the employer contribution increase to 5% in each plan year, which would result in a drastic shortfall to the plan of $77 million in 2027 and $202 million in 2028. Unfortunately, there are only two ways to make up the difference: increasing premiums on KEHP members and dependents or decreasing their benefits,” Bailey wrote.
When lawmakers introduced House Bill 500, sponsored by House Appropriations & Revenue Committee Chair Jason Petrie, R-Elkton, they stressed that it was a first draft and subject to change.
Still, the relatively slim budget raised alarm among state government employees, including teachers, pointing out that it sidestepped pay raises.
A spokesperson for House GOP leadership did not respond to a request for comment on the letter.
Bailey wrote that the 5% cap would necessitate the following changes:
- Increased copays for appointments and prescriptions.
- Increased out of pocket maximums.
- Increased deductible/coinsurance percentages.
- Separate deductibles for medical and pharmacy benefits.
- Removal or reduction of benefits on medical coverage (meaning certain treatments will be subject to new limitations).
- Removal of certain drugs from coverage (moving to the most restrictive drug formulary).
Jason Bailey, executive director of the Kentucky Center for Economic Policy, a think tank that stands against income tax cuts and pushes for increased government spending on services, said that it’s likely the shortfall results from the cap not allowing the state to make up for increased costs of health care, and therefore health insurance.
“Health care is expensive at this moment, as everyone knows. To the extent the legislature chooses to not continue to put in its part, it will shift the cost to state employees,” Jason Bailey told the Herald-Leader.
Employees and their dependents, as well as retirees younger than 65, of all three branches of government would be affected by the cap, Secretary Bailey wrote. Those employees include teachers, health department workers, some local government workers and Kentucky Community and Technical College System retirees.
Secretary Bailey also provided examples of how different specific employees covered by the Kentucky Employee Health Plan would be affected by the cap, if it becomes law, over the next two years.
Here are the examples she cited:
Teacher Rank III:
- Current Monthly net: $1939.68
- Net after proposed monthly increase: $1453.64 (net decrease -$486.04 per month)
School Bus Driver:
- Current Monthly net: $680.82
- Net after proposed monthly increase: $145.64 (net decrease -$535.18 per month)
Correctional Officer:
- Current monthly net: $1815.50
- Net after proposed premium increase: $1389.62 (net decrease -$425.88 per month)
Social Worker:
- Current monthly net: $2948.52
- Net after proposed premium increase: $2522.60 (net decrease -$425.92 per month)
State Trooper:
- Current monthly net: $3000.94
- Net after proposed premium increase: $2606.60 (net decrease -$394.34 per month)
State Legislator:
- Current monthly net: $1020.40
- Net after proposed increase: $743.20 (net decrease -$277.20 per month)
LRC employee:
- Current monthly net: $4405.58
- Net after proposed monthly increase: $4165.80 (net decrease -$239.78 per month)
AOC employee:
- Current monthly net: $2181.88
- Net after proposed monthly increase: $1704.24 (net decrease -$477.64 per month)
This story was originally published February 12, 2026 at 1:30 PM.
