No Need to Increase Health Insurance Costs This Year
VHC911 - Stat v.14
First things first, Vermont employers are telling the Green Mountain Care Board (GMCB) they “cannot afford another double-digit insurance rate increase” – sign the petition and add your voice.
After Blue Cross of Vermont (BCBSVT) asked for 13.7% (small group) and 23.3% (individual) premium increases to stay solvent, Vermont’s healthcare regulator the GMCB, set a goal of reducing healthcare costs by $200 million to hold commercial insurance rate increase to 5%. That’s a move in the right direction but could go further.
The Vermont Healthcare 911 coalition believes a 0% increase for commercial insurance rates is within reach. In fact, with a bit of hard work, our findings show $200-300 million in excess costs can be saved in 2026 at the UVM Health Network (the Network) alone.
If the Network reduced costs for management & administrative labor, shifted commercial profits in line with peer averages, stopped adding liquid assets for reserves, and reduced the markup for pharmaceuticals they administer – statewide insurance rates could be reduced, or at least held where they are.
Here’s a breakdown of three actions the Network’s leadership can take immediately to achieve reduced costs – all without cutting services for Vermonters.
1. Save $454 Million annually If UVMMC operated at an average commercial profit and stopped the accumulation of large amounts of liquid financial assets. VHC911 reported that the liquid assets for The Network and UVMMC combined increased from $897 million to $1.9 billion between 2018 and 2024. The $1,045,045,000 increase (116%) averaged about 19% year-to-year growth and coincided with increases in profits made from commercial insurance. The Network could immediately eliminate further growth in liquid assets and lower the profit that they generate from commercial insurers which reached $913 million in 2023. This would help stabilize BCBSVT and lower commercial insurance costs for Vermonters. Keeping liquid reserves where they are can be done without reducing services for Vermonters, and without eliminating jobs. UVMMC is the major generator of commercial profit for the Network contributing $802 million of the $913 million in 2023 with one of the highest rates of commercial profit per discharge in the nation (see below).
2. Save $80 to $100 million per year by reducing management and administration costs while increasing clinician time dedicated to care delivery. Collectively, the UVM Medical Center (UVMMC) and The Network have excessive and expensive layers of management & administration. This is reinforced by stories from clinicians and staff who explain that too many clinicians have management roles, reducing time spent delivering care. This translates into high labor costs for Management & Administration (M&A), long wait times for Vermonters to get appointments, and potentially compromises quality since employees describe multiple layers of decision making to address problems.
While the Network challenges where labor costs are allocated in the reports used by VHC911 to produce these newsletters, they do not challenge the assertion that the Network can reduce M&A labor costs by $80 to $100 million per year while increasing clinician time dedicated to care delivery. These cost reductions would allow the Network to reduce charges to commercial insurers, improve access to care, and increase clinical productivity across the Network.
3. Save $46 Million annually by ending the excessive markup on prices charged for pharmaceuticals injected or infused in the hospital setting. These are considered “specialty drugs” used to treat complex diseases like cancer and autoimmune conditions and are paid for by a patient’s medical benefit (instead of a pharmacy benefit) because of how they are administered. As a medical benefit, Medicare and Medicaid pay set amounts for these treatments, but hospitals can mark up the prices charged to commercial insurers. RAND recently reported the variation in prices paid to hospitals for these treatments across the nation (Prices Paid to Hospitals by Private Health Plans | RAND). When looking at 58 drugs that are delivered in hospital infusion centers, Vermont’s hospitals have the highest markup over Average Sales Price (ASP) of any state in the nation. The median price paid by commercial insurers in Vermont is more than five times ASP, a 500% markup while the national average paid by commercial insurers is 281% of ASP (Figure 1).
More details to achieve 0% insurance rate increases from pharmaceuticals
Figure 1. State Level Hospital Administered Commercial Drug Prices Relative to ASP, 2020–2022.
Rand notes that very little price variation is explained by each hospital’s share of patients covered by Medicare or Medicaid. And there’s no evidence the price markup is related to Vermont’s small population or demographic challenges. Instead, the report notes that a larger driver of price variation is explained by hospital market power, e.g. hospitals that have a market monopoly charge a higher price. We’re # 1.
The pharmacy markup is a large component of commercial profit for hospitals, and a driver of high-cost health insurance in Vermont. The Network could rapidly reduce the pharmacy markup charged to commercial insurers and lower its rate of commercial profit. This would help to stabilize BCBSVT and lower insurance premiums for Vermonters. BCBSVT has reported publicly that UVMMC is the major driver of these pharmaceutical mark ups in Vermont and testified they could save approximately $46 million annually if they procured all the top 50 drugs directly from their pharmacy benefit manager (OptumRx) for their members.
More details to achieve 0% insurance rate increases from reducing profits per discharge (this is the big pot)
The Network could rapidly stabilize Vermont’s healthcare cost crisis by reducing the commercial profits they generate at UVMMC. This can be done without reducing services for Vermonters. The data shown below highlights the opportunity for the Network to lower commercial profits at the Medical Center and reduce healthcare costs for Vermonters (Figure 2).
Figure 2. Potential Savings Based on Commercial Operating Profit Per Discharge at UVMMC
In 2023, the commercial profit per discharge generated by UVMMC was the 10th highest in the nation among a large group of academic medical centers, reaching a total profit of $801 million. If UVMMC had operated at an average commercial profit in 2023 it would have saved Vermonters $454 million. Reducing the commercial operating profit per discharge at UVMMC is a clear and measurable way to improve financial stability in Vermont’s healthcare system and lower costs for the state’s citizens and businesses.
Perhaps the trickiest part of this solution is that it requires a change in how the Networks leadership thinks and operates, and a change in the business culture of a conglomerate that enjoys acting as a monopoly. However, there is some reason to be hopeful. Network leadership has told VHC911 they are planning for a near-term reduction in management & administration labor costs and a reduction in their markup for hospital administered pharmaceuticals. They are also planning to quickly increase primary care capacity which is critical to improve access to care for Vermonters.
We haven’t seen any commitment (yet) to stop accumulating more liquid assets. Or whether they may use some of the $1.9B reserves to help with the urgent need for cost reduction. The Network leadership must commit to changing course and working with the GMCB to hold insurance rates steady and reform operations without reducing services. How to do that is obvious, whether they share a commitment to doing so at a level that assures commercial insurance costs stay where they are, remains to be seen.
Data from this analysis comes from NASHP Hospital Cost Tool Data Set, Release Date December 20, 2024 NASHP Hospital Cost Tool.