Health Care Leaders Are Scrambling to Prevent Insurance Hike

A long-awaited state-commissioned report released last fall warned that some Vermont hospitals could go bankrupt within a few years unless they make significant changes to their operations. Hospital leaders downplayed the findings, describing the document as error-filled and intended to stoke fear.

Seven months later, it’s possible that the only substantial error was the report’s overly generous timeline.

Vermont’s health care system is crumbling at a rate faster than even the most pessimistic predictions. Rural hospitals are hemorrhaging cash, while an unrelenting surge in claims has brought the state’s biggest health insurer, Blue Cross Blue Shield of Vermont, to its knees. Pending federal cuts to Medicaid and insurance subsidies are injecting further uncertainty.

After raising its premium rates by double digits each of the past three years, Blue Cross plans to ask state regulators this month for another 20 percent hike — enough to cover next year’s anticipated claims and to begin building back its reserves.

Most agree that regulators have little choice but to grant the request, even though many already can’t afford Vermont’s nation-leading premium rates. The other option — allowing the insurer to go under — would have unthinkable consequences.

“If we lose them, we’re screwed,” Rep. Lori Houghton (D-Essex Junction), a member of the House Health Care Committee, said in an interview.

Regulators have urged the insurer to find a way to reduce its request. Blue Cross says it could, perhaps down to 5 percent — but only if Vermont can reduce health care spending enough to save about $200 million in claims next year.

Health care and government officials are now scrambling to identify such savings before August, when the Green Mountain Care Board will approve insurance rates for the next calendar year.

“What we want and what we can pay for are not in alignment.” Jessica Holmes

Blue Cross blames much of its recent premium hikes on the rising prices charged at Vermont hospitals, which rank among the most expensive in the country. Hospitals will almost certainly need to play a major role in achieving the savings that Blue Cross has identified. Executives say they’re engaged in talks but are making no promises.

The future of Vermont’s health care system could hinge on whether hospitals are willing to make tough decisions — and fast.

“What we want and what we can pay for are not in alignment,” Jessica Holmes, a member of the Green Mountain Care Board, said during a legislative hearing last month.

The only way to maintain the status quo would be to allow hospitals to charge insurance companies even more or to extend taxpayer-funded bailouts, Holmes said. Neither is likely, meaning hospitals could begin to close, leaving parts of the state without access to vital care.

“I am genuinely worried for Vermonters if we don’t do this right,” Holmes said.

State regulators have long warned that Vermont’s health care system was on an unsustainable path. The state’s 14 hospitals have jacked up prices on commercial insurance companies to cover their growing expenses, which have been driven in part by rising labor costs.

That’s always been a short-sighted strategy given Vermont’s demographic shifts. An aging population means fewer people use commercial insurance, leaving a shrinking pool of people to foot an ever-growing bill. Meanwhile, hospital budgets have grown by more than $1.5 billion in less than a decade.

In 2019, the care board asked six of the state’s hospitals to create sustainability plans for these financial headwinds. Regulators expanded the request a year later to every hospital. But the pandemic arrived, and executives said they couldn’t devote time during a public health crisis to long-term planning.

So the care board took on the effort itself and hired consultants to analyze the system and find a way forward.

The consultants warned that the day would soon come when some of Vermont’s rural hospitals could no longer sustain their inpatient units. Those hospitals needed to start planning for such a reality immediately, the consultants said, perhaps by repurposing their space and staff to provide other types of care, such as long-term or mental health.

Doing so would ensure that even the most rural areas still have access to essential services, though it would also mean some people would have to travel farther for more complicated care.

The Vermont Agency of Human Services has been meeting with hospitals to discuss which of the recommendations make sense for them. The process was expected to take a year or two, but recent developments have accelerated things.

First, the financial performance of Vermont’s 14 nonprofit hospitals has continued to tank. Six ended fiscal year 2024 in the red, and nine posted negative margins in the first quarter of the current fiscal year. Cash reserves have fallen to the point that nearly half of all hospitals are now considered to be “highly vulnerable” to closure based on national standards.

Meanwhile, Blue Cross Blue Shield of Vermont ended 2024 with a $62 million loss — its fourth straight year in the red and its biggest deficit yet. The nonprofit secured a $30 million loan from its affiliate in Michigan, but its reserves are still down to about $60 million, which is roughly a third of where state regulators say they should be.

Don George, the nonprofit’s CEO, has told lawmakers that the Vermont insurer cannot responsibly borrow any more money, nor can it sustain another year like 2024. In January, George wrote an open letter calling on leaders in business, health care and state government to begin addressing soaring costs “head-on.”

Until then, he wrote, “premiums will continue to rise, more Vermonters will lose coverage, and the fabric of our healthcare system will continue to fray.”

The Blue Cross situation has gotten so dire that lawmakers are considering a bill that would allow state regulators to temporarily slash what financially stable hospitals such as the University of Vermont Medical Center are allowed to charge the insurer in the event that it’s facing imminent insolvency.

Another proposal would split the state into five regions and require the Agency of Human Services to work with hospitals to identify at least a 10 percent reduction in health care spending for fiscal year 2026, which begins in October. Those reductions would need to be reported back to lawmakers by July 1 so that regulators could rely on them when approving Blue Cross’ rates.

Adding further uncertainty are potential federal cuts. Barring Congressional action, about $65 million in subsidies that lower insurance costs in Vermont are set to expire this year. Republicans are also considering cuts to Medicaid that, if codified in President Donald Trump’s “big, beautiful” spending bill, could cost Vermont hundreds of millions of dollars.

Under these darkening skies, Blue Cross’ $200 million savings target can be viewed as a temporary safe harbor. Tamping down insurance hikes for next year would buy Vermont a little more time to complete the longer-term planning that officials say is needed to make the system seaworthy.

Mike Del Trecco, president of the Vermont Association of Hospitals and Health Systems, attended a closed-door meeting with health care and government officials last week. He described the gathering as an attempt to brainstorm ideas for keeping Blue Cross solvent.

He said he believes the state will be able to hit the target as long as “we work together and minimize the impact to patients.”

“We’ve just got to work through some of the nuances, some of the details of how the math works,” Del Trecco said.

Whether they’ll be able to agree on enough changes to save $200 million is hard to say.

The two main ways to quickly reduce health care spending are for hospitals to charge insurance companies less or to see fewer patients. The first option would require cutting expenses, and that typically involves layoffs. While hospitals say they’re rooting out administrative waste, often by not filling open positions, reducing clinical staff is a different beast.

“Sixty-five percent of our budgets are our labor force,” Del Trecco said. “We’ve made promises to those people, and we’re not going to break those promises.”

Treating fewer people in the hospital, on the other hand, is a promising approach in theory, as everyone agrees that too many of the problems that land patients in emergency departments and on inpatient units could be dealt with in cheaper settings. But those parts of the health care system are also starved for cash and struggling to keep pace with demand.

Quickly cutting services without thinking through all the consequences could have dangerous results, said Brendan Krause, director of health care reform for the Agency of Human Services.

“We need to be sure that we have the data right before we make a decision,” he said.

In a perfect world, every potential outcome would be analyzed before hospitals moved forward with changes, said Owen Foster, chair of the Green Mountain Care Board. There was time for that years ago, when the care board first began these discussions, Foster said. But not anymore.

“We are going to have to make decisions without the perfect set of information,” Foster said.

“The old-fashioned Vermont way of the ‘coalition of the willing’ won’t work this time. We’re way past that.” Mike Fisher

Mike Fisher, Vermont’s health care advocate, wondered who will be making those final decisions: hospital executives, who can understandably struggle to look beyond their own interests, or the Scott administration, which has proven reluctant to mandate changes to the health care system. Calls to change the services at rural hospitals would meet intense pushback.

The governor, for his part, has steered clear of these discussions, much to the chagrin of education groups, who say any attempts to address Vermont’s education funding crisis will be moot until health care costs go down.

Somebody needs to step up, Fisher said. “The old-fashioned Vermont way of the ‘coalition of the willing’ won’t work this time. We’re way past that.”

Among those keeping close tabs is Rep. Alyssa Black (D-Essex), chair of the House Health Care Committee. She said she intimately understands the impact of rising health care premiums. The lawmaker, 56, works as administrative manager at Essex Automotive Services, an auto repair shop that can’t afford to offer insurance to its employees. It’s not one of the benefits of being a legislator, either.

Black purchases her own plan through Vermont’s marketplace and said the unrelenting price hikes have pushed the cost beyond her reach.

For the first time in her adult life, she’s planning to go without health insurance, starting next year. At least three others on her committee, she said, expect to do the same.

The original print version of this article was headlined “Code Red | Blue Cross plans to seek a 20 percent rate hike in Vermont, prompting an urgent plea for hospitals to cut spending”