Regulator: Blue Cross Blue Shield of Vermont’s reserves fell sharply in 2024; Michigan surplus note a temporary fix

Emily Brown, deputy commissioner of insurance at the Department of Financial Regulation, told the Finance Committee that Blue Cross Blue Shield of Vermont posted large underwriting losses in 2024 and that the insurer’s financial position deteriorated sharply over the last three years.

“Blue Cross Blue Shield of Vermont is a nonprofit hospital service corporation,” Brown said, and DFR provides financial oversight and conducts examinations of the company. She said the insurer reported roughly $58.4 million in surplus at year-end 2024, but $30 million of that came from a surplus note issued by Blue Cross Blue Shield of Michigan. Without that note, Brown said, the company’s surplus and its risk-based capital (RBC) ratio would be substantially lower.

The RBC ratio is a regulator metric that measures an insurer’s capital relative to its risk. Brown said the company’s RBC was about 213.8% at year-end 2024 and noted DFR’s 2019 guidance that recommended a target RBC range substantially higher than where the company now sits. The department required Blue Cross to file a remediation plan after its RBC fell below 200%, Brown said.

Ruth Green, treasurer and chief financial officer at Blue Cross Blue Shield of Vermont, told the committee the insurer recorded a net underwriting loss of about $62.1 million for 2024 and that the company had expected a modest margin in pricing for the year. “The plan for 2024 is that we would have planned, through the pricing of our premiums, to have a modest margin of 3%,” Green said, describing how actual claims exceeded those expectations.

Both DFR and Blue Cross cited multiple drivers of the shortfall: escalating health-care prices, increased utilization, new and costly outpatient therapies and medications, declines in projected risk-adjustment recoveries in the qualified health plan market, and an antitrust provider settlement that reduced revenue. Green said health-care cost escalation in the last three years has been unprecedented, with an example figure of a 15.5% increase in medical costs in a recent year.

Brown and Green explained the $30 million surplus note from Blue Cross Blue Shield of Michigan was arranged after the two companies completed an affiliated filing (a Form A). Brown said the affiliation allowed Vermont’s insurer to request the surplus note from Michigan; Green said the note was treated by regulators in a way that permitted it to count toward surplus but emphasized it is temporary and carries an interest cost.

Brown said DFR does not set insurer rates: the Green Mountain Care Board retains rate-setting authority for qualified health plans and large-group rates on the exchange. Brown told the committee that DFR provides a solvency opinion during rate review and has repeatedly advised that premiums must adequately fund insurers to preserve solvency. She said many years of rate decisions that reduced insurers’ requested contributions to reserves contributed to lowering Blue Cross’s capacity to absorb the recent surge in claims.

DFR has taken specific regulatory steps, Brown said. The department issued a risk-based capital order in 2019 that set a recommended RBC range for the company, required a remediation/financial plan when RBC fell below statutory thresholds, approved the affiliation with Blue Cross Blue Shield of Michigan, and has opened a targeted examination focused on the claim surge at the end of 2024. Brown said Blue Cross lost over $13 million in October 2024 and over $18 million in December 2024, prompting the targeted review.

Green said Blue Cross also took operational steps to limit near-term exposure: it reduced Vermont’s share of risk in its Medicare Advantage joint venture with Michigan (from about 49% down to under 9% for a period) and used the surplus note to shore up capital for 2024. She emphasized those are short-term measures and that longer-term stability requires addressing the underlying cost drivers in Vermont’s health-care system.

Committee members pressed presenters on whether the market structure and a high-cost hospital in the state were amplifying the insurer’s losses. Brown and Green said the state’s prices and utilization patterns are contributing factors and noted that the other insurer in the qualified health plan market, MVP, has also reported losses, although MVP’s overall business mix outside Vermont cushions its exposure.

Brown said the worst-case backstop for Vermont policyholders would likely involve Michigan stepping in under the affiliation agreement to run off claims, but she stressed that outcome is undesirable and uncertain in its practical effects. Both DFR and Blue Cross urged broader attention to the Green Mountain Care Board’s role in setting rates that adequately fund premiums, while also pursuing measures to reduce underlying health-care costs.

The committee did not take formal action on regulatory changes at the meeting; Brown said DFR will provide additional information and the targeted examination is ongoing.

Ending: Presenters told the committee they will continue to monitor early 2025 claim and surplus trends, share further analysis with lawmakers, and work with stakeholders — including the Green Mountain Care Board and providers — to pursue measures that address both pricing and utilization drivers of the losses.