Vermont education health trust cites hospital and drug prices as main drivers of double‑digit premium increases

Mark Hage, director of benefit programs at the Vermont National Education Association and a trust administrator for the Vermont Education Health Initiative (VHII), told attendees during a Feb. 7 hearing that hospital and pharmaceutical price inflation — together with higher utilization since the COVID‑19 pandemic — are the main drivers of the trust’s recent double‑digit premium increases.

VHII administrators presented fresh membership and spending estimates and said the self‑insured pool expects to pay roughly $6.4 million a week in medical claims in FY 2025 and to collect about $350 million in premiums that year. "Most of our costs are hospital based," Hage said. "55% of our claims are attributable to hospital services — inpatient and outpatient. Twenty percent of our claims roughly are attributable to pharmaceutical costs." Bobbie Jo Salz, trust administrator for the Vermont School Board Insurance Trust, added that the pool "is not alone in facing rising healthcare and commercial insurance costs. This is a regional and national problem and it's severe."

Why it matters: VHII provides health benefits to public school employees across Vermont and to some private schools that opt in. Large, sustained premium increases affect school district budgets, local bargaining and employee take‑home pay: the statewide bargaining framework sets how premium costs and out‑of‑pocket expenses are split between districts and employees. Mark Koenig, co‑chair of the statewide bargaining commission, said the employer and employee commissioners extended the existing agreement to buy time for system‑level reforms.

What VHII administrators reported

- Membership and scope: VHII covers roughly 34,500 active school employees and dependents (the presentation used the term "members" for individual lives) and offers retiree supplements through plans for the Vermont State Teachers Retirement System (VISTERS), which administrators estimated include about 1,600 covered lives prior to Medicare eligibility. Salz said VHII also offers dental, life and long‑term disability plans and runs a PATH wellness program.

- Recent rate history and outlook: Administrators said average premium increases were about 16.4% in the prior cycle and roughly 11.9% (about 12%) for FY 2026, set on a fiscal‑year basis to align with school budgeting. Hage said VHII files rates with the Vermont Department of Financial Regulation, which reviews and approves VHII’s annual rate filing.

- Concentration of spending: Using 2023 data for a sample year, administrators said spending is heavily concentrated: the top 1% of covered lives (about 345 people) accounted for 25% of total spend, while the top 5% (about 1,700 people) accounted for roughly 52% of spend. The bottom 50% of members — about 17,300 lives — accounted for just 3–4% of total cost.

- Specialty pharmacy and overall drug spend: VHII reported that specialty medications accounted for about 56% of the trust’s prescription drug spending in the first nine months of 2023, while specialty patients were a small share of the population (about 3.2% of members). Hage gave a gross specialty‑drug spend example: specialty drugs rose from about $46.2 million to $55.1 million year‑over‑year in the sample period, a 22.5% increase, with specialty medications driving most of that growth.

- Cost drivers and utilization: Administrators emphasized that the principal driver is price inflation at hospitals and for pharmaceuticals, with a secondary contribution from increased utilization after deferred care during the pandemic. "Two thirds of our price increase was attributable to higher medical prices," Hage said. He also noted that "there is an increase in utilization in FY '25" and that both higher use and higher per‑service prices are contributing factors.

Options under consideration

VHII and its advisers outlined a set of strategies they are studying or piloting to reduce future cost growth while maintaining access to care:

- Reference‑based pricing (RBP): VHII has briefed its board on RBP and tracked state and national work on benchmark pricing (for example, comparisons to multiples of Medicare). Administrators noted interest in RBP as one way to limit hospital price inflation and cited other states' initiatives that they are monitoring.

- Pharmacy strategies: VHII contracts with Optum as its pharmacy benefit manager (PBM) under terms negotiated with Remedy Analytics and Blue Cross and Blue Shield of Vermont. Administrators said they are researching so‑called "NextGen" PBMs that operate at lower profit margins than the three dominant national PBMs (Optum, Express Scripts and CVS Caremark) and are exploring changes to formulary management, rebate structures and generic uptake. Salz and Hage said generics now represent roughly 84–87% of members’ fills after past uptake efforts.

- Benefit and plan design changes: VHII leaders are evaluating whether to reduce the number of plan options (currently four) — noting that about 85–90% of members choose the Gold CDHP plan — and to redesign cost sharing to incentivize primary and preventive care (for example, copays for primary care rather than applying deductible amounts).

- Centers of excellence and steering: Administrators said they will explore routing certain high‑cost procedures to higher‑performing facilities to combine better outcomes with lower total cost.

What was not decided

No formal vote or binding policy change was taken at the hearing. VHII administrators and the statewide bargaining commissioners described this session as informational and said the trust and the commission will continue researching and negotiating proposals. Mark Koenig said the employer and employee commissioners jointly extended the current agreement to allow more time for system reforms; he described the extension as a procedural step to avoid negotiating under unstable cost pressure while broader reforms are evaluated.

Clarifying details and numbers provided by presenters

- Estimated annual premium receipts (FY 2025 projection): $350,000,000 (Mark Hage)

- Projected claims paid weekly (FY 2025): $6,400,000 per week (Mark Hage)

- Projected total spend (FY 2026 projection): about $382,000,000 (Mark Hage)

- Membership: about 34,500 active employees and dependents covered by VHII plans; about 1,600 retirees in VISTERS prior to Medicare eligibility (presenters noted some variation in terminology between "members" and "subscribers") (Bobbie Jo Salz, Mark Hage)

- Spending breakdown (sample year 2023): hospital services ~55% of spend; pharmaceuticals ~20% of spend; primary care ~4% of spend; specialty office visits ~12% of spend (Mark Hage)

- Concentration: top 1% of lives ≈25% of total spend; top 5% ≈52% of spend; bottom 50% ≈3–4% of spend (Mark Hage)

Quotes (selected)

- "This is a regional and national problem and it's severe," Bobbie Jo Salz said of rising insurance costs.

- "Most of our costs are hospital based. 55% of our claims are attributable to hospital services — inpatient and outpatient. 20% of our claims roughly are attributable to pharmaceutical costs," Mark Hage said.

- "Two thirds of our price increase was attributable to higher medical prices," Hage said summarizing VHII’s actuarial findings.

Next steps and outlook

VHII leaders said they will continue studying reference‑based pricing models, new PBM arrangements, plan simplification and incentives for primary care and telehealth. They also plan to collaborate with Blue Cross and Remedy Analytics on targeted interventions such as centers of excellence and virtual physical therapy pilots already underway with vendors like Hinge Health.

The hearing closed without formal action; presenters offered to provide more detailed breakdowns and underlying data on request.