Medical insurance fund shows $36 million deficit; budget includes $18.5 million transfer and premium increases

At the Feb. 5 Senate Appropriations Committee meeting, Adam, commissioner of finance, told committee members the state's self-insured medical insurance fund ended fiscal 2024 with an approximate $36,000,000 deficit and is being addressed with both a one-time general fund transfer and higher premiums.

"If you look in the most recent ACFR ... you'll notice that the deficit in the medical insurance fund, for the end of our most recent fiscal year, fiscal 24 was about $36,000,000," Adam said. He described the problem as a combination of under-collection of premiums and rising utilization, particularly pharmacy costs.

The nut of the administration's approach is twofold: "there was an $18,500,000 general fund transfer into the medical insurance fund" in the budget adjustment and the state implemented a premium increase for employees and the employer. "Premiums for, the employer, in this case, the state of Vermont and the employee ... went up 15% for the first paycheck in January," Adam said, noting a prior increase the previous January as well.

Why it matters: the medical insurance fund is an internal service fund that charges departments based on headcount; because many payroll dollars are drawn from federal and other non-general-fund sources, the allocation normally dampens pressure on the general fund. The commissioner said the $18.5 million transfer is "unusual" and intended to avoid forcing an even larger immediate premium increase for employees.

Details and context

Adam described the root causes as actuarial underestimates and rising health-care costs: the Department of Human Resources hires an actuary each fall to recommend premium levels, but "there's been a rather consistent and dramatic underestimation of the amount of premiums that need to be collected to handle health care costs." He added that utilization and pharmacy expenses have driven claims higher.

On premium sharing, the commissioner noted the state/employee split is 80/20. "So whatever increase that the state absorbs, employees will too," he said, explaining part of the rationale for using a one-time transfer instead of pushing the entire adjustment into premiums immediately.

Committee questions and next steps

Senator Norris asked for clarification about the timing and size of increases, saying, "Is it my understanding ... that the employees have already received a 15% increase in their premium and we're trying to avoid another 15% plus the $18,500,000?" Adam replied he could not give an exact alternative premium figure if the transfer were omitted, but that cleaning up the $36 million deficit via premiums alone would likely require a comparable increase.

Committee members raised broader concerns about health-care cost trends. One member summarized: "We are [in] a health care cost crisis right now," and said health and welfare and the House health-care committee are working collaboratively to address it.

Limitation and uncertainty

Adam said the 15% increase took effect in January on the calendar-year plan used by the state's health insurance, while the state's fiscal year runs July to June. For FY2026 the budget includes the second half of the 15% increase and assumes a 7% increase for the following calendar year; he cautioned that the 7% estimate "may prove to be too optimistic or not." He also said the $18.5 million transfer was a one-time action that the administration expects will help balance the fund for the next fiscal year.

What was not decided

The committee did not vote on the transfer during the meeting. Adam said that "to the extent that this is not agreed to by the general assembly, we will factor it into premiums in the following years." No formal vote or legislation was recorded in the meeting transcript.

Ending

The committee left the matter open for further review as part of the FY2026 budget process. The commissioner indicated the administration and relevant policy committees are continuing work on broader health-care reforms that would affect future premiums and fund stability.