Vermont Legislature SmartTranscripts:

[Sen. Virginia "Ginny" Lyons (Chair)]: You're left. All right, good morning. This is Senate Health and Welfare and it is Tuesday, January 20. This morning we're going to talk a little bit about solvency and what solvency means for insurance companies. Nolan, thank you for being here. I'll just turn it right over to you.

[Nolan Langweil (Joint Fiscal Office)]: Great, for the record, Nolan Langwell, Joint Fiscal Office, you're gonna be hearing a lot about insurance solvency today in Blue Cross Blue Shield, and I think I'm really here to sort of set the stage and talk a little bit about an issue brief that I did in the summer, actually this fall, actually this winter, whenever. It was done recently that kind of flagged some concerns that happened around Blue Cross Blue Shield insolvency, and to kind of give you some background, I know that the picture of Department of Financial Regulation will come in and talk about the Act 68 report, I believe, which is related to this. So I thought I would just maybe touch upon some of the highlights. First of talk about what do we mean by solvency, why it's important, and maybe some of the highlights that came out the issue brief, and encourage everybody to read the brief when they have time, when they're at home, when they're looking for something to read, and good nighttime reading. It's quick. So So I'm gonna start by sharing my screen. So a little bit about Blue Cross Blue Shield. I don't know if you've had them come in yet or not. There it is, thank you.

[Sen. Virginia "Ginny" Lyons (Chair)]: No, I haven't.

[Nolan Langweil (Joint Fiscal Office)]: Blue Cross Blue Shield of Vermont, they're our largest shore state. They count a little more than half of the commercial health insurance market in Vermont. They're also the only health insurance company that domiciled in Vermont, and they're actually specifically established in our state of statutes. So they're kind of unique in that way. So we'll start off by talking a little bit about who regulates health insurance in Vermont. So you have the Department of Financial Regulations and the Green Mountain Board. The Green Mountain Care Board, really their focus is more on, and they have a whole list of what they look at, but essentially they look at the affordability, the rate review, basically ensuring that the rates are sufficient and portable and they have a whole thing in their statutes of what they'd look at. The Department of Financial Regulations, they regulate all the other insurance, auto, firm life, etcetera in Vermont, but not health insurance, They do to the extent that they look at solvency. And again, they weigh in on are the rates adequate, are there enough amount of money going into surplus to reserve. So that's their case, and they submit, but they don't approve the rate, they submit. They weigh in by law they're required to submit a memo saying, we reviewed the rates and we think that they're too high or too low. So they weigh in, but the board ultimately is the one who decides all the insurance is. So that's the difference between the two of them. The Commissioner of Financial Regulations will come in and talk more about it, because when we start talking about solvency, that is the realm, the jurisdiction of DMI. So when we talk about solvency, what does that mean? Essentially, it's a company's ability to meet its long term financial obligations, to continue their operations. It's an indicator of a company's financial health, know, and they've been very bullish. And I just mentioned in Vermont, DFR is a charge of ensuring that they have the solvency to fill their financial obligations to the policy of the regime. And then we're talking about this thing called risk based capital, which is a tool that's used within the health insurance industry that engages their solvency and helps with reacting to the company's solvency and financial health. Actually, going to it. So it was created by the National Association of Insurance Commissioners after the banking crisis in the 80s and early 90s. And basically, a tool that regulators use that takes preventive and corrective measures to intervene. Essentially what they are is they're a model legislation that I think pretty much every state has adopted in terms of different thresholds, and I'll get into that, of what it means and what happens when they hit these certain metrics. To determine something solvent you have to create metrics. So the NAIC creates these metrics and every state uses them. We tweak them a little bit, and Kai will talk about, I assume he'll talk about why RBC is important. But I think this is something that when I first did an issue brief on this, excuse me, seven, eight years ago, people were like, what, RBC, what the heck is that? And I think it's a useful tool for legislators to understand, what does that mean? And then once you understand it, you can see, oh, okay, that's how you measure that. Oh, they were in trouble or they're due to go dead. It expresses a ratio. It's a complex formula, I'm not gonna get into how it's determined, but for more, I'm just gonna talk about how it's used in the benchmark. As I mentioned, most states, including Vermont, have adopted these statutes, and DFR and Blue Cross Blue Shield Association also use RBC ratio within their policy benchmarks. I'm gonna talk a little bit about Blue Cross Blue Shield Association, which is the ones who own the Blue Cross trademark, and then all of us Blue Cross Blue Shield of Omaha, Blue Cross Blue Shield of Massachusetts, they all are members of that association, and there's certain things they can do to maintain their Blue Cross Blue Shield status within the association. So what this is, is that, as I said, there's ratios, and without getting into how that ratio was determined, what's more important is understanding what does that mean when they hit certain ratios. The ratio is representative of their financial status or health based on this complex formula that everyone's agreed upon as a good measure of solvency. So if you look at the bottom, the bottom piece is like what the NAIC says. So basically if you're 200

[Sen. Virginia "Ginny" Lyons (Chair)]: to 300%

[Nolan Langweil (Joint Fiscal Office)]: RBC ratio, it means that a corrective plan may be required and there's potential action, company level action. When you get to 150 to 200, then it's planned as required. That would be the regulator going in and saying, okay, you need to start doing X, Y, and Z to get your solvency back up. If their RBC goes below 150 to 100 to 150, the regulator has an authority, has the authority to intervene, which means DFR could jump in and take over, or they could continue with a corrective action. But when it gets below 100, or even less than 70, the DFR, the regulator that says, would be required to take home the insurer. And you'll see in a future, keep a slide, why that's important, and how that, why it's important here. The ones above, so $5.90 to $7.45, that's a target range that was, there was a memo by Oliver Wyman, that's an actuary that was hired by DFR in 2019 that said a healthy range for a Blue Cross Blue Shield should be five ninety to seven forty five. At three seventy five, this is what the Blue Cross Blue Shield Association this is how they're using it. If you get the three seventy five, then Blue Cross Blue Shield Association sends a warning and they do what's called intensifying monitoring. You have associations who are watching you, paying close attention. If RBC goes below 200%, which is the minimum level, it's the minimum level that a Blue Cross Blue Shield affiliate must maintain to maintain their affiliation. If Blue Cross Blue Shield of Vermont goes below 200, they can lose their affiliation with Blue Cross Blue Shield. I'll talk about why is that enforced. So, the charts above, and you can see this is the history of Blue Cross Blue Shield's RBC ratio. In 2020 they were four eighty, in 2021 they were six zero seven, then you can see there was a decline. In 2024, they were to two quintiles. Now remember, if they go blue 200%, they lose their association. This is why there's a reason for concern, or there was reason for concern. I don't think I have this on the slide, but basically last year, or maybe twenty two years ago, financial situation was really low, they received, I believe it was a $30,000,000 loan from Blue Cross Blue Shield of Michigan, which they are affiliated with. They've been affiliated with them for two or three years now. And according to DFR, if they had not received that loan, they would have been well below 240%. They would have essentially been at that threshold where they could have lost their fee. Now, traditionally, RBCs are confidential, It's not public. This I was able to put out because it was in a public report released by CFR. And what I can also say is after talking Blue Cross Blue Shield, they're in a much better situation now. I don't know what their RVC is at the moment, and I'm not going to ask because that's confidential, and we did not ask them that. But did take, when they received that infusion from Blue Cross of Michigan, there was a loan, and they are doing, where they have actually paid off that loan, and they're doing significantly better at this point last year than they were the previous year. So they are doing much better, but there was definitely, while there was pause for concern, and there continued to be concern that you should pay close attention, the trend is looking positive, and I'll let them talk about it, they are feeling good about the direction we're moving in. So I don't want to scare you, I want scare you that wow, we came really close, but they're doing better now. And I'll get into why it's important, what happens if they lose affiliations. Think, have had a question first?

[Sen. Virginia "Ginny" Lyons (Chair)]: Have they done an analysis as to why they have turned their, period of ship around and why things are going well?

[Nolan Langweil (Joint Fiscal Office)]: I would defer to them. Okay. Let me get from them on the side. I can't, we'll fly there

[Sen. Virginia "Ginny" Lyons (Chair)]: and do better. Okay. I can't handle this. Thanks. Can you work? And let me try and see.

[Nolan Langweil (Joint Fiscal Office)]: So I was highlighting all these pieces that are important to climb. Oh yeah, if they hadn't received that low, they would have been 104%. But on the up and up, and I should have gotten better. Another point that I wanted to make about, So yeah, November they reported a $47,000,000 gain for the first nine months, and that was compared to a $29,000,000 loss same period last year. So that was the point I was trying to make, that their financial situation is better, continued monitoring is more. Oh, it's right here. Had to look it up there, going look my slide. It's been like a week or two since I've given this presentation, and normally I would have time to look at it again, but I've had a chance to. The other piece that this should help kind of make you feel good is that DFR continues to meet with Blue Cross Blue Shield frequently. There is a corrective action and plan, they're acting upon it, DFR is working with them, so it's not like we're helping, it's not like nobody's doing anything, and Blue Cross Blue Shield is very active in that as well. But this is what I want to talk about too, is that if they went below 200%, it's very likely when they were at two fourteen, they were below three seventy five, they were definitely, I'm sure they were being looked at very closely by Blue Cross Association. And again, if they went below 200, could lose their. So this is something I really wanted to talk about, is if Blue Cross Blue Shield were to lose their Blue Cross affiliation license, the implications would be significant. I don't think people understand how significant it is. First of all, policyholders could lose access to the Blue Cross Blue Shield nationwide provider network. So suddenly, you're out of state, you get hurt. Like right now, if you're a Blue Cross Blue Shield member, go anywhere in the country and you're in network. But they'd also lose significant technical assistance, legal assistance, they lose all the branding resources, Basically, critical shared data and valuable resources. Those things that help keep them efficient and effective, and be able to respond to their clients properly, and to carry out their purpose and their goals. If they lost their affiliation, not only would they be in serious financial situations, and they would lose all those supports, it would just threaten the existence of Blue Cross Blue Shield.

[Sen. Virginia "Ginny" Lyons (Chair)]: And I

[Nolan Langweil (Joint Fiscal Office)]: think that people realize that Blue Cross Blue Shield went out of business. The implications would be significant. It would be extremely disruptive from 200,000 policy. That's over, it's about a third of the state. And the ripple effect would be felt throughout the system. So you have, when you think about the market, have individuals, small group, large group, and then we also have our self insured. So Blue Cross Blue Shield has about 200,000 people in the state. You have about, more than half of those are self insured. That's like the state, you have small businesses, teachers, etcetera. If Blue Cross went out, it would be disruptive to, for instance, state of Florida, but they could just go get another third party administrator to maintain it. If you're an individual, small group or large group, and you were, I mean, back up. If Blue Cross Blue Shield went out of business, it is fair to speculate that an MVP would probably flow out as well. They're the only other insurer that's in small and individual group market. And the reason is because we're not a very big part of their business, and they wouldn't want to assume the risk, because they would be taking on all of our negative risk. And so there's a very good chance they will pull out too. Assuming that that happens, you would have an insurance desert for 70,000 people on the individual small group market who now have nowhere to buy insurance. If you're a small business and you wanna offer insurance, you have nowhere to buy insurance because you can't buy, there'd be no way left, there's no other insurance companies that offer those products in this state. Know, you can't So all those people would be uninsured. Yeah, none of them would be uninsured if they have nowhere to buy. You can't call them sick

[Sen. Virginia "Ginny" Lyons (Chair)]: They would be uninsured and they would remain uninsured.

[Nolan Langweil (Joint Fiscal Office)]: It would be an insurance that there'd be no place for them to buy insurance, unless someone came in. Or unless there was, right now, people in Vermont can now buy through the federal exchange. You have to change some legislation to be able to buy through the deal. But then you would lose a lot of that. It would look very different. We couldn't do subsidies for it, because the reason we can do subsidies, state subsidies, you have federal subsidies, and then we have our additional state subsidies. We couldn't do those additional state subsidies on the federal plan. We can do it to the state, but we can't do it to the state. So the point is that it would create an insurance denser. And then also it disrupts the system because when you have that many, you go from, I think where we're at, 15,000 uninsured in state, something, some low number, to like, suddenly we have like, 75 to 100,000 uninsured in the state, that puts an incredible amount of pressure on the hospital system. People still need services. Primary care providers are still gonna see their long time clients, and they're gonna take a hit. Doctors and hospitals, they'll take those and they'll have bad debt and free care. And what happens, those costs will be shifted onto the other payers, and everyone else's health insurance would go up significantly. It would put immense amount of pressure on our system to have that many uninsured people

[Sen. Virginia "Ginny" Lyons (Chair)]: in the state. We currently have one of the lowest rates of uninsured.

[Nolan Langweil (Joint Fiscal Office)]: We have one the lowest rates of uninsured, but we have one of the highest rates of premiums. And we are an aging state, just because we are always considered one of the healthiest states, we also have highest premiums, and we have an aging population. We have a lot of pressures on our system. That's the same pressures that are driving up health insurance across the system. So my point is that Blue Cross Blue Shield is one of those foundational pieces of our system that if it just went away suddenly out of nowhere, and we had no plan to sort of offset that, it would be extremely disruptive. So I'm not trying to say that they're a super important thing, but my point is that they are an important part of the system that cannot be undervalued. Right. That was the gist of my report, basically trying to lay out why solvency in Florida, why do we use RBC, and how close do we break Blue Cross Blue Shield came, and why do we need to be concerned about that? You know, if there's no plan for Blue Cross Blue Shield were to go away, what would be planned?

[Sen. Virginia "Ginny" Lyons (Chair)]: Things are looking better, but at their best, they were just over the red line. Have they ever been up to the green line or closer to the green line?

[Nolan Langweil (Joint Fiscal Office)]: I don't know. When I did this report, I think at 27, first time I did it, I looked at what other RVs that I was able to find. There were some states where insurers and RVCs in the thousands. I think part of the reason that it may not have been, in Vermont, it may not get that way, is because they're not gouging, right? They have been regulated, and they do try to keep their administrative costs low. I'm not trying to toot their horn, but they're not some of these insurance companies that have questionable practices, right? Because they're so heavily monitored or so heavily regulated.

[Sen. Virginia "Ginny" Lyons (Chair)]: But also it would be because the Green Mountain Airborne's charge was to keep rates affordable.

[Nolan Langweil (Joint Fiscal Office)]: But even before the Green Airborne really kind of, really turned its when it first started, I don't think that they've ever been that, I mean, I don't know, I didn't look back that far. But now, yeah, with the Green Mountain Airborne, they let it get that high because they're, they monitor how much, they're trying to keep things affordable, so they're not, yeah.

[Sen. Virginia "Ginny" Lyons (Chair)]: When I started here, they were operating on a letter of credit. They got us and said, another Blue Cross Blue Shield. And last year was, I think, the first time I've ever been in trouble. Yeah. There were several reasons for that. I think we've worked on a couple up in here last year.

[Nolan Langweil (Joint Fiscal Office)]: I listened to an interview, let me back up, a lot of people have said to me, well, why don't we allow what competition? There's an interview with Scott Beck when he talked about the big C. I think the problem, and I'm not trying get political, I'm just I'm trying to make the trying get to the point that we're not, if you're an insurance company looking to expand, we're not a place you wanna look, because our market is so small. That's the point I want to get to. We're trying to get to the competition piece. I mean, that's what I get, I'm not trying get political. I thought he raised a really good point, but my point was I was trying to say, competition in the state is, if we had competition it would work, but it won't work here, I don't think, because we don't have a lot of people. I'm to make, and I'm not trying be political, I thought he made a really good point of what I was trying to say. But the competitions, yeah, was trying to give him credit for making a really important point, but competition, and he's right, we have more competition. Because our market is so small, it's difficult to have competition outside of the two shares that are just competing with each other. If you added a third one, then suddenly nobody has enough market and then they all would leave. That was the point I was trying to get to, not the political piece, sorry, I didn't mean to disagree.

[Sen. Virginia "Ginny" Lyons (Chair)]: Well, one of the things that I just

[Nolan Langweil (Joint Fiscal Office)]: I was trying to make a point that competition is an important piece, but our market's so small that it's hard for us to be competitive. That's what I was trying

[Sen. Virginia "Ginny" Lyons (Chair)]: to We have a strong enough risk pool as it is for one organization. Maybe two, we don't have large enough risk pool to split it up and the more we split it up, the higher the costs or premiums go and we're seeing that. The competition is kind of what got the country to where it is now.

[Nolan Langweil (Joint Fiscal Office)]: Yeah, we still don't have market share. I was trying to make the point that we don't have enough market share to be a place that new insurance companies would want to come in and do business. That's what I'm trying to get at.

[Sen. Virginia "Ginny" Lyons (Chair)]: I appreciate your point, and I appreciate you not trying to be political, but at the same time, it was a comment that didn't really make sense because of what you just said. So anyway,

[Nolan Langweil (Joint Fiscal Office)]: I'll just leave that. But

[Sen. Virginia "Ginny" Lyons (Chair)]: I wanted to say before was, I really appreciate you shining a light on this, and I know I told you, really, the brief that you said was great, I hope we take the next step of looking into how we got out of the precipice of insolvency, so what mechanisms helped alleviate that and then what do we need to do in the future to avoid going back there? Because shining a light is important but like Yeah. But we did it. I mean some of what has happened as a result of legislation that we passed. Correct. Very much based on the legislation that we passed. I see you're shaking your head. And I'm sure that's true, but were there also inner workings that happen in Blue Cross? I think the pressures of understanding that some of their contracts were negotiated at a high cost to the company, that was a huge realization and that was part of our legislation to break those open, but then also our reference based pricing and the caps on infusion drugs and some other things that we did plus PBMs, Yeah, we did PBMs. And then the investigation within UVM Health Network. All of those things were coalesced around Blue Cross and Blue Shield having an opportunity to evaluate its financial situation and Premanent Care Boards are offering some regulatory assistance and we'll continue to look at these issues in here. A lot of it happened in this building last year, some of it in this committee, most of it in this committee. Yes, some of it in a regular chair. And then like a closer analysis would be great. Yeah, to know exactly what happened. What leakers? Blue Cross and Blue Shield can help us understand that, so can DFR. Yeah, know they have

[Nolan Langweil (Joint Fiscal Office)]: a lot of thoughts and things to say about they can help answer this a little bit better. Mine was really more to shine the light. They're gonna get into the weeds and can answer the questions. And they might even have a better question about the history as well, if they answer. Alright. Any more questions? Read the brief, if you have a

[Sen. Virginia "Ginny" Lyons (Chair)]: We've got a math class. The briefs. One is if we have the highest cost. Do you want to look at the issue brief at all with us? It's true. Think that We have a little time, that's all I'm thinking.

[Nolan Langweil (Joint Fiscal Office)]: I think that, so my presentation really was hitting the highlights of the brief. So I think, I don't think there's anything else I really wanna have to say other than, yeah, I think I hit the points that I was

[Sen. Virginia "Ginny" Lyons (Chair)]: really You know, I do recall when I was sitting on finance committee, we did do an analysis of administrative costs for Blue Cross and Blue Shield and I think there was some concerns there that apparently has changed over in the past, the new folks at Blue Cross and Blue Shield. Okay, yeah, I didn't even get her shoes. Any questions for no one? So if you're gonna give her the kind of 100,000 foot description, the risk based capital helps the company cover costs when?

[Nolan Langweil (Joint Fiscal Office)]: Risk based capital is a tool used by the industry, so regulators and the associations and the insurance company themselves, to monitor and respond to solvency issues. So it's a combination of a metric, the percentages, that helps sort of create the thresholds that you really, and then once you have those benchmarks, it's like, okay, here's a corrective actual rule tool, rule monitoring that should be done, that you can do or should do to sort of try to right the ship, with the goal of trying to save the company, and more importantly, the policy holders. So it's a tool, and I know Kai will talk about it too. And I remember when I first wrote down, it's a tool that they use, and Kai came into health care, they said, no, it's the tool, the most important tool. So, okay.

[Sen. Virginia "Ginny" Lyons (Chair)]: You. We have some time before DFR comes in. I don't know if they're available before eleven. We'll have to reach out and see. I do have a couple things to talk about unless you all have questions for Nolan. Good. Okay. You're all solvent?

[Nolan Langweil (Joint Fiscal Office)]: I hope you're all

[Sen. Virginia "Ginny" Lyons (Chair)]: solvent. We are all solvent. So, of the things that we have on our, in our webpage are all the reports that have come to us, and Jen and Katie put together that multi page, it's all pages of reports. I printed myself out a copy, I was supposed do it, and I'm gonna go through those reports and try to triage and figure out the ones that we can check off, eliminate, those that we may want to hold for a period of time. And I'm going to ask you to do the same thing, just to look through. When I finish with the written piece, I'll share it with you and pass it around and look at it. Because I'm thinking one of the things I've heard from the folks who are doing these reports is that's all they spend their time on, They don't have the time to actually do the work of the administration. So it's the Department of Health or the DCF or whatever. There are some reports that the department is key, I'm not saying all that, but maybe some of the quarterly reports could be left aside and if we need those, that information, quarterly fashion, we can ask for it. And there are things in there that we can ask for rather than have them put together written report all the time and send them in to us. So that's something to think about. So I'll just leave it at that. I'll let you know I'm doing that. There is a timeline for this. The first timeline I saw was this Friday, but no that's not the timeline, but there will be a timeline for as the House Go Vouch looks at their bill that has the reports in it. And the sooner we get those into we get it into house gov ops before they pass a bill then it's done or we can get it in as the bill comes over here. Do you want us to do some homework and come in with our thoughts? It would be great if you would do that. I know it's a lot in the middle of everything, but we, I don't know that we'll actually have time on Friday to do that because we are, we're meeting, Well, we have Nolan coming in on Global Commitment on Friday, and then we have a joint meeting with transportation on transportation, healthcare transportation services. Might be able to plug in a little bit on there, but we'll put some time in perhaps next week. So that's it. So,