The actuarial report attached is designed to reflect historical claims trends, a recast projection of the current plan year, along with projections for the next two plan years.

Over the past three years, the Commonwealth has experienced modest premium increases (lower than national standards), with a portion passed on to employees and agencies, and the Health Insurance Fund (HIF) subsidizing the remaining portion of the increase. Excess funds in the HIF have been used to subsidize the rates in recent years as follows:

• FY 2023: 6.0%
• FY 2024: 4.1%
• FY 2025: 3.6%

A review of FY 2025 totals demonstrates a deficit of $178,200,000. We had anticipated a deficit of $75 million to be paid from the HIF, however, our pharmacy costs were approximately $100 million higher than expected. The recast of FY 2026 demonstrates the initial projection provided, and used in setting the FY 2026 Budget, was off/under by 8.8%, resulting in an expected deficit of $153,300,000. Currently, the HIF has sufficient funds to cover this deficit.

While medical costs increase each year, we have seen a significant increase in pharmacy costs over the past three years. This is a national trend. While the Commonwealth health plan has historically performed better than other employers, both in the private and public sectors, our total claims costs are beginning to match our peers. We have historically budgeted to aggressive models versus moderate or conservative models. In addition, by repeatedly using HIF funds to supplement premium increases, our HIF balance is slowly being depleted. Based on the recast of FY 2026, along with our HIF balance and trend projections for FY 2027, our actuary is forecasting an increase in premiums of 17.8% (aggressive approach) followed by an increase of 7.7% for FY 2028 (again, using the aggressive scenario). This assumes there are no changes made to any plan designs of the medical plans or formulary changes to the pharmacy coverage.

The current plan designs of all three self-insured plans (COVA Care, COVA HDHP, and COVA HealthAware) have remained unchanged for many years, with the COVA Care plan still deemed as the most robust plan in the Commonwealth. Minor modifications to the plan designs, along with formulary changes and more strict parameters for certain drugs, have the potential for significant savings that will reduce the need for a substantial premium increase. Recommendations will be discussed during the inaugural State Heath Plan Advisory Council meeting, with final recommendations from the Council to be provided to the Governor and the General Assembly.