School health plan cites specialty drugs and hospital prices as main drivers of sharp cost growth

Representatives of the Vermont Education Health Initiative (VEHI) told the Senate Finance Committee on Feb. 6 that rising specialty drug prices and hospital costs are the principal drivers of sharp increases in the school health insurance pool’s spending and premiums.

VEHI officials said the pool covers roughly 33,000 active school employees and dependents and a small retiree population, and warned that a concentrated set of high‑cost patients and growing use of high‑priced specialty medications are pushing costs upward. “Vermonters are spending up almost 20% of their income on health care, compared with the national average up just under 8%,” VEHI presenter Bobby Jo Salz said during the presentation.

Why it matters: VEHI insures most public school employees in Vermont and its premium increases feed into school budgeting and bargaining cycles that affect local property taxes and district finances. Lawmakers pressed VEHI on what the pool can do within the limits of statewide bargaining and state regulation to reduce cost pressure.

Most important facts

- VEHI’s FY26 rates rose just under 12%; FY27 rates were approved with an average increase of about 7.3% after accounting for recent policy changes and timing of actuarial filings. VEHI estimated FY27 expected revenue of roughly $400 million and said it pays between $6 million and $10 million a week in claims.

- Pharmacy and hospital services account for the bulk of spending. VEHI reported total Rx spending in 2024 at just over $90 million, an 18.4% increase from 2023. The pool identified 404 members with prescription costs over $50,000 and said 995 members using specialty medications represented about 3.3% of users but drove roughly $50 million — about 55% of total Rx spend.

- Spending is highly concentrated. VEHI presented a cost‑stratification showing 344 people (the top 1%) accounted for 25% of total spending (with an average cost of about $286,152), while the top 5% (1,720 members) accounted for 52% of spending.

What VEHI changed and why

VEHI told senators it made several coverage and procurement changes intended to blunt recent spikes. The board opted to stop covering certain GLP‑1 weight‑loss therapies for the pool after steep cost increases; VEHI said that single decision and related actions reduced projected FY27 spending materially. VEHI also credited the state’s prescription‑pricing work — citing savings from Act 55 and the creation of a prescription drug affordability unit at the Green Mountain Care Board — with producing near‑term Rx savings. “Price regulation works,” a presenter said in the hearing.

Procurement and benefit‑design steps

To address pharmacy spend, VEHI issued a 2025 RFP for a pharmacy benefit manager (PBM) and interviewed several next‑generation PBM candidates. Officials estimated a move or new contract could yield high single‑digit percentage savings annually over the next three years, though no selection had been made. VEHI also described early benefit‑design work aimed at encouraging care outside hospitals (in line with Act 68) and said it will time plan proposals to feed into the statewide bargaining cycle.

Point solutions and wellness

VEHI highlighted partnerships with targeted vendors and wellness programs intended to reduce use of high‑cost services. A virtual physical‑therapy pilot engaged about 1,200 members in year one; VEHI reported that 52% of participants reported clinically meaningful pain reductions and 23% said they were less likely to pursue surgery after the program.

Risks and tradeoffs

Committee members and VEHI officials discussed tradeoffs in moving to reference‑based pricing or aggressive hospital repricing. VEHI’s repricing analysis (conducted under Green Mountain Care Board auspices) showed hospitals are reimbursed well above Medicare in some cases and that six hospitals account for most spending, with the University of Vermont Medical Center a dominant provider. Presenters and senators warned implementing price cuts too quickly could threaten small rural hospitals’ financial stability; VEHI said the work must be phased to avoid disrupting access.

What happens next

VEHI said it will continue the PBM procurement, pursue selective vendor pilots for chronic and specialty care management, and share claims data to inform bargaining. Officials said bargaining discussions next convene in April and that new plan designs would be timed to reach negotiators prior to the next benefit cycle.

Quotes from the hearing

“Vermonters are spending up almost 20% of their income on health care, compared with the national average up just under 8%,” Bobby Jo Salz said, summarizing the fiscal pressure on the pool. Presenters also flagged the growth in anti‑obesity drugs: “the anti obesity pharmaceuticals went on a gross cost of 178%,” a presenter said when describing recent Rx trends.

The meeting concluded with senators thanking VEHI for the data and urging careful phasing of any hospital‑pricing reforms to protect rural providers while pursuing affordability.