On July 22, the Virginia Bureau of Insurance (BOI) issued Administrative Letter 2025-02 (the Letter) to all licensed insurers writing Managed Care Health Insurance Plans (MCHIPs) in Virginia. The Letter clarifies what constitutes a "material change" and thereby also clarifies when an attendant filing is required to be submitted to the BOI.[2] Specifically, the Letter provides commentary on Virginia Code Section 38.2-5802(D), which states as shown directly below (emphasis added) and which governs the material change scenario.
D. No MCHIP shall be operated in a manner that is materially at variance with the information submitted pursuant to this section. Any change in such information which would result in operational changes that are materially at variance with the information currently on file with the Commission shall be subject to the Commission's prior approval. If the Commission fails to act on a notice of material change within thirty days of its filing, the proposed changes shall be deemed approved. A material change in the MCHIP's health care delivery system shall be deemed to result in operational changes that are materially at variance with the information on file with the Commission. The Commission may determine that other changes are material and may require disclosure to secure full and accurate knowledge of the affairs and condition of the health carrier.
The Letter provides an overview of the terms of the above-quoted section, and then the BOI states: "Changes in service area may constitute a material change if the financial operations of a MCHIP are affected as detailed in this letter," and "Other potential material changes include a change in the network or tiered networks impacting financial operations." The BOI then provides Filing Instructions and a Material Change Checklist. In the Filing Instructions, the BOI re-enunciates its standard for filing a material change in Items 1 and 2 (emphasis added):
1. As provided by statute, a health carrier shall file a request for approval prior to effecting a change which is materially at variance with information currently on file with the Commission. Health carriers must consider the significance of anticipated changes and seek prior approval of any change which can be reasonably identified as having a material impact at any time in the foreseeable future on an MCHIP's health care delivery system. The health carrier's decision not to seek prior approval must be supported by reasonable and documented consideration of materiality. Failure to file notice of a material change shall be deemed a violation of § 38.2-5802 D of the Code subject to penalty pursuant to § 38.2- 218 of the Code.
2. As a general guideline, changes requiring prior approval pursuant to § 38.2-5802 D of the Code include any change that is likely to increase or decrease the health carrier's revenues, expenses, or net worth (capital and surplus) in an amount that exceeds 5% of the health carrier's current net worth. Anticipated changes shall include the impact on the remaining current year total expense, revenues and net worth, and projected impact on the next two calendar years. If a change of 5% is noted in any of the three time periods, prior approval is required. For purposes of this calculation, "current net worth" means the health carrier's net worth as detailed by the most recently filed annual or quarterly financial statement.
These reflections of the statutory standard appear framed to clarify the BOI's broad interpretation of the material change trigger in the statute while also providing some useful guidelines. First, the BOI makes clear that it expects for there to be both reasonable and documented consideration of why certain changes are not "material changes" requiring prior approval. Compliance personnel should make note of this expectation as it implies that documented compliance procedures should be created for events that arguably approach, but do not cross, the materiality line for prior approval.
Second, the BOI provides a financial threshold against which carriers can mark the reasonableness of their analysis, for changes "likely to increase or decrease the health carrier's revenues, expenses, or net worth (capital and surplus) in an amount that exceeds 5% of the health carrier's current net worth." Presumably, if a change is unlikely to increase or decrease those financial metrics in excess of 5% of net worth, that fact could be used as a component of compliance personnels' documented consideration of a non-materiality.
Third, the BOI describes a temporal scope for the 5% threshold analysis that includes impacts in the current and subsequent two calendar years. This likewise leads to a potential presumption that if a change is unlikely to increase or decrease net worth in the next three years, then compliance personnel could document that fact as part of their consideration as to why a change is not material.
Last, the BOI calls out the potential penalties for violation of the requirement to file a material change, citing to Virginia Code Section 38.2-218. That Section provides for a US$5,000 penalty per knowing or willful violation, a US$1,000 penalty for violation without knowledge or intent (aggregate of US$10,000), and provision for restitution if/as applicable.[3]
[1] Virginia Code Section 38.2-5800 defines MCHIP as shown below:
"Managed care health insurance plan" or "MCHIP" means an arrangement for the delivery of health care in which a health carrier undertakes to provide, arrange for, pay for, or reimburse any of the costs of health care services for a covered person on a prepaid or insured basis which (i) contains one or more incentive arrangements, including any credentialing requirements intended to influence the cost or level of health care services between the health carrier and one or more providers with respect to the delivery of health care services and (ii) requires or creates benefit payment differential incentives for covered persons to use providers that are directly or indirectly managed, owned, under contract with or employed by the health carrier. Any health maintenance organization as defined in § 38.2-4300 or health carrier that offers preferred provider contracts or policies as defined in § 38.2-3407 or preferred provider subscription contracts as defined in § 38.2-4209 shall be deemed to be offering one or more MCHIPs. For the purposes of this definition, the prohibition of balance billing by a provider shall not be deemed a benefit payment differential incentive for covered persons to use providers who are directly or indirectly managed, owned, under contract with or employed by the health carrier. A single managed care health insurance plan may encompass multiple products and multiple types of benefit payment differentials; however, a single managed care health insurance plan shall encompass only one provider network or set of provider networks.
[2] The Letter is available at https://pxl-sccvirginiagov.terminalfour.net/prod01/channel_3/media/sccvirginiagov-home/regulated-industries/insurance/insurance-companies/administration-of-insurance-regulation-in-virginia/administrative-letters/AL-2025-02.pdf
[3] Virginia Code Section 38.2-218 provides as shown below in its entirety:
A. Any person who knowingly or willfully violates any provision of this title or any regulation issued pursuant to this title shall be punished for each violation by a penalty of not more than $5,000.
B. Any person who violates without knowledge or intent any provision of this title or any rule, regulation, or order issued pursuant to this title may be punished for each violation by a penalty of not more than $1,000. For the purpose of this subsection, a series of similar violations resulting from the same act shall be limited to a penalty in the aggregate of not more than $10,000.
C. Any violation resulting solely from a malfunction of mechanical or electronic equipment shall not be subject to a penalty.
D.
1. The Commission may require a person to make restitution in the amount of the direct actual financial loss:
a. For charging a rate in excess of that provided by statute or by the rates filed with the Commission by the insurer;
b. For charging a premium that is determined by the Commission to be unfairly discriminatory, such restitution being limited to a period of one year from the date of determination;
c. For failing to pay amounts explicitly required by the terms of the insurance contract where no aspect of the claim is disputed by the insurer; and
d. For improperly withholding, misappropriating, or converting any money or property received in the course of doing business.
2. The Commission shall have no jurisdiction to adjudicate controversies growing out of this subsection regarding restitution among insurers, insureds, agents, claimants and beneficiaries.
E. The provisions provided under this section may be imposed in addition to or without imposing any other penalties or actions provided by law.
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