(The Center Square) – Virginia officials told lawmakers this week that job losses, rising health care costs and potential federal policy changes could increase financial pressure on the commonwealth, even as revenue is coming in higher than expected.
During an April briefing to the Senate Finance and Appropriations Committee, Secretary of Finance Mark D. Sickles said recent revenue growth has been supported in part by investment income, such as capital gains, which can fluctuate more than regular paychecks.
At the same time, state data shows Virginia’s labor market is weakening.
Presentations to lawmakers showed the state has lost 31,600 jobs since the start of the fiscal year, including about 20,000 federal positions. The unemployment rate has risen to 3.7%, while labor force participation has declined to 63.8%.
Officials said those trends could affect future tax collections, particularly as growth tied to wages slows.
Separately, Secretary of Health and Human Resources Marvin Figueroa told lawmakers that federal policy changes under H.R. 1 could create both financial and operational challenges for the state.
The legislation includes changes to Medicaid and the Supplemental Nutrition Assistance Program, including expanded work requirements, more frequent eligibility checks and new administrative requirements that would require additional systems and staffing.
Those changes could reduce federal support and shift more costs to the state, with estimates presented to lawmakers ranging from $1.8 billion to $2.6 billion.
Figueroa said the state is still working through how to implement those changes as federal guidance continues to develop.
Rising health care costs are adding to the state’s financial pressures.
An update on the state employee health plan showed projected overall cost increases of about 19% to 20% for the next plan year, based on consultant estimates, driven largely by higher prescription drug spending.
State officials said pharmacy costs have grown significantly in recent years, including rapid increases in the use of GLP-1 medications used to treat diabetes and obesity. Spending on those drugs has risen from about $30 million to more than $200 million over the past four years.
To offset rising costs, officials outlined several options that could shift more expenses to employees. Depending on the approach, employee premium increases could range from about 10% to 16%, along with new deductibles and higher out-of-pocket limits.
Some proposals would also replace flat copays with percentage-based costs for certain prescriptions, meaning employees could pay up to 20% of a drug’s price, capped at a set amount.
That means some state employees could pay significantly more for coverage next year, depending on the final plan design.
Officials said the options are intended to keep the plan financially stable, as it faces a projected shortfall of more than $300 million without additional changes.
Lawmakers also raised questions about how the state will manage rising costs and potential revenue losses over time.
The update comes as lawmakers prepare to return for the reconvened session on April 22, where they will consider the governor’s amendments and vetoes, including changes that could affect previously anticipated revenue.
