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.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.