Vermont Health CO-OP officials demanded last week that a state regulator “reconsider” her rejection of the nonprofit’s license to operate in Vermont.
Susan Donegan, commissioner of the Department of Financial Regulation, says reopening the CO-OP’s existing license application is not an option.
“I think there’s this idea that all I have to do is wave my hands and change my decision,” Donegan said. “The statutes are there for a reason. The commissioner does not have unfettered abilities.”
Her decision, which alleged that the CO-OP would face insolvency within three years, is a final order, she said, and under state statute the Vermont Health CO-OP can only seek recourse in one of two ways: It can file a new application or appeal the department’s decision to the Vermont Supreme Court.
“I would certainly understand if they wanted a review,” Donegan said. “I would follow the court’s direction. I’m a lawyer. I find guidance from the court useful.”
Either way, the CO-OP faces time pressures that could make it nearly impossible for the newly formed, member-owned company to provide consumers with insurance products by Oct. 1 when the enrollment period opens for the state’s health care exchange.
Reapplying for a license is a months-long process. Donegan said under the best of circumstances regulatory review would take six months, before the CO-OP can seek rate approval. The department’s review of the original application took 18 months. A new application would also have to go through an actuarial analysis.
“We can’t abbreviate our process, we have to go through the regulatory process,” Donegan said. “I don’t know how to manufacture more time,” she said. “We can have all the greatest intentions in the world, but I can’t manufacture more time. It’s like getting to the airport when the plane takes off and saying wait a minute, I’m not on the plane. Yeah, but the plane took off.”
If the CO-OP wants to appeal the decision to the Vermont Supreme Court, it must file an appeal within 30 days of the commissioner’s May 22 decision.
Not ready to concede defeat
Neither option is palatable to CO-OP officials who opted last week to take their case to the court of public opinion. They held a news conference in which Christine Oliver, CEO of the company, blasted Donegan.
CO-OP officials say they were stunned by the state’s rejection, and they are hoping to submit a revised license application to the state.
“We worked through the process for 10 months. To say we were blindsided by this is an understatement,” Oliver said. “There is no honest way to link our last communication with the Department of Financial Regulation to the decision that was issued.”
Oliver, a former insurance regulator for the state, demanded that the commissioner “reconsider” her decision to deny the license. “The recent decision by DFR includes many inaccurate statements,” Oliver said. “It’s so wrong on so many levels, it’s hard to know how to defend the situation as it stands today.”
Oliver, a former political appointee of the governor, also sought redress from Gov. Peter Shumlin. The governor has steadfastly maintained that he likes the idea of the CO-OP model, but he also supports the regulatory process.
Mitch Fleischer, president of the CO-OP board, emphasized that competition in the health insurance market is good for consumers. “Believe me, it makes status quo better; it sharpens what other companies do; it’s really a win-win for everybody at the table.”
This week Oliver said she is not ready to concede defeat, but her stance was more conciliatory. “Everything is on the table,” she said. “We’re looking at the entire structure to determine the best path forward.”
Oliver is now in the throes of reconfiguring the CO-OP’s application, and she is still holding out hope that the CO-OP will be ready for the open enrollment deadline on Oct. 1. Both she and Fleischer want Donegan to accept a revised application.
Reconsideration ruled out
Reconsideration of the same application is not possible under state law, Donegan says. “If it’s a question of reopening this matter, I think their attorneys are going to have to show a legal basis for that,” the commissioner said. “That’s my guess.”
Donegan says the CO-OP’s application must be completely overhauled. Her department identified the following problems in the original application: premium rates that are 15 percent higher than those offered by competitors, overstated estimates for the number Vermonters who would purchase insurance, governance flaws, illegal commission earnings and serious financial conflict of interest issues.
In its 37-page decision, the Department of Financial Regulation determined that the Vermont Health CO-OP would have cumulative losses of about $9 million in the first three years of operation, from 2014 to 2016 if it achieves 50 percent of its target enrollment. The Centers for Medicare and Medicaid Services awarded the Consumer Operated and Oriented Plan $6 million in start-up loans and $27.4 million in solvency loans last year. The department says the federal money isn’t enough money to protect consumers from a disruption in the market should the CO-OP go bankrupt.
Insolvency, Donegan said, potentially puts Vermonters at risk, and “that’s certainly not a company I will license. If solvency is in jeopardy, you’re not protecting consumers.”
“Whatever would cross my desk would have to be an entity that would be radically different than the one we’ve already rejected,” Donegan said. “Our order would be a road map for them. We need to see a new mindset, not just quick fixes.”
The “illusion” that the CO-OP would put Vermonters at risk was “patently false,” Oliver said. “I can’t really follow the logic that the commissioner put forward.”
The federal government is confident the CO-OP can pay back $33 million in loans, Oliver said.
“CMS has scoured our books,” Oliver said. “They monitor us weekly to ensure that they remain comfortable we can repay those loans in five years for the start-up money [$6 million] and 15 years for the $27 million in reserves.”
Should the CO-OP go bankrupt, she said, “Vermonters who have health care claims, providers that provide health care services and the state of Vermont, to extent they have any skin in the game, all come before the federal government with respect to payment, and the federal government has agreed to make sure people are made whole before we worry that the feds are paid.
Oliver told reporters at last week’s news conference that the department’s financial analysis was based on “placeholder” rates the CO-OP had submitted in its application to the Department for Vermont Health Access to become a qualified health plan under Medicaid. The rates the CO-OP would submit for rate review by the Green Mountain Care Board would be lower, Oliver said.
“The reliance on a rate that hasn’t had benefit of the process and to deny it and suggest I can’t get to the process because I can’t get a license — it’s a circular argument I don’t know how to get out of,” OIiver said.
The CO-OP’s potential competitors on the exchange, MVP and Blue Cross and Blue Shield, were able to project lower rates, Oliver said, because they took new state cost-cutting measures, such as global hospital budgets, into account.
Lower rates would mean more enrollees in the CO-OP’s insurance programs, and rosier financial projections, Oliver said.
Management concerns
Donegan’s final order also highlights governance problems. Her order alleges that members of the board do not have experience in the insurance industry. (Fleischer, the board chair and founder of the CO-OP, said two of the five members of the board are his business associates — Doug Nedde, a realtor, and Jim Lampman, founder of Lake Champlain Chocolates.)
The board didn’t meet for a 10-month period, and it rubber-stamped a proposal to give Fleischer $120,000 a year for his role as board president, according to the department order. In addition, the board approved a contract that gives Fleischer’s company, Fleischer Jacobs Group, an annual contract for distributing and marketing CO-OP insurance products. The contract could generate $500,000 to $2 million a year for Fleischer Jacobs, an insurance brokerage firm.
CO-OP officials said all of these arrangements were made under the careful scrutiny of the federal government. Fleischer said the board was waiting for CMS approval during the 10-month period in which there were no meetings. The CO-OP provided CMS with justifications for approving the contract with Fleischer Jacobs without a request for proposal, Oliver said. The Fleischer Jacobs arrangement was reviewed by “separate legal counsel” and was approved in a “very transparent” fashion, she said.
In the spring of 2011, Fleischer, who has worked as an insurance broker for 30 years, was critical of the Shumlin administration’s plans to limit all insurance products for small businesses to insurers on the state exchange. The federal law also cut brokers, who made about $17 million a year on commissions, out of the system.
That fall, Fleischer made plans to create the CO-OP as a way to salvage business for his company. He reached out to Steve Kimbell, the former commissioner of the department, about his plans and continued to meet with Kimbell every few months.
“I was never, ever discouraged by Steve’s comments or feedback,” Fleischer said. Kimbell declined to comment on the licensure case.
While Donegan has criticized the CO-OP for not seeking a state license before officials obtained federal money, Fleischer said, “We really couldn’t apply for a license without the CMS money. Then we were able to start hiring people and get the work done.”
As for the financial conflict of interest contentions in the order, Fleischer said that together he and Oliver make about $300,000 — less than half of what the CEO of Blue Cross Blue Shield earns and about 25 percent of the salary of MVP’s top executive.
Donegan also tweaked the CO-OP for including a commission structure in its contract with Fleischer Jacobs. A new provision in state law that goes into effect in January prohibits brokers from earning commissions.
“We can’t be in violation of a law today that takes place in the future,” Oliver said. “That piece of contract will have to change before January 2014. There is no suggestion it had to change today.”
Donegan said her department takes a dispassionate approach to the license approval process. The state receives applications and inquiries for Vermont domestic insurance companies on a weekly basis. “I have turned away several large entities that want to come to Vermont,” Donegan said.
Some background
The Vermont Health CO-OP is the first health insurer to seek a license from the state in 50 years, according to Oliver.
So far, two insurance companies — MVP and Blue Cross Blue Shield — have been deemed eligible to sell health insurance policies on the exchange. Both insurers are now going through the rate review process in anticipation of the open enrollment deadline.
The state law requires employers with 50 or fewer employees to seek insurance coverage from carriers on the exchange. Individuals who do not have group health insurance must also obtain coverage through the exchange. About 100,000 Vermonters fall into these two categories.
The Vermont Health CO-OP received approval for $33 million in promised loans; it has been given $4 million, and has so far spent $3 million on start-up costs. The Centers for Medicare and Medicaid Services has given loans nationwide to 24 similar federally funded “consumer operated and oriented plans.” CMS authorizes co-ops to offer insurance to consumers in new health care exchanges under the Affordable Care Act.
CORRECTION: Lobbyist Heather Shouldice is a longtime adviser to Mitch Fleischer and was present at the Vermont Health CO-OP’s press conference last week. However, she has not been hired by the CO-OP.
