Feds terminate loan agreement with Vermont Health CO-OP

Christine Oliver. Photo by Andrew Stein

Christine Oliver. Photo by Andrew Stein

The federal government pulled the plug on the Vermont Health CO-OP on Monday.

The Centers for Medicare and Medicaid Services notified the CO-OP on Monday that termination of its agreement with the South Burlington-based company is effective immediately. The CO-OP must return any unused funds to the government as soon as possible. CMS made $4.5 million available to the CO-OP for startup costs and $9.8 million for reserves. The feds stopped making additional loan disbursements to the company in May.

The CO-OP’s directors responded to the news by voting to dissolve the company, according to a statement from Christine Oliver, the CEO of the company. Oliver says the Co-op will close by the end of the month. Twelve workers will be laid off.

“Without the financial support of our federal partners, it will not be possible to offer Vermonters the member-owned and member-governed health insurance option that will be available to Americans in many other states,” Oliver said in a statement.

CMS determined that the CO-OP would not be able to participate in Vermont’s exchange under the Affordable Care Act because of ongoing uncertainty about whether it could obtain a state license to operate in time for the state’s health care exchange.

“Unfortunately, without regulatory guidance and policy support from state government, there’s little justification for federal taxpayers to continue to loan the CO-OP the resources to complete the startup phase of this enterprise,” Oliver said.

The exchange market opens Oct. 1, and by Jan. 1, 2014, all uninsured individuals and employees of businesses with fewer than 50 workers must buy insurance on the exchange.

Now that the CO-OP is out of the picture, Vermonters in this group have just two insurers to choose from: Blue Cross Blue Shield of Vermont and MVP.

James T. Kerr, deputy director for the Center for Consumer Information and Insurance Oversight, wrote in a memo that the Vermont Department of Financial Regulation Commissioner Susan Donegan’s decision “to take no action on your request for further review and/or reconsideration renders VHC unable to meet the terms of the agreement.”

Vermont’s plans for single-payer health care in 2017 limit the amount of time the CO-OP could sell insurance and repay CMS for the loans, Kerr wrote.

“As a result of the Insurance Commissioner’s decision, and the underlying realities of the Vermont marketplace relevant to your proposed revised business plan, the project faces insurmountable obstacles to achieving one or more critical milestones in the Agreement,” Kerr wrote.

The CO-OP’s problems started when Donegan denied the CO-OP a license to operate in the state. She determined that the Co-op’s projected sales and income were overstated. She also cited conflict of interest issues and unusually high compensation for one of the organization’s board members as factors in her decision.

Donegan’s order was issued long after CMS had accepted the CO-OP’s application for $33 million in loans in 2012.

Follow Anne on Twitter @GallowayVTD

Comments

  1. Fred Woogmaster :

    How much money has been expended – for nothing?

    What is The truth underlying this bizarre story?
    Anybody know?

  2. Dexter Lefavour :

    This is likely a case of politics as ususal. Our executive branch run rampant. It is the State that blocked this innovative business in a classic act of corporatism, intended to protect primarily BCBS and secondarily MVP. I don’t see that it could have threatened Green Mountain Care.

    • Karl Riemer :

      It didn’t threaten Green Mountain Care. It didn’t threaten BCBS or MVP. Its only threat was to anyone foolish enough to buy insurance through it, which might have been no one given its proposed rate structure. However, almost regardless of subscription rate, it would have had too little time to repay the loans on which it is utterly dependent. It wasn’t a genuine business proposal, it was a scheme to collect federal loans, pay salaries and (under the table) commissions, then disappear.

  3. Ed Pomicter :

    The State of Vermont has no interest in seeing innovation and cost reduction coming from a creative private sector. If Vermont Health Co-op had been successful in creating a less expensive alternative outside of the existing non-competitive medical insurance marketplace, then the reality that free markets work would have been proven. This would undermined the Shumlin Administration’s “progressive” push towards a centralized command structure for the delivery of medical care in Vermont, and therefore it could not be allowed.

    • Karl Riemer :

      If…

    • Alan Perry :

      The “Free Market” has been given DECADES to try and figure this out, and DIDN’T.

      Their fault. NEXT.

      • patricia crocker :

        We’ve never really had a “free market”. Government has been placing regulations on insurers and the healthcare market for decades.

        • Alan Perry :

          Deregulation rarely helps consumers and you know it. It does, however, hurt the bottom line of the insurance companies. Too bad, so sad. They’ll only make Billions instead of Trillions. Waaah.

  4. Eric Davis :

    CMS’ letter terminating the loan agreement with Vermont Health CO-OP included the following sentence: “We have concluded that this proposal is not likely to enable VHC to become a viable CO-OP given the small, highly concentrated health insurance marketplace in Vermont, and the dynamics of the large employer market in particular.”

    Would it be correct to read “highly concentrated health insurance marketplace” to mean that BCBS is by far the dominant player in paying for health care in VT – it both offers insurance policies and processes claims for self-insurance plans – and that the likelihood of any new entrant successfully competing with BCBS is small, even if that new entrant did not have the financial and governance issues identified in the denial of a state license to the Vermont Health Co-OP?

    BCBS’ market dominance is likely to increase in 2014. It will likely cover far more people under Vermont Health Connect than MVP, the only other company to offer coverage under VHC. Also, the Shumlin Adminstration decided to shift administration and claims processing for the self-insurance plan for the state employees – the largest single group health plan in Vermont – from CIGNA to BCBS effective in 2014.

    Green Mountain Power, after merging with CVPS, now controls about 70% of the electric distribution market in Vermont. Blue Cross Blue Shield is likely to control a comparable, if not higher, percentage of the health insurance market. The Shumlin Administration supports this concentration of market share in both the electricity and health care sectors. Is it healthy for the state’s economy, and the health of the state’s citizens, for quasi-public regulated monopolies to have such large market share?

    • patricia crocker :

      Crony capitalism…public-private partnerships… There was a reason for anti-trust laws in the private sector, but they don’t think it should apply to them.

    • John Greenberg :

      There is NO competition in the electric distribution in Vermont. There never has been. Vermont utilities are regulated monopolies and always have been. The merger did nothing to change this.

  5. Deb Tyson :

    Politics, GOP, and pharmaceutical companies ..++++++++++++ the list is endless. If its good for the people and affordable, they will find ways to destroy it.

  6. Carmen Borden :

    This is a real shame and the fact that DFR was so very close in responding to the request makes me really question the Commissioner and her staff.

    I support the Governor’s work towards single-payer but I feel that this was poorly handled by both DFR and the CO-OP.

  7. Gov. Shumlin tells us that we will have a single payer system in 2017. This is what he says he believes and what he is now spending our tax dollars on to make happen. If he really believes this, how in the world could he have endorsed spending more than $33 million taxpayer dollars to start the COOP when there would be no need for it in a couple of years when single payer comes into existence?

    Would anyone you know invest his/her hard earned money into a start up venture that would probably be put out of business in a couple of years with all capital being lost?

    Well, it looks like the Gov. Shumlin is one of those people.

    “Ready, Fire, Aim”, yet again.

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