The Vermont Health CO-OP is fighting for another chance to jump into Vermont’s health insurance pool, after a stern rebuff from the state’s fiscal guard.
Earlier this month, the nonprofit CO-OP officially asked the state Department of Financial Regulation to reconsider a revised application for a license to operate in Vermont. The CO-OP lowered its proposed rates for health insurance, overhauled its board and hinted that the state is federally preempted from regulating on certain grounds.
The CO-OP’s request comes after Susan Donegan, commissioner of the department, denied the nonprofit a required “certificate of public good” in May to sell health insurance, calling the nonprofit’s application “fatally flawed.”
Donegan’s disapproval followed a federal green light for the CO-OP and the promise of roughly $33.8 million in combined startup and solvency loans from the U.S. Centers for Medicare and Medicaid Services (CMS). The CO-OP, or Consumer Operated and Oriented Plan, is a construct of the Affordable Care Act, aka Obamacare.
In her decision to deny the certificate, Donegan took issue with the company’s proposed premiums — on average 15 percent higher than what Blue Cross Blue Shield of Vermont and MVP Health Care proposed for the state’s up-and-coming health insurance market for individuals and small employers, called Vermont Health Connect.
The CO-OP’s rejection put in jeopardy the option of a third health insurer for more than 100,000 Vermonters. If denied, it would leave Vermont with only Blue Cross and MVP plans in this new market.
Donegan in her rejection also expressed concern over the company’s solvency; with such uncompetitive rates, she didn’t see how the CO-OP could stay afloat.
She further flagged “illegal” conflicts of interest in the company’s corporate governance, as the CO-OP contracted to the company’s president for marketing and distribution services without a competitive bidding process. Mitch Fleischer, founder and former president of the CO-OP, has since stepped down from the board’s top position, and the compensation for that position was reduced from more than $10,000 a month to $250 a meeting, which is usually held once a month. Fleischer would have been compensated at a rate more than four times what Blue Cross pays the head of its board.
One of the CO-OP’s biggest hurdles for reconsideration will be actually getting Donegan and her department to agree to reconsider the revised application. Donegan previously said that the CO-OP only has two options to seek approval: file a new application or appeal to the Vermont Supreme Court.
More than two pages of the CO-OP’s motion for reconsideration is dedicated to persuading the department it has the authority under state law to reopen the CO-OP’s application. Donegan would not comment Tuesday on the effectiveness of the CO-OP’s arguments.
“They have filed a motion, and we are considering the motion, and so it’s a pending matter,” Donegan said.
Lowering the rates
The CO-OP is seeking to provide coverage on Vermont Health Connect, the state-based exchange, where more than 100,000 Vermonters are expected to purchase insurance individually or through businesses with 50 or fewer employees come 2014. The CO-OP also wants to cover Vermonters in the large-group market, comprising those institutions and businesses with more than 50 employees.
Although the CO-OP was not licensed in March, the rates it proposed for the exchange were much higher than Blue Cross and MVP’s and now have been revised. After adjusting numerous calculations, the CO-OP reduced its proposed rates by an average of 15.5 percent, according to the actuarial memo it submitted to the department in July.
“The CO-OP finds itself in the complex position of developing projected rates without the benefit of past experience,” the CO-OP lawyer wrote in the motion for reconsideration. “State and federal … regulations and guidance have been published and modified, sometimes at a rapid and even frenetic pace. In some instances, information was simply, and unfortunately, missed by the CO-OP’s actuaries prior to the March 25, 2013 rate submission.”
To bring down the rates, the CO-OP’s actuary — Milliman, Inc. — accounted for 60 percent of lower-income children enrolling in the subsidized health plan Dr. Dynasaur. This dropped rates by 5.7 percent — the largest decrease of all adjustments. The second biggest reduction to rates was a decrease of 3.1 percent, which was spurred by accounting for Green Mountain Care Board limits on hospital budget growth.
But it appears that the metric the CO-OP used in its motion is incorrect.
The CO-OP’s attorney wrote that “On March 7, 2013, just prior to the March 25, 2013 submission deadline (for exchange rates), the GMCB announced that it intended to cap hospital growth at 3.75 percent in 2014 and beyond,” adding that other insurance carriers factored this cap into their rate design, while the CO-OP did not.
According to state records, however, the Green Mountain Care Board voted on Feb. 21, 2013 to cap hospital budget growth at 3 percent, from fiscal years 2014 to 2016. That is a decrease from the 3.75 percent limit placed on budget increases in 2013. The week after the board drew the budget line, numerous news outlets, including this one, reported on the matter.
On the administrative front, the company reduced its rates by 2.3 percent by cutting back its contract with Fleischer Jacobs Group by $850,000. The CEO of the Vermont Health CO-OP, Christine Oliver, said that she did not know the exact amount of the contract with Mitch Fleischer’s firm, and the Department of Financial Regulation would not release the contract because officials said the CO-OP submitted it with a request that it remain confidential.
The CO-OP also shaved a further 1 percent from its rates by cutting back a surplus charge for building up its reserves, from 2 percent to 1 percent of the cost of premiums.
Corporate Governance and Federal Preemption
Last month, the CO-OP overhauled its board. Fleischer stepped down, and the CO-OP added five new power players.
“It wasn’t the most fun thing I’ve ever done in my life,” Fleischer said about leaving the post. “But I thought in light of what the department had issues with, it made the most sense for me to step down, so the CO-OP could move forward.”
Among the new board members are former Vermont Attorney General M. Jerome Diamond and CEO of the Vermont State Employees Credit Union Steve Post. Oliver said that the board decided to keep contracting out to Fleischer Jacobs because the health brokerage firm was an integral part of the model that gained federal approval, and it would take more time to establish a similar relationship with another business.
Fleischer, for one, did not see a conflict of interest, but he says that’s beside the point.
“It doesn’t matter how I saw it; the way they (the department) saw it is what’s important,” he said. “We had to have all of our contracts and board policies pre-approved by CMS, and CMS signed off on everything. We didn’t see that there was a conflict of interest. We weren’t working in a void with nobody paying attention.”
According to the CO-OP’s motion, the board will play more of a managerial and accountability role than it previously would have — a response to Donegan’s qualm with “the board’s lack of oversight.”
After addressing Donegan’s numerous concerns, CO-OP attorney Ritchie Berger — of Burlington-based Dinse, Knapp and McAndrew, P.C. — took issue with Donegan’s statement that a new insurer wouldn’t last long on the marketplace because the marketplace won’t last long.
Vermont is on a statutory track towards implementing a publicly financed, single-payer system.
“Whether formation and maintenance of the CO-OP would promote the general good of Vermont must be judged with the assumption that the CO-OP would cease to exist in its proposed form within a very limited number of years from its inception,” Donegan wrote.
Right now, however, the Shumlin administration has no proposal for financing a single-payer plan, and the state of Vermont won’t be eligible for a federal waiver to deviate from the Affordable Care Act until 2017, if then.
Berger notes that the CO-OP was created through a federal program and denying a CO-OP based on a potential single-payer system could undercut federal law.
“By relying on general policy goals as to future changes to Vermont’s health care system to deny the CO-OP’s license, the Department has adopted a criterion that would weigh against any CO-OP from becoming licensed in the state,” Berger wrote. “At a minimum, such an approach is in conflict with the goals of the federal government in creating the CO-OP program and threatens to undermine one of the central aspects of the ACA.”
