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Vermont regulator rejects CO-OP application

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The top insurance regulator in Vermont has refused to grant a health insurance company license to organizers of the Vermont Health CO-OP.

The organizers are trying to set up a nonprofit, member-owned plan that would be part of a Consumer Operated and Oriented Plan (CO-OP) program created by the Patient Protection and Affordable Care Act of 2010 (PPACA).

Sen. Max Baucus, D-Mont., and other PPACA drafters included the CO-OP provision in PPACA in an effort to increase the number of carriers competing for commercial customers’ business. CO-OP program supporters pointed out that one or two carriers write the majority of commercial health insurance business in many states.

CO-OP organizers can get startup loans from the U.S. Department of Health and Human Services (HHS), but they cannot get funding from existing for-profit or nonprofit health insurers, and PPACA forbids managers from selling CO-OPs or converting CO-OPs to for-profit status.

To get a Vermont insurance company license, a company must show that it has enough funds to pay claims and debt, and that its managers have enough financial, insurance and business experience, according to officials at the Vermont Department of Financial Regulation.

Susan Donegan, the department’s commissioner, believes that the Vermont CO-OP’s rates would be significantly higher than its major competitors’ rates, and that organizers have failed to show how the CO-OP would attract the projected number of subscribers or sustain solvency, officials said.

Christine Oliver, the chief executive officer of the Vermont CO-OP, said in a statement that the CO-OP will move forward.

“We remain committed to delivering an alternative to the traditional insurance companies—an alternative that provides Vermonters a real voice in their coverage and in their care,” Oliver said in the statement. “It is very clear that Vermonters want – and they certainly deserve – a health insurance option that puts their personal health ahead of profits.”

Vermont regulators have not licensed a new health insurance provider in more than 50 years, and they may not be accustomed to considering new providers, Oliver said.

“We look forward to addressing, through appropriate channels, what we believe are the factual errors and mischaracterizations of the decision,” Oliver said.

Donegan — who was appointed to her post by Gov. Peter Shumlin, a Democrat who has supported efforts to implement PPACA programs in Vermont — said in her licensing decision that she believes having a new, domestic mutual nonprofit health insurer in the state could be good for the state’s health insurance industry.

The CO-OP organizers did succeed at getting a commitment for $30 million in startup loans from the federal government, Donegan said.

Donegan argued that the organizers secured the commitment by presenting an image of what the CO-OP would look like that appears to be different from reality.

One problem is that neither the chief executive officer nor the chief operating officer has any significant experience with working at a health insurance company, and another problem is that the board seems not to be holding enough meetings or giving the people organizing the CO-OP enough oversight, Donegan said.

Donegan said she believes the board has approved a salary for the board president that seems very high, and that the board has let the CO-OP enter into a contract with a company affiliated with the board president that creates a potential conflict of interest for the board president.

The CO-OP originally was predicting that its premiums would be 4 percent lower than the market average, in part because it would take an innovative approach to sharing risk with a major, established provider network, Donegan said.

But the network backed out of the deal, and now it looks as if the CO-OP would charge rates that are 15 percent higher than the market average, Donegan said.

Because of Vermont restrictions of payments of commissions in the small-group market, there appears to be no clear way for the CO-OP to gain market share, Donegan said.

“These are only a few examples of where the CO-OP’s story differs from reality,” Donegan said.

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