The shutdown of a struggling health plan in South Carolina may offer some clues about what agents and brokers can expect if other health plans shut down in the future.
See also: What happens if health insurers fail?
Raymond Farmer, the state’s insurance director and the plan’s rehabilitator, gives some information about the problems South Carolina Health Cooperative Inc. faced in a motion asking a state court in Richland, S.C., for approval of a plan for winding down the plan’s affairs.
The multiple employer welfare arrangement (MEWA) covered about 4,600 employees at 500 member employers when it failed, Farmer says in a copy of the motion posted on the South Carolina Department of Insurance website.
When the MEWA suspended operations, it had about $11 million in unpaid provider liabilities, or about $2,400 in unpaid claims per enrollee.
Enrollees in another carrier that failed recently, CoOportunity Health, had about $80 million in unpaid claims and 100,000 enrollees in Iowa and Nebraska, or about $800 in unpaid claims per enrollee, when it failed.
The enrollees in that nonprofit, member-owned Patient Protection and Affordable Care Act (PPACA) cooperative plan were eligible for state guaranty association help when their plan failed.
South Carolina Health Cooperative was a nonprofit, member-owned MEWA formed outside the PPACA system. Because it was not classified as a health plan under South Carolina law, its members were not eligible for guaranty fund protection, Farmer says.
State insurance regulators learned in October 2014 about possible problems with two letters of credit backing the MEWA’s ability to pay claims and that put the MEWA in administrative supervision, Farmer says. Since then, Farmer says, the MEWA has filed a demand for payment under an excess stop-loss policy, but the insurers that wrote that policy have refused to pay the claim.
The employers that joined the MEWA had “hold harmless agreements” that shielded them from MEWA claims, but Farmer says rehabilitators may eventually be able to get some help from the employers with paying unpaid claims.
Private corporate funding provided $5 million in cash to help window down the MEWA’s affairs, and the rehabilitators have used $2.7 million of the money to pay claims, Farmer says.
Michael J. FitzGibbons is the special deputy rehabilitator in charge of managing the rehabilitation effort.
The rehabilitation team has given claims secured by MEWA assets top priority, the remaining provider claims second priority, some federal government claims third priority, and general creditor claims fourth priority, Farmer says.
“At this time, the rehabilitator does not anticipate that there will be sufficient funds to cover any general creditor claims,” Farmer says in the motion.