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State Denies License For Health CO-OP

The State of Vermont says a newly formed Health Care Cooperative has serious financial problems and should not be given a license to offer insurance policies beginning next year. 

Under the Affordable Care Act, member owned Cooperatives can be licensed to sell health insurance policies on a state exchange beginning in 2014. To do so, they must receive both federal and state approval.

Last fall, the Vermont Health CO-OP was formed for this purpose and it’s received roughly $33 million in federal loans. Nearly $7 million has been used for start up costs and the remaining $26 million was allocated to a reserve fund.

But the plan has hit a major hurdle.  The commissioner of the Department of Financial Regulation, Susan Donegan, has rejected the CO-OP’s application because she doesn’t think the organization can meet its basic financial commitments.

“Insolvency is about being able to pay your obligations, your bills and also operate the company,” said Donegan. “You know insurance is a promise between a policy holder and a company I pay a premium and you promise to do something and in this case it’s pay my health insurance medical claims. We want to make sure there’s enough money to have a company make good on that promise.”

Donegan says the CO-OP’s premiums were not competitive and she thinks the projected enrollment numbers were too optimistic to support a sizeable debt load.

“The CO-OP by their own numbers would be losing money in their initial years 2014 to 2016 and part of that is because they have very heavy debt load they have an obligation to repay loans that the federal government gave them to start this company,” said Donegan. “And that put added pressure on their need to become competitive as well as to make more money than they would have normally.”

Christine Oliver is the CEO of the CO-OP. She doesn’t agree with the state’s decision.

“We are very disappointed but not deterred,” said Oliver. “We believe whole heartedly that Vermonters want and need this option a member driven member focused health insurance option so we intend to find a way forward to deliver that.”

And Oliver says there’s no question that the CO-OP’s business model is financially sound.

“I believe we are solvent. I think we have the potential to be as solvent and viable in every way,” said Oliver. “And it’s the federal government that provides us that solvency piece through federal loans.”

Oliver says the CO-OP will explore several options to overturn the state’s decision including a possible appeal to the Vermont Supreme Court.