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Cut-Off in Loans Leaves Vt. Health Co-Op Fighting for Life

Montpelier — Less than a year ago, Gov. Peter Shumlin, Rep. Peter Welch and other federal and state officials hailed the Vermont Health co-op as a way to keep health care dollars in Vermont.

Today, the co-op is on life support, and officials are two steps away from pulling the plug.

Earlier this week, the Associated Press reported that the Centers for Medicare and Medicaid Services had stopped disbursing $33.8 million in loans to help launch the health insurer. Those funds have been the co-op’s only source of revenue.

Christine Oliver, CEO of the co-op said the disbursements stopped coming in May, after the Vermont Department of Financial Regulation denied the co-op a license to sell health insurance in Vermont. Department Commissioner Susan Donegan called the application “fatally flawed,” and the co-op has since restructured and submitted a new application.

CMS representatives say the Vermont co-op is the only “Consumer Operated and Oriented Plan” in the country that had been denied a license to operate.

To date, CMS has allocated $4.54 million for startup costs and $9.8 million for the co-op’s solvency reserves to give the insurer the necessary financial padding to stay afloat if it falls on hard financial times.

“The co-op has an obligation to repay all loans disbursed,” said Courtney Jenkins, a spokesperson for the Centers for Medicare and Medicaid Services.

According to CMS, the co-op has five years to repay its startup loans and 15 years to repay the solvency loans, regardless of whether it gets off the ground. One CMS representative said that the solvency loans should be easy to pay back if the co-op is not granted a license, because those funds should be sitting in the organization’s reserves. The co-op might have to liquidate all assets to pay off the startup loans should it find itself in dire straits.

The co-op’s business plan initially relied on the first open enrollment period in the state’s new health insurance market, called Vermont Health Connect. On Oct. 1, the market opens and by Jan. 1, 2014, Vermonters buying insurance individually or through small businesses with 50 or fewer employees must purchase health care coverage on the exchange.

At that time, roughly 100,000 Vermonters will leave their current health care plans and seek new ones, which would have been a boon for a new insurer entering the market. But the co-op will not be selling plans by Oct. 1, and it’s doubtful the co-op could be licensed and have its plans approved by Jan. 1.

The Department of Financial Regulation would not comment on the issue because it is a pending matter.

Oliver, CEO of the co-op, said she is coordinating with CMS and the department.

“Generically, it’s about the process and timing,” she said. “If we don’t hit the exchange, what is the alternative business plan? And if that’s viable, we’d be back to figuring out the licensing piece.”

In other words, the co-op now must convince CMS that it can be a successful insurer in Vermont in order to convince the Department of Financial Regulation that it merits a license to provide Vermonters with health insurance. Where once the prospective insurer found itself with one mountain to climb, it now faces two.