MONTPELIER — A prospective health insurance carrier panned by state regulators last month has overhauled its governing board in an attempt to rehabilitate its reputation and win the right to sell policies in Vermont.
The Vermont Health CO-OP late last week added five new names to its board of directors, bolstering considerably the insurance industry experience on the oversight panel. The federally funded startup has also bid farewell to its board president and founder, Mitchell Fleischer, who resigned last Thursday amid controversy over the CO-OP’s business relationship with the private-sector brokerage firm at which Fleischer is president.
“It was to avoid any distraction that he seemed to be creating for the CO-OP,” Christine Oliver, executive director of the Vermont Health CO-OP, said Monday.
The additions to the board include:
Jerry Diamond, a Montpelier attorney and former three-term attorney general whose clients include Bristol-Myers Squibb and PhRMA (Diamond is also representing Gov. Peter Shumlin in his controversial land deal);
Steve Post, president and CEO of the Vermont State Employees Credit Union, a financial cooperative with nearly 50,000 members;
Leonard Crouse, a veteran regulator who, as a deputy commissioner at the Department of Banking, Insurance, Securities and Health Care Administration, was involved in the development and oversight of the captive insurance industry in Vermont.
The shake-up comes nearly a month after Commissioner of Financial Regulation Susan Donegan derided the CO-OP’s management practices as a “recipe for a corporate governance disaster,” and denied the startup’s bid to become the first new health insurance carrier in the state in more than 50 years.
Oliver said the reconstitution of the board signals a commitment to remedy the slate of problems enumerated by Donegan in her blistering 36-page denial.
“We knew we had to go back and regroup and address her issues, and that’s what we’re in the process of doing right now,” Oliver said Tuesday. “We are completely and thoroughly taking stock of everything that’s mentioned in that ruling, not putting Band-Aids on things but really fundamentally re-looking at what we’re doing.”
Oliver’s conciliatory tone marks a drastic shift from her public comments in the days immediately following the ruling, when she accused Donegan of “blindsiding” the CO-OP, and intimated that undue influence from Blue Cross Blue Shield of Vermont may have prompted the “ambush.”
Donegan said the CO-OP’s financial solvency would be undermined by numerous shortcomings, including policy premiums she said would be 15 percent higher than comparable plans being offered by competing insurers. Donegan’s other concerns included lack of industry experience on the governing board, and the conflicts of interest created by the relationship between the CO-OP and Fleischer Jacobs Group, the brokerage firm it hired to perform marketing, promotion and sales of its policies.
Donegan said the CO-OP’s contract with Fleischer Jacobs also included commissions for brokers who sell CO-OP policies, a practice that will become illegal under federal law next year. The CO-OP aims to sell policies to individuals and businesses with 50 or fewer employees, all of whom will be required beginning to next year to purchase insurance on the “exchange,” a federally-mandated marketplace subject to higher regulatory standards.
Funded by a $32.8 million loan from the U.S. Department of Health and Human Services — of which about $27 million is being held back for reserves — the CO-OP is the fruit of a provision in the federal Affordable Care Act that called for a nonprofit, member-owned health insurance company in every state.
Oliver said the contract with Fleischer Jacobs is “under review.” She said the CO-OP will soon release revised insurance rates that will make it more than competitive with Blue Cross and MVP, the only other entities that will be selling policies in the exchange.
The CO-OP’s troubles have begun winning headlines in Washington, D.C., where congressional Republicans are turning troubles for the CO-OP into ammunition in their war against “Obamacare.” The problems cited by Donegan in Vermont, according to Rep. Darrell Issa, R-CA, are symptomatic of broader issues with the two dozen CO-OPs that have sprouted nationwide in the wake of the ACA. The federal government has committed nearly $2 billion in loans to the nonprofit startups.
The House Committee on Oversight and Government Reform issued a subpoena to the Vermont Health CO-OP recently seeking documents related to its finances. Oliver said the CO-OP had asked for and received a 30-day extension to produce the materials, and that “we plan to completely comply with the request.”
Donegan has said that state law offers the CO-OP two options: Appeal the commissioner’s decision in Vermont Supreme Court, or submit a new application altogether.
Oliver said neither of those paths will allow the CO-OP to achieve licensure in time to begin selling policies on the exchange by January 2014. Oliver said the CO-OP will instead ask Donegan to reconsider her earlier denial, a proposition she believes will become more palatable when Donegan sees how diligently the organization has worked to address her concerns.
The new board members also include David Kibbe, vice president of Universal Health Services, a hospital management company located in Pennsylvania, and David Butler, a former executive at Blue Cross Blue Shield of Vermont who most recently worked at BCBS of Montana.
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