On March 2, 2015, the Iowa District Court for Polk County
entered a Final Order of Liquidation against
CoOportunity Health, Inc. ("CoOportunity") after
previously placing CoOportunity under a rehabilitation order.
CoOportunity was one of 23 CO-OPs in the United States, serving
individuals residing in Iowa and Nebraska. As part of an initiative
under the Affordable Care Act, CMS approved CoOportunity as a CO-OP
on February 27, 2012 and, according to the CMS website, awarded the insurer with
$145,312,100 in operating and solvency funding to date (which
includes additional solvency funding of $32,700,000 awarded to
CoOportunity on September 26, 2014).
Notwithstanding the amount of federal funding, CoOportunity faced
numerous financial issues toward the end of 2014, primarily because
the federal funding, combined with the money it collected in
premiums, could not cover its members' health care costs and
operating expenses. As a result, CoOportunity's reserves fell
66 percent between January 2014 and October 2014, and its reported
cash and invested assets dropped from $47.1 million to $17.2
million between October 2014 and December 2014. In addition, CMS
informed CoOportunity that it would not make an expected $125.6
million payment to CoOportunity until the second half of
2015.
Although the Iowa Insurance Commissioner took over control of the
operations of CoOportunity in December 2014 and attempted to
rehabilitate the company, the Commissioner determined that
rehabilitation was not possible because medical claims exceeded
current cash on hand and additional cash inflow was not expected to
occur until the second half of 2015. The Final Order of Liquidation
is effective as of February 28, 2015, and it authorizes the
Commissioner to take possession of all assets of CoOportunity and
to administer those assets under the general supervision of the
court. Both the Iowa and Nebraska Departments of Insurance have
released guidance documents to assist those currently
enrolled with CoOportunity.
Implications for Providers
Health plan insolvency raises a number of issues for providers,
particularly for those providers currently contracting with the
insolvent, or soon-to-be insolvent, health plan. Among the issues
include the following:
Provision of Covered Services. For continuity of
care purposes, most payor contracts and state statutes require
providers to continue providing covered services to members
following liquidation. For example, certain state laws require
providers to continue providing covered services to enrollees as
needed to complete any medically necessary procedures commenced but
unfinished at the time of insolvency (which includes the rendering
of all covered services that constitute medically necessary
follow-up care for such procedures). See Ohio Rev. Code §
1751.13(C)(3). Providers should review their payor contracts and be
familiar with applicable state law to determine whether such an
obligation is imposed following termination for reasons of payor
insolvency.
Proof of Claim Process. Upon liquidation, the
liquidator is required to provide notice of the liquidation order as soon as
possible to all potential claimants (which may include providers
contracting with the insolvent health plan) and instruct claimants
on the submission process for proof of claims. Iowa, in particular,
requires that a proof of claim include the following, as
applicable: (i) the particulars of the claim; (ii) the identity and
amount of the security on the claim; (iii) the payments, if any,
made on the debt; (iv) a statement that the sum claimed is justly
owing and that there is no setoff, counterclaim, or defense to the
claim; (v) a copy of the written instrument that is the foundation
of the claim; and (vi) the name and address of the claimant and the
attorney who represents the claimant, if any. Iowa Code §
507C.36(1).
Priority of Distributions. Generally, the
priority of distribution of claims is paid in accordance with the
order in which each "class" of claims is set forth.
Claims in each class are paid in full before the members of the
next class receive payment. In Iowa, for example, the order of
distribution of claims is: (i) costs and expenses of administration
of liquidation; (ii) claims under policies for losses incurred;
(iii) claims of the federal government; (iv) reasonable
compensation to employees; (v) claims of general creditors; (vi)
claims of any state or local government; (vii) claims filed late;
(viii) surplus or contribution notes; and (ix) claims of
shareholders or other owners. Iowa Code § 507C.42.
Preference Litigation. The Iowa Insurance Code
defines "preference" as "a transfer of the property
of an insurer to or for the benefit of a creditor for an antecedent
debt made or suffered by the insurer within one year before the
filing of a successful petition for liquidation ..., the effect of
which transfer may be to enable the creditor to obtain a greater
percentage of this debt than another creditor of the same class
would receive." Iowa Code § 507C.28(1)(a). Liquidators
may attempt to void preferences through a preference action in
order to recover such preferential transfers for redistribution
among all similarly situated creditors.
CoOportunity is not the only CO-OP struggling financially—in
the first three quarters of 2014, all but one of the 23 CO-OPs had
net losses, as Bloomberg recently reported. Although
providers in Iowa and Nebraska contracting with CoOportunity face
imminent issues, providers across the United States contracting
with CO-OPs should carefully review and monitor their CO-OP's
financial condition. Such information is generally available
through state department of insurance websites.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.