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 $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.