The Greenville News
December 1, 2014
Dr. Don Marler thought a cooperative of small businesses banding together to obtain affordable health insurance was a good idea so he signed up his Pickens Dental practice.
But then he learned that the co-op, which is in deep financial trouble, was taken over by the state Department of Insurance, leaving them all without coverage.
“We were shocked when we received an email saying that next Monday we’d no longer have insurance,” Marler told The Greenville News. “Now we’re shopping for insurance.”
Licensed in 2012, the South Carolina Health Cooperative in Seneca was made up of a group of employers who pooled contributions in a self-funded health plan for employees.
The idea was that businesses with two to 50 employees could act as one entity to purchase coverage at more affordable rates than they could get individually.
But, as The Greenville News reported previously, the DOI said it had seized the company and its bank accounts, saying it doesn’t have the funds to pay claims.
The department was in the process of helping SCHC find another company to underwrite the members when it learned of an investigation in Alabama involving the co-op as a potential victim of fraud, DOI Director Ray Farmer said.
Subsequently, he said, it was determined that the two letters of credit SCHC held totaling $8 million — which were to be used in the event of insolvency to pay claims — were fraudulent.
About 530 small businesses with 4,600 employees were members of SCHC, whose representatives could not be reached for comment.
Among them was Marler’s practice — Pickens Dental Associates.
Twelve people work at the dental office, he said, nine covered by the co-op. They decided to join because the premiums were better than they’d been paying since it was a self-insured plan, he said.
A member since the co-op’s launch, things worked well except for some claims taking a few months to be paid, a situation that was quickly cleared up with a phone call, he said.
“Then a couple months ago, we got a letter saying there were some financial issues and they were trying to work them out,” Marler said. “They told us they would try to give us enough headway that if something needed to be done, we would have time to do it.”
Instead, he said, they found themselves scrambling to find alternate coverage that would pick up as of Dec. 1.
Like all members, Pickens Dental had signed a five-year contract with SCHC. After getting the letter about the financial troubles, he said, they asked to be released from the contract but were denied.
Frank Knapp, executive director of the South Carolina Small Business Chamber of Commerce, said it’s likely that SCHC simply didn’t have enough members because research shows that 60,000 or more would be needed to have a chance to succeed.
“This is bad for the employees, and bad for small businesses who thought this was going to be a viable solution for their problems,” he said. “But the immediate thing is what do we do about the problem out there?”
Farmer said the department is asking insurers to provide coverage for the SCHC’s small businesses with an effective date of Dec. 1
DOI also has contacted some insurance companies to help pay off a portion of the claims, and some have agreed, he said. And it’s looking to marshal as many assets as possible to reduce the liabilities of the members, he said.
Michael Gibson, vice president of Gibson & Associates, an independent brokerage in Columbia, said he’s been working with some SCHC members to help them find coverage by Dec. 1 after getting a letter from DOI.
But premiums in the traditional fully-insured market will be higher, and “in some cases significantly higher than what they may have been paying,” he said. There may be some alternatives, though, such as an association plan, he added.
Some may be looking to get coverage for the rest of the year and then review a more permanent solution, he said. Some may drop coverage though, he said, leaving individual employees to seek coverage under Obamacare.
Jim Ritchie, executive director of the South Carolina Alliance of Health Plans, said the trade group will announce some specifics in the coming days about what it can do to help businesses in the failed co-op and their employees.
Marler said Pickens Dental applied to an insurer and expects the employees will be covered, though at higher premiums for the same coverage.
“We are going to be OK and I hope everyone else will have coverage too,” he said. “But we’ll have to make a decision, do we continue an employer type plan where we cover employees, or do our employees get insurance on their own?”
Meanwhile, Marler said, employees have continued to get health care and the practice is contractually responsible for paying any medical claims the co-op can’t cover.
“We have no idea what our financial obligation is going to be,” he said. “No one has contacted us yet and told us what that might be. The main thing about this is there is so much we don’t know.”