The South Carolina Health Cooperative (SCHC) was created in 2012 as a way for small businesses to cover health insurance costs for more than 4,500 of their employees. However, the state Department of Insurance said Tuesday that its own examination of the Cooperative last month found serious financial issues and that the company’s reserve assets were likely fraudulent.
“The premiums they were charging were not sufficient enough to sustain payment of claims that were coming in,” agency director Raymond Farmer told South Carolina Radio Network. Worse, he said the cooperative only had two assets — two standby letters of credit totaling $8 million– which were security to pay claims if needed. But both letters were fraudulent.
Farmer said does not know how the cooperative obtained the fraudulent letters of credit.
The SCHC is private and is not directly affiliated with the state, but it is regulated and licensed as a rare insurance form known as Multiple Employer Welfare Arrangement (MEWA).
The Department of Insurance took over SCHC’s operations last month following a vote by the cooperative’s board of directors. The agency is has filed a petition to be appointed the rehabilitator of the company. If the Richland County Court of Common Pleas agrees, the rehabilitation period will be used to find a new insurer to help cover the member businesses. The rehab plan would also require the new plan to be self-sufficient. In the meantime, he recommends that beneficiaries work to get their own health insurance or other benefits immediately.
A call to the SCHC hotline was not immediately returned. The cooperative launched in 2010 to much fanfare, but did not start offering plans for another two years. The co-op’s CEO at the time Cooper Littlejohn received brief national attention as a 20-year-old Georgia Tech student. One state lawmaker had praised him for the innovative idea, calling it the new co-op a “breakthrough in cost containment.”
Matt Long contributed to this report