Louisiana Health Cooperative was among the 24 not-for-profit companies nationally to accept loans from the federal government to provide insurance coverage called for in the Affordable Care Act. The Metairie-based business was formed in 2011, secured $56 million in federal loans and sold plans in 2014 and 2015.
Last month, it informed its 17,000 policyholders it would end all policies by 2016, ending a rough run that has included numerous customer complaints to state regulators and financial losses beyond initial expectations.
However, tax records indicate its founders benefited as contractors for the company. Before hitting bottom, Louisiana Health Cooperative in 2013 alone paid more than $3.6 million to businesses linked to board members — including one who wrote years earlier that launching a co-op is a chancy endeavor made less risky with available federal funding.
Six months before health insurance consultant Terry Shilling filed Louisiana Health Cooperative’s incorporation papers with the Louisiana Secretary of State’s Office in September 2011, he wrote on his company’s blog about the risk.
“Any prospective CO-OP sponsor must recognize the costs and risks inherent in the effort of starting a Health Plan,” reads Shilling’s post on www.beampartners.com. “The good news is the successful applicant will have most of the funding of the initiative born by the federal government.”
Beam Partners went on to be paid $3 million by Louisiana Health Cooperative in 2013 as an independent contractor for “health plan development,” according to the organization’s income tax filing for that year.
Shilling was the organization’s first CEO and a board member, according to public records. He had been CEO of Ochsner’s health insurance arm for five years before the Ochsner plan was purchased by Humana. Shilling then went on to form Atlanta consulting firm Beam Partners in 2004, according to his LinkedIn profile.
Two other health insurance consultants who filed Louisiana Health Cooperative incorporation papers with Shilling in 2011 — Alan Bayham and Mark Gentry, both of Louisiana — are listed as “associates” for Beam Partners on its website.
Also listed as a principal for Beam Partners is a consultant named David H. Smith. A man by that name is president of Kearney Street Consultants in Alpharetta, Ga., which Louisiana Health Cooperative paid nearly $672,000 in the same year for “health plan development.”
Neither Shilling nor Smith responded to phone messages or emails seeking information about their experiences with Louisiana Health Cooperative. Current Louisiana Health Cooperative CEO Greg Cromer, a Republican state representative from Slidell, has not responded to messages left for him about the cooperative. A spokeswoman with the public relations firm handling media requests for the co-op said Cromer would not be available for interviews.
Louisiana Insurance Commissioner Jim Donelon said the law allows the not-for-profit to hire board members as contractors, as long as it is disclosed.
He said such an arrangement undoubtedly results in profit for the board members, but added it would be a stretch to assume that profit amounted to the millions that were paid out. In the case of Louisiana Health Cooperative, it was Donelon’s understanding that Beam performed the early administrative duties such as hiring the chief financial officer as well as the secretarial and janitorial staff. Many of those responsibilities, have since been moved in-house, he said.
“From a company startup point of view, it’s not an unusual scenario for the creators to have an entity that can be hired to start itself up and then phase itself out as the company becomes permanent,” Donelon said.
Federal rules dictated that co-ops must include directors and board members with experience in health care operations and finance.
In 1998, a year before joining Ochsner’s health plan, a federal judge ordered Shilling to pay $21,000 after the Securities and Exchange Commission brought suit against him alleging he had participated in insider trading.
According to the SEC’s complaint, Shilling bought 1,900 shares of Healthsource stock after an executive in that company confidentially informed him it was negotiating a merger with Cigna. Shilling was a former employee of Healthsource and, according to the SEC, Shilling realized profits of $10,761 through his informed trading.
Shilling did not admit or deny the allegations in court before agreeing to the settlement.
Ochsner Health Systems CEO Warner Thomas served on the first board of Louisiana Health Cooperative with Shilling, Bayham, Gentry and fellow Ochsner executive Scott Posecai.
In response to a request for an interview about the failed co-op, Thomas sent a written statement to NOLA.com | The Times-Picayune noting he resigned from the board in July 2013, six months before his term was scheduled to end. Thomas said he did so in order to make room for new members to be elected.
“While we cannot comment on the business operations of an organization in which Ochsner has no ownership,” Thomas’ statement read, “we do appreciate the work by many in this state to improve health outcomes for residents through affordable coverage and increased access to health care.”
Asked whether the Louisiana Health Cooperative was under investigation regarding any of its business practices, Donelon said he could not comment. Donelon’s office is working with Louisiana Health Cooperative to ensure customers receive the services they paid for through the end of the year.
“As we dig deeper in the oversight of the co-op, if we see inappropriate payments, we will certainly address it all the way up to and including criminal penalties, if needed,” Donelon said. “But so far we see no impropriety.”
Officials with the Center for Medicare and Medicaid Services did not immediately respond to an inquiry regarding the agency’s dealings.
Co-ops, short for “Consumer Operated and Oriented Plans” in the Affordable Care Act, were envisioned as a consumer-oriented alternative to corporate insurance companies in that their primary aim was to serve members rather than maximize corporate profits. Unlike for-profit carriers, the law required cooperatives to reinvest all profits in order to improve benefits and pricing for customers. And similar to credit unions, the federal government also required them to become member-governed.
It’s not totally clear what caused the Louisiana Health Cooperative to cease operations. There were signs customers were not happy with the coverage, based on a disproportionate number of complaints filed with the Department of Insurance.
Co-ops nationally struggled to meet their projected goals in their first year. Of the 23 that remained in January 2014, only one made a profit, according to an analysis by the U.S. Department of Health and Human Services’ Office of Inspector General. Co-op leaders argue, however, that the success of the program should not be judged for another couple years, as any startup company has a high chance of failure.
Donelon likened starting an insurance company during the implementation of the Affordable Care Act to “going out sailing in a hurricane.”
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