Some 4,600 employees of small businesses around South Carolina will be responsible for their own medical bills now that the state Department of Insurance has taken over their insurer, saying it didn’t have the funds to pay claims.
“This is a serious situation,” DOI director Ray Farmer said. “We have seized the company and its bank accounts.”
The insurer, the S.C. Health Cooperative, Inc., is a multiple employer welfare arrangement (MEWA) headquartered in Seneca that offers benefits to about 530 small businesses from landscaping firms to convenience stores with fewer than 50 employees each, Farmer said.
In a MEWA, a group of employers pool contributions in a self-funded health plan for employees and bear the claims liabilities. The SCHC is the only MEWA licensed in the state.
Never miss a local story.
The co-op was the brainchild of Cooper Littlejohn, a young Georgia Tech business student, and enabled by legislation passed in 2008. The idea was that businesses with two to 50 employees could act as one entity to purchase coverage at lower rates than they could get individually. By increasing the size of the pool, the risk can be spread among many employees, thereby reducing costs.
SCHC representatives couldn’t be reached.
Farmer said the DOI had been monitoring SCHC’s finances since its licensing in June 2012, but stepped up surveill
ance after concluding a financial examination on Oct. 31, which revealed SCHC was in a “financially impaired state” and unable to pay all their claims. DOI was in the process of helping SCHC execute a plan to ensure it was fully insured by finding another firm to underwrite the members when it learned of an investigation in Alabama involving the company as a potential victim of fraud, he said.
Subsequently, Farmer 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.
Authorities are investigating, he said. In the meantime, her said, DOI is focused on the employees who were left without coverage and holding the medical bills and is working with insurers to provide coverage for SCHC’s small businesses effective Dec. 1.