Settling with State Regulators, Zoom Leaders Hope for End to Turmoil

A federal investigation into the failed health insurance plan continues, but the Oregon Department of Business and Consumer Services has closed its investigation.

The founders of Zoom Health Plan have reached a settlement agreement with state insurance regulators, agreeing to pay fines while avoiding criminal liability after getting into hot water over their failed health plan – though a federal investigation appears to still be ongoing.

In court documents outlining the settlement agreement, Zoom Management Inc. agreed to pay $150,000 for violations of the insurance code, and for filin personal financial disclosures after the deadline, co-founder Dave Sanders said he would pay $100,000 and co-founder Albert DiPiero said he would pay $35,000. In addition, Zoom Management will pay $2.1 million to cover member claims and liabilities. The 338 people still insured by Zoom will be able to keep their coverage through the end of the year.

Sanders and DiPiero said in an exclusive interview with The Lund Report that they are glad to move on from a period of recent turmoil at their Zoom-branded businesses. Zoom+Care, the network of Portland- and Seattle-area clinics the two men also founded, agreed to settle out of court last week after funder Endeavour Capital had sued to put the business in receivership.

Though it will be some time before Zoom+Care resumes its rapid pace of growth, Sanders and DiPiero hinted that they may soon introduce a new insurance-like offering for employers. The surviving business is switching to a self-funded health plan for its own workers, and could announce a similar offering for other businesses seeking insurance alternatives, the company’s founders acknowledged when asked, though they declined to provide specifics.

Oregon’s Department of Consumer and Business Services emphasized in its briefing on the settlement with Sanders, DiPiero and Zoom that the company violated insurance law. DCBS has been the court-appointed receiver for Zoom Health Plan since spring, when the state sued to recover $3 million from the company.

Zoom had estimated in financial statements completed in February that it would need those funds to pay a risk-adjustment assessment that would be announced in June, Sanders said. Though the business would have been profitable without the risk-adjustment, that fee put the business in the red, making it insolvent with capital and surplus of negative $126,832, according to the state.

Sanders and DiPiero maintain that they thought they had done nothing wrong, because Zoom Management Inc. issued the health plan a $3 million surplus note – essentially, a promise of a line of credit. But because the loan was on paper only, and did not involve a transfer of cash, DCBS deemed inclusion of the note in the health plan’s financial statements as inappropriate.

"The size of these fines show that DCBS will not tolerate repeated violations of the insurance code," Jean Straight, acting director of DCBS, said in a statement issued by the agency.

Sanders and DiPiero said they are accepting a total financial loss of their investments in the health plan business, as well as of the investments by venture capital firm Endeavour Capital, which owned 38.2 percent of the plan and is also a major investor in Zoom+Care’s clinics.

The company’s founders sought to cast their dispute with state regulators as centering around risk-adjustment payment calculations. Under the Affordable Care Act, insurers with lower-risk members are charged a risk-adjustment fee that is redistributed to plans with higher-risk members, as part of an effort to limit losses and spread risk now that the ACA prohibits plans from rejecting applicants with costly preexisting conditions.

A former employee of the health plan who has been critical of Zoom’s leadership said the company’s members were often younger and healthier than insurance members across the state – and thus lower risk, generating a higher risk-adjustment premium. Though Sanders disputes that characterization, he did tell The Lund Report that even with the help of established actuarial firm Milliman, estimating Zoom’s risk-adjustment costs proved challenging.

“2016 was our first year in the marketplace, it was our first year with a risk-adjustment payment,” he said. At the start of the year, the health plans’ actuaries estimated that its risk-adjustment payment would be around $200,000 – but that estimate climbed repeatedly during the year.

“By the fourth-quarter they were saying, wow, it could be a million or so. Our revenue was only around $600,000,” Sanders said. “By February, the middle of the month, weeks before we were going to file our annual statement, Milliman estimated the amount would be $3 million.”

Rather than transfer cash to cover a possible bill that would not come due until June, Zoom Health Plan recorded its $3 million promissory note from Zoom Management as capital.

“The state came back and said, we don’t like the way you accounted for that. But the matter the way it was presented to the media, it looks like the health plan was not solvent, did not have cash for current bills. Absolutely untrue. It’s only about an estimated future liability made six months before it was due,” Sanders said. “We always had to pay that bill, we always planned to pay that bill.”

When the actual risk-adjustment invoice was issued in June, months after the state had taken the health plan into receivership, it was about $2.1 million, Sanders said. That bill will be covered by the payments regulators are requiring of Zoom Management Inc. in the settlement agreement.

In addition, as individual owners of a private health insurance plan, Sanders and DiPiero were required to file personal financial disclosures. They missed the state deadline for those filings, and the fees they agreed to pay include $1,000 per day penalties for those missed deadlines.

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