- Associated Press - Saturday, October 31, 2015

PHOENIX (AP) - A nonprofit health insurance co-op created to provide competition to traditional insurance companies in Arizona has been removed from the federal marketplace, just days before a new enrollment period begins Sunday.

Arizona Department of Insurance Director Andy Tobin filed an order for supervision Friday for Meritus Health Partners and Meritus Mutual Health Partners, against the co-op’s consent. Under Arizona law, Tobin will act as a supervisor and oversee the two companies.

“It’s disappointing that the Meritus CEO and board of directors declined to consent to this order,” Tobin said in a statement. “However, with open enrollment beginning this weekend and many Meritus policyholders subject to automatic re-enrollment, it was vital that the department step in and protect Arizona citizens.”

As a result, the Centers for Medicare and Medicaid Services has taken Meritus plans out of the marketplace. The Meritus companies’ abilities to write new policies and renew existing ones were also suspended as part of the order.

Meritus will fulfill individual and group health insurance plans through the end of the year. But roughly 59,000 Arizonans covered by Meritus will now have to scramble to find new coverage, according to the state. The co-op provides preferred provider organization and health maintenance organization plans in Maricopa, Pinal and Pima counties.

“We will work to make policyholders’ transition as seamless as possible,” Tobin said.

Representatives at Meritus did not immediately respond to a message seeking comment Saturday. CEO Tom Zumtobel told The Arizona Republic the move came as a complete shock.

“We couldn’t get feedback from (Department of Insurance) on what specifically we needed to do,” Zumtobel said.

According to Zumtobel, the co-op boosted its finances and met all the requirements for insurers under state law.

A federal government analysis miscalculated the co-op’s performance last year and rated Arizona as one of the lowest-achieving among co-ops operating in 23 states.

But a review by The Associated Press found the inspector general for the U.S. Health and Human Services Department missed a report on the company’s HMO enrollment results. The actual results for Arizona’s nonprofit insurance company amounted to 15 percent of its 2014 target. Meritus said that figure since soared and exceeds projections.

The federal audit showed Meritus lost $7.2 million last year. But both the PPO and HMO plans actually lost a combined $16.6 million, according to the reports reviewed by the AP.

Co-ops were set up as part of a compromise in the Affordable Care Act to compete with for-profit insurance companies.

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