Regulator Report Levels Claims of Self-Dealing and Excessive Compensation at Vermont Health CO-OP

Full release from the Department of Financial Regulation

CO-OP Response

We will hopefully have representatives on the show on June 2; awaiting final confirmation.

Excerpt:

All current board members were asked to serve on the board by Mr. Mitchell Fleischer. Mr. Fleischer is the current president of the board and has been a driving force behind the CO-OP’s formation and application to DFR. As president of the board, Mr. Fleischer is paid a salary of $10,500 per month, and is expected to work with the CEO to oversee all departments of the CO-OP and to provide leadership, direction, planning and participation in business operations and strategic development (Ex.25, p.1). Other board members are compensated at the rate of $250 per board meeting attended (Ex. 26). The Vermont Legislature has expressed concern with excessive remuneration to board members of health insurance companies, passing a law in 2012 requiring a supplemental filing disclosing salaries of board members and senior officers. … To further put this into perspective, Mr. Fleischer’s $126,00 annual salary eclipses the salary of the chair of the board of Blue Cross Blue Shield of Vermont, a much larger nonprofit health insurance company, who is paid $28,900 per year (Ex. 27). It is also significantly more than the $48,750 annual salary paid to the chair od the board of MVP Health Plan, a multi-billion dollar health insurance company operating in several states (Ex. 28). The board is responsible for determining reasonable compensation, if any, for directors (Ex. 29, p. 7). There is no evidence of any discussion by the board of Mr. Fleischer’s surprisingly high salary. Nor is there evidence of any discussions of salaries for any officers of the CO-OP. The CO-OP’s compensation practices exhibit a lack of oversight by the board of directors and an outsized influence by the president of the board. There are tremendous risks associated with licensing a company given these characteristics.

The board has allowed the CO-OP to enter into a contractual arrangement with Fleischer Jacobs & Associates, Inc. (“Fleischer Jacobs”) that is illegal and creates a conflict of interest for Mr. Fleischer. Mr. Fleischer is both the president of the CO-OP board of directors and the president of Fleischer Jacobs. On December 4, 2012, Fleischer Jacobs entered into a contract with the CO-OP to be the exclusive agent in soliciting applications for CO-OP products (Ex. 30). Though formalized in December 2012, this arrangement was contemplated at least a full year earlier when the CO-OP was applying to CMS for loans under the Federal Loan Program (Ex. 31, pp.4-5,7). Under this agreement, the CO-OP is paying Fleischer Jacobs at least $26,786 per month through 2013, with the possibility of an additional $250,000 through 2013 for marketing and distribution, for a potential total of more than $500,000 before even beginning insurance operations (Ex. 30, p,9). The CO-OP has maintained that this arrangement with Fleischer Jacobs is a key component to the success of the CO-OP, even after being advised that the agency and commission structure under the contract under Vermont law for plans offered through Vermont Health Connect. … Notwithstanding this admonition, the CO-OP has not submitted to DFR an amended contract changing the payment structure to Felischer Jacobs. (pp. 18-20)

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