MONTPELIER -- The board of the Vermont Health CO-OP voted Monday to dissolve the 15-month-old organization after the federal agency that provided its financing called in at least $9 million of its loans.

The "consumer-operated and oriented" cooperative had planned to provide another option to Vermont health insurance subscribers signing up for coverage through the Vermont Health Connect exchange set to launch next month.

But the state Department of Financial Regulation denied the organization a license in May partly because its proposed rates weren't competitive. The state also questioned the co-op's governance, and said there was a conflict of interest in the co-op's decision to do business with a company owned by a board member.

On Monday, the group learned it had run out of time to reorganize and save itself, when it received a letter from the federal Centers for Medicare and Medicaid Services saying it must repay its loans.

"Without the financial support of our federal partners, it will not be possible to offer Vermonters the member-owned and member-governed health insurance option that will be available to Americans in many other states," co-op CEO Christine Oliver said in a statement.

A spokeswoman for the federal agency said last week it had stopped payments after disbursing $4.8 million of the $6.3 million the cooperative was to get in startup financing, and had done the same after disbursing $9.8 million of a projected $27.


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5 million in what's known as solvency financing.

The Centers for Medicare and Medicaid Services said the co-op was to repay the entire $9.8 million because that money was not meant to be touched. It was unclear how much of the remaining $4.8 million the agency was demanding to be repaid.

James Kerr, the deputy director of the CMS division that called in the loans, wrote to Oliver that the co-op had already supplied a plan on how it would close out business, adding that "it is now time to commence those wind-down and close-out activities."

Robin Lunge, director of health care reform in the administration of Gov. Peter Shumlin, called the CMS decision disappointing.

In a state that has a number of food, energy and other types of co-ops, Lunge said, "We do have a culture that encourages consumer participation. But they still need to be able to take claims and be there when Vermonters need them."

"We regret this outcome," Kerr wrote.

But he also joined state regulators in pointing to the likely short-term existence of the health co-op. Under legislation passed in 2011, Vermont is planning to move to a publicly-financed, single-payer health insurance system in 2017, likely ending consumers' need for the cooperative.