Failed South Carolina co-op sues feds over reinsurance payments

Consumers' Choice Health Insurance Co., the failed insurance co-op for South Carolina, has sued the federal government, alleging it's illegally trying to collect loan repayments from the co-op.

In a suit filed this week in South Carolina federal court, Consumers' Choice Health Insurance Co.'s former liquidator Raymond Farmer alleged the CMS can't legally collect loan repayments on co-ops under state law until the insurer returns losses experienced from risk-mitigation program participants.

Consumers' Choice claims the feds owe it $37 million in reinsurance payments under the Affordable Care Act.

An ACA provision requires the CMS abide by state laws when it seeks repayment of loans from co-ops. South Carolina law doesn't allow lenders to offset debt from loans until it fulfills its own financial obligations.

The federal government appropriated billions of dollars to fund co-ops across the country. South Carolina received an $18 million start-up loan and a $68 million solvency loan from the government to form Consumers' Choice.

Consumers' Choice claims the CMS owes it $36.9 million under the reinsurance program. The complaint alleges that the CMS has sent several letters to Consumers' Choice since 2016 saying it will offset millions of dollars it owes Consumer Choice to account for loan repayments.

"Any administrative hold or set-off by (the CMS) or any other federal agency is improper because Consumers' Choice is owed more than all of the claimed debts even allegedly subject to set-off," the complaint said.

Consumers' Choice was one of many insurance co-ops formed under the Affordable Care Act to fold. Consumers' Choice stopped selling policies in 2016, leaving 67,000 individuals and business customers without coverage.

The lawsuit claims the co-op was forced to shut down because the CMS would not re-pay losses suffered under the reinsurance program.