Failed health plan had $2,400 in unpaid claims per enrollee

South Carolina Health Cooperative was a nonprofit, member-owned MEWA formed outside the PPACA system. Because it was not classified as a health plan under South Carolina law, its members were not eligible for guaranty fund protection, Farmer says.

State insurance regulators learned in October 2014 about possible problems with two letters of credit backing the MEWA's ability to pay claims and that put the MEWA in administrative supervision, Farmer says. Since then, Farmer says, the MEWA has filed a demand for payment under an excess stop-loss policy, but the insurers that wrote that policy have refused to pay the claim.

The employers that joined the MEWA had "hold harmless agreements" that shielded them from MEWA claims, but Farmer says rehabilitators may eventually be able to get some help from the employers with paying unpaid claims.

Private corporate funding provided $5 million in cash to help window down the MEWA's affairs, and the rehabilitators have used $2.7 million of the money to pay claims, Farmer says.

Michael J. FitzGibbons is the special deputy rehabilitator in charge of managing the rehabilitation effort.

The rehabilitation team has given claims secured by MEWA assets top priority, the remaining provider claims second priority, some federal government claims third priority, and general creditor claims fourth priority, Farmer says.

"At this time, the rehabilitator does not anticipate that there will be sufficient funds to cover any general creditor claims," Farmer says in the motion.

See also: S&P sees PPACA risk corridors program funding gap