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Moda Health Plans officials initially resisted state regulators' demand for more information on the price of its arena-naming rights sponsorship deal with Portland Trail Blazers. The state's supervision of the struggling company lasted just 10 days before Moda announced a $179 million recapitalization plan that would restore its independence. Photo courtesy of the Moda Center

(Courtesy of Moda Center)

It was the last straw for Moda Health Plans.

After monitoring the struggling health insurer for months, Oregon regulators learned Jan. 25 that the Portland company's annual losses had doubled in the fourth quarter of 2015. Regulators were infuriated they received the news not from Moda itself, but from fellow regulators in Alaska.

Two days later, state officials showed up at the Moda executive suite at downtown Portland's ODS Tower with an order forcing the company into state supervision. Until further notice, regulators informed Moda chief executive Robert Gootee and other stunned executives, every move they made would be subject to government approval.

But the largest, most ambitious state move to rein in an insurance company in modern times didn't last long. Faced with the logistical nightmare of moving hundreds of thousands of customers to new insurance carriers, state officials blinked.

"Moda was too complex to fail," said Patrick Allen, director of the Oregon Department of Consumer and Business Services. "It became increasingly clear how big an impact this would have on thousands of Oregonians."

Less than two weeks later, state regulators backed off and granted Moda a second lease on life. Moda has since raised $165 million in fresh capital as demanded by regulators.

The story of the state's 10-day intervention and near takeover of the state's second-largest health insurer is still bound up in secrecy. Neither the state nor Moda will say much about how exactly the insurer raised new money. But some details are becoming public, in part due to Moda's public filings and the state's release this week of thousands of emails in response to reporters' public records requests.

In an interview Thursday, Allen said taking Moda into supervision was the right thing to do given the company's financial problems. But he said ultimately backing off and allowing Moda to remain independent was also the correct call.

"Doing the detailed planning on a receivership made it clear that it could be a really negative outcome for a lot of people," he said.

Moda remains tight-lipped. "Yes, we would have preferred this sequence of events had not proved necessary," company spokesman Jonathan Nicholas said in a written statement. "We understand the need for a strong regulatory process and we have earnestly supported it during this extraordinary period."

Moda's travails have been widely reported. It bet big on new markets created by the Affordable Care Act, aggressively pricing its coverage to gain market share. It proved a disastrous course.

The federal government reneged on promised financial assistance to qualifying insurance companies. Instead of $82 million it anticipated in so-called Risk Corridor funds, Moda received $10.4 million.

Congressional Republicans boasted of their success in defunding the Risk Corridor program, part of their opposition to the Affordable Care Act. "That was just flat intentional sabotage," Allen said.

Even so, Moda probably could have coped with the loss of the federal money if it priced its insurance properly. Gootee admitted in interviews last year the company didn't charge near enough to cover the demands of its new customers, some of whom had been shut out of the health insurance market for years because of pre-existing conditions.

Through the first three quarters of 2015, Moda had lost $30 million. As 2016 began, Oregon regulators braced for more bad news in the company's year-end results.

On Jan. 25, the news hit. Moda lost more than $58 million in 2015, much of in its fourth quarter. Moda was also running dangerously low on capital. The company ate through more than $100 million in cash reserves in 2015, ending the year with just $21.6 million.

Oregon officials fumed that they got the news from Alaska Insurance Commissioner Lori Wing-Heier.

"We were extremely upset to learn of a material development like this not from the company but from a fellow regulator," Allen said. "The company knew it would be a matter of grave concern."

Two days later, Oregon took Moda into supervision without a peep of opposition from company executives. "The discussions at that point were less contentious than we expected," Allen said. Regulators Gave Moda three options: To raise a slew of new money, to downsize significantly or to do nothing, in which case a receiver would be appointed to take control of the company and either sell it or liquidate the assets.

Moda publicly said it intended to downsize -- to exit certain unprofitable lines of business like the individual market created by the Affordable Care Act.

"I thought we were headed for receivership," Allen said. "I didn't see any other way."

Newly released emails show the state was in negotiation to retain David Wilson, chief executive of a San Francisco financial restructuring firm, to serve as receiver. The state told Wilson in a Feb. 3 letter that it tentatively intended to put Moda into receivership on Feb. 8.

In the insurance industry, state regulators have the authority to appoint a receiver to take control of insolvent carriers. Receivers could restructure a company and attempt to save it or sell off the assets.

But even as they laid the tracks for a full-fledged takeover, state regulators had significant qualms. They heard from customers concerned about having to get new insurance. Some had just signed up with Moda in the recently concluded open-enrollment period.

These were uncharted waters. Insurance company receiverships are rare in Oregon. And the stakes were high.

The company has 347,000 customers. It runs the Eastern Oregon coordinated care organization, which serves 48,000 Oregon Medicaid members. It also is a pivotal insurance carrier for more than 43,000 teachers and other public employees.

Allen ticked off the real-world impacts of putting Moda out of business:

"How do you move people to other carriers," he said. "What about money customers had already spent in deductibles and co-pays? What about people with treatment underway who find that their doctor is suddenly out of network?"

State officials knew of these concerns when they took Moda into supervision, Allen concedes. But they came into harsh focus as the receivership loomed.

Regulators went back to Moda executives and called time out. Was there any other way?

Moda, to regulators' relief, said yes. The company vowed to raise millions in additional capital.

Moda, which started as a dental insurance company and still operates in that niche, turned to its compatriots in the dental business for rescue. Among the subsequent transactions closed or in-process are:

-- The sale for an undisclosed sum of two in-house dental insurance companies, Dentists Benefits Insurance Co. and Northwest Dentists Insurance Co., to a Sacramento company.

-- A $3 million surplus note from Delta Dental of Minnesota and $10 million surplus note from its parent, Moda Inc., according to state regulators. (These are on top of the $50 million Moda borrowed last year from Moda Inc. and the $50 million it borrowed in 2014 from Oregon Health and Sciences University.)

-- The sale of an office building in Milwaukie. A partnership of investors led by Tim Boyle, chief executive of Columbia Sportswear, paid $15.2 million.

-- And a loan of an undisclosed sum, for which Moda put up as security its right to the federal Risk Corridor money it never received. State Uniform Commercial Code filings indicate the lender is Delta Dental of California, a dental benefits carrier.

Moda operates the Delta Dental franchise in Oregon.

In all, Moda claimed as of late April it had raised more than $165 million. "We are pleased that our corporate enterprise has the resources to support the ups and downs of healthcare transformation," Moda spokesman Nicholas said.

Not all the transactions are final. Allen said the state could and would step in if some element of the recapitalization plan goes awry. But as of now, state officials say Moda is in full compliance with the february consent decree.

-- Jeff Manning and Natasha Rausch

503-294-7606, jmanning@oregonian.com