North Country HealthCare took employees' money for health plan but never paid insurer, lawsuit claims

Multiple employees of North Country HealthCare -- the nonprofit organization that operates community health clinics in Flagstaff and 10 other communities across northern Arizona – have alleged in a federal lawsuit and in conversations with the Arizona Daily Sun that the company has failed to pay workers' health care premiums for at least four months, leaving them with unexpected medical bills and potential debt.

And on Monday, Nov. 24, North Country's employees received an email stating that their health care coverage had been abruptly terminated altogether.

Twelve employees are listed as plaintiffs in the lawsuit filed in the U.S. District Court for the District of Arizona. According to the first amended complaint, submitted to the court Friday, Nov. 21, North Country "has exposed its employees to significant liability for medical expenses." The complaint also accuses the organization of violating the federal Employee Retirement Income Security Act.

Two current North Country employees spoke separately to the Arizona Daily Sun, describing financial problems at the organization extending beyond the health care plan. Both requested anonymity, given the sensitive nature of the situation.

"The level of chaos and dishonesty is astounding," one employee, "Jane," said.

Since she first noticed that her insurance claims were being denied in July, she has made repeated attempts to contact North Country's leadership and the company's head of human resources.

"They don't answer their phone, and they no longer respond to an email," Jane said.

Another employee, "Lisa," said the company has offered "zero transparency." As late as Friday, Nov. 21, health care premium costs were still being deducted from employee paychecks, she said. But Blue Cross Blue Shield, the contracted insurer, hasn't been paid by North Country since at least July and likely earlier.

"My theory is that the employer has not paid their premiums since on or before April," Lisa said.

North Country's current chief operating officer, Adam Hockings, has been unable to explain "where the employee contributions are or if they're being applied to the plan," she added.

She's now facing unanticipated medical bills from her providers totaling over $75,000. Despite that, Lisa considers herself fortunate compared to other employees, some of whom have had to delay or cancel important appointments.

"I'm lucky I'm not fighting for my life or for life-saving procedures," Lisa said.

Jane said she was preparing to take another job but recognized that wouldn't be an option for all employees.

"I'm seeing my way out of it now, but there's some people there that can't find their way out of it," she said.

The organization's executives have been openly talking with employees about filing for Chapter 11 bankruptcy protection and about seeking a merger with or acquisition by another company. Both Jane and Lisa are worried that employees will be left to fend for themselves, possibly facing "life-destroying" debt collection processes.

"Who is the person, or who are the people, who decided the right course of action for the company was to just stop paying the insurance?" Jane asked.

Someone, she added, should be held accountable for the impact on workers' lives.

"I don't understand why anybody in their [expletive] right mind -- excuse my poor choice of language -- would ever put themselves in this situation on an organizational level," Lisa said.

North Country HealthCare Chief Executive Officer Anne Newland told the Arizona Daily Sun, "We are unable to comment on pending litigation." Jon Cook, the current president of the organization's board of directors, could not be reached for comment.

Suppliers, insurer all went unpaid

In its 2024 Form 990 filing with the Internal Revenue Service (a mandatory disclosure for nonprofits), North Country reported approximately $59.4 million in total revenues but $65.9 million in expenses.

Jane and Lisa each told the Arizona Daily Sun that North Country has been making drastic cuts to operating expenses in an attempt to improve its potentially precarious financial position. The company was cut off by its primary supplier, McKesson Medical-Surgical, for unpaid bills earlier this year, they said.

That left clinics scrambling to meet basic needs, such as ibuprofen and gloves, while the company sought alternate vendors willing to extend credit. Basic supply orders still require approval through "multiple channels," even for the simplest items.

Cleaning services, too, were cut back.

"Housekeeping would normally come in the evening five days a week," Lisa explained. "They've been cut down to twice a week."

One of the company's clinics, she claimed, had its water temporarily shut off in October because of missed payments.

"They're trying to nickel and dime here and there, and they're trying to get somebody to acquire them," Jane said.

Executives have not disclosed to employees who that potential buyer might be, citing nondisclosure agreements.

Around July, Jane and Lisa both noticed that Blue Cross Blue Shield had denied their claims because of employer nonpayment of premiums.

"I thought it was just an error or something," Lisa said.

But the problem persisted. Meanwhile, they said, North Country continued to take money out of their paychecks.

There is no record of where that money is going, Lisa said. Her inquiries to human resources have been "completely ignored or deflected." At best, company leaders have offered vague reassurances.

The company held an all-staff meeting on Sept. 22, Lisa recalled, and Newland seemed "taken aback" when employees asked about their insurance.

"It wasn't even on their agenda to discuss the insurance concerns, until we brought it up," she said.

Jane said she was offered a letter from the organization to give to her providers explaining that she was not at fault for the lack of payments.

"A ridiculous letter from North Country is not going to appease them even one day," she said. "This is not how this works."

And she is concerned the company's bankruptcy proceedings might absolve it of any obligation to pay those outstanding bills, or to reimburse employees for the out-of-pocket costs they've incurred.

"My gut tells me that North Country is going to default on Blue Cross Blue Shield if we don't protest it before they file bankruptcy," Jane said.

Lisa said, in addition to the apparent mismanagement of employee health care, she is concerned over the possible misuse of federal and state funding.

North Country is a federally qualified health center, a designation allowing so-called "safety net providers" in underserved, typically rural areas to receive "enhanced reimbursement" from Medicare and Medicaid. The organization receives funding from the federal Department of Health and Human Services.

In its 2024 financial disclosure, North Country reported a total of $13 million in government grants (about 22% of its total revenue for the year).

Lisa claimed that planned clinic visits by a mammogram bus had been canceled last month because of nonpayment.

"That is typically something that's funded through the state and/or federal government," she said.

Although she cannot prove that North Country accepted federal or state funds that it then failed to spend properly, she believes the possibility deserves scrutiny.

"I'm challenging anybody and everybody that has the power and authority to dig into the federal and state funding that's being disbursed and spent," Lisa said.

Federal litigation seeks relief, but employees worry

The employees who filed the lawsuit in federal court are being represented by attorneys Aaron T. Martin and Catie Kelley of Martin Law & Mediation PLLC.

Their complaint alleges North Country "has failed to pay the premiums for the [employee benefit] Plan and has prohibited employees from being able to have their medical claims paid by the Plan."

As a remedy, the suit asks the court to allow plaintiffs to "recover benefits due to them" along with equitable compensation for any losses incurred as a result of North Country's actions. It also asks for "the removal of the current fiduciaries" responsible for overseeing employee benefits, along with the appointment of an independent administrator.

Finally, the suit asks for North Country to be held responsible for the plaintiffs' attorney fees and court costs.

As of Tuesday, Nov. 25, North Country had not responded to the lawsuit, and no attorneys had yet registered their appearance on behalf of the company. There are rumors of additional lawsuits in other jurisdictions, but the Arizona Daily Sun has not yet verified the existence of any other litigation.

Jane, speaking on Tuesday after the company's announcement that all employee health insurance had been canceled, said she found the language of that announcement "belittling." The email blamed the cancellation on an "unexpected event," she said: "That was not unexpected."

Her own medical liabilities are relatively small compared to some other employees.

"I can muddle through getting $4,000 paid off," she said. But just that morning, a co-worker told her that he owed over $60,000.

"This is life-changing for these people," she added. "The emotions are escalating, and that's scary to me."

And Lisa said Blue Cross Blue Shield representatives told her on Tuesday that they've received no official notice of plan termination, leaving the status of employees' coverage -- or their eligibility for alternative insurance plans -- even more uncertain.

Termination of a group health plan without prior written notice is also a likely violation of the Employee Retirement Income Security Act.

After months of confusion, Jane's No. 1 question remains the same -- but even more urgent than before.

"What do we do?" she asked. "They still won't answer that question."

If you are a current or former employee of North Country HealthCare and would like to share your story, you can contact the reporter (from a personal device) via email at [email protected], or via Signal at mclaughlin.42.