The remaining Consumer Operated and Oriented Plan (CO-OP) carriers need to do what they can to save themselves, and they could also use some help from federal regulators.
Andy Slavitt, the acting administrator of the Centers for Medicare & Medicaid Services (CMS), the arm of the U.S. Department of Health and Human Services (HHS) in charge of the CO-OPs, delivered that message today at a hearing organized by the Senate Finance Committee.
The committee held the hearing to look at federal oversight over the CO-OP program.
Drafters of the Patient Protection and Affordable Care Act (PPACA) provided the CO-OP startup loan funding in an effort to increase competition in the private health insurance market by creating a new breed of nonprofit, member-owned insurers. One of the most visible advocates of the CO-OP concept was Max Baucus, who, when PPACA was being shaped, was chairman of the Finance Committee.
Since October 2013, when the CO-OPs opened their doors, 12 have shut down, or started the process of shutting down.
“The remaining 11 CO-OPs, serving 13 states, are being monitored closely,” Slavitt said.
Slavitt, a former UnitedHealth Group Inc. (NYSE:UNH) executive, noted that CMS made the decisions about the CO-OP program rules and loan applications before he came aboard, in July 2015.
Sen. Charles Grassley, R-Iowa, a current member of the committee, said he represents one of the two home states of the first CO-OPs to shut down, CoOportunity.
“By any objective standard, CMS has failed in overseeing the CO-OP program,” Grassley said.
Slavitt told Grassley that the CoOportunity situation “turned out to be a very important shaping event” in how CMS officials see CO-OP risk.
CoOportunity went from looking healthy one quarter to looking sick two quarters later, Slavitt said.
For a sampling of other things Slavitt said about the CO-OP situation, read on.
1. Slavitt wants to ease the rules that have kept CO-OPs from raising capital.
In the past, HHS has interpreted the PPACA CO-OP provision to mean that a CO-OP cannot have any health insurance company executives on its board; cannot be owned even by a nonprofit, member-owned health insurer created before the PPACA CO-OP program came to life; and cannot ever sell any of its assets.
In practice, the prohibition on the sale of CO-OP assets has kept CO-OPs from using their assets as loan collateral.
“We need to make it easier for CO-OPs to attract outside capital, or a merger partner,” Slavitt testified. ”I want to loosen up the capital rules so we can lengthen the runway.”
See also: PPACA: HHS Completes CO-OP Regulations
2. Slavitt was careful when he gave his prognosis for the surviving CO-OPs.
CMS officials worked closely with state insurance regulators to shut down any CO-OPs that appeared to be at risk of shutting down in the middle of 2016, Slavitt said.
The CO-OPs still in the market “have every opportunity to be successful,” Slavitt said.
To take advantage of that opportunity, a CO-OP needs to hold enrollment to levels that its capital base will support, be vigilant about managing cash, keep current on paying claims, and use what it has learned from earlier plan years to get better, more cost-effective deals from its vendors, Slavitt said.
Given that CO-OPs are competing with insurers with “billions and billions of dollars, there’s a very thin margin for error,” Slavitt said.
But Slavitt said he would like to see the CO-OPs succeed because they have done a great job of adding competition in some markets, testing new ideas, and serving people who may not have been well-served by other carriers.
See also: Consultant: CO-OP Plans Have a Chance
3. Slavitt says getting CO-OP loan money back is a high priority.
Slavitt said CMS has already conducted 27 CO-OP reviews and 16 on-site visits. He said one of the first things he did when he took charge at CMS was to hire an outside firm to conduct CO-OP reviews.
CMS recognizes that it has a fiduciary responsibility to try to recover the CO-OP startup cash HHS lent to the organizers of the failed CO-OPs, and collecting the loan money owed is a high priority, Slavitt said.
Slavitt said sources of funds could include any cash failed CO-OPs have left over after they finish paying claims and any money the failed CO-OPs could collect from the PPACA risk corridors program, the PPACA reinsurance program or the PPACA risk adjustment program.
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