CMS hopes for cash from failed CO-OPs' vendors

Officials at the Centers for Medicare & Medicaid Services (CMS) are hoping lawsuits against Consumer Operated and Oriented Plan (CO-OP) vendors will help CMS recover some of the loan money at risk due to CO-OP failures.

Andy Slavitt, the acting CMS administrator, listed lawsuit recoveries as one of the possible sources of CO-OP loan repayment cash today at a hearing on the CO-OPs organized by the Senate Homeland Security and Governmental Affairs investigations subcommittee.

“CO-OPs have felt poorly served by some of their vendors,” Slavitt said. The CMS administrator said he did not want to give details because he did not want to affect the negotiating position of the U.S. Department of Justice.

CO-OPs have done business with actuarial consulting firms, other types of consulting firms, information technology firms, provider network companies, and plan administration companies.

See also: PPACA World: Legal work heats up

CMS, a division of the U.S. Department of Health and Human Services (HHS), also sees any cash a failed CO-OP has after paying claims as a potential source of a recovery money, and any cash a CO-OP is owed by the PPACA reinsurance, risk-adjustment or risk corridors programs as a third source of recovery money, according to Slavitt.

Drafters of the Patient Protection and Affordable Care Act (PPACA) provided CO-OP startup loan money in an effort to promote the start of nonprofit, member-owned health coverage issuers that would increase competition in the private health insurance market. Twelve of the 23 CO-OPs that used program loan money have failed, and all but one of the 11 surviving CO-OPs posted a net loss for the first half of 2015, according to Scott Harrington, a University of Pennsylvania business school professor who testified at the hearing. One CO-OP, CoOportunity, closed down in late 2014 and most of the rest closed in late 2015.

The 12 failed CO-OPs had $1.4 billion in reported assets by mid-2015 and $1.9 billion in obligations, according to Harrington.

Slavitt and Kevin Counihan, the chief executive officer of the CMS Marketplace program — or PPACA exchange program — said the CO-OPs’ problems were partly due to the similar problems that any health insurance startup faces, and partly due to a lag in getting information about enrollee behavior.

“In insurance, you know your revenues relatively quickly,” Counihan said. “What you don’t know for some time is your real claim costs.”

See also: Feds toughen CO-OP plan reporting rules

Meanwhile, Sen. Rob Portman, R-Ore., the subcommittee chairman, said CMS received monthly financial data, and that it had quarterly reports in hand in May 2014. Those reports, which were available by the end of 2014, showed that most of the CO-OPs that failed by the end of 2015 had already lost far more money than the original worst-case scenario projections that their business plans showed, Portman said.

“I just don’t think it’s accurate for you to say you didn’t have information,” Portman said. “It’s just not accurate.”