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.”

Slavitt said that, in hindsight, he thinks CMS should have acted earlier on CoOportunity, the CO-OP that failed at the end of 2014. But regulators were cautious because they knew that the PPACA exchange system and the CO-OPs had had early startup problems, and they hoped the chance to set new 2015 rates would improve their situation.

“Startup health insurance companies are very, very high-risk,” Counihan said. “They take five years to mature. It’s dynamic. It’s complicated.”

The staff of the Republican subcommittee members prepared a report that gives some information about the failed CO-OPs’ access to insurance company guaranty funds. At six of the failed CO-OPs, medical claims obligations appear to exceed assets, and members of three of those CO-OPs — the CO-OPs in Kentucky, Louisiana and New York — have no access to guaranty funds, according to the Republican subcommittee members’ aides.

The New York CO-OP alone appears to have more than $222 million more in medical claim obligations than in assets, according to the aides.

Guaranty funds in Iowa and Nebraska have already paid $114 million in bills for CoOportunity members. The CO-OP in Colorado is expecting its state’s guaranty fund to pay $6.6 million in claims, and the CO-OP in South Carolina is expecting its state’s guaranty fund to cover $48 million in claims.

“These guaranty fund payments are not, however, a proverbial free lunch,” the aides write, citing a report from analysts at the American Enterprise Institute and the Galen Institute. “To the contrary, large obligations charged to guaranty funds mean that, within those states, surviving companies — or actually their policy holders — will pay for the co-ops’ losses, ultimately in the form of higher premiums.”

Sen. Ben Sasse, R-Neb., said he is not trying to identify any villains. But “the more you look at these numbers, the less plausible it is that anyone knew what they were doing,” Sasse said.

See also:

Watchdog: CMS is giving 4 CO-OPs’ finances extra attention

Inspectors insist CO-OPs are policed

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

   

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