The Meritus board said CMS wanted to get its cash back before the doctors and hospitals who treated the plan enrollees were paid. (Photo: David Lee/Thinkstock)

When the federal Centers for Medicare & Medicaid Services (CMS) tried to help 12 struggling Consumer Oriented and Operated Plan carriers survive in 2015, it might have hurt its efforts to get cash out of their corpses.

Officials at the U.S. Department of Health and Human Services Office of Inspector General, an agency that keeps tabs on HHS operations, talk about that problem in a report on a CMS move to let struggling CO-OP carriers convert startup loans into surplus notes.

CMS is part of HHS.

Moderate Senate Democrats put billions of dollars in CO-OP startup loan funding in the Affordable Care Act in 2009, hoping the loans would increase the level of competition in the health insurance market by creating new member-owned, nonprofit health insurers.

When the senators who backed the CO-OP program left the Senate, Republicans cut CO-OP funding. HHS officials put strict limits on CO-OP operations.

One CO-OP failed in late 2014, soon after it came to life. Other CO-OPs were reporting low capital levels in 2015. To help the insurers boost their official capital levels, and to keep state regulators from shutting them down, HHS let the insurers convert the CO-OP startup loans to surplus notes.

Letting a CO-OP convert a startup loan from HHS into a surplus note was legal, officials at the HHS inspector general’s office write in the report.

One problem is that the one-time boost did little to keep CO-OPs from failing, officials say.

Four of the 12 CO-OPs that went through startup loan conversions had shut down by Dec. 31, 2015, officials say. At least four more have shut down or are in the process of shutting down.

Another problem is that the conversions changed how CMS will rank when it tries to recover assets from the estates of the failed CO-OPs through insolvency proceedings, officials say.

Related: CMS hopes for cash from failed CO-OPs’ vendors

In Tempe, Arizona, for example, a state court recently issued an order that puts Meritus Health Partners, a CO-OP carrier, in a receivership process, under the supervision of the Arizona Department of Insurance.

CMS ranked fourth in terms of priority before the loan-to-note conversion, and it now ranks 10th, officials say.

In other states, the conversions put CMS two to seven steps lower on the priority ladder, officials say.

The Meritus board said in August 2015 that CMS was being aggressive about trying to use the priority status. The board added that it let the CO-OP enter receivership in part because, otherwise, CMS would have tried to get its cash back before letting the CO-OP pay doctors and hospitals for treating patients.

One report appendix includes a memo to CO-OP project officers from Kelly O’Brien, who is identified as the CO-OP division director.

O’Brien, who earned a bachelor’s degree in journalism in 1999 and a master’s degree in business in 2010, first began working in health policy as a consumer support analyst at CMS in June 2010, according to her LinkedIn entry. From January 2011 through August 2011, she worked as the analyst responsible for drafting Affordable Care Act risk-adjustment program regulations. She became director of the CO-OP program in August 2013.

Related:

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