Watchdog says CO-OP managers fumbled asset recovery ball

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