WASHINGTON — Republican senators charged Thursday that the Obama administration had missed warning signs of financial distress at nonprofit health insurance cooperatives that failed last year, but a top federal official denied that the government had been negligent in its supervision.
The co-ops were created with federal money under the Affordable Care Act, which was adopted in 2010. Democrats hoped the co-ops would increase competition in state insurance markets, creating additional choices for consumers and holding down premiums. But 12 of the 23 co-ops have shut down, disrupting coverage for more than a half-million consumers, many of whom had to search for other providers of insurance for 2016. And many of the remaining co-ops continue to lose money.
Health Republic Insurance of New York, with an enrollment of more than 155,000 people, was by far the biggest co-op to close. Doctors say they have been left with unpaid claims for services provided to some co-op members. The federal government has awarded $2.5 billion in loans to the co-ops, including at least $1.2 billion to those that are shutting down. At a hearing of the Senate Finance Committee on Thursday, Senator Charles E. Grassley, Republican of Iowa, said the administration “failed in overseeing the co-op program,” even though “warning signs were there” as early as 2012. Federal health officials, he said, failed to respond promptly to concerns expressed by federal auditors and state insurance regulators who scrutinized the co-ops, including one that collapsed in Iowa and Nebraska.
Senator Rob Portman, Republican of Ohio, said that data submitted to the government by the co-ops raised “financial red flags” that should have caused alarm. Instead, he said, the Department of Health and Human Services continued to disburse federal loan money to the co-ops.
“H.H.S. blew it,” Mr. Portman said. “This was terrible management.”
Andrew M. Slavitt, the acting administrator of the federal Centers for Medicare and Medicaid Services, told the committee that the administration had increased monitoring of the co-ops. “In 2015,” he said, “we conducted 27 financial and operational reviews and 16 in-person visits and had 43 formal communications, not to mention hundreds of phone calls” with co-op executives. Asked if any of the remaining co-ops would fail this year, Mr. Slavitt did not answer directly, but he said the co-ops had “every opportunity to be successful” in 2016. He noted that the co-ops had to create networks of doctors and hospitals from scratch and were typically small businesses competing against big insurance companies with decades of experience.
Mr. Slavitt said the administration would try to make it easier for co-ops to raise capital and attract outside investors or merger partners. The health law stipulates that co-ops must be governed by their members and that any profits must be used to lower premiums or improve benefits. Federal guidelines say that “a co-op may not merge with a for-profit entity.” Mr. Slavitt said the Obama administration was trying to protect co-op members and taxpayers. “We will use every available tool to recoup federal funding,” Mr. Slavitt said, but he offered no estimate of how much money the government might recover from loans to co-ops.
Consumers who were enrolled in co-ops that shut down at the end of 2015 “have access to a special enrollment period, and are able to shop for 2016 coverage on the marketplace until Feb. 28,” four weeks after the deadline for other people, he said.
The hearing was something of an audition for Mr. Slavitt. President Obama nominated him to be administrator of the Medicare and Medicaid agency in July, but the Senate Finance Committee has not held a confirmation hearing and is still reviewing his qualifications.
Senator Orrin G. Hatch, Republican of Utah and the chairman of the Finance Committee, said that some co-ops had set premiums far below the prices of their competitors and incurred costs that greatly exceeded revenue. Moreover, he said, the administration obscured the co-ops’ problems by allowing them, in effect, to count some of their federal loans as assets rather than liabilities. “As a result,” Mr. Hatch said, “hundreds of thousands of Americans have lost or will lose their health insurance, and taxpayers are still on the hook.”
Senator Ron Wyden of Oregon, the senior Democrat on the Finance Committee, said some of the co-ops had been victims of politics. “Even though the Supreme Court has upheld the Affordable Care Act multiple times,” Mr. Wyden said, “the political battles have continued, and co-ops are one of the big targets.”