$1.2 Billion In Loans to ACA Health Insurance Co-Ops May Be A Loss, Report Warns

The failures of a dozen non­profit health insurance plans created by the Affordable Care Act could cost the government up to $1.2 billion, according to a harsh new congressional report that concludes federal officials ignored early warnings about the plans’ fragility and moved in too late as problems arose.

The report, released Thursday by a Senate investigations panel, says that the bulk of those loans are unlikely to be recovered, with some plans unable to pay “a substantial amount of money” they still owe doctors and hospitals for members’ care.

Nearly three-quarters of a million people in 14 states were forced to scramble for new insurance coverage as the plans shut down last year, voluntarily or under regulators’ orders.

“These failed CO-OPs were a costly experiment gone wrong, and real people got hurt — including the more than 700,000 Americans who lost their health plans,” the panel’s chairman, Sen. Rob Portman (R-Ohio), said as he opened a hearing Thursday to review the problems.

The Consumer Oriented and Operated Plan program was a part of the health-care law intended to foster a new breed of coverage that would serve as an alternative to traditional insurers. Proponents said the co-ops never had a fair chance to compete, with funding for them cut up front. That blow was followed by federal health officials’ decision last fall to pay just 12.5 percent of what the plans and other insurers were owed under a different part of the law designed to balance the risk of covering healthy patients vs. sick ones.

The new report says the Department of Health and Human Services was told early by its outside financial consultant that the 12 co-ops’ business plans and financial forecasts were inadequate, incomplete or based on unsupported assumptions — and yet officials approved loans anyway.

After that, the report says, HHS failed to monitor the co-ops’ status despite being aware of their “severe financial distress,” continued to disburse loans and allowed them to list anticipated payments through the ACA risk-balancing program as assets even after getting “credible warnings that those payments would not materialize.”

The report says federal officials were negligent in their oversight in several ways. Not only were the failed plans’ financial losses beyond “even the worst-case loss projections” they’d included in their loan applications to HHS, but their enrollment numbers were similarly off base.

“HHS was aware of these problems in early 2014, but took no correction action,” the report charges. Moreover, some loan disbursements were accelerated and additional amounts approved for several plans.

In all, for every $1 that HHS sent the 12 failed plans in 2014-2015, they lost about $1.65, according to the report. “None of the failed CO-OPs have repaid a single dollar, principal or interest, of the $1.2 billion in federal solvency and start-up loans they received,” it says. “Our investigation suggests no significant share of those loans ever will be repaid based on the latest balance sheets we obtained.”

Some hospitals and doctors may never get the reimbursement they are owed, the report concludes. In New York state, for example, the now-shuttered Health Republic Insurance of New York had $380 million in unpaid claims at the end of 2015 and just $158 million in assets.

In his prepared remarks to the committee, the acting director of the Centers for Medicare and Medicaid Services (CMS), which oversees the co-ops, said their challenges should be viewed as “a small-business start-up problem,” not as a problem inherent to the program itself.

Trial and error is always part of the process, Andy Slavitt said. “In this situation, with the limited capital available and competing against giants, the co-ops have had very little room for error.”

Slavitt defended the HHS oversight process, as did Kevin Counihan, director of HHS’s Center for Consumer Information and Insurance Oversight. Counihan said CMS is reviewing the latest financial and enrollment figures for the remaining 11 co-ops. “Plan year 2016 is a critical year,” he said in his prepared testimony. “They must move from start-up to stability and improve their financial capabilities.”

Counihan also said CMS is working with officials at the Justice Department to recover the federal loan money.

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