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Senate Slams HHS on|Loans to Failed Insurers

WASHINGTON (CN) - A series of "bad decisions" led the Department of Health and Human Services to hand out $1.2 billion in loans to 12 nonprofit health insurers, even as the organizations showed signs of serious financial instability, a Senate report released Thursday said.

Starting in January 2014, the department gave $2.4 billion in loans to 23 so-called co-ops, a network of nonprofit insurers created under the consumer operated and oriented plan program of President Barack Obama's health care law meant to give consumers a public option for healthcare.

But Health and Human Services ignored warnings from an independent analyst about the co-ops' questionable business plans, waited too long to correct the financial problems that cropped up as a result and continued funneling loans to the failing insurers, according to a report from the Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations.

The department stood by as the co-ops counted as assets "massive uncertain payments" from the risk corridor program, even though researchers warned the department there was not enough money in the fund to cover all of the loses the co-ops were seeing, according to the report.

The risk corridor program is a fund established under "Obamacare" that banks money from profitable insurers to help buoy those suffering losses.

By the end of 2014, the 12 doomed co-ops had gone over their projected worst-case-scenarios by more than $263 million, four times more than what they initially projected. Nevertheless, Health and Human Services continued paying out $848 million in loans even as the co-ops crumbled, the report said.

The co-ops faced two polarized problems with enrollment that placed stress on their budgets five co-enrolled too few people while another five signed up too many, the subcommittee found.

The former problem meant the organizations could not rake in enough money to cover their expenses, while the latter stressed their budgets by making them paying out too many claims.

Compounding this were problems with the co-ops' enrollment, budget planning and management strategies, which auditing firm Deloitte Consulting identified after Health and Human Services hired it to look into the programs, according to the report.

The co-ops made unsupported assumptions about their premiums and did not understand the health demographics of the people they would be insuring. Others also submitted "unreasonable" budgets and omitted some expenses, Deloitte found, according to the report.

Management issues also permeated the co-ops, as several did not identify their senior leadership team, as required by Health and Human Services, and others put up management with questionable qualifications for the job, according to the report.

For example, the Louisiana and Kentucky co-ops tapped a leader whom the Securities and Exchange Commission had charged with insider trading when he was CEO of a health care management firm in the 1990s, the report found.

The co-ops failures started last February, with CoOpportunity Health in Iowa and Nebraska, and continued through November, when Michigan Consumers Healthcare co-op was placed on rehabilitation. The $1.2 billion in federal loans the insurers received are unlikely to ever be repaid, the report said.

The failed organizations are liable for $1.13 billion, which exceeds their reported assets by 93 percent, Sen. Rob Portman, R- Ohio, said at a hearing on the report Thursday.

Portman said this shortfall would fall directly on the shoulders of taxpayers and was less optimistic than administration officials that any of the loans would see their way back to the government.


"First of all, we're talking about taxpayer money," Portman said at the hearing. "$1.2 billion that has been lost, 700,000 people-plus losing their healthcare. And somehow you guys seem to be saying that's just fine."

But Andy Slavitt, acting administrator for the Centers for Medicare and Medicaid Services, questioned the shortfall numbers in the report, saying he had not had enough time to review it before the hearing.

"The numbers you quoted me of assets and liabilities, with due respect, I need some time to review this report," Slavitt said. "Some of our staff got to review it in camera yesterday and I am not willing to accept that those are the accurate numbers until I've had a chance to review them."

Slavitt blamed the co-ops' failures on the uphill battle all startups, and especially those in the healthcare industry, face. Insurers have a harder time than most businesses setting prices and can only do so once a year, making the trial and error process that is part of business success difficult, he said.

"The challenges the co-ops have had should not be viewed as a co-op problem but as a small business start up problem within a very difficult industry," Slavitt said. "And I have to just say that all of the small companies experience similar challenges, co-op or non-co-op."

Kevin Counihan, marketplace chief executive officer and deputy administrator for the Centers for Medicare and Medicaid Services, said the co-ops had to wait until after the Affordable Care Act's first enrollment period to be able to accurately predict what their rates should be.

But Portman pushed back on the claims the co-ops simply suffered the same fate as most new businesses, saying they had a stepladder most companies could only dream of.

"These co-ops failed at a much higher rate than the average start up," Portman said. "In fact, they did that despite the fact they had something that no start up I've ever known has, which is millions of dollars of subsidized government loans."

Slavitt and Counihan also refuted the committee's claim that most of the loans paid out to co-ops were never to be seen again.

When Sen. Ben Sasse, R-Neb., asked if he expected to get any of the loans back, Slavitt said they expected to get some returns, and that the Department of Justice is aiding the government in pursuing them.

"I think it will take some time to play this out, in the case of all of these situations," Slavitt said. "Obviously we don't expect 100 percent or anything close to that, but we are expecting that between those sources ... we will refund the coverage to the taxpayers."

But Sasse seemed to share the report's "dire" view of what would happen to the unpaid loans.

"Would a fair bet on over/under be 100 bucks?" Sasse asked. "I mean, they're not going to repay any of these monies."

Republicans in Congress have used the co-ops' failure in their repeated attacks on "Obamacare," President Barack Obama's signature healthcare law.

Sen Ron Johnson, R-Wis., used much of his questioning at Thursday's hearing to make this point, attacking the law as ineffective.

While Portman pushed Slavitt and Counihan on Health and Human Services' lack of accountability from the co-ops, he did acknowledge they took some responsibility for the breakdown at the hearing, for which he thanked them.

"What we were looking for today is someone to take accountability for it, we heard a little of that and appreciate that," Portman said to close the hearing. "But this is not the fault of these consumers, it is not the fault of the states. This was the fault of HHS, the way the program was structured."

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