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.