GOP subcommittee chairman slams oversight of Obamacare co-ops
The Obama administration’s foray into the health insurance start-up business has been an “unfortunate adventure,” according to U.S. Sen. Rob Portman (R-OH), following a recent subcommittee investigation into the failure of 12 of the 23 nonprofit health insurance co-ops created under Obamacare.
Specifically, the health insurance co-ops under Obamacare -- also known as the Affordable Care Act (ACA) -- collectively received $2.4 billion in loans from the U.S. Department of Health and Human Services (HHS). The 12 that have failed so far received $1.2 billion in taxpayer money that likely will not ever be recouped, Portman recently said.
The 12 co-ops’ subsequent failure in turn forced 740,000 people across 14 states to lose their health insurance and scramble to get replacement coverage, he said.
Portman is the chairman of the Senate Permanent Subcommittee on Investigations, which conducted an investigation and recently released the Majority Staff Report: Failure of the Affordable Care Act Insurance CO-OPs.
“Over the last nine months, our subcommittee investigated those failures,” he said. “We wanted to know whether HHS, when it played the role of angel investor, made good or bad decisions with taxpayer money. The answer is bad decisions.”
In fact, Portman believes HHS was aware of serious problems concerning the failed co-ops’ enrollment strategies, pricing, financial forecasts and management -- before the department ever approved their initial loans.
“Once the co-ops got going in 2014, things went south in a hurry, both in terms of financial losses and enrollment figures that wildly deviated from the co-ops’ projections,” Portman said.
He went on to say that the failed co-ops ultimately racked up $376 million in 2014 losses and more than $1 billion in 2015 losses, while HHS took no corrective action for more than a year.
Andy Slavitt, acting administrator for the Centers for Medicare and Medicaid Services (CMS), testified during the hearing that HHS did not have adequate performance information to give to the government’s co-op oversight team, which was charged with evaluating the financial positions of the 12 co-ops that eventually failed.
In a nutshell, Slavitt said, the co-ops had very little room for error in competing against giants while having limited available capital.
“Their challenges should not be viewed as a co-op problem, but as a small business start-up problem in a very difficult industry,” he said. “Unlike almost every other business, in insurance you get to make one pricing decision per year, and you live to see the outcome. This is why our decisions to shut down the co-ops were largely made prior to the third open enrollment period.”
Slavitt added that the strongest remaining tool from oversight was to call the loans.
“l can tell you we did not take (the decision) lightly, as it had ramifications for disrupting consumers and certainly would not have increased the collectibility of the co-op loans,” he said.
But Portman called Slavitt’s assessment inadequate and said HHS did receive sufficient and timely financial data with which to make decisions.
“HHS had monthly financial data to work with,” Portman said. “You received the quarterly financial reports -- quarter one by mid May, quarter two by mid August -- so there was plenty of time to put the failed co-ops on a corrective action plan or to cut your losses before sending them in to open enrollment in 2015. So I just don’t think that’s accurate.”
Portman continued by saying that of the tools suggested to HHS to deal with the co-ops -- such as corrective action plans, enhanced oversight plans and the termination course -- none were used.
“How did this happen?” he said. “Throughout 2014, HHS did not use the tools at all with respect to these failed co-ops. In fact, five of those 12 co-ops we talked about were never put on a corrective action or enhanced oversight plan, despite the fact that you were receiving these regular monthly and quarterly financial reports showing massive losses.”
By the second quarter of 2014, Portman added, six of the 12 co-ops reported net income losses that exceeded the worst case scenario in their own business plans. By the end of the year, 10 of the 12 co-ops had exceeded their projected worst case scenario losses for 2014 by at least 300 percent.
“I just don’t think it’s accurate to say that you didn’t have information and that there was a lag time that made it impossible to respond -- it’s just not accurate,” Portman said. “The loan agreement says enhanced oversight plans should be used when a co-op 'consistently underperforms relative to its business plan.' That’s in the agreement. How could consistent monthly losses exceeding the worst case scenario by 300 percent not be considered underperformance? I guess I would ask you that, Mr. Slavitt.”
In response, Slavitt called Portman’s criticism fair and said that, in retrospect, things could have been done differently.