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Health Republic

Federal officials unsure how much will be recouped from failed health co-ops

Brian J. Tumulty
USA TODAY
In this photo taken Nov. 18, 2015, a business logo adorns the wall outside the offices of Health Republic Insurance of New York.

WASHINGTON – Federal officials still don't how much they will recoup of  the $1.2 billion they spent on loans and startup costs for a dozen health care cooperatives that later failed, a top regulator said Thursday.

“We are working closely with the Department of Justice,’’ Andy Slavitt, acting administrator for the Centers for Medicare and Medicaid Services, told the Senate Finance Committee. “We have taken the first step calling the loans."

Slavitt's agency has jurisdiction over the health care co-ops (for consumer operated and oriented health plans), created under the 2010 Affordable Care Act. Federal regulators are looking at making claims on money still owed to the failed co-ops and can recover additional money through audits.

Health Republic of New York, with an enrollment of about 200,000, was the largest co-op to go under. It ceased operations at the end of November. New York state officials scrambled to cover the co-op's patients for December, before a new enrollment year began.

Health Republic is latest health care co-op to go under

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People who were insured by Health Republic or all other failed co-ops have until the end of February to choose another insurer for 2016.

The co-ops were created under the health care law to spur competition in the health insurance marketplace. The original $6 billion in grants set aside to fund the initiative was cut by Congress to $2.4 billion, reducing to 24 the number of proposed co-ops that received funding.

One of the 24, Vermont's co-op, never got off the ground. Susan Donegan, commissioner of the state's Financial Regulation Department, ruled in May 2013 that the co-op's business plan showed “cumulative losses during the first three years’’ and probably would run out of money. Twenty-three co-ops did begin operations. Co-ops in Colorado, Iowa, Kentucky, Louisiana, Michigan and Oregon were among those that failed.

New York is conducting its own investigation of the failure of Health Republic.

“I think the state is taking all the right steps to try and figure out all the different options they have available to them,’’ Slavitt told reporters after Thursday's hearing. “I don’t have a comment because I don’t want to get in the middle of the work that they are doing.’’

Some states have "guarantee funds" that ensure physicians and other health care providers are reimbursed for services provided through commercial health insurers that go under.

New York’s guarantee fund, however, doesn’t cover not-for-profit health insurers such as Health Republic.

A spokesman for the New York State Association of Health Underwriters, Michael Capaldo, said in an email Thursday his group has not yet received an assurance from state officials that they will reimburse doctors and hospitals who provided services to Health Republic patients.

ACA co-ops cut prices, heat up competition

If reimbursements to physicians and hospitals do receive priority, it would reduce the amount of money reimbursed to the federal government.

Several Republican senators at the hearing spoke as if the entire $1.2 billion spent on the failed co-ops has been irretrievably lost.  Sen. Rob Portman, R-Ohio, referred to the $1.2 billion as “essentially wasted taxpayer money,’’ noting it was enough to pay health insurance premiums for over 300,000 Ohio families.

Federal regulators have allowed the health care co-ops “to cook their books with creative accounting,’’ Senate Finance Chairman Orrin Hatch, R-Utah, said. Co-ops were allowed last year “to apply surplus notes to program start-up loans, which essentially allowed co-ops to record loans as assets in their financial filings.’’

The 11 co-ops still operating are losing money, yet the Centers for Medicare and Medicaid Services certified them to sell health insurance, Hatch said.

Andy Slavitt, acting administrator of the Centers for Medicare and Medicaid Services, leaves a Senate Finance Committee hearing on Jan. 21, 2015. Slavitt testified about his agency’s oversight of health care co-ops, 12 of which have gone out of business.

Slavitt said start-ups usually lose money in their early stages. And he said his agency has taken steps to increase oversight on a monthly and even weekly basis. CMS has ordered a freeze on enrollment when necessary and is working on a regulation that would allow the infusion of private capital.

Despite the failures, the co-ops did help federal officials achieve their original objective to increase competition, Slavitt said.

“Today, over 90% of Americans have three or more (health insurance) options to choose from,’’ he said.

Sen. Ron Wyden of Oregon, the Senate Finance Committee’s ranking Democrat, said it’s incorrect to characterize co-ops as a failed government program.

“Co-ops are not government-run and they are not the government option,’’ Wyden said. They are privately run start-ups and there’s no surprise some ran into trouble, he said.

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