[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
THE STATE OF OBAMACARE'S
CO OP PROGRAM
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
NOVEMBER 3, 2015
__________
SERIAL NO. 114-HL05
__________
Printed for the use of the Committee on Ways and Means
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COMMITTEE ON WAYS AND MEANS
SAM JOHNSON, Texas, Chairman
KEVIN BRADY, Texas SANDER M. LEVIN, Michigan,
DEVIN NUNES, California CHARLES B. RANGEL, New York
PATRICK J. TIBERI, Ohio JIM MCDERMOTT, Washington
DAVID G. REICHERT, Washington JOHN LEWIS, Georgia
CHARLES W. BOUSTANY, JR., Louisiana RICHARD E. NEAL, Massachusetts
PETER J. ROSKAM, Illinois XAVIER BECERRA, California
TOM PRICE, Georgia LLOYD DOGGETT, Texas
VERN BUCHANAN, Florida MIKE THOMPSON, California
ADRIAN SMITH, Nebraska JOHN B. LARSON, Connecticut
LYNN JENKINS, Kansas EARL BLUMENAUER, Oregon
ERIK PAULSEN, Minnesota RON KIND, Wisconsin
KENNY MARCHANT, Texas BILL PASCRELL, JR., New Jersey
DIANE BLACK, Tennessee JOSEPH CROWLEY, New York
TOM REED, New York DANNY DAVIS, Illinois
TODD YOUNG, Indiana LINDA SANCHEZ, California
MIKE KELLY, Pennsylvania
JIM RENACCI, Ohio
PAT MEEHAN, Pennsylvania
KRISTI NOEM, South Dakota
GEORGE HOLDING, North Carolina
JASON SMITH, Missouri
ROBERT J. DOLD, Illinois
Joyce Myer, Staff Director
Janice Mays, Minority Chief Counsel and Staff Director
______
SUBCOMMITTEE ON HEALTH
KEVIN BRADY, Texas, Chairman
SAM JOHNSON, Texas JIM MCDERMOTT, Washington
DEVIN NUNES, California MIKE THOMPSON, California
PETER J. ROSKAM, Illinois RON KIND, Wisconsin
TOM PRICE, Georgia EARL BLUMENAUER, Oregon
VERN BUCHANAN, Florida BILL PASCRELL, JR., New Jersey
ADRIAN SMITH, Nebraska DANNY DAVIS, Illinois
LYNN JENKINS, Kansas
KENNY MARCHANT, Texas
DIANE BLACK, Tennessee
C O N T E N T S
__________
Page
Advisory of November 3, 2015 announcing the hearing.............. 2
WITNESS
Mandy Cohen, Chief Operating Officer and Chief of Staff, Centers
for Medicare and Medicaid Services............................. 6
MEMBER QUESTIONS FOR THE RECORD
Adrian Smith..................................................... 59
THE STATE OF OBAMACARE'S
CO-OP PROGRAM
----------
TUESDAY, NOVEMBER 3, 2015
U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Health,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:37 p.m., in
Room 1100, Longworth House Office Building, the Honorable Kevin
Brady, [chairman of the subcommittee] presiding.
[The advisory announcing the hearing follows:]
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Chairman BRADY. Good afternoon, everyone. First I would
like to thank our witness, Dr. Mandy Cohen, of the Centers for
Medicare and Medicaid Services for coming today. We appreciate
your time and look forward to hearing your testimony.
We are here to discuss the Consumer Operated and Oriented
Plan Program known as CO-OP. Supporters of this program argued
it would increase competition in individual and small group
health insurance markets. That very premise should have been
cause for alarm. Only in Washington would a group of
bureaucrats think they know how best to micromanage competition
instead of letting consumers and markets do what they do best.
Well, what could go wrong? Well, it turns out quite a lot.
First, CMS essentially allowed anyone to participate in the
program regardless if he or she had any prior experience
running an insurance company.
And for financing, Democrats turned predictably to the
American taxpayer to provide two types of loans: start-up loans
and solvency loans, both with incredibly favorable loan terms.
As our newly-elected Speaker said last week, ``What matters
are results.'' So let us look at the results of the CO-OP
Program to date: $2.4 billion in taxpayer funds have gone out
the door; 11 CO-OPs out of 23 have failed; and thousands of
Americas--and this is where there is bipartisan concern--have
found their health care security thrown out or in limbo.
I am interested to hear Dr. Cohen's position, but I suspect
we are not getting this money back. What is most surprising, I
think, is the Administration and everyone else knew this was
coming. Their own credit estimates project massive losses for
the program, and no matter the capital start-up funding or the
backstops, a model that is wrong is not going to succeed as
much as people want it to.
I am not interested in blame. I am interested in
understanding how many of these programs are headed to failure,
discussing where do we go from here, and figuring how we're
going to bring some stability to those families that have been
affected.
The hard-earned tax dollars collected from working
Americans sitting at Treasury right now are not venture
capital. You know, bureaucrats in Washington or wherever do not
have the expertise to institute top-down programs in the name
of competition.
We have got serious problems with provider participation in
some areas. For example, Blue Cross Blue Shield of Texas just
shut down a plan and narrowed the network in another, a major
impact on our patients.
But artificially trying to inject competition into a market
by backing what I think were shoddily designed start-ups is not
a fix.
For true choice and competition, we need to empower
patients. We need to eliminate the mandates that eliminate or
reduce choice. We need to increase transparency so patients can
be informed shoppers. On that we can all agree.
Today, we are going to learn more about this failed CO-OP
Program. I look forward to a robust conversation, and I hope we
can use the lessons from today to help us identify better ways
to protect American tax dollars going forward and ensure
greater choice, greater competition, greater quality and access
for beneficiaries and their families.
Before I recognize the Ranking Member, Dr. McDermott, for
an opening statement, I ask unanimous consent that all members'
written statements be included in the record.
Without objection, so ordered.
Chairman BRADY. I now recognize our Ranking Member, Dr.
McDermott, for the opening statement.
Mr. MCDERMOTT. Thank you, Mr. Chairman.
The Republicans were opposed to a public option. So the CO-
OPs were an alternative that was put into this bill. For the
past five years Republican colleagues have systematically and
deliberately sabotaged the implementation of the Affordable
Care Act through phony hearings and frivolous lawsuits and
meaningless repeal vote, draconian funding cuts, and in a
nationwide smear campaign they have done everything in their
power to undermine this landmark law.
The yearly challenges facing the CO-OPs are just the most
recent consequence of this destructive Republican agenda.
The CO-OPs played an important role in providing
competition. They are community based, non-profit health plans
that, first and foremost, exist to serve consumers. If Congress
gives them the support they need to get off the ground, they
will provide the American people with more choices and help the
for-profit insurers keep honest.
But my Republican colleagues have shown they have no
interest in making this happen. Instead they have weakened and
undermined the CO-OPs at every turn, and now they point the
finger at the Administration when they struggle. In 2013, the
Republican Congress slashed funding for loans and grants to CO-
OPs by nearly two-thirds. These cuts have devastated CO-OPs
across the country and prevented CMS from approving dozens of
new applications.
Moreover, my Republican colleagues have sabotaged the risk
mitigation programs designed to provide the financial stability
to insurers, including CO-OPs. In the CR omnibus legislation
passed at the end of last year, the Republicans inserted a
rider that blocked discretionary money from being shifted into
the ACA Risk Corridor Program. As a result, that program has
been badly underfunded and insurers across the country have
received only one-eighth of what they expected.
Many of the fledgling CO-OPs simply do not have the capital
to absorb this unpredictability which contributes to the
failures we have been seeing. It is not a problem with CO-OPs.
It is a direct consequence of Republican sabotage.
When my colleagues continue to brazenly attack the
Affordable Care Act, they refuse to put forward any
constructive ideas. This is particularly ironic when it comes
to risk management, risk mitigation because based on their past
behavior, they should know better.
When the Congress enacted Medicare Part D, we created
several risk mitigation programs that are very similar to the
ones in the ACA. My Republican colleagues have strongly
supported these measures for more than a decade, even longer
than many experts believe was necessary to get Part D up and
running. It is really a subsidy of the pharma companies.
The result has been a stable program and a stronger market
for the Part D plans. In other words, Republicans
enthusiastically support risk mitigation, but not when it is
part of the Affordable Care Act.
Rather than play Monday morning quarterbacking and blaming
everybody but the people who control the purse strings, we
should be talking about things we can do to actually strengthen
competition. That conversation should examine how we can make
the CO-OP Program stronger, and there are some changes we need
to consider.
Despite being brand new companies with no existing customer
base, the CO-OPs are prohibited from using Federal start-up
money on marketing. That makes it nearly impossible for them to
compete against some of the most powerful corporations and
advertising budgets in the world. We need to fix this and let
the CO-OPs operate on a level playing field with the for-profit
insurance industry.
And an honest conversation about competition must also
include a discussion of creating a public option to compete
with private insurers on the exchange. This would place a
meaningful check on the insurance industry, give consumers more
choices, and reduce the deficit by more than $100 billion.
We spent $480 billion on paperwork last year in the private
industry, but do not expect to hear anything like that from my
Republican colleagues this afternoon. Instead we will hear more
of the same: complaints about problems they have created
through their own sabotage and nothing constructive about how
to make the system work better.
I yield back the balance of my time.
Chairman BRADY. Thank you, Dr. McDermott.
Just for the members' information, I know we started late
today because of votes in the House. I know that Dr. Cohen does
not have unlimited time.
We appreciate you being here today. So we are going to be a
little tight on the timing and the questions today. Dr. Cohen,
you are recognized for five minutes, and again, welcome.
STATEMENT OF DR. MANDY COHEN, CHIEF OPERATING OFFICER AND CHIEF
OF STAFF, CENTERS FOR MEDICARE AND MEDICAID SERVICES
Dr. COHEN. Thank you very much for having me here today,
Chairman Brady, Ranking Member McDermott, Members of the
Subcommittee. I appreciate the opportunity to talk about the
Consumer Operated and Oriented Plan Program, or the CO-OP
Program.
CMS takes its commitment to CO-OP consumers and taxpayers
very seriously. A priority is to make sure that consumers have
access to quality, affordable coverage. In the year since the
passage of the Affordable Care Act, we have seen increased
competition and more choices for consumers.
In today's dynamic market, consumers can choose from, on
average, 50 plans and five issuers for 2016 coverage. Nearly
nine out of ten returning consumers will have three or more
issuers to choose from, which research has shown typically
intensifies price competition in the market.
New entrants to any market, especially the insurance
market, can face pressures, particularly in the early stages.
CO-OPs enter the health insurance market with a number of
challenges, including building a new provider network, no
previous claims experience on which to base pricing, and
competition from large, experienced issuers, as well as
uncertainty that accompanies the early years of the health
insurance marketplace.
As with any new set of business ventures, some CO-OPs have
succeeded while others have encountered more challenges. There
have been successful CO-OPs which have provided consumers in
their State an additional choice of health insurance and
improved competition, and there have also been CO-OPs that for
a number of reasons have faced technical, operational, or
financial difficulties.
In addition, Congress has made a number of substantial
rescissions to the initial $6 billion in funding for the CO-
OPs, impacting the program's operation and available funding.
In the face of multiple pressures, it is not surprising
that some new entrants have struggled to succeed. CMS plays a
dual role to the CO-OP Program, providing both oversight and
support. CMS works to give CO-OPs tools to succeed, including
sharing best practices among CO-OPs and looking for additional
regulatory flexibilities.
At the request of the CO-OPs, CMS has approved conversion
of surplus notes, and we have provided and approved the
infusion of outside capital and additional flexibilities that
the legal and regulatory framework of the CO-OP Program allows.
CMS also plays an important oversight role. CMS along with
State Departments of Insurance, which serve as a primary
regulator of the insurance in States, works to ensure that CO-
OPs are well run and financially sound.
CMS has implemented the CO-OP Program as required by
statute and with available funds evaluating applications,
monitoring financial performance, and conducting oversight. All
CO-OPs are subject to standardized, ongoing program oversight
activities that include calls to monitor goals and challenges,
periodic on-site visits, performance and financial auditing,
reporting obligations, and a host of additional measures
employed as necessary on a case specific basis such that the
evaluation of CO-OPs' sustainability.
CMS increased the financial and data reporting requirements
for CO-OPs, requiring them to provide quarterly statements that
they are in compliance with all relevant State licensure
requirements. If the CO-OPs have experienced any compliance
issues with State regulators, the CO-OP is required to describe
the steps being taken to resolve those issues.
Financial data collection has helped CMS to identify CO-OPs
with financial issues and gives CMS the opportunity work with
State insurance regulators to help correct those issues that
are identified.
As part of our oversight efforts, CMS has placed some CO-
OPs on enhanced oversight schedules or corrective action plans.
Despite the support and oversight, some of these new
entrants to the insurance market have struggled to succeed.
When States and CMS determine that a CO-OP should wind down,
our first responsibility is to make sure current policy holders
are able to retain coverage through the end of the year. CMS'
priority is to make sure that the consumers have access to
quality, affordable coverage. We are working with local
officials to do everything possible to make sure consumers stay
covered and retain access to high quality choices and issuers.
Like other consumers, affected CO-OP enrollees are able to
shop for 2016 coverage on the marketplace right now. In 2016,
nearly eight in ten returning marketplace consumers will be
able to buy a plan with premiums for less than $10 a month
after tax credits.
We continue to encourage those consumers already enrolled
in marketplace coverage to come back to the marketplace, update
their information, compare their options, and make sure they
are enrolled in the plan that best meets their needs.
Since the enactment of the Affordable Care Act, CMS has
worked to increase access to quality, affordable coverage
through the marketplace, while being responsible stewards of
taxpayer dollars.
The CO-OP Program was designed to give consumers more
choice, promote competition, and improve quality of health
insurance market as it has done so in a number of States. CMS
will continue to work closely with the CO-OPs and State
Departments of Insurance to provide the best outcome for
consumers.
We appreciate the subcommittee's interest in this topic,
and I am happy to answer your questions.
Chairman BRADY. Thank you, Dr. Cohen.
I think given the number of failures where we have seen it
and the predictions going forward, it is pretty clear to me the
history of the CO-OPs is one of the, I think, poor decision
making and failed execution.
I would like to start by asking about the action CMS is
taking now with the remaining CO-OPs. We all know how insurance
works. Insurers have to collect enough in premiums to cover
what they expect to pay out in claims. That is why having well-
funded reserves are so crucial. Insurance is a delicate balance
between risk and capital.
So if an insurer takes on too much risk and does not have
enough capital, well, then they will quickly become insolvent.
So as part of the monitoring of the insurance market
regulators, as you made the point, keep a sharp eye on
insurers' ratio of risk-based capital.
It is my understanding the CMS required the CO-OPs to have
higher risk-based capital reserve than most States generally
require of the insurers they monitor, which seems to me to be a
good thing; is that correct, Dr. Cohen?
Dr. COHEN. That is correct. As you know, we have wanted to
make sure that we are being good stewards----
Chairman BRADY. Sure.
Dr. COHEN [continuing]. Of taxpayer dollars and wanting to
be more conservative in these first few years.
Chairman BRADY. You know, I suspect CMS sets the rate of
risk-based capital standard for CO-OPs at 500 percent because
they knew new entrants were riskier than the other insurers
they were competing with, and they institutionalized financial
discipline among the start-ups. Again, this makes sense to me.
Is that a fair characterization?
Dr. COHEN. That is accurate.
Chairman BRADY. Okay. Regulators use the risk-based capital
measure as an early warning sign of trouble, as a sign an
insurer is in need of monitoring. It is an important test to
ensure plans are appropriately capitalized for the risk they
have taken on. This helps ensure the right protections are in
place for those who purchase the plans from the CO-OPs and for
the tax dollars backing the CO-OP experiment.
And this is why my question really is concerned about the
start-up conversion process. Media reports indicate CMS is
allowing CO-OPs to move their start-up loans, and let me
underscore these are loans, from the liability side of the
ledger where they belong to the equity side of the ledger.
So, Dr. Cohen, three fairly clear questions, I think, can
be answered with a yes or no. All things being equal, without
any material changes to the financial situation, a CO-OP that
undergoes a start-up conversion gets a boost of capital on
their books; is that right? On their books.
Dr. COHEN. So yes, and it's an accounting mechanism to
create a liability into an asset, yes.
Chairman BRADY. And all things being equal, again, without
any change in their financial situation, the CO-OP who gets a
start-up conversion could go from failing your risk-based
capital requirement to passing it; is that correct, because it
increases the equity?
Dr. COHEN. The idea, again, yes, is to improve its capital
position.
Chairman BRADY. And all things being equal, again, apples
to apples, the CO-OP that gets a start-up conversion could go
from being in a position to undergo monitoring and enhanced
oversight to one not be required to do so. Again, on paper the
equity looks stronger.
Dr. COHEN. Yes, that is accurate, and that is why we were
careful to make sure we did this in coordination with the State
Departments of Insurance. I think we share the concerns that
you are articulating, and that is why we wanted to make sure
the State regulators, who are the primary regulators in this
space, were supportive of this conversion.
And so we would evaluate each one of these individually.
They were based on the particular circumstances of that
individual CO-OP. They had to request that from us, and we did
not move forward unless the State Department of Insurance also
thought that it was a wise move to move forward as well.
Chairman BRADY. Well, see, I would respectfully disagree. I
do not understand why CMS is allowing this. Why put a test in
place if you are not going to follow it?
We just came through a financial crisis where reserves on
the books really did not prove to be reserves, and so when you
allow CO-OPs to make changes on paper to make then appear
healthier than they really are not, you are undermining your
own oversight measure.
And given the number of CO-OPs that have failed and what
looks like very shaky CO-OPs going forward, can you explain the
logic behind this? Because they are not financially healthier
or more sound. They just took the loan they got and made it
appear to be capital and equity.
Dr. COHEN. Right. Chairman, I appreciate the question.
There are questions we made sure to ask ourselves, some tough
questions, about is this the right thing for any one of these
individual CO-OPs to make sure that improving their capital
position with this conversion was the right thing, to make
sure, again, our primary responsibility and our primary job is
to make sure that the consumers of any one of these CO-OPs are
protected. That is why each one of these went under individual
scrutiny before we would make that decision, and we did it in
coordination with the State Departments of Insurance.
And, again, there are a number of factors that went into
that, and this is only one small slice of what would be their
capitalized assets, but again, that is why we looked at each
individual situation to understand whether or not it made sense
for that CO-OP, that in coordination with the State Department
of Insurance.
Chairman BRADY. I will just say I think you need to reverse
it. This does not make sense. It does not give a true picture
of the CO-OPs. Those who do not have the adequate reserves
ought to be getting extremely high oversight and monitoring
because these are patients' lives on the line.
The destruction has already been large in States, and the
Members on this dais who have had families, patients lose their
care, and so going forward it seems to me we ought to always be
erring on the side of accurate, honest bookkeeping for these
CO-OPs.
And, again, thank you for being here today.
Dr. COHEN. Thank you, Chairman.
[The prepared statement of Dr. Cohen follows:]
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Chairman BRADY. Dr. McDermott, you are recognized.
Mr. MCDERMOTT. Dr. Cohen, in my opening statement I
suggested that the Republican Congress in 2013 slashed the
funding for loans and grants by nearly two-thirds; is that
correct?
Dr. COHEN. That is correct. We started with, when the
Affordable Care Act was passed, with around $6 billion. We have
awarded about $2.5 billion, which is the remaining money which
was left for the program after rescissions.
Mr. MCDERMOTT. So your chance of supporting these CO-OPs
was cut by two-thirds.
Dr. COHEN. That is correct.
Mr. MCDERMOTT. And then the risk mitigation, that is, you
open the doors of your CO-OP and you look out there and 50
people come in. You do not know what they have got when they
come in. You charge them a premium you think is the proper one,
but you may have some very sick people; is that correct?
Dr. COHEN. It is true. In the first years of the
marketplace there was a lot of uncertainty about the risk pool
for any one of these CO-OPs. That is correct. So they had quite
a challenge in terms of setting prices because they did not
know exactly who their population would be that they would be
covering.
They were also building new provider networks and trying to
arrange those contracts, obviously starting all of their back
ends. So a lot of work to be done to start a new insurance
company in this space.
Mr. MCDERMOTT. And so like the drug companies when they
started on the Part D, they did not know who they were going to
get either, and we set up risk mitigation programs, correct?
Dr. COHEN. That is correct.
Mr. MCDERMOTT. If it cost more than they anticipated, we
would support them at least to a certain extent to get through
that.
Dr. COHEN. That is right. For the marketplace we have three
risk mitigation programs, a risk adjustment program which
allows folks to make sure that they are not cherry-picking up
the well folks, to make sure that they are actually covering
folks who need coverage that are sick; a reinsurance program
that helps to cover the cost of high cost enrollees; and then a
risk corridor program that really gets at that uncertainty
about pricing. And all of those work in tandem with each other.
Mr. MCDERMOTT. And so it would be similar to that program
in Part D that we put in with the CO-OPs. We gave a pot of
money to be used to mitigate any unforeseen kinds of problems
that came through the door without them having any way of
knowing?
Dr. COHEN. Yes. These were programs that were not just
exclusively for the CO-OPs but for all of the issuers
participating in the marketplace because we knew it was a
transition time for all of the issuers moving into this net
market for the first time, needing to cover preexisting
conditions, making sure that they were covering the essential
health benefits. So it was a transition for all of these
issuers, and that is why those three programs were in
existence, modeled as you said after the Part D, you know, very
successful programs in Part D.
They are meant to be temporary. At least two of the three
are temporary, again, to get us through a transition period.
Mr. MCDERMOTT. When did the CO-OPs discover that they were
only going to get one-eighth, 12 percent of the money they
expected? Was that the 1st of October?
Dr. COHEN. Yes, that is correct, the end of September,
correct.
Mr. MCDERMOTT. So when you looked at the books and what had
been appropriated by the Republicans, you only had that amount
of money, and you announced to them, ``You are only going to
get an eighth of what you thought you were going to get''?
Dr. COHEN. So the risk corridor dollar amount was really a
product of a mathematical formula based on the information
submitted by the issuers themselves, based on their 2014 claims
and premium experience. So whatever happened in 2014, they sent
us the data on it, and that was at that point when we were able
to calculate what the ins and outs of that program would be,
and as you mentioned at the end of September we were able to
share that information with folks.
Mr. MCDERMOTT. So what happened then is the insurance
companies in all the States looked at their reserves and so
forth and aid to these CO-OPs, ``You are no longer able to
offer insurance because you do not have the proper reserves
because you have not gotten from the Federal Government what
they promised you.''
Dr. COHEN. I think that was one of a number of factors. I
think CO-OPs had, as I have mentioned, a number of
difficulties. Certainly the lower risk corridor payments
certainly was one of the things that contributed to some of
their challenges.
I would also mention in one of the other risk corridor
programs, the reinsurance program, everyone actually got more
money than they were expecting, about 25 percent more money. So
one program more, so one program less.
So while I would say, on balance, those are contributing
factors. As I mentioned, there were a lot of challenges for the
CO-OPs, the uncertainty of pricing, the difficulty of provider
networks competing against more established insurers, but
certainly the reinsurance and the risk adjustment and risk
corridor certainly impacted that.
Mr. MCDERMOTT. What is the longest standing CO-OP that you
have? How long has it been running, two years?
Dr. COHEN. This will be their second year.
Mr. MCDERMOTT. This would be their second year. So they
have been one year in operation. They lost two-thirds of their
money in the loans and so forth, and then they lose the
mitigation. They are in their second year.
How many years do you think it takes for them to stabilize?
Dr. COHEN. It is a good question. Certainly more than two,
more than two to stabilize.
Mr. MCDERMOTT. Thank you.
Chairman BRADY. Thank you. Thank you.
Mr. Johnson is recognized for five minutes.
Mr. JOHNSON. Thank you, Mr. Chairman.
Thank you for testifying today. We appreciate that.
I am just going to be frank with you. You know, back in
Collin County, Texas, people do not like Obamacare, and as a
result of the law, they have seen their insurance premiums and
costs increase and their access to doctors and other providers
decrease, all the while having to pay higher taxes to pay for
Obamacare.
Now, we do not have a CO-OP in Texas, but the recent
failing of the 11 CO-OPs is still important to my constituents.
The reason why is because over $1 billion in taxpayer money has
gone down the drain, and that is what happens when almost half
of the Obamacare CO-OPs have failed.
Dr. Cohen, it seems with so much taxpayer funding on the
line, CMS should have been more proactive to ensure the
solvency of these CO-OPs. In fact, Vermont refused to allow a
CO-OP to set up shop because of unrealistic assumptions on
rates, enrollment and other key factors.
So these CO-OP failures ought not to have been a surprise.
My question for you is: when did CMS become aware that the CO-
OPs were failing, and why did you not do more to protect
taxpayer dollars?
Dr. COHEN. CMS has been doing oversight of the CO-OPs from
the beginning of the program. As I mentioned, we are just in
the second year of the program now, and we have been doing
oversight over the course of the first year of business.
Mr. JOHNSON. Yes, but when did you figure out that they
were not going to make it?
Dr. COHEN. So as you mentioned, the State of Vermont was
not even able to comply with State licensure and we did not
even allow them to move forward in that circumstance. So all
along there are guideposts and check points that we make sure
to look at oversight.
If we feel like they are going beyond the guard rails that
we set up, we enhance our oversight, put folks on enhanced
oversight or corrective action plans. We do on-site visits to
gather more information than just them sending us information.
We want to go on site and see it with our own eyes, have our
actuaries do on-site and make sure we are doing evaluations.
So, you know, I will say I do not think we have been easy
on the CO-OPs, as you can see with some of the recent actions.
We have taken our job as stewards of the taxpayer dollar very
seriously. We work within the parameters of the statute and the
existing funding, and you know, we will continue to do that for
the life of the program.
Mr. JOHNSON. It seems like you just want more dollars.
Well, I think the taxpayer just deserves more.
Thank you, Mr. Chairman.
Dr. COHEN. Thank you.
Chairman BRADY. Thank you.
Mr. Thompson, you are recognized.
Mr. THOMPSON. Thank you, Mr. Chairman.
Dr. Cohen, thank you for being here.
I cannot help but chuckle that their side of the aisle cuts
two-thirds of the funding and then they blame you for not
having proper oversight to make sure these CO-OPs exist. I
think that is an interesting tactic, but I do not think it is
particularly accurate.
Just as a bit of a refresher, can you just succinctly state
the top three reasons why these CO-OPs failed?
Dr. COHEN. Why the CO-OPs failed? There were a number of
reasons. It is a challenge to start an insurance company in
this market. It is a challenge just to think about it without
even having to start a brand new market, which is what was
created here.
Whether it was building a provider network and not having
the relationship with providers to get the best rates possible;
I think the uncertainty as mentioned by Congressman McDermott,
the uncertainty of what the consumer would look like. How sick
was that population? And thus, how to set the proper pricing
for that to cover their costs, and then I think obviously the
lack of brand name. They are competing against big, experienced
players with long relationships with their community.
So I mean, it was an uphill challenge from the beginning.
Obviously some CO-OPs have risen to that challenge and have
been very successful and are expanding into new markets and
giving consumers new options.
Mr. THOMPSON. And had the money been there, the six billion
that was in the original bill, would that have mitigated many
of those problems?
Dr. COHEN. Obviously, we know that these entities in early
years, that it is a challenge to maintain their solvency, and
additional money would have certainly long a long way to making
sure they were able to cover a lot of their claims costs,
figure out some of those uncertainties, and chart a course for
long-term sustainability, and ultimately paying back the loans
that we give them.
Mr. THOMPSON. And I do not want to sound like an apologist
for the CO-OPs. I was never a fan, but to reiterate what the
Ranking Member said, this was the option that we had. What most
of us wanted was the public option, and that would have
provided the competition needed to really make the private
insurers perform to a greater degree.
But when that option was taken away, this was kind of the
fallback, and I think it is important to state that. And then
when you take the money out that was put in to make the
fallback work, it seems near impossible. I am surprised that
any of them are still going.
In your oversight role, have you seen consumers and
providers that value this CO-OP local option?
Dr. COHEN. Absolutely. Not only do we hear from individual
consumers. I had the opportunity to meet with some of the CO-
OPs that are expanding and are thriving and about some of the
innovative and creative work that they are doing for their
consumers, whether it is targeting diabetic populations and
making sure they have intensive care management. You know, as a
physician those are exciting and innovative ways to think about
caring for a tough disease.
So, again, they were designed as a nonprofit entity that is
really connected to the community with consumers on their board
driving decisions about the entity and really trying to create
benefits that are really tailored very closely to what the
community needs, and so I think that there are a lot of great
things are doing in that space.
And the ones that are succeeding are able to sort of get
through this period of uncertainty. I think there is a lot of
benefit they can bring.
Mr. THOMPSON. Getting back to where he said he wanted to go
when he started the hearing is to figure out where the problems
are and make it work, how would you suggest that we as Members
of Congress support these local options and to make sure that
they work and deliver to our constituents?
Dr. COHEN. So I think, as you know, on Sunday we started
the next open enrollment period, and we are in it right now. So
I would hope all Members are doing is educating customers and
consumers that are in CO-OPs, that are not, about their options
on HealthCare.gov; if they are in Federal facilitated
marketplace States, make sure they know if they go and shop
that they can even save even more money.
We did some analysis to show that if you can go back, you
can actually save more money than they already are. We know
that eight in ten consumers are benefitting from financial
assistance to the tune of about $270 a month.
So there are real financial benefits for folks to go look
at their options, see what is there, see what is right for
their family, and so I would encourage you to make sure that
your constituents know what is there for them and that there
are options out there.
Mr. THOMPSON. Thank you.
Dr. COHEN. Thank you.
Chairman BRADY. Thank you.
Mr. Roskam, you are recognized.
Mr. ROSKAM. Thank you, Mr. Chairman.
Dr. Cohen, thank you for your time today.
Just to correct the record and to make sure I am clear on
something, the public option has been discussed today. I am not
a fan of the public option. I opposed it. Every Republican
opposed it, but the Republicans were not running the show; is
that not right, when the Affordable Care Act was crafted and it
was passed? Is that not right, Dr. Cohen?
It was all Democratic votes. So by definition, the people
that took the public option away were Democrats; is that not
correct?
Dr. COHEN. That is correct.
Mr. ROSKAM. Okay. And then as we move forward, the $6
billion that could have mitigated some of these losses, the $6
billion works until when? Until the $6 billion runs out, right?
Dr. COHEN. So we had less than $6 billion to work with,
about 2.5 billion, but you are right. It was a limited pool of
funding, and the idea is to get folks through a time of
uncertainty to a place where they had a long-term plan of, you
know, having premiums to cover their costs, outside capital to
fund different parts of their business.
But we knew in any start-up period that they would need
both start-up and solvency loans, which is how the program was
designed.
Mr. ROSKAM. But the limited amount of funds is, by
definition, it is finite, and a couple of minutes ago when you
were asked the question how long can the CO-OPs last by
themselves, you said, and I am paraphrasing, but my
understanding was, well, we know they cannot last by themselves
in the first two years; is that not right?
Dr. COHEN. Well, we see a lot of the CO-OPs are successful
right now and moving forward.
Mr. ROSKAM. Right, but 11 of them, 12 if you count Vermont,
they have not made it.
Dr. COHEN. That is true. We have done a lot of work in the
last few months using our oversight hat to make sure that
consumers know moving forward if they are shopping in open
enrollment right now, we wanted to make sure that they knew
that the CO-OPs that remain in the marketplace were financially
viable, can make it through the entire year. Our first priority
is to make sure there was not going to be a midyear failure
next year for any consumers, you know, and that is how we
really went about our decision making.
We played it very conservative in that way, which is why I
think there has been so much activity in the last several
months. We worked in partnership with the State Departments of
Insurance on that oversight and will continue to do so.
Mr. ROSKAM. So sort of just the sense of restraint and
reluctance and the wariness that you hear from this side of the
aisle is based on the representations that were made in the
past by CMS about how good things were looking, and even your
language today in your testimony, things like ``the CO-OP
application review process was rigorous, objective and
independent and since awarding both start-up and solvency loans
CMS has closely monitored and evaluated all CO-OPs to assess
performance and compliance.''
You know, to Mr. Johnson's point, this is costing a lot of
money, and it seems like at many levels it is simply a failure.
It is out of balance. The risk corridors, by definition, were
supposed to be budget neutral, and yet it seems like there is
an admonition against a Republican Congress that you are not
funding these things.
And to just follow up, to put a finer point on Mr.
Johnson's interchange with you, you know, a lot of us feel like
this is good money after bad.
So why in the world or what hope would you hold out that
based on past CMS performance and past CO-OP performance and
the fact that we are in a really limited time frame and things
like, you know, quotes that come from the CMS spokesman back in
a Bloomberg article of March of 2014, ``While it is still
early, we are encouraged by what we have seen so far and will
continue to work closely with these CO-OPs to monitor their
progress and assess their performance.''
I mean, it just seems like it is a disaster. Let us turn
the page, call it what it is, and move on. Do you not think
that is a good idea?
Dr. COHEN. Well, so we have been, you know, at any given
point in time there is certain information that we have in
front of us. We continue to work with the State Departments of
Insurance, which are the primary regulators to make sure we are
understanding what is happening in the State and with those CO-
OPs.
We will continue to play that oversight role. At the same
time we wear another hat, which is to support the CO-OP
Program, and I think if you are thinking about a value
proposition of any program, you want to understand why was it
created in the first place, and when I think about that, you
know, it is really, as I was mentioning earlier, is to create a
program that allowed for additional competition in an era of
insurer consolidation where there are not a lot of choices for
consumers, you know, just looking to give folks yet one more
choice of an affordable option that they can choose from.
Again, we are going to do our best to support those that
are showing themselves to be successful and moving in the right
direction.
Chairman BRADY. Thank you.
Mr. Kind, you are recognized for five minutes.
Mr. KIND. Thank you, Mr. Chairman.
Dr. Cohen, thank you for your testimony here today on an
important topic.
But before I do, since you are a representative from CMS
before the panel today, I cannot help but commend you and CMS
for moving forward on advanced care planning reimbursement.
Dr. COHEN. Thank you.
Mr. KIND. It was long overdue. Many of us were actively
engaged, including my absent colleague. I am not here to call
him out right now, but Mr. Blumenauer and the leadership that
he provided.
I hale from a part of the country in Western Wisconsin. We
are very proud of the advanced directive programs that have
been established at Gundersen Lutheran, Mayo Health Clinic, all
over my district. I am a member at Gundersen Lutheran myself.
Ninety-five percent of the patients there have an advanced
directive on record. I have one. My wife has one. My teenage
boys do. My parents do, and what a relief that is that they are
respecting our decisions when it comes to end of life care
planning.
And I always thought it was wrong that our health care
providers were not being reimbursed for the education and the
consultation that inevitably has to occur to help patients
through this planning process.
So thank you for moving forward on that.
Now, back to the health CO-OPs. Again, I am from Wisconsin.
Every time you turn around in our State you see a CO-OP. We are
not afraid of CO-OPs. They are very successful business models
in the private sector, whether it is farm co-ops, whether it is
the health care CO-OP we have right now that is thriving in the
Madison area, whether it is financial co-ops. Shoot, even the
Green Bay Packers you could claim is a co-op because it is a
fan-owned team, and granted, I will concede to you that they
failed miserably the other night against the Broncos, but the
Packer model has generally worked pretty well, and it is a
matter of consumer owned, consumer driven, and that is the
whole concept behind the CO-OPs.
But as you mentioned in your testimony, they were going to
face some difficulties. Start-up capital any new business needs
is tough to come by. Making sure you get the risk corridor, the
risk management done the right way, and that is my question to
you.
For any insurance company, whether it is a nonprofit CO-OP
or a private or large or small, if you do not get the right
blend of customers in there from older to younger and
healthier, it is going to be very tough to stay in this very
difficult business.
Are we doing enough in order to attract especially the
younger, healthier people into the CO-OPs or into the exchanges
or what have, or is there a lot more work that we need to do in
order to spread that risk and have a better chance of managing
it?
Dr. COHEN. I very much agree that it is very important to
make sure that we are getting a risk pool that can manage the
different types of risk of the different patients across it,
and that is why we target most of our outreach to the 18 to 35
year old population, most of whom do not realize the financial
assistance that is available. They think health care is
something that is unattainable.
They also think that they are never going to get hurt,
break an arm, get in a car accident, get an unfortunate disease
at a younger age. So we have been doing a ton of work with the
18 to 35 year old population. All of our marketing efforts are
targeted in that space, and so we continue to do that and make
sure that we are----
Mr. KIND. I am sure the CO-OPs are probably experiencing
the same challenge of trying to attract that risk pool----
Dr. COHEN. Absolutely.
Mr. KIND [continuing]. That can make it work and viable for
them.
Another concern I want to raise with you and I am wondering
if you are sharing it is obviously when you have CO-OPs
failing, it means less competition in the marketplace, but we
are also seeing on the other end greater mergers in the
insurance market.
Is that something that we ought to be paying closer
attention to, the consolidations and the mergers in the private
health insurance world right now?
Dr. COHEN. So I think that is why the CO-OP Program was
created in the first place, again, in that era of one or two
dominant players in a market. This is, again, a locally owned,
locally driven option to give consumers choices. They, you
know, try to have more relationships with local providers,
again, so that they can be an affordable, creative, innovative
option, and I think for the entities that continue on that are
expanding, they have done just that.
We are going to try to support the ongoing CO-OPs as much
as possible, share best practices, have them do some shared
services if they can help each other out, you know, if they
share call centers or do some sort of shared services in order
to help along to improve their operations.
Mr. KIND. My time is about to expire, but could you also
just quickly address what is going on with the individual
health insurance market right now? I am talking about those
people who do not qualify for premium tax credits. Where they
are seeing their premiums because I have had a couple of
encounters back home of individuals who do not qualify and how
expensive it is and where they are seeing their own premiums
going right now.
Dr. COHEN. Yes. So we did a recent analysis of the rate
increases in the individual market, about a seven percent
increase of the second lowest cost over within the marketplace,
and again, we have seen historically double digit increases in
the individual market. So, you know, trying to rein in the
prices and I think that the competition speaks exactly to that
point of being able to keep the prices under control.
Mr. KIND. Great. Thank you.
Thank you, Mr. Chairman.
Chairman BRADY. Thank you.
Dr. Price, you are recognized.
Mr. PRICE. Thank you, Mr. Chairman, and thank you for this
important hearing.
And I want to thank you for your testimony, Dr. Cohen.
If you listen to the folks on the other side, the reason
that the CO-OPs are failing is because there just is not enough
money and it is those nasty Republicans who have removed all
that money.
You mentioned that you were aware of the rescissions that
occurred for the CO-OPs, and that there were bills that came
forward to Congress that removed money from the CO-OPs. Do you
remember what those bills were?
Dr. COHEN. I do not have them in front of me, but I am
happy to follow up.
Mr. PRICE. There were three of them. One was the Department
of Defense Continuing Appropriations Act of 2011. How many
Democrats voted for that? Do you know?
Dr. COHEN. I do not.
Mr. PRICE. Eighty-one Democrats on that one.
A second one was the Consolidate Appropriations Act of
2012. Do you remember how many Democrats voted for that?
Dr. COHEN. Sorry, sir. I do not.
Mr. PRICE. A hundred and seventy-two.
And the third one was the 2012 Continuing Resolution. How
many Democrats voted for that one? A hundred and eighty-two.
How about that?
So the fact is that the CO-OPs have not failed because they
have not had enough money. The CO-OPs have failed because we
have got people who do not know how to run insurance company
running insurance companies and not able to respond to
individuals.
As a physician I can tell you that when we talk about this
stuff people's eyes glaze over when you just talk about money
and those kinds of things, but I want to talk about patients.
Five hundred and fifty thousand patients are going to lose
their coverage through a CO-OP because 11 of the CO-OPs have
failed; is that correct?
Dr. COHEN. Well, we are working very hard to make sure the
consumers have a----
Mr. PRICE. Five hundred and fifty thousand patients are
going to lose their coverage, correct?
Dr. COHEN. That is not correct. They are going to have the
opportunity to shop during this open enrollment period and can
transition.
Mr. PRICE. Are they going to be able to stay in the
insurance coverage in the CO-OP that they had?
Dr. COHEN. The CO-OP will end, but they will have the
opportunity to----
Mr. PRICE. The CO-OP will end. That is the point. So if you
like your doctor in that CO-OP, you may or may not be able to
keep that doctor, right? He or she may not be in the next plan
that you are signing up for; is that correct?
Dr. COHEN. That is right. They will need to go to
HealthCare.gov and look at their options and see whether or not
their provider is----
Mr. PRICE. Let me talk about a couple of specific
challenges that patients have. The individual mandate, which
would have been complied with because of the CO-OP, does that
mean that the individual does not have to become subject to the
individual mandate depending on whether he or she is able to
get coverage?
Dr. COHEN. So our goal has always been for coverage, and
these folks are clearly, you know, saying, ``I want coverage.''
And I think we are going to----
Mr. PRICE. But the question is whether or not they still
have to comply with the individual mandate even though they
have already fulfilled that.
Dr. COHEN. So they have fulfilled it, and the mandate says
you need to have coverage for at least nine months of the year.
So at this point they will have had coverage for at least nine
months of the year, and they will not be----
Mr. PRICE. There are some CO-OPs that they are not going
through nine months; is that not correct?
Dr. COHEN. There was one CO-OP earlier in the year that----
Mr. PRICE. What about deductibles? If an individual paid
part of their deductible in the CO-OP and then they move to a
different plan, does that deductible transfer over or does the
individual have to make their new deductible?
Dr. COHEN. It would depend on the individual situation.
Mr. PRICE. The fact is that it is not likely that the
deductible will be accepted by the next insurance company; is
that not correct?
Dr. COHEN. So we are making sure that folks have coverage
through the end of the year, which is why it is very important
that we did our work now to make sure that there are no midyear
closures so that----
Mr. PRICE. More money is going to come out of pocket and--
--
Dr. COHEN [continuing]. They can make it through the----
Mr. PRICE [continuing]. More difficult access to care.
I have got just a few minutes left. In the original final
rule on CO-OPs it said, quote, ``All CO-OP loans must be repaid
with interest and loans will only be made to private nonprofit
entities that demonstrate a high probability of becoming
financially viable.''
How many CO-OPs got loans?
Dr. COHEN. A total of 24.
Mr. PRICE. And how many remain in business as of the end of
this year?
Dr. COHEN. At the end of this year we will have 11.
Mr. PRICE. At the end of this year we will have 11.
Dr. COHEN. That is right.
Mr. PRICE. Which means I think 11 are closing, correct?
Dr. COHEN. So there are 12 that will be closing, one that
closed a while back.
Mr. PRICE. So how did you do on a high probability of
becoming financially viable when 50 percent of them have
closed?
Dr. COHEN. So obviously we wish we would have a better
batting average here, but we wanted to make sure that overall
that we kept the consumer at the center of this process. We
wanted to make sure that we did our oversight role and took----
Mr. PRICE. The fact is that these are not working for
patients. They simply are not working for patients from a
health care standpoint or from a financial standpoint.
I want to touch very briefly in my closing seconds on this
comment that you just made to Mr. Kind, and you mentioned that
the amount of increase in premiums for individuals is seven
percent. You were very careful to mention that it was in the
Silver Plan.
What if you take all four of the plans together? What is
the increase that was seen in 2015 in premiums for individuals
in all four plans?
Dr. COHEN. I think it is important when you talk about
rates you have to talk about----
Mr. PRICE. Twenty, point, three percent, Dr. Cohen, 20.3
percent.
What is the projection of all four plans in 2016?
Dr. COHEN. So it is important to remember that an average--
--
Mr. PRICE. Twenty, point, three percent, Dr. Cohen.
Dr. COHEN [continuing]. Person gets about $270.
Mr. PRICE. The fact of the matter is costs are going up.
Access is going down. Quality is being limited.
Chairman BRADY. Thank you very much.
Let us ask questions; answer questions promptly. We are
going to move through this on time, and, Mr. Smith, you are
recognized.
Mr. SMITH. Thank you, Mr. Chairman.
And thank you, Dr. Cohen, for sharing with us your
expertise and insight.
I need to express my frustration and I also though want to
express my understanding that there are perhaps some
frustrating points of your job as well.
Back in the summer of 2013, Pam Weldon, a constituent,
approached me unprompted and presented me with her cancellation
letter. That was certainly a plan that she liked, and it even
covered her preexisting condition. She could afford it, and you
know, fast forwarding a little bit to November 14th, she
learned that the Platinum Plan she had chosen from the CO-OP in
Nebraska and Iowa, CoOpportunity Health, she had chosen to
replace the first plan she lost that was being discontinued.
She would again have to choose a new plan.
Then she learned at the beginning of 2015, that
CoOpportunity Health would be going out of business, forcing
her to again find a new plan.
I have a letter here, and I would ask unanimous consent for
submitting Pam Weldon's letter into the record.
Chairman BRADY. Without objection.
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Mr. SMITH. This may be our first hearing dedicated to the
topic, but certainly Nebraskans have been living with this
failed CO-OP for nearly a year, and I have asked several
questions of the department, of HHS. I spoke and wrote to
Secretary Burwell, and actually I am awaiting more answers,
certainly more solid answers.
And I would like to submit for the record the letter that I
sent Secretary Burwell in January.
Mr. JOHNSON [presiding]. Without objection.
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Mr. SMITH. And, Dr. Cohen, we have had, you know, various
meetings, hearings about the overall situation with Obamacare,
and I have followed up numerous times with various obviously
questions and just concerns about taxpayer dollars, and
actually I would like to also submit for the record, and
request unanimous consent to place my questions and the
Secretary's responses into the record.
Mr. JOHNSON. Without objection.
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Mr. SMITH. Thank you.
Now, finally, on September 30th, I joined Chairman Brady
and my colleague, Mr. Roskam, in sending a letter to the Acting
CMS Administrator seeking further information on CO-OP solvency
and oversight. We requested a response by October 14th, but
have not yet received a response.
In the meantime, actually in the meantime, seven additional
CO-OPs have collapsed. I am sure you are well aware of that,
and I would like to request unanimous consent to submit that
letter for the record as well.
Mr. JOHNSON. Without objection.
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Mr. SMITH. And I have a question. What did HHS or why did
HHS deny in our case, Nebraska-Iowa CoOpportunity Health's
request to suspend enrollment?
Dr. COHEN. Why did we deny their request to suspend
enrollment?
Mr. SMITH. Correct.
Dr. COHEN. I am not actually familiar with that request and
that denial. I know that I would say any of those decisions we
do in coordination with the State Department of Insurance, who
are the primary regulators of the insurance companies. They
obviously have additional information about the state of play
of any one of the insurance companies, the state of the risk
pool.
I am happy to take back and look further to understand sort
of the sequence of events there for you.
Mr. SMITH. Right. I would really appreciate that because it
appeared then that Tennessee then requested a suspension of
enrollment and that was granted. So any background that you
could give to us on that scenario of perhaps what the standards
are for either granting or denying the requested suspensions in
enrollment.
I actually asked the Tennessee Insurance Commissioner about
her interactions with HHS, and she told us that HHS, quote,
``certainly had a differing opinion about the financial
stability of the company,'' end quote, and referring certainly
to the Community Health Alliance there in Tennessee.
Now, in Nebraska and Iowa, the Life and Health Insurance
Guaranty Associations have begun paying out $80 million to
cover outstanding claims on CoOpportunity Health policies. Will
providers in other States where CO-OPs have shut down be made
whole?
Dr. COHEN. I am sorry. Can you repeat that?
Mr. SMITH. Will providers in other States where CO-OPs have
shut down be made whole?
Dr. COHEN. So the reason we have been doing the work we
have and the oversight place is to make sure that CO-OPs could
make sure to pay out the remaining claims over the course of
this year and have an orderly wind-down process, and we do that
in coordination with the State Departments of Insurance.
Obviously like in the case of Nebraska, there is a guaranty
fund that is a backstop for consumers there to make sure that
claims are paid.
Mr. SMITH. I have further questions, but my time has
expired so I will submit those in writing. I request your
assistance in getting those answered.
Dr. COHEN. Absolutely, Congressman.
Chairman BRADY [presiding]. Thank you.
Mr. Pascrell, you are recognized.
Mr. PASCRELL. Yes, thank you, Mr. Chairman.
Mr. Chairman, I have heard a lot of crocodile tears. Let us
get down to the nitty gritty.
You are attempting to do to the ACA what you did to the
IRS. You are trying to choke the funding. Let us put it all on
the table. That is the bottom line. That is where you are
heading.
I have listened very carefully to our astute folks on the
other side of the aisle. The health insurance marketplace is
rooted in competition. I think you are for competition. That is
all you talk about, or do you believe in it?
When the ACA was being crafted some advocated strongly for
the public option because I believed, as many others, that
would truly drive competition and consumer choice in the
marketplace. The public option was not part of the final bill.
It is imperative that local nonprofit insurers continue to
be part of the marketplace. In the State of New Jersey our CO-
OP, Health Republic of New Jersey, the name of the CO-OP,
offers 17 plans on the marketplace in 2016. The CO-OP offered
the lowest priced Silver Plan on the marketplace and enrolled
over 60,000 residents last year.
New Jersey was unique in that our State has an unusually
small number of insurers offering plans. No competition. In
fact, when you look through all of the 50 States before the
ACA, there was very little competition going on in those
States, and we know what the results of it were in premiums and
everything else.
Since the marketplace opened for business, new insurers
have come into the marketplace, into New Jersey. Five insurers
are now offering a total of 59 plans for 2016, and premium
increases have been much lower than the average.
So I have got some questions, Dr. Cohen. I am not the grand
inquisitor. So I come as a friend. Can you discuss what we have
seen on a national scale with respect to competition and choice
in the health insurance marketplaces?
Dr. COHEN. Yes. Thank you.
We for the coming 2016 year, we recently released
information about what consumers can experience now if they go
to HealthCare.gov in the federally facilitated marketplace
States, and the average consumer can choose amongst 50 plans
and five issuers, and 90 percent of folks are looking at three
or more issuers to choose from.
So, you know, that is great progress in terms of the
competition that is available to them in the marketplace, and
again, I want to make sure that folks know that in addition,
what is so unique about the marketplace is the financial
assistance. We know that eight in ten are taking advantage of
that financial assistance.
Mr. PASCRELL. Thank you.
The Affordable Care Act has been successful, I think, in
arming consumers with the tools that they need in order to make
these judgments. We want people to go on there, want people to
study these different plans because my needs are different than
your needs, et cetera.
The designation of the plans by metal and the user friendly
interfaces on HealthCare.gov help consumers compare apples to
apples when shopping for health insurance.
Dr. Cohen, during the open enrollment period which just
started, consumers will be able to do more than compare
coverage and premiums between different plans. HealthCare.gov
now has a feature that helps people understand out-of-pocket
costs.
Dr. COHEN. Right.
Mr. PASCRELL. Very concerned about out-of-pocket costs. Can
you tell us a little bit about how that works and how you think
it is going to improve the situation?
Dr. COHEN. Yes, absolutely. We share your concern your
concern about out-of-pocket cost because it is not just the
premium per month that people are paying, but it is that total
out-of-pocket cost.
Mr. PASCRELL. Do you think most people understand that when
they go to compare?
Dr. COHEN. We know that it is a challenge.
Mr. PASCRELL. Well, why are we not telling people? Why are
we not educating people?
Dr. COHEN. Actually when you go to the HealthCare.gov site,
it actually walks you through the definitions.
Mr. PASCRELL. Right.
Dr. COHEN. Premium, deductive, out-of-pocket cost, and now
for the first time in this open enrollment season we have an
out-of-pocket cost calculator. It tries to ask you a few simple
questions about you, your family. Are you a high utilizer of
health care? Do you have a chronic illness? Do you take
prescription drugs ongoing, or if something bad happens, do you
use the doctor?
And it helps you understand what type of product might be
the best fit for your family.
Mr. PASCRELL. Every State had the ability to get money from
the Federal Government to educate the public about these
changes that have been going on over the past several years.
Our State of New Jersey chose the governor--may I finish my
sentence, Mr. Chairman?
Chairman BRADY. Yes, sir.
Mr. PASCRELL. Thank you.
My State of New Jersey, the governor of that State chose
not to take the $7.5 million, which is what it was in New
Jersey, to help educate the public. On every turn my friends on
the other side of the aisle and their counterparts in State
governments have tried to close down the ACA, for the record.
Thank you, Mr. Chairman.
Chairman BRADY. The gentleman's time has expired. Thank
you.
Ms. Jenkins, you are recognized.
Ms. JENKINS. Thank you, Mr. Chairman.
And thank you, Dr. Cohen, for being here with us today.
Dr. COHEN. Thank you.
Ms. JENKINS. The recent developments and failings of
Obamacare's CO-OP Program are extremely disconcerting to me and
should be for all Americans. Hard earned taxpayer money has
once again been wasted with now almost half of all the CO-OPs
resulting in failure.
And according to the Office of Inspector General, many more
CO-OPs remain at risk of shutting down. This is not only a
disaster for all of Americans who have lost their health
insurance plan, but also for the American taxpayer. Billions of
dollars of taxpayer funding has been wasted; hard earned
taxpayer dollars were wasted on a program that was improperly
designed at the most fundamental level.
This is exactly the sort of thing that I and so many others
warned about during the debate on Obamacare. When the
government gets so deeply entangled in the private sector,
things go badly.
Now we must seek to understand what led to the massive
failure and what, if anything, we can do moving forward to
avoid the situation in the future.
Dr. Cohen, CMS joined by State regulators allowed certain
CO-OPs to reclassify their start-up loans as surplus notes, as
the chairman noted. This means that CO-OPs would be able to
categorize these loans as equity rather than liability on their
balance sheet, essentially allowing some CO-OPs to appear to
satisfy CMS' 500 percent risk-based capital requirement.
Of course, the truth is the underlying economic substance
of the CO-OP has not been changed. This is basically an
accounting trick. Can you tell us and give us any idea how
popular this shell game is with the remaining CO-OPs?
So how many States applied for a start-up conversion?
Dr. COHEN. So I want to make sure to let you know that we
share your concern about being good stewards of taxpayer
dollars. We are going to use every tool at our disposal to make
sure that any funds that can be recovered back for the taxpayer
will be for this program.
On this question in particular about the conversion that we
were talking about, we look at those on an individual case-by-
case basis, as I was mentioning. We do that in coordination
with the State Departments of Insurance and then make a
decision about whether or not that is the appropriate thing to
move forward in that position.
I believe we have done that for seven of the CO-OPs.
Ms. JENKINS. Do you know which States?
Dr. COHEN. I have that I am sure in my many--I am happy to
search through and give you the list now or I am happy to
follow up if that is helpful.
Ms. JENKINS. Okay. If you can put your finger on it
relatively quickly. If not, if you can get that to the
committee.
Dr. COHEN. The seven that have gotten the conversion, I
have it: Arizona, Michigan, Oregon, Colorado, New Mexico,
Connecticut, and Wisconsin.
Ms. JENKINS. Okay. How many States were granted a start-up
conversion?
Dr. COHEN. Those are the seven that were granted the
conversion.
Ms. JENKINS. So all seven of those States were granted.
Dr. COHEN. That is right.
Ms. JENKINS. How many States have applications for a start-
up conversion pending?
Dr. COHEN. We have a number pending. I do not know the
exact number that are pending.
Ms. JENKINS. Can you get those to us and which States are
pending?
Dr. COHEN. I will see what I can do in follow-up. I know
that there is market sensitivity about sharing. Once it is
done, I am able to share that information, which is why I can
share who has already been approved. While it is in
consideration, there are market sensitivities, but I will be
happy for our staff to work with yours to see what we can
provide.
Ms. JENKINS. Okay. How many were rejected for a start-up
conversion?
Dr. COHEN. The same thing. I know there are some market
sensitivities around it, but I will see what we can do in terms
of providing that information.
I know I am allowed to, which I have in front of me, I am
allowed to share those that we have approved, but I will get
back to you about the ones----
Ms. JENKINS. Okay. Do you know how many of the remaining
CO-OPs would have failed the risk-based capital test but for
their participation in the start-up conversion process?
Dr. COHEN. I do not know the answer to that question.
Ms. JENKINS. Okay. Can you try to get us that?
What specific monitoring and oversight activities has CMS
conducted for those specific CO-OPs that would not have met the
risk-based capital test without the start-up conversion
process?
Dr. COHEN. So we obviously do a number of oversight
activities, as I was reading off a litany before, whether it is
on-site visits and the increased reporting, but what I would
say is that we do that in partnership with the State DOIs. They
are the folks that day to day are managing the health of these
insurance companies and making sure they are operating within
the parameters of the State.
And so we work very closely for that ongoing oversight, and
we will continue to do that for the CO-OPs that continue to be
in existence.
Ms. JENKINS. Okay. Thank you, Dr. Cohen.
I yield back the balance of my time.
Dr. COHEN. Thank you.
Chairman BRADY. Thank you, Ms. Jenkins.
Mr. Marchant, you are recognized.
Mr. MARCHANT. Thank you, Mr. Chairman.
I thank you for being here, Dr. Cohen.
Dr. COHEN. Thank you.
Mr. MARCHANT. This last week I read four articles about the
CO-OPs. The first one was in the New York Times. The headline
was ``Health Care CO-OP Closings Narrow Consumer Choices,'' not
exactly a right-wing institution.
Bloomberg Business, ``Your Health Plan Will Now Destruct
was the headline.
Newsweek, ``The Calamitous Collapse of the Obamacare CO-
OPs,'' again, not a right-wing organization.
And the Washington Post, ``Financial Health Shaky at Many
Obamacare Insurance CO-OPs.''
So do these articles make a fair representation of the
status of what is going on with the CO-OP Program?
Dr. COHEN. Well, the facts on the ground know that 12 of
the CO-OPs will not be continuing to 2016 of the 24, and
obviously our job is to protect consumers, make sure that we
are being good stewards of taxpayer dollars, but also
supporting what we think is a very important program adding
additional competition into the marketplace.
I think it is important to also remember that CO-OPs are
only one piece of the larger Affordable Care Act which we have
been talking about and, you know, make up a larger piece of
what consumers are experiencing when they go to HealthCare.gov.
So, again, we had some work to do on the oversight front,
which we have done, in order to make sure that consumers knew
that if they went to the marketplace now, that they can put
their faith in the products that are there. They know that they
are financially viable and will be there to provide them
coverage for next year.
Mr. MARCHANT. Is your agency looking to use the surplus in
the transitional reinsurance program to support the CO-OPs that
remain open?
Dr. COHEN. Are we looking at using the reinsurance dollars
to support the CO-OPs? No. That appropriation is for the
reinsurance program for the entire market. That will be used
for the three years that the program----
Mr. MARCHANT. No, use the surplus.
Dr. COHEN. No, the surplus carries over to the next year of
the reinsurance program and will be used with the reinsurance
program itself, which applies well beyond the CO-OPs to all of
the issuers participating in the marketplace.
Mr. MARCHANT. So if you took the amount of money that was
lost, would you agree that the $1,072,000,000 number is correct
about the amount that was lost last year?
Dr. COHEN. That is the number of dollars that were loaned
to these CO-OPs. As I mentioned to the Congresswoman, we are
going to be using every tool available to recover taxpayer
dollars here. Obviously that money went to provide coverage to
Americans over the past two years. So we know all dollars will
not come back to us, but we will be using all tools available
to recover any unspent taxpayer dollars.
Mr. MARCHANT. That money will go back into the fund?
Dr. COHEN. To the Treasury.
Mr. MARCHANT. To the Treasury or will it go back to into--
--
Dr. COHEN. To the Treasury.
Mr. MARCHANT [continuing]. A revolving fund that goes out
to the other CO-OPs?
Dr. COHEN. No. I do not want to give you inaccurate
information. So let me follow up on when we recover money where
that money goes exactly, whether it comes back to the CO-OP
Program or back to the Treasury.
Mr. MARCHANT. Is 400,000 a correct number to use? Is that
participants who have lost or is that the number of policies
that have been lost?
Dr. COHEN. That is a good question. I will have to follow
up whether it is participants or policies. What I would say is
that that represents folks not just in the marketplace. It
represents folks potentially inside and outside the marketplace
in the individual market and in the small group market, and
depending on the CO-OP and what book of business they picked
up, some even picked up some Medicaid managed care business as
well. So those numbers can represent a mix of different types
of policies.
Mr. MARCHANT. Well, if you took that number and divided
using 400,000 into the amount of money lost, it is about
$2,700.
Dr. COHEN. So again, not money lost. We still have tools at
our disposal to recover that fund, as well as that money went
to pay claims and coverage for Americans over the last several
years.
Mr. MARCHANT. And my last question is: using the business
metaphor, when you inject this loan in there, you have to have
some repayment scheme in mind. The insurance companies have to
have some eventual repayment of this money that they presented
you or did you make them in their business plan tell you when
and under what circumstances they would pay the money back?
Dr. COHEN. Yes, absolutely. All of the companies that
applied for this, and I will say almost 150 entities applied to
be CO-OPs and we only chose the best 24. Obviously they
presented business plans--sorry, Chairman--business plans and
strategies. Obviously though when the rubber hits the road and
reality hits, business plans are just that, plans, and then we
have to evaluate them as they move along.
Chairman BRADY. Thank you. The time has expired.
Mr. Davis, you are recognized.
Mr. DAVIS. Thank you very much, Mr. Chairman.
And thank you, Dr. Cohen, for being here.
I have always been a big fan of co-ops ever since I have
understood what they were, and I view them as a great business
model because they actually spanned opportunity and create
opportunity for more people to be engaged and involved in the
process of commerce in our society and in our country.
I come from Illinois where our experiences with the
Affordable Care Act have been great, quite good. I mean it has
generated tremendous returns for our citizens in terms of
health care and other kinds of benefits that we have
experienced as well.
It has also been my experience that with start-up
businesses, if they do not have enough capital or if they do
not have the capital resources that are needed, it increases
the likelihood that they are going to have some difficulty and
in many instances they actually fail.
And so we have had CO-OPs that have been successful. We
have had some that were not so successful, but the one thing
that we do know is that many important Affordable Care Act
protections have made dramatic improvements to American lives.
These include a prohibition on health insurers denying coverage
for children with preexisting conditions.
The Administration estimates that 17.6 million children are
no longer denied coverage by insurers because of an illness.
Additionally, 105 million Americans have had lifetime coverage
limits eliminated.
You obviously travel throughout the country, and I suspect
that you have met a lot of people from all political parties
who have benefitted from these protections. What do people tell
you about the Affordable Care Act and how it has helped them?
And what would happen to these people if my Republican
colleagues got their way and were able to actually dismantle
this law and these programs?
Dr. COHEN. So it is interesting. Once we get outside of our
world here at CMS and are able to interact with folks who are
benefitting from the new options of coverage and taking
advantage of the tax credits, it is not about politics for
them. It is really about what is right for their family, and
that for the first time they are able to compare choices and
find something that is affordable for them.
I think poignant in my mind were some particular parents
who were able to start their own new business. They had wanted
to for a long time, had been thinking about it, but because one
of their young children had a severe illness, they worried
about what coverage would look like for them on the individual
market and so stayed with the job they had, which they were
lucky enough to have, but what the Affordable Care Act gave
them was that freedom and flexibility to start the new business
and find coverage that worked for them and for their children.
And that is what we hear about every day, whether it is
coverage for someone who has a preexisting condition or just
thought it was out of reach for them; a young person who goes
and gets one of their preventative care visits and realizes
they had high blood pressure, and as a physician I am like,
``Great. Get on your ACE inhibitor now so that they prevent
problems well into the future.''
So those are the kinds of success stories, small, but each
build up to something really great.
Mr. DAVIS. Well, thank you very much, and I think that they
would say the risk that we take is worth it even if there are
some instances where we are not exactly successful, but they
are in much better shape than they were before the ACA was
passed.
Thank you, Mr. Chairman. I yield back.
Chairman BRADY. Thank you.
Mrs. Black, you are always good about joining the Health
Subcommittee. You are recognized for five minutes.
Mrs. BLACK. Thank you, Mr. Chairman. It is great to be a
part of this Committee.
And, Dr. Cohen, thank you for being here to testify today.
Dr. COHEN. Thank you.
Mrs. BLACK. Dr. Cohen, my friends on the other side of the
aisle would suggest that Congress is at fault for this failure.
We have heard it several times, and because we stopped good
taxpayer money following after bad, and I suspect that we could
have pumped billions of dollars more into this program and
still not overcome what I think are the fundamental problems of
this program.
So let us talk about the program that the Democrats
actually designed. This is not a Republican design. Let us talk
about that. Let me ask you a couple of questions.
In this program could a health insurer applying for a loan
under the CO-OP Program be a for-profit entity?
Dr. COHEN. So there are restrictions in terms of the types
of dollars that the CO-OPs could get. They could get a bank
loan and other types of outside loans. There are restrictions
about whether or not that outside capital would influence the
governance structure, which is pretty prescriptive in statute.
And, again, I think as you have heard, that governance
structure is really consumer driven, and that was why the
nature of the program was put in there.
So it does limit their options. It also prohibits them from
merging or getting dollars from another for-profit insurer.
Mrs. BLACK. The answer really is no on that.
So let me ask you this. Could a health insurer applying for
a loan under the CO-OP Program use the funding for marketing?
Dr. COHEN. They are not allowed to use their dollars for
marketing. What I would say is that one of the things the
Affordable Care Act does and HealthCare.gov in particular, it
allows for CO-OPs to be listed side by side of some of the much
more established plans and so they can compete on price and
benefits, which is what the CO-OPs----
Mrs. BLACK. In fact, what happened in the State of
Tennessee is we had our CO-OP could not market. So what they
were doing is giving free cell phones, and they were stopped by
our Commissioner as a result of that.
Could a health insurer applying for the loan under the CO-
OP Program be one that actually operated as a health insurer
prior to the law's passage?
Dr. COHEN. There are some restrictions about getting
funding from current insurers. I would have to look back if
there is a statute of limitations of how long ago they were an
insurer, et cetera, about getting funding.
Mrs. BLACK. Essentially the answer is no.
So here is the situation. The American taxpayer has
invested $2.4 billion, and this is taxpayer money, into a group
of folks who never operated an insurance company before, never
made any money at it, and in your testimony you also answered a
question to say they had no previous claims experience, which
was a problem, and they could not advertise their product to
potential customers.
It seems like it is awfully difficult given those
circumstances, that there are some really fundamental problems
with the program to begin with.
You are an internist; is that correct?
Dr. COHEN. That is right, ma'am.
Mrs. BLACK. Have you practiced in private practice?
Dr. COHEN. I have not practiced in private practices.
Mrs. BLACK. Oh, you have not. Okay. Well, I would just set
forward this scenario in real life because I have worked with
physicians who have practice in private practice, and I know
how important it is to have a business manager operating their
particular office. So let us just say they hired someone that
said, ``Oh, by the way, I have never operated a physician's
office and I have never made any money at it. I have no
experience in previous claims, and I am not going to
advertise.''
Do you think that office could be successful with that
business manager being in charge?
Dr. COHEN. What I think it is important to step back and
recognize about the CO-OP Program is that they were designed
specifically to have a governance board that was consumer
driven. I think that was the heart of it. I think you had some
of your other colleagues mention that this is not unique to the
health care space.
Mrs. BLACK. Just real quickly because I am going to run out
of time here, I do want to ask a question about what you expect
to recover. Do you all have a number that you expect to
recover?
Dr. COHEN. We are doing the work right now with the CO-OPs.
As you know, the recent announcements they are still winding
down over the course of this year. As I mentioned, we take
taxpayer dollars very seriously but----
Mrs. BLACK. But you do not have a number that you
anticipate?
Dr. COHEN. No, not right now.
Mrs. BLACK. And I just may close by saying the reason why
co-ops work in other situations, and I like them; we have
farmers co-ops. We have an electric co-op. We have other
utility co-ops, and the reason why they work is because
everybody in it has skin in the game. It is not taxpayer
dollars. It does not come from some dropping of dollars out of
the sky. It works because everybody that is in it has something
in the skin of the game.
Here we have taxpayer dollars to the point of $2.4 billion,
and that is a real concern.
Thank you, Mr. Chairman. I yield back the balance of my
time.
Chairman BRADY. Thank you, Mrs. Black.
I would like to thank you, Dr. Cohen, for your testimony
today. I appreciate your continued assistance. A number of
questions were raised, and if you would follow up with them.
As well, as a reminder, any Member who wishes to submit
questions for the record will have 14 days to do so. If any of
them do, please respond in writing in a timely manner.
Again, thank you very much for being here today.
With that, the committee is adjourned.
[Whereupon, at 3:59 p.m., the subcommittee was adjourned.]
[Member Questions for the Record follows:]
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