Fight for Health Co-op Funds Looms

Leaders of remaining organizations warn federal effort to recoup money may come up short

By Stephanie Armour
Feb. 24, 2016 7:28 p.m. ET

Leaders of some health cooperatives set up under the Affordable Care Act said it would be hard for the Obama administration to recoup more than $1 billion in federal loans made to some of the organizations that are now defunct, because most of the money has been spent.

A group representing existing co-ops, as well as leaders of some of the organizations, said there is little of the federal loan money remaining and some of what is left is needed to pay providers whose bills have yet to be paid. Obama administration officials have said they plan to use every available tool to recoup the federal loans, including legal action.

Thousands of doctors, hospitals and other providers in some states still haven’t been paid for health services they provided to members insured by the co-ops, which are organizations set up under the health law to offer health insurance to consumers and cut costs by giving established insurers more competition.

The co-ops were launched under the Affordable Care Act to inject competition into the industry and help keep premiums low.

But they have been one of the biggest disappointments for proponents of the law, as 12 of the 23 startups that got off the ground ultimately folded. Those that folded received about $1.2 billion in startup and solvency loans from the federal government, which the Obama administration is trying to get back.

The head of the organization representing co-ops—the National Alliance of State Health Co-ops—said recovery efforts will be largely futile.

“In terms of collections, no. There’s nothing to collect,” said Dr. Martin Hickey, chief executive officer of the New Mexico co-op and chairman of the alliance. “Will there be a little money left? Yeah, maybe.”

Some co-op leaders said the federal government’s recovery efforts could in some cases mean less money for those providers hoping to get reimbursed.

They also criticized the administration’s recent efforts to help existing co-ops survive and check on their current financial stability.

Co-ops collapsed in Arizona, Colorado, Iowa, Kentucky, Louisiana, Michigan, Nevada, New York, Oregon, South Carolina, Tennessee and Utah. An estimated 700,000 individuals and small-business employees were forced to obtain new insurance.

“I don’t think there is much left,” said Dr. Peter Beilenson, president and chief executive officer of Evergreen Health Cooperative, a co-op in Maryland. “They are not going to get much back.”

A spokesman for the Centers for Medicare and Medicaid Services, which implements the health law, said the agency is taking appropriate steps.

“CMS is a steward of taxpayer dollars issued through the co-op loan program,” said Aaron Albright, a spokesman for the agency. “Working with state insurance departments and the co-ops, CMS will continue our rigorous oversight in order to prevent consumers from experiencing disruption in coverage and to protect taxpayer dollars.”

Factors that led to the co-ops’ collapse and chances that the remaining organizations will survive will be the subject of a House Oversight and Government Reform Committee hearing Thursday. An official with CMS told Congress in January that the agency was working with the Justice Department and taking legal action to collect the funding in some cases.

The closure of the ACA’s largest co-op, Health Republic Insurance of New York, left millions of dollars owed to doctors, hospitals and other health groups and providers.

Kentucky’s co-op said in October 2015 it would shut down and its policyholders were covered through the end of the year. It left thousands of providers waiting for payment. Their claims are being gathered through Oct. 15 and a court will then decide who gets paid and how much, said Ronda Sloan, a spokeswoman for the state Department of Insurance.

Ms. Sloan said she hears from several providers each week who have outstanding claims.

Growing attention is also focusing on those co-ops that remain.

The Obama administration said it would help ensure solvency by checking up on the remaining organizations with financial audits. Some co-op leaders say the audits are pointless busywork whose main purpose is scoring political points with Republicans who have criticized management of the organizations.

“It’s kind of the game, so we’ll go through,” said Dr. Hickey. “Will it help stabilize the co-ops? No.”

Many leaders of existing co-ops are concerned that the Obama administration isn’t taking aggressive steps now to change a formula that spreads risk out among insurers.

The program, known as risk adjustment, distributes money from plans with healthier and younger enrollees to plans with sicker and older customers in an effort to level the playing field. But co-op officials say the formula is flawed and leaves them and smaller insurers at a financial disadvantage. Some have said the lack of a quick revision will jeopardize the financial health of the co-ops that remain.

The Obama administration has said it would hold a forum in March to hear from insurers, co-ops and others in the industry about their concerns with the formula. About four weeks ago, CMS said it was exploring additional changes that could help co-ops diversify their boards and raise capital. The agency’s oversight approach has also been informed by recommendations from the office of inspector general.

“Risk adjustment is now the single biggest threat to the ACA,” said Maryland’s Dr. Beilensen, who says co-ops and smaller insurers will fold without changes.