Testimony Before the United States House of Representatives 
Committee on Energy and Commerce: 
Subcommittee on Oversight and Investigations 
 Examining the Costly Failures of 
ObamaCares CO-OP Insurance Loans. 
Testimony of: 
Gloria L. Jarmon 
Deputy Inspector General  
Office of Audit Services 
Office of Inspector General  
Department of Health and Human Services 
November 5, 2015 
10:00 a.m. 
Rayburn House Office Building, Room 2322   
Testimony of: 
Gloria L. Jarmon 
Deputy Inspector General for Audit Services 
   Office of Inspector General, U.S. Department of Health and Human Services 
 
Good morning Chairman Murphy, Ranking Member DeGette, and members of the 
Subcommittee.  I am Gloria Jarmon, Deputy Inspector General for Audit Services for the 
Office of Inspector General (OIG), U.S. Department of Health and Human Services (HHS).  
I appreciate the opportunity to appear before you today to discuss OIGs work as it relates to 
the Centers for Medicare & Medicaid Services (CMS) oversight of financial loans and the 
financial solvency of the Consumer Operated and Oriented Plans (CO-OP).  
The Patient Protection and Affordable Care Act (ACA) established health insurance 
exchanges (commonly referred to as marketplaces) to allow individuals and small 
businesses to shop for health insurance in all 50 States and the District of Columbia.  The 
ACA established the CO-OP program to foster the creation of qualified nonprofit health 
insurance issuers to offer qualified health plans in the individual and small group markets.  
The ACA authorized the Secretary of HHS to provide loans to help establish new consumer-
governed, nonprofit health insurance issuers, referred to as CO-OPs. 
As part of our strategic plan to oversee implementation of ACA programs, OIG has 
performed three reviews related to CO-OPs.  My testimony today will focus on OIGs most 
recent report issued in July 2015, which found that most CO-OPs had lower-than-expected 
enrollment numbers and significant net losses and that these financial concerns might limit 
some CO-OPs ability to repay loans.  We made recommendations to CMS to improve the 
agencys oversight of the loans and of the financial solvency of the CO-OPs.1   
This most recent report builds on findings and recommendations that OIG made in two prior 
reports issued in July 2013.2  Those reports examined CMSs selection process for CO-OPs 
and the early implementation of CO-OPs.  Based on that work, we concluded that CMS 
awarded CO-OP loans in accordance with applicable Federal requirements, but we also 
identified several risks that indicated a critical need for additional CMS oversight of the CO-
OPs as they prepared to become operational.  For instance, we identified a risk that CO-OPs 
could exhaust all startup loan funding before they became fully operational or before they 
earned sufficient operating income to be self-supporting.   
                                                             
1 Actual Enrollment and Profitability Was Lower Than Projections Made by the Consumer Operated and 
Oriented Plans and Might Affect Their Ability to Repay Loans Provided Under the Affordable Care Act. 
(http://www.oig.hhs.gov/oas/reports/region5/51400055.pdf) 
2 Early Implementation of the Consumer Operated and Oriented Plan Loan Program 
(http://oig.hhs.gov/oei/reports/oei-01-12-00290.pdf) and The Centers for Medicare & Medicaid Services 
Awarded Consumer Operated and Oriented Plan Program Loans in Accordance with Federal Requirements, 
and Continued Oversight is Needed. (http://www.oig.hhs.gov/oas/reports/region5/51200043.pdf) 
 
House Committee on Energy and Commerce 
Subcommittee on Health 
2 
Hearing  November 5, 2015  We reviewed the status of the 23 CO-OPs as of December 31, 2014.  The objective of this 
review was to determine whether enrollment and profitability met the CO-OPs projections 
on their initial loan applications.   
OIG found that most of the 23 CO-OPs reviewed had not met their initial program 
enrollment and profitability projections as of December 31, 2014.  Each CO-OP submitted a 
loan application that included details on its annual projected number of enrolled members 
and projected net income.  Specifically, member enrollment for 13 of the 23 CO-OPs that 
provided health insurance in 2014 was considerably lower than the CO-OPs initial annual 
projections, and 21 of the 23 CO-OPs had incurred net losses as of December 31, 2014.    
By the end of our audit field work, 19 of the 23 CO-OPs had exceeded their 2014 calendar 
year projected losses as reported in the loan award application feasibility studies.  CMS had 
placed four CO-OPs on enhanced oversight or corrective action plans (Kentucky, Louisiana, 
New Jersey, and Tennessee) and two CO-OPs under low-enrollment-warning notifications 
(Massachusetts and Oregon).   
Based on these findings, OIG issued four recommendations to CMS in order to improve 
financial oversight and solvency of the CO-OPs.  These recommendations include:  (1) 
continuing to place underperforming CO-OPs on enhanced oversight or corrective action 
plans, (2) working closely with State insurance regulators to identify and correct 
underperforming CO-Ops, (3) providing guidance or establishing criteria to determine when 
a CO-OP is no longer viable or sustainable, and (4) pursuing available remedies for recovery 
of funds from terminated CO-OPs.3   
Having examined the CO-OPs at different points throughout their implementation and 
operation, OIG believes that our four recommendations can help CMS provide further 
oversight and accountability for underperforming CO-OPs.  In accordance with the CMS 
Funding Opportunity Announcement4 dated December 9, 2011, and loan agreements, CMS 
should place underperforming CO-OPs on enhanced oversight plans.  This would enable 
CMS to conduct thorough and more frequent reviews of a CO-OPs operations and financial 
status.   
In addition, CMS can provide technical assistance if it were determined that doing so would 
improve the performance of the CO-OP and increase the likelihood of loan repayments.5  
Finally, if CMS no longer believes that the CO-OP is viable and sustainable and able to 
serve the interests of its community, CMS should pursue all available remedies for recovery 
of funds from CO-OPs.  This would include the option to terminate loan agreements, which 
would require the CO-OP to forfeit all unused loan funds.  This may allow CMS to recover 
some portion of the loan, with the recognition that a CO-OP must resolve any outstanding 
debts or other claim obligations before repaying the loan funds to CMS.6 
                                                             
3 In response to OIGs July 2015 report recommendations, CMS concurred with all four and noted that it has 
taken steps to further oversee CO-OP compliance by requiring external audits, site visits, and additional 
financial reporting.   
4 Loan Funding Opportunity Number OO-COO-11-001 was released July 28, 2011, and revised effective 
December 9, 2011. 
5 Sections 11 and 12 of the CO-OP loan agreement.   
 
6 Sections 4.4, 5.6, and 16.3 of the CO-OP loan agreement. 
 
 
House Committee on Energy and Commerce 
Subcommittee on Health 
3 
Hearing  November 5, 2015  To ensure that CMS can appropriately identify CO-OPs that pose a high risk of failure, CMS 
should establish guidance or criteria to assess whether a CO-OP is viable or sustainable.  In 
our July 2015 report, we found that low enrollments and net losses could limit the ability of 
some CO-OPs to repay startup and solvency loans and to remain viable and sustainable.  
Given the growing concerns about the financial viability of CO-OPs, it is critical that CMS 
provide the necessary guidance to improve program oversight and protect taxpayer dollars 
from significant losses.  
Beyond enhancing its oversight with the tools available under the CO-OP loan agreement, 
CMS should also work closely with State insurance regulators who are the primary 
regulatory entities that oversee CO-OPs as health insurance issuers.  This recommendation is 
important because it would allow CMS to obtain timely insights as to the CO-OPs 
performance so that CMS can work with CO-OPs to address and fix ongoing financial and 
operational problems earlier.  Financial concerns identified by State Insurance officials in 
Iowa and Tennessee led to significant actions to liquidate the operations of the 
Iowa/Nebraska and Tennessee CO-OPs.  However, CMS did not terminate the 
Iowa/Nebraska CO-OP loan agreement until after the Iowa State Insurance Commissioner 
took control of the CO-OP because of financial concerns.    
 
CONCLUSION 
We appreciate the Subcommittees interest in this important issue.  We continue to urge 
CMS to fully address OIGs recommendations related to improving oversight and financial 
solvency within the CO-OP program.   
OIG is committed to continued oversight of this program.  Our ongoing work will assess 
whether CO-OPs were in compliance with Federal regulations and program requirements in 
managing Federal funds.  In addition, OIG will reassess the CO-OPs financial status to 
determine if any improvements were made in 2015 and identify actions CMS has taken to 
effectively oversee the loan program and monitor underperforming CO-OPs.  We anticipate 
issuing these reports in 2016, and we look forward to sharing those results with the 
Committee at that time.  This concludes my testimony.  I would be happy to answer your 
questions.  Thank you. 
 
House Committee on Energy and Commerce 
Subcommittee on Health 
4 
Hearing  November 5, 2015