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26–377 PDF 2017

REVIEW OF OBAMACARE CONSUMER OPERATED 

AND ORIENTED PLANS (CO–OPS) 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH CARE, 

BENEFITS AND ADMINISTRATIVE RULES 

OF THE

COMMITTEE ON OVERSIGHT 

AND GOVERNMENT REFORM 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

FEBRUARY 25, 2016 

Serial No. 114–175 

Printed for the use of the Committee on Oversight and Government Reform 

( 

Available via the World Wide Web: http://www.fdsys.gov 

http://www.house.gov/reform 


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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

JASON CHAFFETZ, Utah, Chairman 

JOHN L. MICA, Florida 

MICHAEL R. TURNER, Ohio 

JOHN J. DUNCAN, JR., Tennessee 

JIM JORDAN, Ohio 

TIM WALBERG, Michigan 

JUSTIN AMASH, Michigan 

PAUL A. GOSAR, Arizona 

SCOTT DESJARLAIS, Tennessee 

TREY GOWDY, South Carolina 

BLAKE FARENTHOLD, Texas 

CYNTHIA M. LUMMIS, Wyoming 

THOMAS MASSIE, Kentucky 

MARK MEADOWS, North Carolina 

RON DESANTIS, Florida 

MICK MULVANEY, South Carolina 

KEN BUCK, Colorado 

MARK WALKER, North Carolina 

ROD BLUM, Iowa 

JODY B. HICE, Georgia 

STEVE RUSSELL, Oklahoma 

EARL L. ‘‘BUDDY’’ CARTER, Georgia 

GLENN GROTHMAN, Wisconsin 

WILL HURD, Texas 

GARY J. PALMER, Alabama 

ELIJAH E. CUMMINGS, Maryland, Ranking 

Minority Member 

CAROLYN B. MALONEY, New York 

ELEANOR HOLMES NORTON, District of 

Columbia 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

JIM COOPER, Tennessee 

GERALD E. CONNOLLY, Virginia 

MATT CARTWRIGHT, Pennsylvania 

TAMMY DUCKWORTH, Illinois 

ROBIN L. KELLY, Illinois 

BRENDA L. LAWRENCE, Michigan 

TED LIEU, California 

BONNIE WATSON COLEMAN, New Jersey 

STACEY E. PLASKETT, Virgin Islands 

MARK DESAULNIER, California 

BRENDAN F. BOYLE, Pennsylvania 

PETER WELCH, Vermont 

MICHELLE LUJAN GRISHAM, New Mexico 

JENNIFER HEMINGWAY, Staff Director 

SEAN HAYES, Subcommittee on Health Care, Benefits and Administrative Rules Staff Director 

WILLIAM MARX, Clerk 

DAVID RAPALLO, Minority Staff Director 

SUBCOMMITTEE ON HEALTH CARE, BENEFITS AND ADMINISTRATIVE RULES

JIM JORDAN, Ohio, Chairman 

TIM WALBERG, Michigan 

SCOTT DESJARLAIS, Tennessee 

TREY GOWDY, South Carolina 

CYNTHIA M. LUMMIS, Wyoming 

MARK MEADOWS, North Carolina 

RON DESANTIS, Florida 

MICK MULVANEY, South Carolina, Vice 

Chair 

MARK WALKER, North Carolina 

JODY B, HICE, Georgia 

EARL L. ‘‘BUDDY’’ CARTER, Georgia 

MATT CARTWRIGHT, Pennsylvania, 

Ranking Minority Member 

ELEANOR HOLMES NORTON, District of 

Columbia 

BONNIE WATSON COLEMAN, New Jersey 

MARK DESAULNIER, California 

BRENDAN F. BOYLE, Pennsylvania 

JIM COOPER, Tennessee 

MICHELLE LUJAN GRISHAM, New Mexico 

Vacancy 


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C O N T E N T S 

Page 

Hearing held on February 25, 2016 ....................................................................... 1 

WITNESSES 

Dr. Mandy Cohen, MD, MPH, Chief Operating Officer and Chief of Staff, 

Centers for Medicare and Medicaid Services, U.S. Department of Health 

and Human Services 

Oral Statement ................................................................................................. 2 

Written Statement ............................................................................................ 5 

Mr. Al Redmer, Jr., Commissioner, Maryland Insurance Administration 

Oral Statement ................................................................................................. 14 

Written Statement ............................................................................................ 16 

APPENDIX 

Letter for the Record from the National Association of Insurance Commissioners, submitted by Mr. Cartwright ................................................................ 46 


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REVIEW OF OBAMACARE CONSUMER 

OPERATED AND ORIENTED PLANS (CO–OPS) 

Thursday, February 25, 2016 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON HEALTH CARE, BENEFITS, AND

ADMINISTRATIVE RULES, COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, Washington, D.C. 

The subcommittee met, pursuant to call, at 2:01 p.m., in Room 

2154, Rayburn House Office Building, Hon. Mick Mulvaney presiding. 

Present: Representatives Jordan, Walberg, DesJarlais, Meadows, 

Mulvaney, Walker, Hice, Carter, Cartwright, and DeSaulnier. 

Mr. MULVANEY. [Audio malfunction in hearing room] things a little bit differently this morning. First, we are going to turn on the 

microphones. 

There is a little bit of disarray in our schedule, as you may have 

found out in the last couple of minutes. We expect a vote on the 

Floor any minute now. So the proposed way to proceed is that I 

will give an opening statement. I will try to allow Dr. Cohen to give 

her opening statement, Mr. Redmer, yours. And if we can get that 

far, that is great. We will then recess and we will go over and vote. 

If votes are called in the middle of that, we will have to recess earlier, and then we will pick up where we left off. 

It is slightly unusual to begin the committee hearing without a 

Democrat present, but we have cleared it with the staff. Mr. Cartwright knows that we are starting without him, and he has asked 

for the ability to give his opening statement immediately upon our 

return. 

So with that being said, I will get us started. 

I think it is fairly obvious why we are here today. It shouldn’t 

be a surprise to anybody as to why you are in front of this committee. Twelve of these 12 CO–OPs have failed. I think it has cost 

taxpayers so far about $2.4 billion, including in my State, where 

we have had a CO–OP fail. 

Based on the track record, we are here today to try and find out 

what the future holds for the remaining CO–OPs and what the future holds for the people who are counting on those CO–OPs to provide them with health insurance. Consumers have lost $1.2 billion 

in the failed CO–OPs, and I don’t think it is fair to anyone that 

we just sit around and not have hearings like this. 

Perhaps just as discouragingly, there is a subtext here today. In 

addition to dealing with the merits of why the previous CO–OPs 

have failed and the condition of the current CO–OPs is our inabilVerDate Nov 24 2008 09:44 Aug 03, 2017 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 H:\26377.TXT APRIL

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ity to get information out of your organizations. It is our job to do 

oversight into the CO–OPs. Is it our job to ask difficult questions. 

It is our job to ask you to come here today and provide us with information. It is also our job to ask you for documents that might 

help us in our oversight function, and we are going to have some 

hopefully straightforward conversations today about why those documents have not been provided to Congress. 

I reject the notion the administration is able to hide information 

from us, especially since Congress created these things, Congress 

is involved in the oversight, and for the executive branch to deny 

Congress of its ability to do its job, I think, is something that merits a very close look. It makes it look like the administration is simply trying to prevent us from doing our job. Again, we will get into 

our inability to get documents as we go through there. 

It is even stranger that CMS is worried about the public having 

information about these when we know ones have already failed, 

and there is concern, public concern about other ones failing. You 

would think that the public—Mr. DesJarlais, myself, I am on the 

exchanges. My staff is on the exchanges. Don’t we have the right 

to know when we go on the exchanges what the financial condition 

is of the CO–OPs that we might choose to sign up with? 

You all have a tough job here today. I fully recognize that. I am 

sorry that you are the ones that have to do this, but you are the 

ones that the administration sent over. But you have got two jobs. 

You have to convince the public that they shouldn’t know everything about the CO–OPs that they might want to sign up with, and 

you have to convince us that you are not obstructing our ability to 

oversee the programs. So I don’t envy you those positions, but we 

will try to make it as congenial as we possibly can. 

Mr. MULVANEY. So with that, I will recognize Dr. Cohen from 

CMS for 5 minutes for her opening statement. 

Hold on a second. See, we don’t swear them in, Financial Services, so—all right. I am pleased to welcome Dr. Mandy Cohen, 

Chief Operating Officer and Chief of Staff for the Centers for Medicare and Medicaid Services at the U.S. Department of Health and 

Human Services; and Mr. Al Redmer, Jr., Commissioner of the 

Maryland Insurance Administration. We welcome you both. 

Pursuant to our rules, we do swear all witnesses in this committee before you testify. So if you please rise and raise your right 

hand. 

[Witnesses sworn.] 

Mr. MULVANEY. Thank you. Please be seated. Let the record reflect that both witnesses answered in the affirmative. 

So with that, Dr. Cohen, and I think you have done this before 

so you know about the 5-minute rule. We are not going to strictly 

enforce it, so if you need a few extra minutes, please take that time 

and go ahead and begin now. 

WITNESS STATEMENTS 

STATEMENT OF MANDY COHEN 

Dr. COHEN. Well, thank you very much. Thank you, Vice Chair 

Mulvaney. I will thank Ranking Member Cartwright when he returns. And members of the rest of the subcommittee, I appreciate 


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the opportunity to discuss the Consumer Operated and Oriented 

Plan program. CMS takes its commitment both to CO–OP consumers and taxpayers seriously. 

As you know, CO–OPs were created to stimulate new competition 

in an industry that has a long history of being very difficult for 

small companies to enter with some entering markets that hadn’t 

seen new competitors in decades. 

CMS’s principal role is to award and oversee loans and then to 

maximize the likelihood that Federal taxpayer funds are returns. 

We are in close context with the State Departments of Insurance 

as they, of course, have authority over all the issuers of their State 

and oversee the rules that the CO–OPs operate under. 

As with any new set of business ventures, some CO–OPs have 

succeeded while others have encountered challenges. Successful 

CO–OPs have provided consumers in their State an additional 

choice of health insurance and have improved competition. But 

there have also been CO–OPs that, for a number of reasons, have 

faced technical, operational, and financial difficulties. 

In addition, Congress has made a number of substantial rescissions to the initial $6 billion in funding for the CO–OP program, 

impacting program operations and available funding. In the face of 

multiple pressures, it is not surprising that some new entrants 

have struggled to succeed. 

Protecting consumers affected by CO–OP closures is a top priority. In each case, when a CO–OP is no longer offering coverage 

on the marketplace, we work closely with the CO–OP and the State 

regulators to facilitate a smooth transition for consumers to retain 

access to coverage. Each of the consumers in the CO–OPs that 

close at the end of last year maintain coverage until the end of the 

year. And after dozens of communications with CO–OP consumers, 

three-quarters of those CO–OP marketplace consumers have continued their coverage in a new plan. 

CMS plays a dual role as the loan-holder for the CO–OP program 

providing both oversight and support of these nascent small businesses. In our oversight capacity, CMS, along with the State Departments of Insurance, which serves as the primary regulator of 

insurance in the States, work aggressively to ensure that CO–OPs 

are well run and financially sound. Every CO–OP is subject to 

standardized ongoing program oversight activities. In 2015 we conducted over two dozen financial and operational reviews, numerous 

in-person visits, and had many formal communications, not to mention hundreds of phone calls. 

When concerns are identified, CMS, in coordination with State 

Departments of Insurance, place CO–OPs on enhanced oversight or 

corrective action plans. These tools are commonly used by State 

Departments of Insurance to identify and fix correctible problems 

to ensure the viability of insurance products they oversee in their 

State. 

In CMS’s role to support to the CO–OPs to maximize the likelihood that Federal taxpayer dollars are returned, CMS is working 

to make it easier for CO–OPs to attract outside capital or merger 

partner if the board chooses. We’ve released clarifying guidance 

and are exploring further steps to ease that path to outside funding 


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for CO–OPs and investors, while still preserving the fundamentally 

member-driven nature of the CO–OP program. 

Even with the oversight and support provided by CMS and the 

Departments of Insurance, the single biggest factor for the future 

success of the CO–OPs will come from the action of the companies 

themselves. As new small businesses, they need to rapidly mature 

the fundamentals of their financial systems, tighten their operating 

disciplines, and hold their vendors accountable. Through—though 

the challenges that they CO–OPs have faced, they have every opportunity to be successful and be long-term market participants. 

CMS appreciates and understands this committee’s oversight responsibilities, and has provided—and has worked to provide you 

with the information needed to fulfill these responsibilities. I understand why the subcommittee is interested in the experiences of 

these private businesses, our lessons learned, and our expectations 

for the future. CMS has made a concerted effort to answer the committee’s questions and provide relevant and responsive information, 

including providing thousands of pages of documents, as well as 

briefing by a key executive from the CO–OP management staff. 

Because some of the materials you’ve requested contain marketsensitive information, we have made a limited number of the CO– 

OP documents responsive to your investigation available through 

confidential review. 

As part of our fiduciary duty as the lender and stewards of taxpayer money, CMS has worked hard to accommodate the committee’s request for information while responsibly protecting the competitiveness of the loan recipients and safeguarding the CO–OPs’ 

ability to repay Federal loans. 

Since the enactment of the Affordable Care Act, CMS has worked 

to increase access to quality, affordable coverage through the marketplaces while being responsible stewards of taxpayer dollars. 

CMS will continue to work closely with the subcommittee, with 

CO–OPs and State Departments of Insurance to provide the best 

outcome for consumers and taxpayers. We appreciate the subcommittee’s interest and happy to answer any questions. 

[Prepared statement of Dr. Cohen follows:] 


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OF OBAMACARE 

UNITE 

FEBRUARY 25, 2016 
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"Review of Obamaeare Consumer Operated and Oriented Plans (CO-OPs)" 

U.S. House Committee on Oversight and Government Reform 

Subcommittee on Health Care, Benefits & Administrative Rules 

February 25,2016 

Chairman Jordan, Ranking Member Cartwright, and members of the Subcommittee, thank you 

for the invitation to discuss the Consumer Operated and Oriented Plan (CO-OP) program. The 

Centers for Medicare & Medicaid Services (CMS) is committed to overseeing the CO-OP 

program and is hard at work providing CO-OP consumers and taxpayers important protections as 

CO-OPs expand access, choice, and competition, helping Americans access high quality, 

affordable health insurance coverage. 

CMS's priority is to provide Marketplace customers with access to quality, affordable coverage. 

In the years since the passage of the Affordable Care Act, we have seen increased competition 

among health plans and more choices for consumers. 1 During the third Marketplace Open 

Enrollment, nine out often returning customers were able to choose from three or more issuers 

for 2016 coverage, up from seven in ten in 20!4.2 The CO-OPs have played an important role in 

the Marketplace, particularly in the early years of the Affordable Care Act by providing 

additional options for access to affordable health coverage from local, non-profit health insurers. 

Moving forward, CMS is eager to build on the progress in reducing the number of uninsured 

Americans- an estimated J 7.6 million Americans gained eoverage since the Affordable Care 

Act's coverage provisions have taken effect,3 and the Nation's uninsured rate is below 10 percent 

for the first time since data collection began over five decades ago. During the third open 

enrollment that concluded at the end of January, 12.7 million Americans selected affordable, 

quality health plans for 2016 coverage through the Marketplaces.6 
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CMS Implementation ofthe CO-OP Program 

Section 1322 of the Affordable Care Act established the CO-OP Program to foster the creation of 

non-profit health insurance issuers to give more choices and control to consumers, promote local 

competition, and improve diversity in the health insurance market To this end, the law provided 

funding for loans to eligible entities to help establish and maintain these new plans. The funding 

initially provided by the law was intended to provide capital sufficient to support start-up costs, 

such as establishing provider network relationships, claims and financial operations, developing 

products, and meeting regulatory surplus requirements through the initial phase of operations. In 

implementing the CO-OP Program as required by statute and with the funds available, CMS 

evaluated loan applications, monitors financial performance, conducts financial and operational 

oversight, and supports state departments ofinsurance (DO Is), which are the primary regulators 

of insurance issuers in the states. 

CMS established the CO-OP Program as outlined in the CO-OP Program Funding Opportunity 

Announcement? and the CO-OP Program Final Rule. 8 The framework for implementing the COOP Program was based on a report submitted by a Federal Advisory Committee appointed by the 

Government Accountability Office (GAO) under section l322(a)(3) of the Affordable Care Act 

to advise the Secretary of Health and Human Services (HHS) regarding the award of CO-OP 

loans. The report included recommendations on governance, finance, infrastructure, criteria, 

process, and compliance for CO-OPs and a timeline for the CO-OP Program.9 This report guided 

the major elements of how CO-OPs were selected, awarded loans, and monitored. 

The CO-OP application review process was rigorous, objective, and conducted with input and 

expertise from an independent party, Deloitte Consulting, LLP. Deloitte used a team of insurance 

experts, actuaries, former state insurance regulators, and other experts to verify eligibility and 

evaluate each element of the application, such as the business plan, financial projections, and a 

feasibility study, using the criteria established in the Funding Opportunity Announcement. The 

Deloitte findings and recommendations were then sent to the internal CMS review committee, 

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which was led by insurance experts and an actuary who was not on the CO-OP program statl: A 

July 2013 HHS Office of Inspector General (OlG) Report found that "CMS established a 

prospective oversight system to safeguard CO-OP funding and ensure timely implementation of 

the program." 10 

Of 14 7 applications, 11 24 were selected to receive loan funds and ultimately entered into CO-OP 

loan agreements with CMS. Ultimately, CMS awarded $2.5 billion in loan funding to the 24 COOPs, over $2.1 billion, or 85 percent, of which was awarded before coverage began on January l, 

2014. The Federal Advisory Group emphasized the importance of awarding the funds "as 

expeditiously as possible" in order for CO-OPs to be able to compete in the 2014 Open 

Enrollment period. 12 As the statute required, loans were made in two forms: 13 start-up loans and 

solvency loans. Start-up loan obligations were specific to each CO-OP in an amount based on 

estimated costs of particular start-up activities. A disbursement schedule that the basis, 

timing, and amount of sequential disbursements of start-up loan funding was incorporated into 

each CO-OP borrower's loan agreement. 

As set forth in the statute, solvency loan funds assisted loan recipients with meeting regulatory 

capital and surplus requirements ofthe state(s) in which they are licensed, as well as additional 

CMS CO-OP Program requirements. CO-OPs requested disbursements of solvency loan funding 

to maintain state and CO-OP loan agreement required solvency levels. Solvency loan award 

levels were made based on the particular business plan included in the loan agreement and state 

regulatory capital requirements. 

After the start of coverage on January l, 2014, CMS awarded additional solvency funding to 

several existing CO-OPs. In making subsequent loan decisions, CMS undertook a rigorous 

review process substantially similar to what was conducted for the initial round ofloans. This 

included both an external and internal review of updated business plans, feasibility studies, 

programmatic and regulatory compliance, actuarial soundness, and financial 

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statements. Requests were made for more funding than was available, so the comparative level of 

need was also an important factor. The applications included actuarially-certified analysis and 

financial projections, which incorporated data regarding the current and projected level of 

enrollment. During 2014, CMS provided approximately $352.5 million in additional solvency 

loan funding. 

CMS used information available after the first round of funding about the size of enrollment and 

operational compliance to evaluate applications for additional loan funding. The enrollment, 

claims, and financial data available during the review of applications for both the first and 

second rounds of opportunity for additional solvency loan funding was limited in scope because 

these CO-OPs were in their initial stages of operation, and a substantial number of CO-OP 

members enrolled on or after the January l, 2014 coverage start date. The late enrollment and 

the length of time it takes to receive, process, and pay claims and for those claims to have 

actuarial meaning, meant that at that time, CO-OPs had six to nine months of enrollment data 

and claims experience for Deloitte and CMS to review. 

While the Affordable Care Act appropriated $6 billion for the program, the Congress made a 

number of substantial rescissions to that initial funding level. The Department of Defense and 

Full Year Continuing Appropriations Act, 2011, rescinded $2.2 billion; the Consolidated 

Appropriations Act, 2012, rescinded an additional $400 million; and the American Taxpayer 

Relief Act of2012 further reduced the remaining $3.4 billion of CO-OP funding by rescinding 

90 percent offunds unobligated as of the date of enactment. Finally, an additional $13 million 

was reduced due to sequester in Fiscal Year 2013. The remaining balance was to a new 

contingency fund available tor oversight and assistance to the existing CO-OP loan recipients. 

CO-OPs have provided health insurance coverage to more than one million consumers, helping 

people access needed medical care. This program has increased competition and provided more 

consumer choices and control in choosing health insurance coverage. For example, Maryland's 

CO-OP (Evergreen Health) was the first new issuer to enter the state's market in 25 and 

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New Jersey's CO-OP (Health Republic of New Jersey) was the first new issuer to enter the 

state's market in 19 yearsY ln Maine, the CO-OP (Maine Community Health Options) was one 

of two issuers on the Exchange in 2014; that year, it enrolled 83 percent of individuals who used 

the Marketplace to sign up for coverage. The CO-OP began offering coverage to the residents of 

New Hampshire in2015. 16 Overall, CO-OPs have added both choice and affordability to health 

insurance coverage options available to consumers. 

CO-OPs are also introducing local innovation. Ohio's CO-OP (lnHealth Mutual) offers a disease 

management program for six different conditions that includes education, case management, and 

no copays for any visit, prescription, or supplies associated with management of the disease. 17 

New Jersey's CO-OP (Health Republic of New Jersey) implemented a harm reduction program 

to help enrollees quit and reduce CMS will continue our work to support CO-OPs as 

they pursue innovative approaches to coverage. 

However, new entrants to any market, especially the insurance market, face numerous pressures 

and must overcome multiple barriers, particularly in their early stages of operations. In its 

July 2013 report, HHS OIG found that "the extent to which any particular CO-OP can achieve 

program goals and remain financially viable depends on a number of unpredictable factors, 

These factors include the CO-OP's State's Exchange operations, the number of people who 

enroll in the CO-OP and their medical costs, and the way in which competing plans will affect 

the CO-OP's market share." 19 CO-OPs entered the health insurance market facing a variety of 

challenges, including building a provider network and customer support, no previous claims 

experience on w·hich to base pricing, and competition from larger, experienced issuers. The 

Federal Advisory Group found that many of the challenges the CO-OPs faced were the same as 

any new health insurance The Commonwealth Fund published a report on the factors 

that contributed to the CO-OPs' challenges, which provided further evidence ofthe issues faced 

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by new entrants into tbe market, including having to outsource important functions, in particular 

network contracting, limited information about existing provider practices and referral habits, 

and initial enrollment that diverged from CX!)Cctatitons."' 

CMS Oversight 

CMS has obligations to operate as a proper steward of the taxpayer dollars issued through the 

loan program and to administer tbe CO-OP Program for the benefit of consumers. Since 

awarding both start-up and solvency loans, CMS has been closely monitoring and evaluating the 

CO-OPs to assess performance and compliance, and has engaged regularly with state DO Is, 

which are the primary regulators of insurance issuers in the states. Twelve CO-OPs are no longer 

selling coverage in the Marketplace and are in various stages of winding down operations. The 

remaining eleven CO-OPs, serving thirteen states, are being monitored closely. 

CMS's oversight approach, informed by recommendations from both HHS OIG and GAO, 

consists of four parts. First, aH CO-OPs are subject to standardized, ongoing to and 

interactions with CMS that include weekly, biweekly, or monthly calls to monitor goals and 

challenges; periodic on-site visits; performance and financial auditing; and monthly, quarterly, 

semi-annual, and annual reporting obligations. Since March 2015, CMS has conducted site visits 

of CO-OPs in 15 states. We believe these visits are a benefit to plans, consumers, and taxpayers. 

These visits provide CMS with an opportunity to veril'y whether and how a CO-OP meets its 

obligations. During these visits, CMS reviews management structure and staffing, financial 

status, business strategy, the policies and procedures of the CO-OP, marketing and sales 

information, and operations, including vendor management and oversight. CMS also reviews 

whether a CO-OP is meeting their obligations for medical management and member relations. 

CMS also collaborates with DO Is concerning each CO-OP loan recipient. 

Second, CMS monitors the CO-OPs' overall financial condition using several factors of the 

Federal Deposit Insurance Corporation's Uniforn1 Financial Institutions Rating System. CO-OPs 

have monthly, semi-annual, and annual reporting requirements, including t!nancial statements, 

balance sheets, income statements, statements of cash flow, and enrollment statistics. Last year, 

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CMS increased the data and financial reporting requirements for CO-OPs. Each CO-OP is 

required to provide a semi-annual statement of its compliance with all relevant State licensure 

requirements, and, if necessary, an explanation of any deficiencies, wamings, additional 

oversight, or any other adverse action or determination by DOls received by the CO-OP. If the 

CO-OP is experiencing compliance issues with State regulators, the CO-OP is required to 

describe the steps being taken to resolve those issues. CMS meets monthly with the state 

insurance regulators regarding each CO-OP. This additional financial data collection has helped 

CMS to identify underperforming CO-OPs and gives CMS the opportunity to work with the 

CO-OPs and DO!s to help correct issues that are identified. 

Third, CMS regularly uses enhanced oversight plans (EOPs) and con·ective action plans (CAPs) 

as part of our CO-OP monitoring and oversight process, as laid out in the CO-OP loan 

agreements and recommended by the HHS OIG. CMS places a CO-OP on an EOP or CAP 

when it identifies an issue that can be resolved through corrective action. A CO-OP can be on an 

EOP or CAP for a variety of reasons relating to its operations, compliance, management, or 

finances. A CAP could require a CO-OP to make improvements to its claim pa)nlent processes, 

customer service, premium billing, or other administrative functions. The reasons for an EOP or 

a CAP are often common issues for any issuer in the difficult, competitive, and complicated 

health insurance market, and are not unique to the CO-OPs. 

Finally, CMS can terminate its loan agreement with a CO-OP if we determine it is no longer 

viable, sustainable, or serving the interests of the community. CMS works closely with DO Is and 

shares information to assist in their assessments of CO-OPs. Jf a loan agreement is terminated, 

CMS works with the state DOI and the CO-OP board to wind down operations in an orderly way 

to mitigate impact to the consumer. While it is too early to tell how much money may be 

recovered, CMS has begun the recovery process, and once the wind down of these CO-OPs is 

complete, we will use every available tool to recoup Federal funding, based on applicable law 

and the loan agreements. During closeout, most CO-OPs exiting the market were placed into a 

receivership or supervisory status that controls assets. expenses, and contractual rights and 

obligations including ongoing operating costs and claims payment. These arrangements help 

protect remaining funds. 

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in addition to protecting taxpayer dollars, CMS also works to protect consumers. For the COOPs that are closing, we are working closely with the CO-OP and state regulators to facilitate a 

smooth transition for consumers to retain access to coverage and ensure providers are reimbursed 

for covered services rendered to CO-OP enrollees. Each ofthe consumers in the CO-OPs that 

closed at the end of20! 5 maintained coverage until the end of the year, and nearly threequarters22 of the CO-OP Marketplace consumers have continued their coverage in a new plan in 

2016. Affected CO-OP enrollees have access to a special enrollment period, and are able to shop 

for 2016 coverage on the Marketplace until February 28, 2016. In all cases, CMS is focused on 

making sure consumers continue to receive medical services. 

Moving Forward 

Since the enactment ofthe Affordable Care Act, CMS has worked to increase access to quality, 

affordable coverage through the Marketplaces and to be responsible stewards of taxpayer dollars. 

The CO-OP program was designed to give consumers more choices, promote competition, and 

improve quality in the health insurance market. Though not all CO-OPs have continued to offer 

coverage, consumers continue to have a variety of affordable health insurance coverage choices 

that meet the health care needs of their families. While CO-OPs are primarily responsible for 

their own success, CMS will continue to help them identify and correct issues and make 

improvements. CMS is committed to continuing its work with the CO-OPs offering coverage 

this year to facilitate progress and expand into new markets when appropriate. CMS has also 

clarified our policies on important and is exploring what changes could be made to help 

CO-OPs diversify their boards and grow and raise capital, while still preserving the 

fundamentally member-run nature ofthe CO-OP program. Working with state DOls and the 

CO-OPs, CMS will continue its rigorous ongoing monitoring and oversight processes in order to 

prevent consumers from experiencing potential disruption in health insurance coverage. 

Additionally, we will use every tool available to recoup Federal dollars, where appropriate. We 

appreciate the Committee's interest and lam happy to answer your questions. 

8 
14 

Mr. MULVANEY. Thank you, Dr. Cohen. 

Before you begin, Mr. Redmer, we have had a little change in logistics, not unusual around here. It looks like we won’t be voting 

until three o’clock. So we should have a chance to get through at 

least the first round of questions. 

Mr. Redmer, after your opening statement, we are going to allow 

Mr. Cartwright to have his, and then we will move into the questions. So, Mr. Redmer, you have 5 minutes. 

STATEMENT OF AL REDMER, JR. 

Mr. REDMER. Okay. Thank you, Mr. Chairman, members of the 

committee. It’s —— 

Mr. MULVANEY. Mr. Redmer, if you would hit the button in front 

of you, turn the microphone on. 

Mr. REDMER. Sorry. Mr. Chairman, members of the committee, 

I appreciate the invitation to be here today. My name is Al 

Redmer. I’m the insurance commissioner in the State of Maryland, 

and I’m here today to offer my views on the risk adjustment program based on section 1343 of the Affordable Care Act and its impact on a CO–OP incorporated in Maryland but just as importantly 

as well as other CO–OPs and small insurance carriers around the 

country. 

Evergreen Health Cooperative is a Maryland-based CO–OP created under the Affordable Care Act. It’s been in business since 

2014, and if you look at the Affordable Care Act and the reason 

that these organizations were created, Evergreen is a compelling 

story. If you look at the objective of increasing competition focusing 

on medical outcomes, improving the health outcomes of patients, 

medical management, disease management, it is a success story. 

For example, Evergreen offers a value-based product for diabetic 

patients that removes virtually all financial barriers for the patient—no copays, no coinsurance, no deductibles—to help folks be 

treated to prevent the onset and the increased problems with the 

disease. 

Any small carrier in—any company, any new company in any industry has a challenge. They have to reach a certain size to pay 

for the infrastructure to run that business, and Evergreen and 

these CO–OPs are no different. They need to reach scale. Evergreen’s enrollment as of January of this year is 36,000 compared 

to just under 20,000 in July of 2015. 

Additionally, they have diversified their portfolio. They’re not 

just on the exchange. They do business throughout the individual 

market. They’re in the small group market. They are also in the 

large group market. And their medical loss ratio is favorable. It’s 

been running between 80 and 85 percent. Based on current enrollment trends, Evergreen is on track to reach their 2016 enrollment 

goals and turn a profit by the end of this year. 

Over the past few years, around the country we’ve seen new— 

excuse me—innovative health insurance plans that have been created that are providing enhanced competition and patient care. 

And it’s working. For example, at the end of 2004 our largest individual carrier in Maryland had a 91 percent market share. Today, 

it’s down to 57 percent due in part to a more competitive marketplace. These new carriers have the ability to continue, but their 


KING-6430 with DISTILLER
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ability is severely jeopardized by the adverse and potentially fatal 

effect—financial effect caused by the technical shortcomings of the 

current risk adjustment and risk corridor programs. The failure of 

these plans would be disruptive to the marketplace, and State insurance regulators believe that a competitive marketplace benefits 

and protects policyholders. 

The risk adjustment formula is specifically of concern because it’s 

proven that newer carriers have a distinct advantage. And I point 

out new carriers whether they’re a CO–OP or not CO–OP. For example, the risk adjustment formula quantifies an enrollee’s health 

status based on their age, sex, and diagnoses recorded during the 

course of the year. New carriers have limited ability to get that information on the health status and previous claims history for the 

applicants. So you can imagine a new small carrier. They don’t 

have the infrastructure, they don’t have the staff, they don’t have 

the technology that these large carriers that have doing—been 

doing business for decades possess. Therefore, the carrier’s population may appear to be healthier than it actually is if some diagnoses are not captured, which may result in improper risk adjustment payments. 

And let’s contrast that with the risk corridor. So the risk corridor 

last year resulted in our CO–OP receiving 12 cents on the dollar. 

So the plans established, we booked this amount of money, but 

they received 12 cents on the dollar. Now, with the risk adjustment 

formula, they’re going to have to write a check at 100 cents on the 

dollar. Any business that’s going to collect 12 cents on the dollar 

and pay 100 cents on the dollar, that math does not work. And 

when you take that math and you add it to the Affordable Care Act 

that mandates a certain medical loss ratio, they can’t raise their 

rates and collect it with premium because if they do, they’ll bump 

below the medical loss ration and they’ll have to pay that excess 

money back to the customers that they serve. 

The NAIC has urged CMS to review the formula and work with 

carriers and State regulators to make adjustments for 2015 and 

2016 to ensure that it’s providing appropriate protection for all carriers, but we really can’t wait for 2017 or 2018 to enact those reforms. There are several immediate solutions that would provide financial relief while technical corrections are developed. Among 

these are exempting new and fast-growing plans from the risk adjustment for, say, the first 3 to 5 years or limiting the amount a 

carrier pays for risk adjustment to perhaps 2 percent of their annual premiums collected in the year. 

Mr. Chairman, members of the committee, I appreciate the invitation to speak. I encourage you to consider immediate solutions 

which would provide stability in the individual and small group 

market and allow these companies to provide overall benefits to the 

marketplace, again, across the country. And with that, I’ll look forward to your questions. 

[Prepared statement of Mr. Redmer follows:] 


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KING-6430 with DISTILLERInsert offset folio 10 here 26377.010

Written Testimony for: 

Mr. AI Redmer, Jr. 

Commissioner 

Maryland Insurance Administration 
17 


KING-6430 with DISTILLERInsert offset folio 11 here 26377.011

Chainnan Chaffetz, Ranking Member Cummings and members of the Oversight & Government 

Reform Committee, thank you for the invitation to testify today. My name is AI Redmer. I am 

the Commissioner of the Maryland Insurance Administration. lam here today to offer my views 

on the risk adjustment program based on Section 1343 of the Affordable Care Act and its impact 

on a co-op incorporated in Maryland. 

Evergreen Health Cooperative Inc. is a Maryland based co-op created under the federal 

Affordable Care Act to create more competition in the marketplace. Evergreen started writing 

business in 2014 with a focus on medical management, disease management and improved 

patient outcomes. For example, Evergreen offers a value-based insurance product for diabetic 

patients, which removes virtually all financial barriers co-pays, co-insurance and deductibles 

- to services, medications and care that are needed to keep a diabetic patient from developing 

the myriad complications of that disease. 

As a start-up insurance company, Evergreen's challenges have been to achieve scale and to 

compete with more recognizable insurance companies. Evergreen's enrollment as of January 

20!6 is 36,000 compared to 19,339 as of July 2015. Additionally, they have diversified their 

portfolio. They currently offer products in the individual. small and large group markets. 

Evergreen's medical loss ratio has been a reasonable 78%-85% over the last year. Based on 

current enrollment trends, Evergreen is on track to achieve 2016 enrollment goals and turn a 

profit at year-end 

Over the past few years, new innovative health insurance plans have been created that are 

providing enhanced competition and patient care. And it is working. For year-end 2014, 

CareFirst had a 91% market share of the individual market in Maryland. Today, it is 57%, due in 

part to a more competitive marketplace. These carriers have the potential to continue, but their 

ability to do so is severely jeopardized by the adverse and perhaps fatal financial impact caused 

by the technical shortcoming of the current risk adjustment and risk corridor programs. The 

failure of these plans would be disruptive to the marketplace. State insurance regulators believe 

that a competitive marketplace benefits and protects policyholders. 

The risk adjustment formula is of concem to state regulators because it has proven to place 

newer carriers at a distinct disadvantage. For example, the risk adjustment formula quantifies an 

enrollee's health status based on age, sex and diagnoses recorded during the course of the year. 

New carriers have very limited information on the health status or previous claims history of the 

applicants. Therefore, the carrier's population may appear healthier than it actually is if some 

diagnoses are not captured which may result in improper risk adjustment payments. Let's 

contrast this to the risk corridor mechanism. With risk corridor, carriers around the country 

received 12 cents on the dollar. If they are required to pay 100 cents into the risk adjustment 

fonnula, the math just doesn't work. We are setting up carriers around the country to fail. 
18 


KING-6430 with DISTILLERInsert offset folio 12 here 26377.012

The NAIC has urged CMS to review the formula and work with carriers and state regulators to 

make adjustments for 2015 and 2016 to ensure it is providing appropriate protection for all 

carriers, and not wait until2017 or 2018 to enact reforms. There are several immediate solutions 

that would provide financial relief while technical corrections are developed. Among these are 

exempting new and fast-growing plans fi·om risk adjustment for the first 3-5 years or limiting the 

amount a carrier pays for risk adjustment to 2% of the carrier's premium revenue in the year for 

which the risk adjustment payment is assessed. 

I appreciate your invitation to speak today and encourage consideration of the immediate 

solutions which would provide stability in the individual and small group market, allow 

companies to compete and provide tor the overall benefit of marketplace enrollees across the 

country. 
19 

Mr. MULVANEY. Thank you, Mr. Redmer. 

We will now recognize Mr. Cartwright for his opening statement 

for 5 minutes. 

Mr. CARTWRIGHT. Thank you, Mr. Chairman. And thanks for 

holding today’s hearing. I would also like to welcome our witnesses, 

Dr. Cohen and Commissioner Redmer. I thank you for being here 

and appreciate your testimony. 

The CO–OP program was established, of course, to bring competition to the health insurance market by encouraging the development of nonprofit consumer-focused insurance companies. Many 

CO–OPs have done just that, providing quality care to more than 

1 million consumers at competitive prices, and accordingly, driving 

down premiums in those places. 

Of course, like any other startup, CO–OPs face challenges. In addition to competing against larger, well-established, some might 

say entrenched insurance companies that have dominated the market for years, CO–OPs lack the claims experience and the detailed 

textural knowledge of the markets that insurance—insurers have 

to rely on accurately to predict their products. 

Coops are also prohibited by law—this interesting—from using 

loan funding to market their plans. So it is like their ability to 

speak has been cut, and it is hard to attract new customers when 

you can’t advertise with all of your resources. 

But CO–OPs have also long been the target of Affordable Care 

Act opponents who view this program as one more opportunity to 

attack the law. And this is getting tiresome, of course. The ACA 

authorized $6 billion for the CO–OP program. The following year 

Congress cut $2.6 billion of that $6 billion authorized. And then the 

American Taxpayer Relief Act of 2012 further cut the program’s remaining $3.4 billion by 90 percent and put what little was left into 

a contingency fund, effectively preventing the creation of any new 

CO–OPs. 

So if you are scoring along at home, it adds up like this: Con- gress has gutted about $4 billion of the $6 billion that was originally appropriated for the program, and now we are here to criticize how they did after we cut their legs off at the knees. I hope 

we are not really here to do that. 

On top of these cuts, Congres voted last year to gut the risk corridors, one of the ACA’s risk mitigation programs. As a result, insurers will receive only 12.6 percent of the expected payments for 

2014, roughly 13 cents on the dollar for every dollar they expected 

to receive. 

Republicans in Congress have always focused more on tearing 

down the ACA than making it work, and I think that is what we 

are up to here today. They have taken more than 60 votes to repeal 

or undermine the ACA, never voting on any kind of replacement 

of their own. We are hearing today about CO–OPs that are operating under corrective action plans or enhanced oversight plans, 

but it is important to understand the challenges facing these CO– 

OPs so that we can learn from this going forward. 

Being under a CAP or an EOP does not mean that an insurance 

company is in imminent danger of failing. In fact, our committee 

staff, both Democratic and Republican, spoke with the Insurance 

Departments of States in which CO–OPs currently operate under 


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a CAP or an EOP, and they have all approved these CO–OPs to 

offer coverage this year. They have also importantly informed us 

that there are many other insurance companies, for-profit insurance companies that are not CO–OPs that have also been put 

under corrective action plans, consent orders, or similar remedial 

actions at the State level for some of the same issues facing the 

CO–OPs. 

So I understand the argument that consumers have a right to 

know about their plans, but we shouldn’t game the market by selectively targeting only CO–OPs when the larger picture is that 

they are struggling across the board. If we want consumers to 

know about their insurance plans, let’s look at all of them, not just 

the ones you want to call ObamaCare. 

Now, I will say I don’t believe we should release any of the confidential regulatory information that we have obtained about the 

remaining CO–OPs in a way that would mislead consumers about 

the insurance companies in their States or prejudice the ability of 

CO–OPs to operate going forward. But going forward, I would commit to working with the chairman on a broader comprehensive review of these programs in a way that actually helps consumers 

make informed decisions. 

And I hope we can use today’s hearing to learn from our expert 

witnesses about what is going well in the CO–OP program, what 

needs to be improved, and how we can work together to make this 

program succeed. 

I thank you, Mr. Chairman. I yield back. 

Mr. MULVANEY. I thank the gentleman from Pennsylvania. I 

would now recognize the gentleman from Tennessee, Dr. 

DesJarlais, for 5 minutes for questions. 

Mr. DESJARLAIS. Thank you, Mr. Chairman. And I thank the witnesses for being here today. 

As I continue to listen to the rhetoric from the other side of the 

aisle, we can pretend that ObamaCare is popular, but it is not. 

People didn’t want ObamaCare; they didn’t want socialized medicine when it was crammed down their throat several years ago. So 

to sit there and demagogue Republicans for just trying to make 

this into something it isn’t is disingenuous. And today’s hearing is 

a great example of one of the reasons this is failing. 

Dr. Cohen, what qualified CMS to set up and provide oversight 

for these CO–OPs in the first place? 

Dr. COHEN. The Affordable Care Act provided the statute and the 

funding for the CO–OP program. 

Mr. DESJARLAIS. Okay. Did CMS have any qualifications or experience in setting up these type of programs and overseeing them? 

Dr. COHEN. Well, we do—CMS also obviously runs Medicare, the 

largest insurer in the country. But in terms of how we decided on 

the CO–OP programs themselves, obviously they are private businesses. We had a panel of experts both externally and internally, 

whether it’s insurance expert and actuaries and others, who reviewed CO–OP business plans before making decisions about who 

would be awarded the loans. 

Mr. DESJARLAIS. Okay. And I guess at the beginning it was accepted that probably only about 60 percent of these loans at best 


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were going to be paid back, so I question why weren’t they just 

called grants or at least a majority of the money. 

Dr. COHEN. So they are very much loans, and we do very much 

expect to get taxpayer dollars back for those loans, and that’s what 

we intend to do. 

Mr. DESJARLAIS. Okay. How many CO–OPs were initiated? 

Dr. COHEN. Twenty-four. 

Mr. DESJARLAIS. Okay. How many of them are still in existence? 

Dr. COHEN. Eleven. 

Mr. DESJARLAIS. Eleven, so more than half have failed? 

Dr. COHEN. Yes, that is correct. 

Mr. DESJARLAIS. And they went —— 

Dr. COHEN. There is only 11 currently operating. 

Mr. DESJARLAIS. And so that little money we are probably not 

going to recoup, right? 

Dr. COHEN. So we are in the process of recouping that the money 

right now. We —— 

Mr. DESJARLAIS. How much money are we talking? 

Dr. COHEN. So we’ve just started that process as most of these 

CO–OPs have just shut their doors about 6 weeks ago. So we’ll go 

through an extensive process of making sure they continue—first, 

their claims run out, and then we’ll look at their—you know, the 

excess revenue and then use all the tools available to us through 

their loan agreements and State and Federal law to pull back Federal tax dollars. 

Mr. DESJARLAIS. Okay. Tennessee had Community Health Alliance, or CHA. By the end of 2014, they’d only had about 2,300 

members out of a projected 25,000, resulting in a loss of $22 million for the year. In 2015 they actually lowered the premiums to 

try to entice membership, and boy, did it work. It jumped up to 

35,000 by May of 2015, but it grew so fast during the open enrollment period that CHA had to suspend enrollment plans. They proposed an increase in premiums because obviously it, you know, was 

too affordable—kind of a bait-and-switch if you will—of 32 percent, 

but the regulators asked to increase it to 44 percent. So for these 

poor people that decided to take a chance on this CO–OP, they 

came in at a certain rate, had their rates almost double, and then 

it was determined by the end of the year that it was no longer sustainable and they shut down. So a CAP was imposed on Community Health Alliance on September 29, and then just 2 weeks later, 

it closed its doors. How can you say that these corrective measures 

are useful when 50 percent of the CO–OPs subject to CAPs have 

failed? 

Dr. COHEN. So the—we use the corrective action plans when we 

identify something that we believe is correctable. In the case of 

Tennessee, obviously, we were identifying problems, and then we 

saw additional new information that came to light about their finances, about what happened in Q2 of their claims experience. As 

you were mentioning, they were highly enrolled so they had a lot 

more—their consumer base was extremely high to their premiums 

that were coming in. And so we, along with the Departments of Insurance, need to make some tough decisions about one thing to 

make sure that consumers had continuous coverage and didn’t 

want them to enter the next open enrollment period if they couldn’t 


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make it through the whole next year. And so we, along with the 

Departments of Insurance, said that they were no longer going to 

be operating. 

Mr. DESJARLAIS. And this is not just Tennessee. This has happened in a lot of States, correct? 

Dr. COHEN. We have shut down 11 CO–OPs, that’s right. 

Mr. DESJARLAIS. Eleven CO–OPs. So what do you tell a person 

that is going to look for insurance? Why would you recommend 

anyone looking for insurance or their family to go to a CO–OP? 

Dr. COHEN. Well, that’s why we did the tough work at the end 

of last year before the open enrollment period started. We, along 

with the State Departments of Insurance, took a seriously hard 

look at these CO–OPs to make sure the ones that would continue 

forward we had the confidence would make it through 2016 for 

their consumers. 

Mr. DESJARLAIS. But you say that this CAP program is the solution to fixing these problems. How many programs were under 

CAPs that have failed? 

Dr. COHEN. So I don’t think the CAP is the only solution. I think 

the CO–OPs themselves are really the ones who are going to be the 

ones to determine whether or not they ultimately will be successful. They have a lot of work to do to rapidly mature their entities, 

their small businesses, as you know, and they’re still getting their 

foothold on this business. So I think CAPs are one way for us to 

identify correctable problems, but certainly, the State Departments 

of Insurance are doing their own work as well. 

Mr. DESJARLAIS. Yes, but bottom line, the CMS was given in ex- cess of $2 billion to help oversee these, and over half of them have 

failed, but yet you are asking us to have the confidence to continue 

to support organizations that are obviously failing. And it is awful 

difficult, I would think, to attract people. It is a big inconvenience 

for these people to go sign up for insurance, have their rates 

jacked, and then told that they are canceled. So, I mean, I think 

we have got a lot bigger problems here. 

I see my time is expired, but maybe we will get to a second 

round of questioning. 

Dr. COHEN. Okay. 

Mr. MULVANEY. I thank the gentleman and now recognize Mr. 

Cartwright from Pennsylvania for 5 minutes, give or take. 

Mr. CARTWRIGHT. Thank you, Mr. Chairman. 

Well, now, Dr. Cohen, thanks for being here again. And I said 

some things in my opening, and I want to confirm them with you. 

One of them is this idea of establishing the CO–OPs. The idea is 

that we are going to provide competition. And we are all good capitalists in this room, and we know that the more competition there 

is, the lower prices will be for consumers. Is that a fair statement? 

Dr. COHEN. That was the idea for the CO–OP program to not 

only provide an additional choice for consumer but one that was 

consumer-run. 

Mr. CARTWRIGHT. So a central capitalist principle underlies the 

whole idea for CO–OPs, right? 

Dr. COHEN. That’s right, private businesses. 

Mr. CARTWRIGHT. All right. And the other idea was we were 

going to help fund the CO–OPs to get on their feet and get going. 


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And how much did the Affordable Care Act appropriate for the 

CO–OP program in the first—for —— 

Dr. COHEN. Originally, it was $6 billion. 

Mr. CARTWRIGHT. Six billion dollars. And I understand Congress 

on several occasions has cut the CO–OPs’ funding. Am I correct in 

that? 

Dr. COHEN. That is correct. 

Mr. CARTWRIGHT. Is that four times? 

Dr. COHEN. I believe that’s right. 

Mr. CARTWRIGHT. Four times they have cut. And the year after ACA was passed, Congress voted to cut a total of $2.6 billion from 

the program, right? 

Dr. COHEN. That’s right. 

Mr. CARTWRIGHT. And then in 2012 Congress rescinded 90 percent of the remaining $3.4 billion on the program, right? 

Dr. COHEN. That’s correct. 

Mr. CARTWRIGHT. And then finally, sequestration cut an additional $13 million in funds from the CO–OP program, right? 

Dr. COHEN. You can see why they had some challenges. 

Mr. CARTWRIGHT. Okay. Well, now, Dr. DesJarlais brought up 

the fact that some of these CO–OPs have failed. You don’t need to 

be a rocket scientist to say that cutting and cutting and cutting the 

funding is going to be a big part of why some of these CO–OPs 

failed. Would that be a fair statement? 

Dr. COHEN. That would be a fair statement. 

Mr. DESJARLAIS. Would the gentleman yield just for a quick 

question? 

Mr. CARTWRIGHT. Certainly. 

Mr. DESJARLAIS. Okay. You had pointed out the funding at $6 

million. Originally, they were supposed to —— 

Mr. CARTWRIGHT. Six billion. 

Mr. DESJARLAIS. Six billion. There were originally supposed to be 

CO–OPs in all 50 States. There are only 23 or 24, so obviously, we 

did save the taxpayer a fair bit of money by cutting that amount. 

Mr. CARTWRIGHT. Reclaiming my time, actually, in terms of saving the taxpayers money, this is the loan money, isn’t it, Dr. 

Cohen? And it is coming from CMS. The lender is CMS, your agency, and your plan is to get the money back for the taxpayers, right? 

Dr. COHEN. That’s right. The money is from the Treasury. 

Mr. CARTWRIGHT. But if we kill the CO–OP, it is not going to pay 

us back, is it? 

Dr. COHEN. That’s why we want—we are trying to support the 

CO–OPs for them to succeed. They succeed, we succeed. 

Mr. CARTWRIGHT. Right. Thank you. Now, unfortunately, cuts 

made by the program last year resulted in insurers receiving only 

about 13 cents on the dollar of payments they were expecting. 

Commissioner Redmer, I want to direct this to your attention. In 

your opinion, how have changes to the risk corridors program affected CO–OPs and other small insurance companies? 

Mr. REDMER. Well, they’ve affected them a lot. And let me go 

back and point out that all of the CO–OPs are not failing. Again, 

in Maryland we have a successful, compelling story. And I would 

like to add that this risk adjustment formula that I’ve chatted 

about previously is not just affecting CO–OPs; it’s going to affect 


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all of these smaller companies around the country, some of which— 

a lot of them have no taxpayer money at all. These are all private 

organizations. 

But as I mentioned previously, if you are collecting money under 

the risk corridor and you’re paying money out under the risk adjustment formula, any business, if you are going to collect 12 or 13 

cents on the dollar and you’re going to pay out 100 cents on the 

dollar, the math just does not work. And that has already proven 

to be fatal on the corridor’s side to some of the CO–OPs, and I’m 

concerned that if we do impose that 100 cents on the dollar risk 

adjustment formula, that it may prove to be fatal to other organizations around the country. 

Mr. CARTWRIGHT. I appreciate your comments. And, Commissioner Redmer, you have been appointed as insurance commissioner by a Republican Governor, and you are a former Republican 

State legislator yourself. Why do you think it is important to help 

the remaining CO–OPs succeed? 

Mr. REDMER. When I walked in, if I could have written the ACA 

differently, I probably would have. If I could have written the exchange law in Maryland, I probably would have. But I walked in 

the office January the 21st of last year with a business that was 

providing competition to the marketplace. 

And if, again, you go back to the Affordable Care Act, and I don’t 

want to re-litigate that, but if you look at the objectives of increased competition, improved medical outcomes focusing on medical management and disease management, this specific organization is a success story. They’ve got a compelling story to tell. 

They’re insuring 30,000 Maryland citizens. We’ve seen improved 

competition, and my perspective is that it’s worth the investment 

of my time and effort to try to help and save that organization. 

Mr. CARTWRIGHT. Well, thank you, Commissioner Redmer. And 

30,000 in Maryland, and, Dr. Cohen, how about nationwide? I have 

said it is more than 1 million people who are enjoying the fruits 

of having health insurance because of the CO–OP program. Am I 

correct in that? 

Dr. COHEN. It was 1 million people as of last year, yes. 

Mr. CARTWRIGHT. As of last year, 1 million people? 

Dr. COHEN. Yes. 

Mr. CARTWRIGHT. Well, thank you both, and I yield back, Mr. 

Chairman. 

Mr. MULVANEY. I thank the gentleman. You have an extra 24 

seconds. 

We now recognize the gentleman from North Carolina, Mr. 

Meadows, for 5 minutes. 

Mr. MEADOWS. Thank you, Mr. Chairman. 

Dr. Cohen, you are not here to suggest that if the CO–OPs go 

away that those 1 million people would be uninsured, are you? 

Dr. COHEN. No. Luckily, they have other choices that the Affordable Care Act —— 

Mr. MEADOWS. Okay. Let’s make that clear, Mr. Cartwright. 

And so as we look at this, one of my concerns, I guess, that I 

have, Mr. Redmer, is, as you have gone over this business model, 

how much longer should the American taxpayer be on the hook to 

make sure that these fledgling startups —— 


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Mr. REDMER. Sure. 

Mr. MEADOWS.—make a profit? 

Mr. REDMER. I can tell you —— 

Mr. MEADOWS. And since they are nonprofits, I guess that is not —— Mr. REDMER. Sure. 

Mr. MEADOWS.—the correct word but —— 

Mr. REDMER. The —— 

Mr. MEADOWS.—become financially solvent. 

Mr. REDMER. The—Evergreen has been profitable on a monthly 

basis in 2015, 4 months out of 12. Their loss in 2015 was reasonable. They are projected to be profitable —— 

Mr. MEADOWS. But without the risk corridor, will they be profitable going forward? 

Mr. REDMER. If we —— 

Mr. MEADOWS. Because I think your testimony —— 

Mr. REDMER. Yes. 

Mr. MEADOWS.—would suggest they were not. 

Mr. REDMER. No, they would be profitable. If they are left alone 

in 2016, they will be profitable for 2016. The problem is the risk 

adjustment formula. If they have to stroke a check for $1 million 

or $2 million or a number like that, that’s not going to be an issue. 

Mr. MEADOWS. But wasn’t that —— 

Mr. REDMER. But —— 

Mr. MEADOWS.—part of their business model when they went in? 

I mean, didn’t they—I mean, the ACA has been very clear so —— 

Mr. REDMER. Of course. 

Mr. MEADOWS.—I mean, that is not like you wake up and you 

have a shock that this is going away. 

Mr. REDMER. You’re exactly right. However, also part of the business model was the risk corridor payment, of which they received 

12 cents on the dollar. So if they would have —— 

Mr. MEADOWS. But again, I would stress that is not new news. 

This is not breaking news. I mean, we changed the models and we 

started to look at this, but part of the ACA rollout has been consistent from day one they would have these certain subsidies in 

certain risk corridor someplace. They would eventually go away 

once they are there. And I guess my question still remains. How 

long should we keep everything subsidized in hopes that we have 

competition? 

Mr. REDMER. I don’t know that we need to give them subsidies. 

I think we need to leave them alone. 

Mr. MEADOWS. All right. So let me ask you maybe a different 

question. Since you have a very successful CO–OP, how much has 

that CO–OP affected the premiums? Have premiums gone down on 

health care overall in Maryland? 

Mr. REDMER. The—I believe the premiums are more moderate 

than they would otherwise be —— 

Mr. MEADOWS. Have they gone down? 

Mr. REDMER.—but no, I would —— 

Mr. MEADOWS. Yes, they have not. 

Mr. REDMER. I—there has not been any premiums going down. 

Mr. MEADOWS. So what you are saying is they may have affected 

them, the rate of growth? 


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Mr. REDMER. Yes. 

Mr. MEADOWS. Co-ops may have affected the rate of growth? 

Mr. REDMER. Sure. 

Mr. MEADOWS. So how many people do you have insured in 

Maryland? 

Mr. REDMER. I don’t have a number of the top of my head. 

Mr. MEADOWS. What would you guess? Millions? 

Mr. REDMER. I’m going to say—oh, yes, sure. 

Mr. MEADOWS. All right. So how do you think the competition of 

30,000 people really affects the premiums of millions of people? 

Mr. REDMER. I’m not going to guess as to what it’s going to affect. 

Mr. MEADOWS. Well, I am a business guy —— 

Mr. REDMER. It’s—sure. 

Mr. MEADOWS. It has got very little impact. And I guess here is 

what my concern is, Dr. —— 

Mr. REDMER. Well, but if I could say that we’re talking about 

30,000 —— 

Mr. MEADOWS. If you want to talk business, I am ready all day 

long —— 

Mr. REDMER. Sure. 

Mr. MEADOWS.—to jump —— 

Mr. REDMER. We’re —— 

Mr. MEADOWS.—right in the depths of this. 

Mr. REDMER. Sure. We’re —— 

Mr. MEADOWS. I would —— 

Mr. REDMER. We —— 

Mr. MEADOWS.—encourage you to probably not go there but —— 

Mr. REDMER. I’m —— 

Mr. MEADOWS.—go ahead. 

Mr. REDMER. I’m trying to answer your question. The 30,000 

lives have been there, have grown in the last couple of years compared to insurance companies that have been doing business for 

decades. So naturally, the—even if you are lower and you’re moderating prices, the acceleration of growth is not going to be as significant as if they were all the same size and the same age. 

Mr. MEADOWS. Well —— 

Mr. REDMER. But you’re right, they’re not reducing —— 

Mr. MEADOWS. All right. 

Mr. REDMER.—rates. 

Mr. MEADOWS. So, Dr. Cohen, let me come to you because what 

has been alleged, and certainly you know that I am no fan of ACA, 

but let’s look at the CO–OP as a separate entity at this particular 

point. You have 11 CO–OPs remaining, is that correct? 

Dr. COHEN. That’s right. 

Mr. MEADOWS. And so out of those 11 how many of them would 

have a corrective action plan in place or some kind of enhanced 

oversight right now out of the 11 remaining? 

Dr. COHEN. More than half. 

Mr. MEADOWS. But how many? 

Dr. COHEN. Seven. 

Mr. MEADOWS. Okay. So we have four CO–OPs out of all the 

CO–OPs that have been—so we have got one example in Maryland, 

so, surprise, surprise, we happen to have the one good example. 


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But four out of most of them, that is not really a successful business model, wouldn’t you think, Dr. Cohen? 

Dr. COHEN. So when we think about corrective action plans is us 

trying to identify a correctable problem. So we are working very 

hard with these CO–OPs, and I know they’re working individually 

to remedy the issues that we’ve identified. 

Mr. MEADOWS. All right. So out of those seven, how many of 

those do you think will be doing business in 2017? Because you 

were real careful in your response. You said they were going to be 

able to provide coverage for the rest of this year. 

Dr. COHEN. You’re right. It’s —— 

Mr. MEADOWS. Let me tell you why I am asking you —— 

Dr. COHEN. Yes. 

Mr. MEADOWS.—is because I don’t think CO–OPs necessarily are 

affecting the market because they’re such a small —— 

Dr. COHEN. Well —— 

Mr. MEADOWS.—part of it, and the other is, is I have got huge 

health care providers that are hemorrhaging money under this program because they are trying to figure out the risk and all of that. 

And as a guy who has started 12 small businesses, this is not one 

where I would try to wade in and try to compete with the big boys. 

And I guess what I would ask you to do is to make a realistic assumption, and I will actually agree with Mr. Cartwright that I will 

not use it to bludgeon the ACA, but I would ask you to get back 

to this committee on really should we continue the program or not? 

And with that, I appreciate the indulgence of the chair. 

Mr. MULVANEY. I thank the gentleman and now recognize the 

gentleman from Georgia, Mr. Hice, for 5 minutes. 

Mr. HICE. Thank you, Mr. Chairman. 

Well, fortunately, Georgia has not been impacted by the collapse 

of the CO–OPs, but several of our neighboring States have, South 

Carolina. Some 67,000 from South Carolina are now trying to seek 

new insurance; Tennessee, somewhere in the ballpark of 27,000. 

And as I understand it, predictions are close to three-quarters of 

a million have already lost their health insurance with little to no 

notice that this was coming. 

And, you know, I am troubled. As you just shared, we have got 

at least seven more that are in danger. I am troubled with the reality that this same fate is probably going to continue to many 

more Americans who likewise are probably not going to be notified. 

You know, and here we are dealing with people who were forced 

to get insurance and to go this route, and now all of a sudden it 

is evaporating and they have no notice whatsoever. They find 

themselves scrambling around trying to find insurance. 

And let me just ask you personally in light of all of this, if you 

were one of these people, would you want to know, would you want 

to be notified that your insurance was about to be taken away? 

Dr. COHEN. So a couple of things. One is we certainly share your 

concerns about the small businesses, and that’s why we’re doing 

the aggressive work that we are on the oversight side. What I 

would say is what we are trying to do on the oversight side is a 

tool that is used by Departments of Insurance all the time to identify correctable problems. And we believe that they are—again, we 

learn—we get additional data and make different decisions as the 


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years go by. Our primary goal is to make sure that consumers 

have—can have continuous coverage, which is why at the end of 

last year we —— 

Mr. HICE. Well, my question was would you want to be notified 

if you were about —— 

Dr. COHEN. So I know that the Department of Insurance is—has 

the voice of the consumer when they’re thinking about when to notify consumers about issues related to CO–OPs —— 

Mr. HICE. So would you want to be notified? 

Dr. COHEN. At the appropriate time. I know that the Departments of Insurance are thinking about the —— 

Mr. HICE. Okay. Well, you just mentioned that there are seven 

that are in danger. At what point is an appropriate time to notify 

these people? Which of the seven is most likely to fail next? 

Dr. COHEN. So, first I should pause, and my team corrected me 

that eight are on CAPs. So the number is eight. So the appropriate 

time is when the Department of Insurance that regulates this process of communication tells us that that’s the right time. Again, 

we’re the loan-holders here. The State Departments of Insurance 

are the primary regulators, and so they sort of govern this space 

about notification. We don’t want to have consumer —— 

Mr. HICE. All right. Well, apparently, the insurance site is not 

getting the job done either because we have got three-quarters of 

a million Americans with little to no notice whatsoever lost this, 

and you are jumping all over the place when it comes to facing any 

responsibility that Americans ought to be notified of this. 

Which of the eight is most likely next to collapse? 

Dr. COHEN. So it’s—we are at a very early point in the year. We 

did some tough work at the end of last year to make sure the consumers could have confidence in the CO–OPs that were continuing 

for 2016. We are just learning about what the CO–OPs did in 

terms of enrollment during the open enrollment period —— 

Mr. HICE. Again, that is not my question. Do you know which 

one is in the greatest danger? 

Dr. COHEN. I can’t say at this point. I don’t have that information —— 

Mr. HICE. All right. We have got billions of dollars on the line, 

American taxpayers on the hook for this. Don’t the taxpayers deserve to know—you know, if you are making a business decision, 

is this a business venture you would want to be a part of? I know 

we have got—from info that I have got, we have got one of the CO– 

OPs now projecting a $70 million loss as opposed to what was supposed to be a $4 million gain. I mean, this is a horrible, horrible 

venture. 

How many of the remaining CO–OPs are actually profitable? 

Three? Is that what we are looking at? 

Dr. COHEN. So we know that small businesses always struggle to 

turn a profit in the first few years. It’s a matter of in this entrenched business I think as the Congressman mentioned before. 

These are tough markets to break into. There’s a certain amount 

of loan funding that we can offer from the Federal Government, but 

what we’re trying to do now is encourage these CO–OPs to look for 

outside capital, additional resources to bring in, thinking about 

selling in the small group market in addition to the individual marVerDate Nov 24 2008 09:44 Aug 03, 2017 Jkt 000000 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 H:\26377.TXT APRIL

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ket, maybe even the large group market, and again, thinking about 

how they’re going to sustain themselves and be viable over the long 

term. 

Mr. HICE. All right. Last thing, and my time is about up, let’s 

walk through the process of what happens when a CO–OP closes. 

Do they continue to draw money from the Federal loan? 

Dr. COHEN. So the—when we—when the CO–OP closes, it’s a decision between CMS and the Department of Insurance. When that 

wind-down starts, that doesn’t mean the CO–OP is closed. So we 

started wind-down processes in the September/October time frame, 

but consumers are able to continue coverage until the end of that 

year. 

Mr. HICE. So they continue drawing Federal loan money? 

Dr. COHEN. So the loan money had already been awarded. 

There’s no new dollars that go out the door. All of that loan money 

—— 

Mr. HICE. So even when they close, loan money continues going 

out the door? 

Dr. COHEN. So—no, there’s no—when they close their doors, 

there’s no additional loan money so—because that was already 

awarded to them. There’s obligations of money that they need that 

they have been—they’re on a payment cycle if you will, but that 

money had already been awarded. 

Mr. HICE. Mr. Chairman, thank you as well for your indulgence. 

Mr. MULVANEY. I thank the gentleman and now recognize the 

gentleman from North Carolina, Mr. Walker, for 5 minutes for 

questions. 

Mr. WALKER. Thank you, Mr. Chairman. I would like to thank 

Mr. Cartwright from Pennsylvania for being present today. Defending the various components of the ACA I know is difficult, but I 

would hope that my friends on the other side of the aisle would be 

concerned about the constituents and the losses here of some of 

these CO–OPs. 

Mr. Redmer, I believe about 10 or 15 minutes ago, if I remember 

correctly, you said all of the CO–OPs are not failing. Can you tell 

me what percentage of failing CO–OPs need to take place before 

you feel like there is a problem? 

Mr. REDMER. I didn’t say there was not a problem. I said that 

not all CO–OPs have failed, and we have one in Maryland that is 

performing reasonably well. And that’s the extent of my knowledge 

and interest is the Maryland CO–OP. 

Mr. WALKER. Okay. Well, speaking of Maryland, last November, 

just as the open enrollment period was starting, the CEO of the 

Maryland CO–OP testified before the Energy and Commerce Committee. He did acknowledge that the CMS has placed the Maryland 

CO–OP under an enhanced oversight plan. Does CMS have any 

evidence that the Maryland CO–OP was adversely impacted as a 

result of that public disclosure? And Mr. Redmer or Dr. Cohen, 

whoever feels more comfortable in answering the question. 

Mr. REDMER. I can’t answer whether there was any effects of 

that being disclosed or not. 

Mr. WALKER. Dr. Cohen? 

Dr. COHEN. So I’m not aware of that situation. 


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Mr. WALKER. Okay. Well, as a matter of fact, 3 days after his testimony the CO–OP CEO was projecting increased enrollment. That 

is interesting. Is there anything that is being hid here from the 

public? I mean, do you have any information regarding what was 

going on there, Dr. Cohen? 

Dr. COHEN. So regarding the Maryland CO–OP? I’m sorry. I’m 

not following the question. 

Mr. WALKER. Okay. 

Dr. COHEN. I apologize. 

Mr. WALKER. Let me ask it again. Three days after his testimony, the Maryland CO–OP CEO was in the press projecting an 

increased enrollment. It seems like there is a continuance to refuse 

to comply with the committee’s duly authorized subpoena. Any evidence of that? 

Dr. COHEN. I didn’t realize the Maryland CO–OP was under subpoena by this committee. 

Mr. WALKER. Okay. All right. So let’s go a different direction 

since it sounds like that information did not get to you guys, okay? 

I want to be fair with that. Let me go back to a question earlier 

because I didn’t know if I heard a definitive answer. Of the taxpayers’ money that the administration was loaned out to the CO– 

OPs, do we have a range, a number, speculation of how much will 

actually be paid to the taxpayers? 

Dr. COHEN. So we’re working through that process right now. As 

mentioned earlier, again, the CO–OPs that wound down at the end 

of last year are now going through a process of doing their claims 

round out, understanding what revenue that it has coming in. 

Some of them are taking actions with their vendors. And then we 

go through a process based on the loan agreements and the State 

law to use all the tools at our disposal to get the funding back. 

Mr. WALKER. Sure. You would understand why the word process 

is probably overused in this town a good bit. Is there any way that 

you can put any kind of numeric value to that? 

Dr. COHEN. I can’t at this time. It’s a really case-by-case process. 

It’s led by the Department of Justice who leads these as—because 

it’s a Federal loan, and so it’s a process we’ll work through and it’s 

too early to speculate. 

Mr. WALKER. Is there a percentage of how much that we would 

want the CO–OPs—if there is not an exact dollar amount, is there 

a percentage goal, benchmark? Is there anything like that that has 

been —— 

Dr. COHEN. It certainly is —— 

Mr. WALKER.—determined in the process? 

Dr. COHEN. It is certainly as much as we possibly can within the 

confines of the loan agreement and the laws. 

Mr. WALKER. Okay. Thank you, Mr. Chairman. I yield back the 

balance of my time. 

Mr. MULVANEY. I thank the gentleman and would now recognize 

Mr. Walberg for 5 minutes. 

Mr. WALBERG. Thank you, Mr. Chairman. And I apologize for 

being a little late to arrive, so I hope I am not asking some questions that have been asked already. 

But to Dr. Cohen, thank you for being here. Major insurers, as 

we have been aware in the reports in the media, have sustained 


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significant losses on their exchange plans and have been pessimistic about the profitability of their plans. In 2015 and 2016 the 

records show that United Health expects to lose $1 billion on exchange plans. The company’s CEO has even stated that entering 

the exchange was ‘‘for us a bad decision.’’ United might quit exchanges altogether in 2017. Aetna has lost money on plans sold 

through the exchanges, and its CEO said, ‘‘We continue to have serious concerns about sustainability of the public exchanges.’’ 

Humana’s losses might drive it from the exchanges. Most major insurers seem unable to make a profit on the exchange. If that is the 

case, if major insurers can’t make it on exchanges, why should we 

be optimistic that CO–OPs will? 

Dr. COHEN. Well, we are very confident about the fact that the 

marketplace grew over the last open enrollment period with 12.7 

million consumers in the marketplace now. And if you look at Kaiser, Centene, Molina, others, they are seeing strength in the marketplace and looking to expand. And so we think that it’s a growing 

market. 

We share your concerns about the CO–OPs and their ability to 

be successful in an entrenched market. They certainly have a lot 

of barriers that they needed to overcome, and so that’s why we’re 

doing as much work as we can on the oversight side to make sure 

that they are making good decisions with taxpayer dollars. 

Mr. WALBERG. Well, I guess that time will tell on that, but we’re 

talking of significant organizations that have seen that it has been 

a bad investment, so hopefully, it will be a turnaround. The administration has requested more than $1.8 billion in emergency funds to combat Zika; $828 million would go to the 

CDC, $200 million would go to NIH and FDA. A separate committee investigation into this administration’s ObamaCare spending has revealed that during the Ebola crisis HHS propped up 

ObamaCare by taking money from CDC and NIH and giving it to 

CMS, over $14 million from CDC and over $75 million from NIH 

if the records are correct. By HHS’s accounting, over $1 billion in 

ObamaCare funding has come from the systematic raiding of funds 

from other programs utilizing the Secretary’s transfer authority 

and nonrecurring expense fund. 

Based on that track record, Dr. Cohen, how can we be confident 

that any Zika funds would be spent on their intended purpose and 

not instead used to prop up CO–OPs or other pieces of 

ObamaCare? 

Dr. COHEN. So I can’t speak to the Zika funding and how that 

will be spent, but what I can say about the funding for the marketplaces is that now that we are on stable footing with the 12 million 

and more consumers, we are able to charge user fees to the issuers 

through that, and that is what sustains the marketplace in terms 

of its viability to cover the—its operational costs. 

Mr. WALBERG. I yield back. 

Mr. MEADOWS. Would the gentleman yield for a second? 

Mr. WALBERG. I would yield. 

Mr. MEADOWS. What was the breakeven point? You say now that 

we are 12 million consumers that you are self-sustaining —— 

Dr. COHEN. No, I said that is the funding that we used to —— 

Mr. MEADOWS. That is the —— 


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Dr. COHEN.—cover the marketplace operations —— 

Mr. MEADOWS. Well, but —— 

Dr. COHEN.—for —— 

Mr. MEADOWS.—to the gentleman’s point, he said are we going 

to reprogram the money, and you said that now we are 12 million 

we don’t need —— 

Dr. COHEN. That’s not what —— 

Mr. MEADOWS. So maybe I misunderstood, but I am just trying 

to get a clarification —— 

Dr. COHEN. Well, what I said is —— 

Mr. MEADOWS.—on the gentleman’s point. 

Dr. COHEN. I don’t know about the funding for the Zika program 

and who it’s getting funded through. It’s —— 

Mr. MEADOWS. No, his point was is that other monies had been 

reprogrammed and shifted to prop up ObamaCare. That is his 

point. And what you are saying is because you—is your testimony 

here today that there will be no shifting of funds to prop up any 

part of ObamaCare from here on out? 

Dr. COHEN. So I think what you were asking is would the Zika 

funding be used to prop up the marketplace —— 

Mr. WALBERG. Well, that was an example of how Zika funding 

has been used. It has been shifted and that is the question. 

Dr. COHEN. Well —— 

Mr. WALBERG. If that is the pattern, we are concerned that the 

dollars aren’t there and we will be shifting it from other funds. 

Dr. COHEN. Understood. So—and that’s why the user fee will 

cover the marketplace operations. In addition, obviously, the Secretary has at her discretion to move money within the Department 

to cover whether it’s Zika or Ebola or marketplace whatever important action of the moment is needed across the country. 

Mr. WALBERG. That is concerning. So anyway, I yield back. 

Mr. MULVANEY. I thank the gentleman. I will recognize myself 

for 5 minutes. 

Dr. Cohen, during your opening statements you said that one of 

your jobs was to make these loans to the CO–OPs and to work on 

getting them back. I understand there is $1.2 billion outstanding 

on those—or is it a full $2.4 billion is outstanding on the loans, 

isn’t it? 

Dr. COHEN. Well, they’ve been—they are making loan payments, 

but it—that’s in the right ballpark, yes. 

Mr. MULVANEY. Let’s talk about these loans. What kind of loans 

are they? Are they secured, are they priority? Tell me, when you 

loan money to the Maryland—if we use Evergreen for an example—what is the nature of that loan? 

Dr. COHEN. I’m—I am not the loan expert, but I can be happy 

to follow up and provide that. 

Mr. MULVANEY. Is it secured by any of the assets of the entity? 

Dr. COHEN. So I don’t know that I could answer that question. 

Mr. MULVANEY. Okay. Do you know the priority of repayment? 

Dr. COHEN. Yes. So obviously for Federal loans there is—there’s 

an order of payment. I believe that we are at the very top of all 

of the creditors when we are going back, but that is, I will say, on 

a case-by-case basis. In different States that is a—there is a different makeup of where the Federal loans and Federal obligations 


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fall in the order of who gets paid back first, which is why it is a 

case-by-case process that the Department of Justice runs. 

Mr. MULVANEY. Okay. So is it your testimony then—because we 

have had information that indicates that at least on some of the 

CO–OPs you have allowed them to reclassify the loans as what 

they call surplus on their balance sheet. 

Dr. COHEN. Okay. Got you. 

Mr. MULVANEY. Is it your testimony that that is because of State 

law or have you made a decision to allow that to happen? 

Dr. COHEN. So I think you’re talking about the loan conversions. 

So —— 

Mr. MULVANEY. It sounds like it. 

Dr. COHEN. Those are ones that are requested by the CO–OPs 

themselves, and if we are going to make a determination to move 

some of those and convert those loans, we do that in coordination 

with the State Departments of Insurance. So we don’t okay any of 

those conversions without the State Department of Insurance —— 

Mr. MULVANEY. When you say conversions—I am sorry to cut 

you off, but you are using a term that I am not familiar with— 

what are you converting them to, from loans to what? 

Dr. COHEN. So on their balance sheets, so whether it’s—whether 

they can see it as—I’m going to use the wrong terms because I’m 

not the financial person, but to show—to be able to show that they 

have risk-based capital. So it allows them to show that they have 

more risk-based capital on their balance sheet. 

Mr. MULVANEY. Okay. All right. Now you have my attention. 

Dr. COHEN. You might want to tell—ask my commissioner —— 

Mr. MULVANEY. No, I will stay right here for a second. 

Dr. COHEN. Yes. 

Mr. MULVANEY. You allow certain CO–OPs to use loans from the 

Federal Government that used to be prioritized loans to count 

those as capital on their balance sheet for purpose of meeting their 

risk-based capital requirements? 

Dr. COHEN. That’s correct. 

Mr. MULVANEY. And that doesn’t scare the hell out of you? 

Dr. COHEN. That’s allowed by—under law, and it is something 

that we do —— 

Mr. MULVANEY. What law—okay. And you can ask somebody behind you if you want to. Is there a specific section of the law you 

want to cite on that one? 

Dr. COHEN. I’d be happy to have one of the lawyers follow up 

with —— 

Mr. MULVANEY. All right. 

Dr. COHEN.—our authority. 

Mr. MULVANEY. Do you agree with me that it undermines the 

whole purpose of having risk-based capital in the first place by allowing them to count a government loan as capital? You understand the—and —— 

Dr. COHEN. Absolutely. Absolutely. 

Mr. MULVANEY.—a lot of people don’t understand the difference 

between loans —— 

Dr. COHEN. Yes. 

Mr. MULVANEY.—and capital so —— 


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Dr. COHEN. Yes. Understood. And we very much hear your concerns in this space, which is why it’s quite a rigorous process from 

the time a CO–OP would request something like this until we 

would be able to approve it, and it requires a full review of their 

entire business process and their financials. It involves coordination with the State Departments of Insurance, and so we have 

turned a number of them down because of that. 

But we do want to be flexible, again, for these CO–OPs when, as 

I’ve mentioned, if they are successful, we the—we get those taxpayer dollars back, and so we are trying to use our tools to be flexible and help those CO–OPs out. 

Mr. MULVANEY. Let’s talk about your efforts to get them back. 

I have heard from some of the CO–OPs that the payments, the reinsurance payments have slowed up. Are you withholding reinsurance payments from any of the CO–OPs whether they are ongoing, 

they are winding down, or they are closed in order to offset the loss 

from the loans? 

Dr. COHEN. So each of those are, again, on a case-by-case basis 

—— 

Mr. MULVANEY. Okay. Does that mean —— 

Dr. COHEN.—depending on —— 

Mr. MULVANEY.—in some cases the answer is yes? 

Dr. COHEN. So most of the time the decision has not yet been 

made, so I think it’s too early to say. 

Mr. MULVANEY. Okay. Then, let’s talk about when you say most 

of the time the decision has not been made —— 

Dr. COHEN. And they have not —— 

Mr. MULVANEY.—let’s talk about the times —— 

Dr. COHEN. They have not been made. 

Mr. MULVANEY. It —— 

Dr. COHEN. They have not been made in the wind downs of the 

CO–OPs. 

Mr. MULVANEY. In any of them? 

Dr. COHEN. No. 

Mr. MULVANEY. So it is —— 

Dr. COHEN. That is an ongoing process. 

Mr. MULVANEY. It is your testimony here today that you are not 

withholding any of those payments from any of the winding-down 

CO–OPs? 

Dr. COHEN. So at this time the Department of Justice runs this 

process. I’m happy to have them come and answer questions about 

how the process would work, but right now, we are not. 

Mr. MULVANEY. When do you think you are going to make a decision on that? 

Dr. COHEN. I would have to consult with the Department of Justice on the timing of those decisions. 

Mr. MULVANEY. Okay. All right. I understand that Mr. Jordan 

has joined us, so we are going to have one more questioning in our 

first round. I will recognize the gentleman from Ohio, Mr. Jordan, 

for 5 minutes. 

Mr. JORDAN. I thank the chairman. And I am not exactly sure 

where the hearing has gone thus far with the questioning, so let 

me just jump in with some different things here maybe. 


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So this all started—it has been in existence for 2 years, right? 

January 2014 is when the first CO–OP started operation, is that 

right? 

Dr. COHEN. That’s correct. 

Mr. JORDAN. And you had over 100 applicants but you approved 

24? 

Dr. COHEN. That’s right. 

Mr. JORDAN. And out of the 24, 12 have already failed? 

Dr. COHEN. Twelve have closed, yes. 

Mr. JORDAN. Twelve have closed, closed, failed, whatever word 

you want to use. Okay. And last year, I understand while maybe 

24 were still operating, you visited 16 of the CO–OPs, is that accurate, site visits? 

Dr. COHEN. That sounds right. 

Mr. JORDAN. Sixteen of the 24. Were there still 24 in operation 

starting January 1 of 2015? 

Dr. COHEN. No, there were 23. Vermont never —— 

Mr. JORDAN. Never got involved? 

Dr. COHEN.—got their State license —— 

Mr. JORDAN. Okay. So the ones who —— 

Dr. COHEN.—yes. 

Mr. JORDAN.—got approved and actually started insuring American citizens, 23, you visited 16 of the 23 last year? 

Dr. COHEN. That’s correct. 

Mr. JORDAN. Okay. So of the seven you didn’t visit, have any of 

them closed? 

Dr. COHEN. I don’t have the list of who we visited and who 

didn’t, but I know we prioritized those that we had concerns about. 

Mr. JORDAN. Okay. Then let me ask you this way. The 16 you 

did visit, were all 12 in that 16? 

Dr. COHEN. I don’t know, but I can follow up and let you know. 

Mr. JORDAN. All right. Of the 12 who are still in operation, how 

many do you anticipate are going to collapse this year? 

Dr. COHEN. Again, it’s too early to know about what will happen 

over the course of this year. We did a lot of work at the end of last 

year with our colleagues at the State Departments of Insurance to 

make sure that we felt that these CO–OPs could operate —— 

Mr. JORDAN. Let me ask—maybe this has been asked by the 

chairman or some of the members. Of the 12 still in existence, how 

many are meeting enrollment projections? 

Dr. COHEN. I can’t speak to the specifics about any one of the 

CO–OPs, but that’s definitely a factor that we look at. And we’re 

only first getting in the data about how —— 

Mr. JORDAN. Is that one of the things that you look at when you 

go out on these site visits? 

Dr. COHEN. Absolutely. 

Mr. JORDAN. But you can’t tell me? 

Dr. COHEN. So I can’t speak to that right now, but I’d be happy 

to follow up —— 

Mr. JORDAN. Are —— 

Dr. COHEN.—with details. 

Mr. JORDAN.—one of the 12 meeting enrollment projections? Are 

five of the 12? Can you give me some numbers? 


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Dr. COHEN. I think some of them are over-enrolled, and sometimes that’s their concern, and sometimes they’re under-enrolled. 

So it depends on the particular circumstance. 

Mr. JORDAN. How many of the 12 still in operation are currently 

profitable? 

Dr. COHEN. I couldn’t say how many are profitable. I think that 

we know that small businesses are going to struggle to turn a profit in the early years, and it’s too early to know what their balance 

sheet is going to look like for 2016. 

Mr. JORDAN. You don’t know if these places that are still—I 

mean, half of them have already collapsed, closed, your term, costing the taxpayers over $1 billion. Of the 12 that are left, you can’t 

tell me which ones you have visited or haven’t visited, what the enrollment projections are and whether they are meeting their enrollment projections, and whether they are profitable or not? That is 

the kind of stuff we kind of wanted to know in this hearing. 

Dr. COHEN. Understood. And I’d be happy to follow up with those 

details. 

Mr. JORDAN. I mean, there are only 12. It is one thing if it was 

100. There are 12 still operating. You have lost half of them, and 

I am asking you about those 12 still in operation. Who is making 

any money, right, who is meeting their enrollment projections, and 

who did you visit? 

Dr. COHEN. I can follow up —— 

Mr. JORDAN. And you can’t tell me out of those 12 —— 

Dr. COHEN. I don’t have that information in front of me on the 

top of my head, but I would want to—I would be very happy to follow up and get you that. 

Mr. JORDAN. Well, we need that information. And that is kind of, 

frankly, the information you should have had on the top of your 

head and in front of you when you come to—it is only 12. That is 

the kind of stuff we need to know. Now —— 

Dr. COHEN. Sure. 

Mr. JORDAN.—I understand on the 20th of November and the 

23rd of December, we sent you letters requesting documents, and 

staff had told me earlier this week we had not received those documents. Was the stuff we requested in the document dump you gave 

us yesterday? 

Dr. COHEN. I believe that we have been working with your staff, 

prioritized —— 

Mr. JORDAN. That is not my question. 

Dr. COHEN.—what —— 

Mr. JORDAN. I understand we got a bunch of documents last 

night. I want to know if they specifically—specifically in that dump 

of documents we got last night, is that what we requested in the 

November 20 and December 23 letters to you? 

Dr. COHEN. So I —— 

Mr. JORDAN. Because we want that information. 

Dr. COHEN. Yes. So I—what were the specific documents that 

you were referring to, and I can let you know if they were in the 

document dump? Or at least I’ll —— 

Mr. JORDAN. Well, there is a number of things we haven’t gotten, 

the corrective action plans for current operation for some of the 

current CO–OPs, documents and communications relating to CMS 


KING-6430 with DISTILLER
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assessment and analysis of these site visits I was trying to ask you 

about —— 

Dr. COHEN. Got it. 

Mr. JORDAN.—so we don’t have that information. We want that 

information, and I want to know did we get it last night or do you 

still need to get it to us? 

Dr. COHEN. So I —— 

Mr. JORDAN. We have also subpoenaed that, by the way. 

Dr. COHEN. Yes. So they’re—some of those documents are in the 

document dump that you got from us. Others we have offered in 

a confidential review. I know that you —— 

Mr. JORDAN. And if I could, Mr. Chairman, that is what I wanted 

to get to. So why an in camera viewing only? 

Dr. COHEN. So we feel strongly that we—these documents are 

market-sensitive, that we have a fiduciary responsibility to the 

CO–OPs to allow them to operate on a level playing field with their 

competitors. These are 12 that the State Department of Insurance 

used with every insurer. If we were to release —— 

Mr. JORDAN. But what about —— 

Dr. COHEN.—the details of just the CO–OPs, that would put 

them at a disadvantage and further—make it more unlikely that 

we wouldn’t return taxpayer dollars. 

Mr. JORDAN. But don’t you also run the risk that it puts the enrollees at some kind of disadvantage that they are now maybe part 

of a CO–OP that is in financial trouble, and based on history and 

experience and the fact that half of them have already failed and 

many of these, I assume, of these other 12 are in big trouble, you 

don’t think it is important for the enrollees, the actual fellow citizens, to know what is going on? 

Dr. COHEN. So we share that information with the two entities 

that are most important to making the corrections, the CO–OPs 

themselves and the State Departments of Insurance, which carry 

the voice of —— 

Mr. JORDAN. But we are the Congress of the United States. We 

are an entity that it is kind of important to know about this as 

well. 

Dr. COHEN. And we want you to know that we are doing our job, 

which is why we had your staff—and I know they spent hours with 

those documents so that you know that we are doing our job here 

and are being pretty tough on the CO–OPs. 

Mr. JORDAN. But our job is to stand up and represent the citizens 

of the country who want to know that information, and frankly, 

from a market standpoint and an evaluation standpoint, need that 

information. 

Dr. COHEN. And that’s why you can have access to those documents if you need more time to review them. 

Mr. JORDAN. Thank you for the time. 

Mr. MULVANEY. I now recognize the gentleman from Georgia, Mr. 

Carter, for 5 minutes. 

Mr. CARTER. Thank you, Mr. Chairman. And thank you for being 

here, both of you. I appreciate it. 

Dr. Cohen, in 2011 the current administration projected that the 

CO–OP programs would result in significant losses, and that was 

something that they projected. And it would be losses in taxpayers’ 


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dollars. Specifically, when this rule was proposed to implement the 

CO–OP program they estimated that only about 65 percent of the 

solvency loans and only about 60 percent of the startup loans 

would be repaid. You had to be aware of this. Were you aware of 

that? 

Dr. COHEN. So I think you’re talking about the repayment time, 

not the default rate, which is often called the default rate. So it’s 

really about will they pay back in the time allotted, but we knew 

that the CO–OPs would likely need more time and have it to be 

—— Mr. CARTER. All right. Well, you want to limit it to the time. 

What about the time? How many of them have paid back now? 

Dr. COHEN. So they’re—as any loan, as you know, they’re paying 

back their loan. For those that have closed, we are working 

through a process now to recover those funds. 

Mr. CARTER. You were aware of this. You said you were aware 

of this because it was part of the proposed rule to implement it. 

Did you set up any kind of criteria whereas you would assess the 

financial viability of these CO–OPs? 

Dr. COHEN. Absolutely. The terms of the loan agreement themselves have quite an extensive amount of oversight process laid out 

for it. In addition, we have gone over and beyond that knowing 

that these —— 

Mr. CARTER. When did you do this? When did you —— 

Dr. COHEN. Doing —— 

Mr. CARTER. When did you set up this criteria? 

Dr. COHEN. The criteria—when the loans were let before 2014. 

Mr. CARTER. You set it up during that time? 

Dr. COHEN. Yes. 

Mr. CARTER. It was my understanding that it was developed 

after the recommendation of the HHS IG. 

Dr. COHEN. We certainly went beyond the terms of the loan 

agreement to do further oversight, and yes, appreciated the OIG 

work saying that—to do enhanced oversight, which we have. I don’t 

think anyone can fault us for—in terms of how many folks are on 

corrective action plans or enhanced oversight. We’re visiting these 

folks. We’re calling them. We’re being pretty hard on them frankly. 

Mr. CARTER. The inspector general of HHS, he found that all but 

one, all but one of the CO–OPs had lost money in 2014. CMS was 

aware of this, that almost all of the CO–OPs incurred losses in 

2014. If you were aware of that and some were already shutting 

down, why did you continue to award the taxpayer dollars in loans? 

Dr. COHEN. So you need it to —— 

Mr. CARTER. I mean, if you know you are on a sinking ship, you 

know, you have got to—when I first entered the Georgia Legislature, one of the things they told us, when you are in a hole, stop 

digging. And we are in a hole here. Why are we still digging? 

Dr. COHEN. Now, we share your concerns here. These programs 

certainly have challenges, which is why we’ve been doing the extensive and aggressive oversight that we have. What I would say is 

that when we are looking at what the CO–OP is doing, it’s a totality. It’s what is their business strategy —— 

Mr. CARTER. Well, but when you talk about —— 

Dr. COHEN.—what is their —— 


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Mr. CARTER.—totality, though, 12 of the 23 CO–OPs have already closed, 12 of the —— 

Dr. COHEN. Yes. 

Mr. CARTER.—23. Anybody in business would pull the plug on 

that immediately, but you continue it. Why is that? 

Dr. COHEN. Well, we look at each individual situation, as my colleague —— 

Mr. CARTER. And I hope you look at each individual, and I don’t 

mean to interrupt, but with 12 out of 23, come on. 

Dr. COHEN. Right. And that’s why we’re working hard to make 

sure the other ones are as strong as they can be, but they are small 

businesses. As you know, small businesses struggle at the beginning, particularly —— 

Mr. CARTER. I know small businesses—trust me. I own a small 

business. I struggled at the beginning. 

Dr. COHEN. Yes, it’s tough. 

Mr. CARTER. But I didn’t fail. I continued on. 

Dr. COHEN. And that’s what we’re trying to do with the CO–OPs 

that are —— 

Mr. CARTER. Yes, but I —— 

Dr. COHEN.—currently in business —— 

Mr. CARTER.—met my obligations. I didn’t close. I mean, if you 

have got 12 out of 23 closing, it would appear to me that you have 

got to say, hey, wait a minute, something is going on here. This 

just isn’t working. 

And we are talking about taxpayers’ dollars, again, that we in 

Congress, we are responsible for this. We are the ones who —— 

Dr. COHEN. Absolutely. 

Mr. CARTER.—have to answer for this. So I am asking you if you 

have got 12 out of 23 that are closing, why are we continuing this? 

Dr. COHEN. And the original reason for the CO–OP program was 

to provide an additional choice and competition, so where it is 

working, where they are viable, we want to support them —— 

Mr. CARTER. Where are they working? 

Dr. COHEN. In the 11 places where they’re existing. 

Mr. CARTER. That is not—are they working in those 11 places? 

Dr. COHEN. Well —— 

Mr. CARTER. Just because they haven’t gone out of business 

doesn’t necessarily mean they are working. 

Dr. COHEN. We agree with you there. They certainly have some 

challenges, and so we need to stay on top of them, and that’s what 

we’re doing. 

Mr. CARTER. What about the $1.2 billion in loans —— 

Dr. COHEN. That’s what —— 

Mr. CARTER.—that were awarded to the 12 closed CO–OPs? 

Dr. COHEN. Yes, that’s the process we’re working through right 

now —— 

Mr. CARTER. What about it? Where is the $1.2 billion? 

Dr. COHEN. Well, some of that obviously went to pay for actual 

medical care for the consumers that were enrolled in those —— 

Mr. CARTER. Are we going to get it back? 

Dr. COHEN. We are working to get every penny we can. 

Mr. CARTER. Are we going to get the $1.2 billion back? 

Dr. COHEN. We’re going to use every tool at our disposal —— 


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Mr. CARTER. Are we, yes or no? Are we —— 

Dr. COHEN. So obviously some of that money was spent on actual 

medical care for consumers, so —— 

Mr. CARTER. We are not going to get it back, are we? 

Dr. COHEN. We’re going to try to get every dollar we —— 

Mr. CARTER. And do you think we will get half of it back? Do you 

think we will get —— 

Dr. COHEN. I —— 

Mr. CARTER.—a quarter of it back? 

Dr. COHEN. I can’t say —— 

Mr. CARTER. Do you have any idea how much of it we will get 

back? 

Dr. COHEN. I can’t say at this point. 

Mr. CARTER. Twelve out of 23. 

Dr. COHEN. Understood. That’s right. 

Mr. CARTER. Thank you, Mr. Speaker. 

Dr. COHEN. Thank you. 

Mr. MULVANEY. I recognize the gentleman from Pennsylvania, 

Mr. Cartwright, for an additional 5 minutes. 

Mr. CARTWRIGHT. Thank you, Mr. Chairman. 

And, Mr. Chairman, the last thing I want to do is hold myself 

out as the adult in the room, but we have —— 

Mr. MULVANEY. Certainly not. Can we put it to a vote? 

Mr. CARTWRIGHT. We are not going to put that to a vote, Mr. 

Chairman. That is right. 

But we have had a discussion about the release of confidential 

information, and I am concerned about that. I would like to reiterate my concern that the committee not release any confidential 

regulatory information that we have obtained about the remaining 

CO–OPs in a way that could mislead consumers about the insurance companies in their States. I think empowering consumers 

through transparency is a good thing, and you don’t hear many 

voices louder than mine on the issue of transparency. 

But that is not what we would be accomplishing by releasing this 

information. In reality, it would be misleading selectively to release 

information about currently operating CO–OPs that have been 

placed under corrective actions plans or enhanced oversight plans 

by CMS. 

Mr. Redmer, I see you nodding your head. And isn’t it true that 

State regulators like yourself frequently do enter into consent orders with health insurance companies to address issues raised by 

consumer complaints like billing or claims practices, right? 

Mr. REDMER. Absolutely, we do, yes. 

Mr. CARTWRIGHT. But it is also my understanding that this type 

of regulatory action is typically kept confidential until a resolution 

has been reached? 

Mr. REDMER. Correct. 

Mr. CARTWRIGHT. Okay. And in fact, yesterday, the committee received a letter from the National Association of Insurance Commissioners. You remember that, I take it, Commissioner? 

Mr. REDMER. Yes, sir. 

Mr. CARTWRIGHT. And here is what the NAIC had to say, and I 

would like to ask unanimous consent to enter that letter into the 

record, Mr. Chairman. 


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Mr. MULVANEY. Without objection, 

Mr. CARTWRIGHT. They said this: ‘‘For the sake of the 11 CO– 

OPs that continue to operate in our States, we encourage all congressional members and their staff to heed the confidential nature 

of some of the financial information that may come to your attention. Divulging information on State actions or the financial status 

of any plan that is not public could threaten the long-term success 

of these plans.’’ 

Now, Commissioner Redmer, as a State insurance commissioner, 

do you think it would be harmful to release information about any 

CAP or EOP for the remaining CO–OPs? 

Mr. REDMER. I do. It’s easy for a competitor to take a nugget of 

information and throw it out there out of context and create an unfavorable, adverse effect for that organization. 

Mr. CARTWRIGHT. And not to put too fine a point on it, I really 

don’t think I am the only adult in the room, and I look forward to 

working with the folks across the aisle to be responsible with that 

information. 

And I also want to follow up on the question of recouping funds. 

Dr. Cohen, roughly $2.4 billion had been loaned to all the CO–OPs, 

is that correct? 

Dr. COHEN. That’s right. 

Mr. CARTWRIGHT. But only half of that amount has gone to CO– 

OPs that have wound down. Am I correct in that? 

Dr. COHEN. That’s right. That’s right. 

Mr. CARTWRIGHT. Okay. And then the remainder of the loan 

funding, money that had been lent to the CO–OPs that are still in 

operation, is still being serviced, right? 

Dr. COHEN. Sorry, repeat that? 

Mr. CARTWRIGHT. They are making payments on the —— 

Dr. COHEN. That’s right. 

Mr. CARTWRIGHT.—loans? 

Dr. COHEN. That’s right. 

Mr. CARTWRIGHT. And, Dr. Cohen, what is CMS doing to recoup 

loan funds from the CO–OPs that have in fact wound down? 

Dr. COHEN. To recoup the funding for the CO–OPs that have 

wound down, we’re going through a process right now. We know 

about our obligations to the taxpayer. The recoupment process is 

dictated by the terms of the loan agreement, as well as State and 

Federal law. The Department of Justice leads that process on our 

behalf. 

Mr. CARTWRIGHT. Okay. Now, a fellow named John Morrison, 

who was a former president of the National Alliance of State 

Health CO–Ops, testified before Congress on this issue in November, and you are aware of that, I take it? 

Dr. COHEN. Yes. 

Mr. CARTWRIGHT. Now, he suggested that consumers in States 

with CO–OPs have already saved more money through lower premiums than the total cost of the entire CO–OP program itself. He 

also noted that these savings are passed along to the Federal Government, the taxpayers, in the form of lower subsidy costs. Now, 

Dr. Cohen, what do you make of that statement? 

Dr. COHEN. So I don’t know the data, but again, we agree with 

the concept. 


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Mr. CARTWRIGHT. Okay. And, Commissioner Redmer, what is 

your perspective on the capacity of CO–OPs to save consumers and 

the Federal Government money? 

Mr. REDMER. I believe that competition is a good thing, and, 

again, to go back to my earlier statement, the broader conversation 

is not just about CO–OPs. We’ve got small, new, emerging, privately owned carriers all around the country that could be adversely affected specifically because of the risk adjustment formula 

that aren’t using any taxpayer dollars at all. 

Mr. CARTWRIGHT. Well, I thank both of you for your testimony 

here today. 

Dr. COHEN. Thank you. 

Mr. MULVANEY. And I am sorry to cut the gentleman —— 

Mr. CARTWRIGHT. I yield back. 

Mr. MULVANEY.—off, but we have to go vote on the Cartwright 

of Pennsylvania amendment, whatever that is. We now recognize 

the chairman of the subcommittee, Mr. Jordan, for 5 minutes for 

the final questions. 

Mr. JORDAN. And we don’t want to miss an opportunity to vote 

against that wonderful amendment, I am sure. I am kidding you. 

So, Dr. Cohen, of the 12 left —— 

Dr. COHEN. Yes. 

Mr. JORDAN.—how many of those are under corrective action 

plan, enhanced oversight? 

Dr. COHEN. Eight. 

Mr. JORDAN. Eight. So your position is that certain information 

can’t get out because it could somehow jeopardize the ability of 

CO–OPs to survive. I just fail to see that. Twenty-three started, 12 

have already collapsed. Of the 12 remaining, eight are under some 

corrective action plan, and somehow, if we get information about 

enrollment projections and profitability, that is going to ruin their 

reputation? I mean really? 

Dr. COHEN. Well, again, I’m happy to share that information 

with you, Chairman —— 

Mr. JORDAN. Well, no, let me ask —— 

Dr. COHEN.—out of a public setting. 

Mr. JORDAN.—somehow if consumers get that information, that 

is somehow going to hurt them? 

Dr. COHEN. Well —— 

Mr. JORDAN. It seems to me that is the kind of information they 

would need to know so they will say, look, this thing is going down. 

I need to run as far away from this—I need to get insured somewhere else. 

Dr. COHEN. And that’s really the job of the State Department of 

Insurance to be the ones to certify whether or not the insurer has 

the ability to sell a product on the —— 

Mr. JORDAN. What are these CAPs? What is in this corrective action plan? What is that? Is that a letter to them saying, hey, things 

don’t look so good, you got to change some things? What is that? 

Dr. COHEN. Yes, it’s a pretty detailed plan saying we’ve identified 

these particular —— 

Mr. JORDAN. Detailed in what area? Give me some examples of 

things you require these CO–OPs to do to change —— 

Dr. COHEN. Sure. 


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Mr. JORDAN.—to correct the —— 

Dr. COHEN. We identify operational issues that they had whether 

it’s in their management team, how they’re doing vendor oversight, 

what they’re doing with their provider networks, how they’re pricing their product, their business strategy. It could be a range of 

issues. 

Mr. JORDAN. So it is our understanding that the very things you 

just outlined that you put in this corrective action plan for the 

eight of the 12 who are still out there, the 12 who collapsed had 

the exact same plan sent to them. 

Dr. COHEN. No, that’s—they were all tailored individually to 

their situation. Some of them, we couldn’t—we realized that we 

didn’t—couldn’t identify a correctible issue and that, frankly, we 

went straight to a wind-down process with some of them. 

Mr. JORDAN. Is it your opinion that—and then I am going to 

yield to the chairman for the remainder of my time. Is it your opinion that the three who are currently still operating and not—or, excuse me, it would be the four that are still operating who are not 

under a corrective action plan, are they going to be around at the 

end of the year? 

Dr. COHEN. So again, too early to tell in the year. We’re just 

looking at their Q4 data from the end of last year —— 

Mr. JORDAN. Can you guarantee us that those four who aren’t 

under a corrective action plan, so of the 12 surviving, the —— 

Dr. COHEN. Yes. 

Mr. JORDAN.—four who aren’t under a CAP or enhanced oversight, can you guarantee us that they are going to be around? 

Dr. COHEN. So we will continue to do our oversight of them in 

a very strict way, and as new information comes up, if we need to, 

we will put more folks on corrective action plans —— 

Mr. JORDAN. So it is likely that those four may go on a corrective 

action plan, too? 

Dr. COHEN. It’s too early for me to know. I think that’s the work 

ahead of us. 

Mr. JORDAN. I yield to the chairman. 

Mr. MULVANEY. Dr. Cohen, are you making any contingency 

plans for any of the currently operating CO–OPs to shut down during 2016? 

Dr. COHEN. I think a lot of our oversight work is in and of itself 

the planning that we’re doing, trying to identify issues with them 

—— 

Mr. MULVANEY. Are you taking any specific actions to prepare for 

the possible shutdown of any of the currently operating CO–OPs? 

Dr. COHEN. I don’t know exactly what you’re referring to, but I 

think the work that we’re doing on the oversight work is that contingency planning. 

Mr. MULVANEY. Does it bother you that I think several—I think 

it is at least four, maybe as many as seven of the CO–OPs that 

have already gone out of business or are winding down never went 

on a CAP to begin with? 

Dr. COHEN. Again, if we identify something we think is 

correctible, reversible, addressable, we put them on a CAP. Others, 

we recognize that that wouldn’t —— 


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Mr. MULVANEY. Have you ever corrected, reversed, or fixed anything under any of the CAPs? 

Dr. COHEN. So these are things that are structural to the program. As I was mentioning, some of the things, whether it’s —— 

Mr. MULVANEY. I understand what they are. I am asking you if 

you have fixed them. 

Dr. COHEN. So it—they don’t fix overnight. These are things that 

take many months —— 

Mr. MULVANEY. And you have had many months —— 

Dr. COHEN.—to see those corrected —— 

Mr. MULVANEY.—you have had some of them under CAPs for 

many months. Have you made any improvements that we —— 

Dr. COHEN. Yes, I think some of them have certainly made some 

improvements in their vendor management and their—in the way 

that they’re looking at their operations and the way that they’re 

looking at their provider networks, yes. 

Mr. MULVANEY. Several times today you have mentioned that 

you take a seriously hard look at the CO–OPs, that you aggressively work on oversight, you have strict oversight. Do you believe 

that you are entitled to see anything from the CO–OPs that this 

committee and this Congress is not entitled to see? 

Dr. COHEN. Again, we are happy to share with you any of the 

information —— 

Mr. MULVANEY. I understand that, and I appreciate that. Do you 

believe that you are entitled to see anything that we are not? 

Dr. COHEN. I—no, again, we’re happy to share with you the information that we can —— 

Mr. MULVANEY. Mr. Redmer, the last question. 

Mr. REDMER. Sure. 

Mr. MULVANEY. I understand the concern about going public 

with the information. Evergreen chose to go public in November of 

2015 to a committee of this Congress that it was under a CAP, 

didn’t it? 

Mr. REDMER. They went to go public—I’m sorry, say again. 

Mr. MULVANEY. They made public statements in Congress to one 

of the committee—of this body that they were under a CAP? 

Mr. REDMER. I don’t know whether they did or not but —— 

Mr. MULVANEY. I can assure they did. 

Mr. REDMER. But I can tell you discussing the CAP is not a concern for me as a regulator. What’s of concern to me is disclosing 

confidential proprietary information that could be used against 

them in the marketplace by just passing out nuggets that might be 

out of context. 

Mr. MULVANEY. Fair enough. I thank both of you very much. 

Mr. REDMER. Thank you. 

Mr. MULVANEY. And I am sorry to wrap this up very quickly, but 

as you can see, we have got 7 minutes to run across the street. We 

are going to hold the record open for 5 days for any member who 

wants to submit a written statement. We thank the witnesses. 

There being no further business and without objection, we will 

stand adjourned. Thank you very much. 

Mr. REDMER. Thank you. 

Dr. COHEN. Thank you. 

[Whereupon, at 3:24 p.m., the subcommittee was adjourned.] 


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APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD


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KING-6430 with DISTILLERInsert offset folio 13 here 26377.013

February 24, 2016 

The Honorable Jason Chaffetz 

Chair 

Oversight & Government Reform Committee 

U.S. House of Representatives 

Washington, DC 20515 

Dear Mr. Chair and Mr. Ranking Member: 

The Honorable Elijah Cummings 

Ranking Member 

Oversight & Government Reform Committee 

u.s. House of Representatives 

washington, DC 20515 

We write to you on behalf of the National Association of Insurance Commissioners (NAIC), which 

represents the insurance regulators in the fifty states, Washington, DC, and the five U.S. territories. As 

the committee prepares for its hearing on the Consumer Oriented and Operated Plans (CO-OPs) 

created under the Affordable Care Act (ACA), we would like to add the following insights. 

Each CO-OP is unique and each faces different challenges in its market. The specific factors that led to 

the failure of a CO-OP vary. Some of the contributing causes state regulators have identified are: they 

were new companies taking on unknown risk pools and operating In a very competitive marketplace; 

their enrollment was higher or lower than expected ln some states; and, some had operational 

challenges. Another key factor was the management of the programs intended to help them: the risk 

corridor and risk adjustment programs. 

The risk corridor program was, and continues to be, of particular concern to CO-OPs and state 

regulators. First, Congress decided to significantly change the rules of the program after CO·OPs and 

other carriers had already set their rates, requiring it to be budget neutral each year. This cut funding 

for carriers by $2.5 billion in 2014 alone. In addition, actions by the Centers for Medicare and Medicaid 

Services (CMS) to downplay the shortfall and delay the final announcement further damaged the 

financial health of some CO-OPs. 

The risk adjustment formula is also of great concern to state regulators. The current formula used by 

the federal government has proven to place newer carriers at a distinct disadvantage. The I\IAIC has 

urged CMS to review the formula and work with carriers and state regulators to make adjustments for 

2015 and 2016 to ensure it is providing appropriate protection for all carriers, and not wait until 2017 

or 2018 to enact reforms. 

State regulators have also requested flexibility to set enrollment caps for Qualified Health Plans - both 

CO·OPs and non-CO-OPs prior to open enrollment when they determine that the plan would be 

significantly Impacted if it took on enrollment beyond its financial capabilities. To date, the federal Exchange 

has rebuffed these requests, blaming technical issues. Controlling enrollment can be an important tool 

in preserving the solvency of carriers and this tool should not be taken away due to technical issues. 
47 

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KING-6430 with DISTILLERInsert offset folio 14 here 26377.014

The Honorable Jason Chaffetz 

The Honorable Elijah Cummings 

February 24, 2016 

Page Two 

Finally, for the sake of the eleven CO-OPs that continue to operate in our states, we encourage all 

congressional members and their staff to heed the confidential nature of some of the financial 

information that may come to your attention. Divulging information on state actions or the financial 

status of any plan that is not public could threaten the long-term success of these plans. 

Thank you for your consideration. We are available to answer any questions you or other members of 

the Committee may have about these or other issues Impacting CO·OPs or the health insurance market 

as a whole. 

Sincerely, 

John M. Huff 

NAIC President 

Director 

Missouri Department of Insurance, 

Financial Institutions and Professional Registration 

Julie Mix McPeak 

NAIC Vice President 

Commissioner 

Tennessee Department of Commerce & Insurance 

Ted Nickel 

NAIC President-Elect 

Commissioner 

Wisconsin Office of the 

Insurance Commissioner 

Eric A. Cioppa 

NAIC Secretary-Treasurer 

Superintendent 

Maine Bureau of Insurance