```

[Senate Hearing 114-542]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 114-542

  HEALTH CARE CO-OPS: A REVIEW OF THE FINANCIAL AND OVERSIGHT CONTROLS

=======================================================================

                                HEARING

                               before the

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                            JANUARY 21, 2016

                               __________

                                     
                                     

            Printed for the use of the Committee on Finance

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                         U.S. GOVERNMENT PUBLISHING OFFICE 

23-629 PDF                     WASHINGTON : 2017 
-----------------------------------------------------------------------
  For sale by the Superintendent of Documents, U.S. Government Publishing 
  Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; 
         DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, 
                          Washington, DC 20402-0001

                          COMMITTEE ON FINANCE

                     ORRIN G. HATCH, Utah, Chairman

CHUCK GRASSLEY, Iowa                 RON WYDEN, Oregon
MIKE CRAPO, Idaho                    CHARLES E. SCHUMER, New York
PAT ROBERTS, Kansas                  DEBBIE STABENOW, Michigan
MICHAEL B. ENZI, Wyoming             MARIA CANTWELL, Washington
JOHN CORNYN, Texas                   BILL NELSON, Florida
JOHN THUNE, South Dakota             ROBERT MENENDEZ, New Jersey
RICHARD BURR, North Carolina         THOMAS R. CARPER, Delaware
JOHNNY ISAKSON, Georgia              BENJAMIN L. CARDIN, Maryland
ROB PORTMAN, Ohio                    SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania      MICHAEL F. BENNET, Colorado
DANIEL COATS, Indiana                ROBERT P. CASEY, Jr., Pennsylvania
DEAN HELLER, Nevada                  MARK R. WARNER, Virginia
TIM SCOTT, South Carolina

                     Chris Campbell, Staff Director

              Joshua Sheinkman, Democratic Staff Director

                                  (ii)

                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Hatch, Hon. Orrin G., a U.S. Senator from Utah, chairman, 
  Committee on Finance...........................................     1
Wyden, Hon. Ron, a U.S. Senator from Oregon......................     3
.................................................................

                         ADMINISTRATION WITNESS

Slavitt, Andy, Acting Administrator, Centers for Medicare and 
  Medicaid Services, Department of Health and Human Services, 
  Washington, DC.................................................     5

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Hatch, Hon. Orrin G.:
    Opening statement............................................     1
    Prepared statement...........................................    23
Slavitt, Andy:
    Testimony....................................................     5
    Prepared statement...........................................    24
Wyden, Hon. Ron:
    Opening statement............................................     3
    Prepared statement...........................................    28

                                 (iii)

 
  HEALTH CARE CO-OPS: A REVIEW OF THE FINANCIAL AND OVERSIGHT CONTROLS

                              ----------                              

                       THURSDAY, JANUARY 21, 2016

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 9:44 a.m., 
in room SD-215, Dirksen Senate Office Building, Hon. Orrin G. 
Hatch (chairman of the committee) presiding.
    Present: Senators Grassley, Crapo, Cornyn, Thune, Burr, 
Portman, Toomey, Heller, Wyden, Cardin, Brown, Bennet, and 
Casey.
    Also present: Republican Staff: Chris Campbell, Staff 
Director; Chris Armstrong, Deputy Chief Oversight Counsel; 
Kimberly Brandt, Chief Healthcare Investigative Counsel; Katie 
Meyer Simeon, Health Policy Advisor; and Jill Wright, Detailee. 
Democratic Staff: Michael Evans, Chief Counsel; Elizabeth 
Jurinka, Chief Health Advisor; Juan Machado, Professional Staff 
Member; and Joshua Sheinkman, Staff Director.

 OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 
              UTAH, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. The committee will come to order. I would 
like to welcome everyone to today's hearing on financial and 
oversight controls for health care CO-OPs.
    Six years ago, the so-called Affordable Care Act was forced 
through Congress and signed by President Obama. The law was 
passed on a series of strictly partisan votes over the 
opposition of the majority of the American people, and, at that 
time, supporters of the law claimed it would both expand health 
coverage and bring down costs.
    Not surprisingly, as the health law has been implemented, 
reality has had a different story to tell. Under the Affordable 
Care Act, millions of Americans learned the hard way that, 
despite many promises to the contrary, they could not keep 
their previous health care plans, even if they liked them.
    Under the Affordable Care Act, health insurers, unable to 
sustain the losses resulting from the law's draconian mandates 
and regulations, are dropping out of exchanges across the 
country. Under the Affordable Care Act, insurance premiums are 
rising, at astronomical rates in some parts of the country, and 
options for patients and consumers are decreasing seemingly by 
the day.
    Under the Affordable Care Act, the so-called Consumer 
Operated and Oriented Plans are failing left and right. These 
Consumer Operated and Oriented Plans, or CO-OPs, are the 
subject of today's hearing. The CO-OP program was designed to 
encourage the development of a nonprofit health insurance 
sector, which, according to its proponents, was supposed to 
improve coverage, increase competition, and provide more 
affordable health care options. But, as with many other parts 
of the health law, reality has told a different story with 
regard to the CO-OP program.
    Taxpayers have been forced to foot the bill for the CO-OP 
experiment to the tune of $2.4 billion, with a ``b,'' in 
Federal loans for 23 CO-OPs around the country, and, to date, 
more than half of the CO-OPs have failed, while the vast 
majority of the others are in poor financial shape. As a 
result, hundreds of thousands of Americans have lost or will 
lose their health insurance, and taxpayers are still on the 
hook.
    In some ways, the CO-OPs were doomed to fail from the 
outset. For example, they have been limited to less profitable 
markets, had no historical claims data, and had no brand 
recognition or trust. Some were established and run with 
political aims in mind rather than solvency or efficiency. 
Several had premium prices that were far below that of their 
competitors and, not surprisingly, they incurred costs that far 
outpaced revenue.
    Standard and Poors aptly described establishing a CO-OP as, 
quote, ``learning to ride a bike without training wheels.''
    There are a number of questions we could ask about the CO-
OP program, and we certainly will today. Why was it designed so 
poorly? Why are there not more safeguards in place to protect 
taxpayer investments? Of course, many of these questions should 
be directed at those who actually wrote and passed the health 
law in the first place, none of whom will be testifying in this 
hearing.
    However, today we will hear from Andy Slavitt, the Acting 
Administrator of the Centers for Medicare and Medicaid 
Services, which oversees the CO-OP program.
    From a congressional oversight perspective, the main 
question we have today is, how has CMS dealt with these 
problems? As it turns out, we know at least part of the answer. 
CMS has actually encouraged the CO-OPs to cook their books with 
some creative accounting. Last year, the agency issued guidance 
allowing CO-OPs to apply surplus notes to program startup 
loans, which essentially allowed the CO-OPs to record loans as 
assets in their financial filings.
    Quite honestly, I think I am being generous when I call 
that kind of accounting ``creative.'' Yet, it is, as far as we 
know, now the standard of practice among Obamacare CO-OPs.
    Today, I want to hear more about these types of creative 
ideas coming from CMS, because I believe the taxpayers deserve 
some explanation, particularly those taxpayers who lost their 
coverage when the CO-OPs they enrolled in were not financially 
viable enough to provide them with the coverage they were 
promised.
    Mr. Slavitt, you currently oversee an agency that is 
responsible for paying out well over $1.1 trillion through 
Medicare and Medicaid each year, a number that, by the way, 
will only go up in the coming years. And while the current 
program is a relatively small drop in the bucket, it is still a 
significant investment on the part of American taxpayers.
    So I look forward to hearing your explanation of what is 
going on with this program and your ideas about what can be 
done to improve the situation.
    So with that, I will turn to Senator Wyden.
    [The prepared statement of Chairman Hatch appears in the 
appendix.]

             OPENING STATEMENT OF HON. RON WYDEN, 
                   A U.S. SENATOR FROM OREGON

    Senator Wyden. Thank you very much, Mr. Chairman.
    When Congress wrote the Affordable Care Act, it gave 
Americans shopping for health insurance the option of getting 
coverage from new private nonprofits called Consumer Operated 
and Oriented Plans, or CO-OPs. More than 1 million people 
turned to CO-OPs for insurance in 2015, including many very 
vulnerable Americans who needed access to top-notch care. That 
is certainly evidence that there is real demand for CO-OPs, and 
lawmakers should be focused on making sure CO-OPs provide the 
services that consumers need and deserve.
    That is not how the events have played out. Even though the 
Supreme Court has upheld the Affordable Care Act multiple 
times, the political battles have continued, and CO-OPs are one 
of the big targets.
    Now, right out of the gate, CO-OP funding was handicapped 
by a cut of two-thirds. Their financial flexibility was the 
next thing to go. Congress denied the ability to move resources 
that would help new CO-OPs weathering growing pains to continue 
serving consumers. So from the get-go, these private insurance 
plans have been facing extraordinarily stiff headwinds.
    In my State, 15,000 people got insurance coverage from 
Health Republic, one of our State's two CO-OPs. It fell victim 
to this totally avoidable financial crunch and announced last 
October that it was closing, due, in large part, to the 
inability of the Congress to set politics aside and work 
together on a bipartisan basis to improve the law.
    Fortunately, there is still a marketplace where those 
15,000 Oregonians can shop for high-quality insurance, and 
there are several more CO-OPs up and running across the 
country, including the second one in my home State, called 
Oregon's Health CO-OP.
    Now, some may want to paint the CO-OPs as kind of token 
failed government, but the facts do not bear that out. Let us 
start by remembering what CO-OPs are and what they are not. CO-
OPs are not government-run and they are not, for example, the 
public option that was at the center of the Affordable Care Act 
debate 6 years ago.
    CO-OPs are private, market-driven plans that now cover 
hundreds of thousands of Americans. In my view, these CO-OPs 
are startups that had early investors. They drew up business 
plans. They attracted customers and opened their doors. Then 
their investments were yanked away. So it is no wonder that 
some of them have run into trouble.
    My view is--and I will certainly be repeating this, 
colleagues, throughout this session--we ought to be looking for 
bipartisan approaches to strengthen the Affordable Care Act and 
CO-OPs, while stoking private competition and private choices 
in insurance marketplaces nationwide so that consumers can 
benefit.
    The fact is, the battle lines over the Affordable Care Act 
are familiar now to just about everybody. The House and Senate 
have taken dozens and dozens of votes on proposals that 
undermine or repeal the ACA. Now, some may not want to hear 
this, but the Affordable Care Act is not going to be repealed.
    Americans do not want to root out protections for our 
citizens who have preexisting conditions and go back to the 
days when health care in America was for the healthy and 
wealthy. What we ought to do is get on with the bipartisan 
challenges that our country needs to attack to improve health 
care.
    I see our colleague, Senator Grassley, is here, former 
chairman of the committee. I want to thank him, because he 
worked with me side-by-side for 18 months on what I think is 
going to be a landmark investigation into how blockbuster drugs 
are priced. Hepatitis C drugs are what Senator Grassley and I 
were looking at: Sovaldi and Harvoni.
    We said from the outset, every bit of our inquiry was going 
to be bipartisan, and I want to thank Senator Grassley for his 
efforts in that regard, because that is how I think we ought to 
be working.
    The reality is, we are going to have great health care 
cures in America, colleagues, great cures, and what Senator 
Grassley and I looked at is a question about whether Americans 
are going to be able to afford these great cures.
    Those challenges can only be addressed in a bipartisan way.
    Now, fortunately, we are beginning to make some additional 
progress in other areas, and I am very pleased that Chairman 
Hatch, with the help of Senator Isakson and Senator Warner--and 
I have joined in on these efforts--has begun a serious effort 
to address what I think is also a big part of the future of 
Medicare, and that is tackling chronic disease.
    Where most of the money now goes is into diabetes and 
cancer and heart disease and strokes. We have begun an 
important inquiry, with Chairman Hatch, Senator Isakson, and 
Senator Warner, to bring a chronic care bill before the Finance 
Committee.
    That is, colleagues, my view of how we ought to be pursuing 
health care. We have a chance to start pulling on the same end 
of the rope when it comes to these big issues, and I look 
forward to working with my colleagues on these questions.
    Finally, I want to thank Acting CMS Administrator Andy 
Slavitt for joining us today. It is my view that he is an 
excellent nominee for the job of CMS Administrator. In the last 
6 months since he was officially nominated, he has proven 
himself on the job, and I particularly appreciate that he has 
been accessible to all the members on both sides of the aisle 
here on the Finance Committee. So I am very hopeful that Mr. 
Slavitt's nomination can be moved as quickly as possible.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator Wyden appears in the 
appendix.]
    The Chairman. Thank you, Senator Wyden.
    Now, I would like to take a few minutes to introduce 
today's witness--Senator Wyden has partly done that--Acting 
Administrator Andy Slavitt.
    Mr. Slavitt is currently serving as the Acting 
Administrator for the Centers for Medicare and Medicaid 
Services. In that role, he is responsible for overseeing the 
coverage of 140 million Americans under Medicaid and Medicare, 
the Health Insurance Marketplaces, and the Children's Health 
Insurance Program.
    Prior to joining CMS in July 2014, Mr. Slavitt spent over 2 
decades working in the private sector, spending most of that 
time working on health care and technology. Most recently, Mr. 
Slavitt served as group executive vice president for Optum. He 
has also served as the CEO of OptumInsight, as well as the 
founder and CEO of Health Allies, prior to which he was a 
strategy consultant with McKinsey and Company and an investment 
banker with Goldman Sachs.
    Mr. Slavitt lives in Minnesota with his wife and two 
teenaged boys. He graduated from the Wharton School and the 
College of Arts and Sciences at the University of Pennsylvania 
and received his master's of business administration from the 
Harvard Business School.
    Mr. Slavitt, we are honored to have you here. We would like 
you to please proceed with your opening statement.

 STATEMENT OF ANDY SLAVITT, ACTING ADMINISTRATOR, CENTERS FOR 
MEDICARE AND MEDICAID SERVICES, DEPARTMENT OF HEALTH AND HUMAN 
                    SERVICES, WASHINGTON, DC

    Mr. Slavitt. Thank you. Chairman Hatch, Ranking Member 
Wyden, and members of the committee, thank you for the 
invitation to participate in this hearing on the CO-OP health 
insurance companies.
    I know you are aware of the challenges CO-OPs have faced as 
they started up operations, 11 having closed their doors prior 
to the third open enrollment. So I will focus my comments today 
on providing the committee with a review of CMS's oversight 
responsibilities and lessons we have learned from moving 
forward as we work to protect consumers and oversee taxpayer 
dollars.
    As you know, CO-OPs were created to stimulate new 
competition in an industry that has a history of being very 
difficult for small companies to enter, with some entering 
markets that had not seen a new competitor for decades. CMS's 
principal role is to grant and oversee loans and then maximize 
the likelihood that Federal funds are returned. We are in close 
contact with State regulators, as they, of course, have full 
authority over insurance companies in their State and oversee 
the rules CO-OPs operate under.
    Now, by the time I became Acting Administrator in February 
2015, all the CO-OPs had been selected, all the loan funding 
had been obligated, and the major strategic and operating 
decisions were in the hands of the CO-OP boards.
    I came to CMS with a principal focus on execution and 
implementation across all of our programs, and my principal 
focus with the CO-OP program has been to ensure that we have 
the best possible oversight practices and personnel as we move 
to this new stage of the program.
    One of the very first things I did was to hire an 
independent firm to do a review of all these companies. Now, 
these are very small businesses--typically with 30 to 50 
employees, trying to compete in a market filled with large 
established firms--that needed very active oversight.
    We established tailored oversight protocols, a formal risk 
committee, and an enhanced monitoring process. In 2015, we 
conducted 27 financial and operational reviews, 16 in-person 
visits, and had 43 formal communications, not to mention 
hundreds of phone calls, and we have kept the States up to 
speed on every important interaction to help them perform their 
regulatory actions.
    Now, as we move forward, there are several lessons from the 
first 2 years of the program which are important for CO-OPs and 
for those of us charged with the taxpayers' and consumers' 
interests.
    Let me start with CMS. We need to make it easier for CO-OPs 
to attract outside capital or a merger partner if the board 
chooses. We need to level the playing field and lengthen the 
runway for these small businesses. That is why shortly we will 
be releasing guidance and exploring further steps to ease that 
path for CO-OPs and investors.
    Second, States should continue to take prudent and 
conservative actions to protect consumers. Sometimes this does 
mean putting in place enrollment freezes, and sometimes it 
means making the difficult decision not to certify a plan for 
the coming open enrollment. Because of the States' decisive 
actions, each of the consumers in the CO-OPs that closed at the 
end of last year maintained coverage until the end of the year, 
and, so far this open enrollment, nearly three-quarters of CO-
OP marketplace consumers have continued their coverage in new 
plans.
    As a steward of taxpayer funds, we also appreciate the 
States' collaboration and decisiveness, as it increases the 
likelihood that we will get higher amounts of funds returned.
    Finally, the single biggest factor in the future success of 
the CO-OPs will come from the actions of the companies 
themselves. As small companies, they need to rapidly mature the 
fundamentals of their operations and, in particular, their 
financial systems, which are vital to the ability of any 
insurance company to predict, manage, and control costs. They 
need to tighten their operating discipline and CO-OP processes 
and hold their vendors accountable in this and other areas in 
the year ahead.
    Through all the challenges they face, CO-OPs have every 
opportunity to become successful, long-term market 
participants. When I meet with them and hear their stories, I 
am reminded that many of the men and women working in these 
not-for-profits are serving poorer and sicker communities that 
had not been traditionally served in the health-care system.
    Even in States where CO-OPs proved unsuccessful, in the 
first year, the overall uninsured rate in CO-OP States 
decreased by 20 percent, and it has continued to improve.
    Ultimately, our goal at CMS is to make sure that the 
programs we are charged with are working as they should for 
American families. As we enter the third year of exchange 
operations, millions of Americans have found coverage for the 
first time, and hundreds of private-sector companies are 
competing for their business.
    Challenges like the ones we are discussing today are part 
of every program, and we must always be ready to work through 
them transparently, with accountability, with urgency, and in 
the best interest of the taxpayers and consumers we serve.
    Thank you, Mr. Chairman, for allowing me these few minutes, 
and I am now pleased to take your questions.
    [The prepared statement of Mr. Slavitt appears in the 
appendix.]
    The Chairman. Thank you so much, Mr. Slavitt.
    Let me just start with this. Of the 11 CO-OPs still in 
operation, there is reason to call their long-term financial 
viability into question. All but two of them are losing money. 
Not a single one of them had an underwriting gain through the 
third quarter of 2015.
    As CO-OPs generally continue moving into weaker financial 
conditions, several show signs of running out of money this 
year. Yet, CMS certified these CO-OPs to sell in the Federal 
marketplace, putting those enrollees into the position of 
possibly losing their current plans later this year.
    Now, the question I ask is, why would CMS certify these 
plans to sell on the Federal marketplace knowing that there is 
a good chance that these plans will fail and leave their 
enrollees in the lurch?
    So that is a question I think a lot of us have.
    Mr. Slavitt. Thank you, Mr. Chairman. And, as you rightly 
point out and you pointed out in your opening remarks, there is 
no question that the challenge of building a business in the 
first few years, a small business competing against very large 
competitors, is indeed a big challenge.
    Having said that, it does not surprise me that in the first 
couple of years, the CO-OPs are going to lose money. I think 
most small businesses competing in this space have those 
investment years.
    So the States, I think, reviewed very carefully, with our 
assistance and our participation, whether or not the CO-OPs 
should indeed move forward into the coming year, and as a 
result, as you know, decisions were made to not allow certain 
CO-OPs to enter the year.
    The ones that entered the year, the States--which are the 
ultimate regulatory authority, with our support--believed that 
these CO-OPs had the wherewithal to make it through the year, 
and I think they have taken actions to support that.
    My final point I would add is, for the very reason you 
point out, I am eager to loosen up the capital rules so that we 
can get more capital into some of these CO-OPs and lengthen the 
runway, because I do want to make sure that they have every 
opportunity to succeed.
    The Chairman. All right. There are several CO-OPs in 
receivership at the State level, as I understand it. State 
regulators work through the process of ensuring that 
outstanding claims are paid and consumers are protected.
    There is a growing concern about Federal payments owed to 
the CO-OPs. Will the CO-OPs receive all re-insurance and risk 
adjustment payments due them for 2014 and 2015?
    The second question would be, will they receive any tax 
credit or cost-sharing reduction payments that are owed after 
reconciliation?
    Mr. Slavitt. Thank you for your question. I think this 
topic of the collectability of the loans is one of the things 
that is a very high priority for us right now.
    We clearly have a fiduciary responsibility to use every 
tool that we have, and by Treasury regulation, with the 
Department of Justice we are now working hand-in-hand on these 
collections to make sure that we maximize the returns.
    To your specifics, I think there are three broad sources 
that we are looking at that are going to be a source of 
returned funds for taxpayers at the Federal level. The first 
is, as you point out, there are a series of receivables that 
some of these CO-OPs have. Second is, there are audit and legal 
actions that I think are appropriate in some cases that we are 
working with DOJ on. And third and finally, there will be cash 
in the CO-OPs themselves when they get through paying the 
providers and paying off claims, which, of course, as you say, 
will happen over the next several months through the 
receivership process.
    The Chairman. Under most State laws, Mr. Slavitt, monies 
owed to the Federal Government are a low priority during the 
liquidation process.
    Has CMS reviewed these laws, and does it believe that they 
are in any way preempted by Federal law?
    Mr. Slavitt. We are working closely with the Department of 
Justice, working through those very things very closely. I 
think the next several months, after some of the final claims 
come in, will be a time when the Department of Justice, in 
working with us, will clarify.
    We have taken the first step of calling the loans, which we 
did in December, and then as a follow-up, we are working on a 
plan with the DOJ on exactly what the priority ought to be for 
us.
    The Chairman. Thank you. Well, keep us up to speed on that.
    Mr. Slavitt. I certainly will.
    The Chairman. One last question. Does CMS expect any of the 
remaining CO-OPs to close in 2016 during the benefit year, and 
how does it plan to assist the customers who will inevitably 
experience disruption in their health coverage?
    Mr. Slavitt. Thank you. We work hand-in-hand with the 
States on these matters, and currently I think all of the CO-
OPs that have entered the 2016 plan year have every opportunity 
to be successful.
    I think we have learned over the course of time that it is 
our job to try to anticipate problems rather than have them 
presented to us. So as soon as open enrollment ends, of course, 
we have a financial audit that will go on in each of the CO-
OPs, and I am sure we will learn more. But each of the CO-OPs 
that is in business today, while it is a small business, 
certainly with its share of challenges, has every opportunity 
to be successful this year.
    The Chairman. Thank you.
    Senator Wyden?
    Senator Wyden. Thank you, Mr. Chairman.
    Mr. Slavitt, thank you for your responses to Chairman 
Hatch, because it indicated that you want to work in a 
proactive way to address these issues, and that, to me, is a 
great challenge with respect to health care.
    Those who have been critical of the Affordable Care Act 
spend hour after hour after hour talking about the problems, 
and what we have to do now is find a way to get some solutions. 
I suggested several paths for this committee on other issues, 
particularly chronic disease and challenges with respect to 
affording these wonderful cures for chronic diseases, and I 
want to do the same thing here with you on CO-OPs.
    So you have been at this now for some time as Acting 
Administrator. What do you think needs to be done differently, 
specifically, from what was done at the outset so we can turn 
this around?
    Mr. Slavitt. Thank you. I want to respond to something you 
said in your opening comments, which is, we have great 
appreciation at CMS for the work that you and Senator Grassley 
have done on drug costs and innovation and how to make sure we 
get the best of both in this country, and it has been very 
helpful to us. So thank you, and thank the committee for that.
    I think you are exactly right. I think our goal is to be 
proactive and to try to anticipate problems and challenges. And 
from our standpoint, the most important things we can do are, 
first, to make sure that the CO-OPs have opportunities where 
outside capital and the opportunity for mergers, if that is 
what they decide to do, are very much on the table so we can 
give the CO-OPs as much running room as possible.
    Secondly, I think States have taken an active role, 
including this period. Two of the CO-OPs have had enrollment 
caps put in place, which is really an attempt to make sure that 
the size of those businesses stays consistent with the amount 
of capital they have, because they only have limited amounts of 
capital. It is a very proactive move, and we appreciate that.
    Then finally, I think a lot of this today is very much in 
the hands of the CO-OP teams themselves. When I ran a small 
business, I focused very much on cash in the door and cash out 
the door. So from an operations standpoint, making sure that 
the products are priced right, that they are current on their 
claims, and all of those basics, I think will really serve them 
well.
    Senator Wyden. I indicated in my opening statement that I 
think part of this is the debate about startups generally, 
startups in America. Are there challenges that a new insurance 
company faces that might not be present in other industries?
    Mr. Slavitt. That is a really important point. I think 
about the challenges that the CO-OPs face every day, and, 
coming out of the gate, they probably have a 20- to 30-percent 
higher cost structure just because they do not have the 
negotiating leverage with the hospitals in their community.
    They do not have the information that some of the bigger 
companies have to price their business, and, of course, they 
are working--they have to, by definition--with a series of 
vendors instead of having employees who know the business quite 
well.
    So it is a big challenge. It is the reason why there are 
many States that have not had new entrants for decades. And 
remember, we are talking about a lot of money, $100 million or 
so, for a CO-OP, which sounds like a large company until we 
think about the fact that they are competing with companies 
that have billions and billions of dollars in surplus.
    So it becomes a very thin margin of error for a lot of 
these small businesses.
    Senator Wyden. Now, talk for a moment, if you would, about 
how these CO-OPs relate to the Affordable Care Act and the 
broader insurance market generally?
    My sense is that competition is still strong in a great 
many marketplaces, with roughly as many new insurers entering 
the marketplace for 2016 as there are exiting. Is that correct, 
and could you give us some numbers so that we can really begin 
to get into the possibilities of looking at something that I 
think ought to have bipartisan support?
    Back when I introduced the Healthy Americans Act, we had 
seven Democrats and seven Republicans. It was all about coming 
together around private insurance.
    So tell me a little bit about the situation with respect to 
competition and the number of insurers entering the market 
relative to the number that are exiting for 2016, so we have 
the latest numbers.
    Mr. Slavitt. Sure. Competition is our friend here, because 
it not only makes prices affordable, it also allows consumers 
to get new innovations that companies offer.
    You are exactly correct. The metric we look at, the most 
important metric for us, is what percentage of the American 
public has three or more insurance company options to choose 
from when they are making a health plan decision.
    Senator Wyden. Three or more private----
    Mr. Slavitt. Correct; three or more private insurance 
company options to choose from. Today, over 90 percent of 
Americans have over three or more options to choose from. So 
obviously, in the context of the CO-OP program, we think 
stimulating new competition is a really important idea, but I 
also think it is important for us to keep in mind that there 
are literally hundreds of companies with thousands of plans 
and, as you point out, some will come in, some will come out.
    This will happen over the course of time. But most 
important is making sure consumers have choices.
    Senator Wyden. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator.
    Senator Grassley?
    Senator Grassley. I will be somewhat repetitive, but I come 
from the experience of Iowa having the first CO-OP to go out of 
business. So by any objective account, CMS has failed in 
overseeing the CO-OP program; $2.5 billion in loans have been 
given to these 23 CO-OPs.
    For the 12 that have failed, it adds up to $1.2 billion. In 
2011, HHS predicted that only 65 percent of the solvency loans 
and 60 percent of the startup loans would be repaid. In 2012, 
OMB predicted taxpayers would lose over 40 percent of the loans 
offered through the program.
    In 2013, we had an OIG audit warn that 11 of 16 CO-OPs were 
at risk of exhausting startup funding before they were fully 
operational. In 2015, another OIG audit warned that the low 
enrollments and net losses in 13 of 23 CO-OPs might limit the 
ability to repay startup and solvency loans.
    So I think you can see that we have good reason to be 
concerned about CMS's oversight role. I know a lot of this went 
on before you were there, obviously. But the warning signs were 
there.
    So I said 1 year ago about Iowa--that CO-OP was called 
CoOpportunity. Iowa and Nebraska entered into liquidation, like 
I said, 1 year ago. So it first failed in Iowa. The Iowa CO-OP 
was the second largest in the country, and when it failed, it 
left thousands of Iowans scrambling for health insurance.
    My staff spoke to the Iowa insurance commissioner recently, 
and he reported that as of September 1st last year, all 
affected Iowans have other health insurance.
    So for you, as an administrator now, my concern is, if one 
of the largest CO-OPs can fail, what about the rest? I have 
heard you talk positively about the future for those that are 
still in it.
    In your testimony, you mentioned CMS is conducting site 
visits, collecting financial statements and other data. CMS was 
supposed to be doing all of those things, and yet, 12 CO-OPs 
failed.
    So, going back to your testimony, you stated what 
additional measures you are taking to protect individuals 
enrolled in CO-OPs and to protect the taxpayers.
    I think you made some reference to independent audits that 
are going on now. You might want to tell us about them, and 
then have actuaries reevaluate the program.
    If you are taking steps like that, will you be sharing your 
findings with the committee?
    Mr. Slavitt. Thank you. I would like to start by spending a 
minute, if I could, on CoOpportunity, Senator, because, while 
it was a bit before I became Acting Administrator, it turned 
out to be a very important shaping event in how at least I 
thought we should be setting up and monitoring the CO-OPs 
proactively.
    I think one of the things that we learned there is how 
quickly things can happen and how quickly things can 
deteriorate. I know that the team who was, at the time, 
granting CO-OP loans wished they could have funded every 
application that came in. They simply did not have the money.
    But I think that certainly CoOpportunity wanted more money, 
reached out for more money, did not get it, given the shortage 
of funds, and then, between the second quarter and the third 
quarter, if I am not mistaken, CoOpportunity's loss tripled. So 
it happened rapidly.
    The important lesson for us and for me was, first of all, 
as you pointed out, that the team members of the CoOpportunity 
plan--which had roughly 120,000 enrollees--focused full-time, 
in cooperation with your office and mostly with the department 
in Iowa, to make sure that those people got continued coverage, 
and, thankfully, as you have pointed out, virtually everybody 
whom we know of was able to find coverage.
    But the other lesson that that taught us was that we have 
to be strategic at the end of a year, prior to the open 
enrollment period, so that a company does not end up getting 
into the situation that we had in Iowa and Nebraska, where, in 
the middle of the year, they fail.
    So the reason that there were so many CO-OPs that closed at 
the end of last year was, we worked hand-in-hand very 
aggressively with the departments of insurance to make a full-
on 12-month assessment. And even those CO-OPs that seemed like 
they were in pretty decent shape at the time, but did not have 
the wherewithal to last through the end of the year, the 
departments made, I think, very wise and prudent decisions to 
make sure that those did not continue.
    I have to say that the enhanced oversight and the audits 
and all of the transparency we now require comes very much from 
that experience.
    To your point about sharing documents with you, I believe 
this week and prior, we have turned about 1,000 new documents 
over to the committee on this topic. So we want to have 
complete transparency with you so you see exactly what we see.
    Senator Grassley. Thank you, Mr. Chairman.
    Senator Wyden [presiding]. Thank you, Senator Grassley.
    Senator Toomey?
    Senator Toomey. Thank you, Senator Wyden.
    Administrator Slavitt, thanks for joining us today. Just 
very briefly, I want to touch on one matter that is off the 
topic today, if I could, and follow up on the very brief 
exchange you and I had prior to the hearing, which is the work 
that we can do together to address part of the problem that is 
contributing to this appalling tragedy of opioid addiction and 
heroin addiction and deaths from overdose.
    I think everybody on this committee is painfully aware of 
this problem. I do not think a single one of us is from a State 
that is not affected by this.
    Fortunately, I think there are a number of things we can do 
to help address this. The administration has consistently urged 
Congress to pass legislation that would give Medicare the same 
authority that Medicaid already has, that the private sector 
already uses, and I am referring to the authority to lock in 
certain beneficiaries, lock them into a single prescriber and a 
single pharmacy when it is determined that they are likely to 
be getting excessive quantities of opioids and perhaps 
diverting these to untoward uses.
    I have a bill. Senator Brown is the lead Democrat on the 
bill. I want to thank Senators Casey and Portman from this 
committee who are also cosponsors of this legislation. And it 
would do just this: it would simply extend to Medicare the 
power that Medicaid has. It would take a significant step, I 
think, in the direction of diminishing the risk of diversion.
    I want to ask you if CMS and the administration fully 
support this approach and if you would support enacting this 
legislation as soon as practical.
    Mr. Slavitt. Thank you, Senator. Thank you for your 
leadership on this very challenging issue.
    I know, from work we have done with you and your office in 
western Pennsylvania, how personally involved you have been, 
and, of course, we are dealing with the effects of this every 
day as well.
    We think that a lock-in proposal makes every bit of sense 
in the world, and we completely agree that that is the kind of 
authority that would be very helpful in really taking a 
practical measure to stem abuse.
    Senator Toomey. If I remember correctly, the President's 
budget has actually called for this policy.
    Mr. Slavitt. That is correct.
    Senator Toomey. Is it your understanding that the 
President's upcoming budget is likely to renew that call?
    Mr. Slavitt. That is what I would expect, yes.
    Senator Toomey. Well, I want to thank my colleagues on this 
committee who have joined in this effort, and I would really 
like to urge this committee to take up this legislation. It 
passed the House by a big bipartisan vote. It is bipartisan. It 
actually is scored to save money as opposed to cost taxpayer 
money, and it almost certainly would diminish the risk of 
addiction and death.
    So I really, frankly, cannot think of too many higher 
priorities for this committee in the near term.
    I want to bring up a different topic, and that is the 
Federal exchange.
    Administrator Slavitt, the fact is, since it was created, 
the Federal exchange has lost money; is that correct?
    Mr. Slavitt. I am sorry?
    Senator Toomey. The Federal exchange does not operate at 
break-even. The user fees that are generated from the tax on 
the premiums are not sufficient to cover the costs; is that 
correct?
    Mr. Slavitt. Actually, there are certain costs that we are 
not permitted to cover with user fees because they are 
considered inherently governmental functions.
    Senator Toomey. My understanding is that the legislation 
requires that the user fees cover the costs of operating the 
exchange, but that, in fact, the user fees are covering only 
something on the order of 40 percent of the costs.
    Mr. Slavitt. I think my clarification would be that user 
fees are intended to cover certain costs of the exchange, but 
not all of the costs of the exchange. I cannot give you an 
exact number, but I believe it is closer to 60 percent to two-
thirds of the costs that get covered with user fees. But I will 
get back to you with a more precise number.
    Senator Toomey. My understanding is that CMS officials have 
suggested that they believe that the user fees will fully cover 
the costs of the exchange by 2017. So, if they are not 
permitted to cover the full costs of the exchange, why are we 
projecting that they will be?
    Mr. Slavitt. Maybe it is a definitional item. There are 
costs that we incur to operate the exchange that, by law, user 
fees are not permitted to cover; but, not counting those, maybe 
that is where your analysis----
    Senator Toomey. Well, I see I am out of time, but I would 
be very grateful if you would follow up with an answer to 
basically this question. To what extent are the user fees 
appropriately designed so that they cover all of the expenses 
they are supposed to cover?
    Now, my understanding is that they are falling short, that 
the user fees are set at a level that is not adequate to cover 
those costs. But if you could clarify that, I would be 
appreciative.
    Mr. Slavitt. We will clarify that, Senator. Thank you.
    Senator Toomey. Thank you.
    The Chairman. Thank you, Senator.
    Senator Casey?
    Senator Casey. Thank you, Mr. Chairman.
    Administrator Slavitt, I appreciate you being here and 
appreciate your work, your public service.
    I would start by saying that I think Senator Toomey is 
right on two things: number one, that this opioid problem is a 
matter of great urgency; and number two, that there is a 
bipartisan consensus to confront the problem and propose 
solutions. I know this committee is prepared to do that.
    My question really focuses on the broader question of the 
challenges you face with CO-OPs, and I guess I would start with 
the predicate that when I look at what the Congress can do over 
the next number of years, when we debate the ACA and debate 
changes to it, you can join kind of one of three caucuses, 
right? This is my view of it.
    Caucus number one is the ``it is perfect, do not touch it'' 
caucus. That is probably not reasonable. No law that deals with 
a subject as complex as health care can be perfect upon 
enactment. I wish it were so, but I do not think that is the 
case.
    The other caucus on the other extreme is what I call the 
``repeal and walk away'' caucus. Unfortunately, I think there 
are some members of that caucus in Washington. I do not know 
how many. But that does not make sense.
    So we know it is not perfect, but we also cannot walk away 
from the problem, as some seem to want to do.
    The third caucus, I think, is the best caucus or the best 
point of view and the best perspective on this, which is, let 
us fix problems in the ACA in a bipartisan fashion and make 
sure we do not undermine or destroy the achievements.
    There are 17.5 million people, more than 17.5 million now, 
who have health care today who would not have it, would not 
have health-care coverage absent the ACA, which helps all of 
us, because now you have millions of people who are not using 
the emergency rooms as their primary care doc and having the 
rest of us pay 1,000 bucks a head to pay for that care.
    Secondly, we are implementing and making normal or routine 
things that used to be exceptional and rare--making sure we are 
reducing hospital readmissions, for example, which leads to 
better health outcomes for the individual, better results for 
the hospital, and saves a heck of a lot of money.
    So I think there are lots of areas where we can fix a 
problem and improve the law.
    I guess stepping back--and this is really the only question 
I have--when you look down the road, in light of these 
challenges that we know we have, how do you view CO-OPs in 
terms of how they fit into an overall vision for the private 
health insurance market?
    Mr. Slavitt. Thank you, Senator Casey. That vision you laid 
out of rolling up our sleeves and really examining in a self-
critical matter what is wrong and trying to fix it is exactly 
what I am trying to bring into the agency, and I would say it 
is what the agency very much tries to do, which is to make sure 
that in the first few years of this law, we are doing things to 
make it better.
    I had the honor of being Acting Administrator during the 
50th year of Medicare and Medicaid, and those programs which 
mean so much to so many people also had a 3rd year and a 4th 
year and a 5th year, and I often think about what the people 
who were working here at that time were working through.
    I think CO-OPs are a part of the overall package aimed 
really at stimulating competition in an industry where it is 
very hard historically for new competitors to enter.
    So to your point, I do not think it is reasonable to 
expect--and I do not think anyone expects--that the way it was 
designed was necessarily perfect coming out of the gate, but we 
need to do everything we can to make it easier for these 
companies to succeed and ultimately for taxpayers to get paid 
back on the loans that we made to these companies.
    I think the one thing I would put forward today is making 
attracting outside capital or a merger partner a much more easy 
and readily available thing for these small businesses, because 
every other small business in America is able to raise capital, 
and we need to make it easier for them as well.
    Senator Casey. Great. Thanks very much.
    The Chairman. Thank you, Senator Casey.
    Senator Thune?
    Senator Thune. Thank you, Mr. Chairman.
    I want to shift gears for just a minute and ask a couple of 
questions on a couple of issues that are important to my State.
    Over the last few weeks, I have grown encouraged, Mr. 
Slavitt, by your recent statements pertaining to the meaningful 
use program. I think as you know, Senator Alexander and I wrote 
to Secretary Burwell last year requesting that the 
administration delay implementation of meaningful use stage 
three. Instead, we encouraged the program to phase in stage 
three requirements at a rate that reflects how successfully the 
program is being implemented.
    As we look toward the future of physician reimbursement, 
now is the time to finally align the various requirements that 
we place on our physicians. So in my opinion, I believe that 
CMS should pause stage three and engage with stakeholders over 
the next year to better align stage three requirements with the 
implementation of the Merit-Based Incentive Payment System, or 
MIPS. By doing this, CMS could ensure that the final stage of 
the meaningful use program is meaningful to providers as we 
continue to move toward MIPS implementation.
    So, in light of your recent blog post, I am wondering if 
CMS is now considering such delay. Additionally, could you 
discuss CMS's current plans for aligning these programs?
    Mr. Slavitt. Thank you for the question. Really at the 
heart of your question is an important acknowledgment. We have 
to do better by the caregivers and patients in this country by 
taking on what we have learned and what physicians all over the 
country are saying.
    We do not want to pay physicians to become computer 
operators. We want them to be caregivers, and we want 
technology companies to build tools for them to make that 
easier.
    So we have a regime, as you point out, that has been part 
of the statute, and we were given, I think, a terrific 
opportunity with the passage of the MACRA legislation to step 
back and take stock of really where we are and what we want out 
of technology, and that opportunity is really to move from a 
situation where we are rewarding people to use their computer 
to where we are rewarding people to get the best outcomes for 
their patients and for their populations using technology as an 
aid.
    That will, of course, as you point out, put technology 
companies back in the business of doing work for their 
customers again instead of simply meeting regulations.
    So we are going through the process now of working through 
the details. I think we have a very, very busy few months ahead 
of us to get that right. We are hearing from and inviting 
everybody, whether they are physicians, patients, or 
technologists, to come in and talk with us, and then we will 
put out a proposed rule, of course, in the next several months 
that people will have a chance to react to.
    I think our commitment needs to be making it better and 
better and better and making things simpler and simpler and 
simpler. That has to be our direction.
    Senator Thune. Are you considering a delay?
    Mr. Slavitt. I think that the impact of what we do with 
MACRA--and again, I want to be thoughtful about not speaking 
about a regulation before I am supposed to so I do not get out 
of line, but I think you will feel the effect and people will 
feel the effect of what we do with MACRA to accomplish the aims 
that you, Senator Alexander, and others, and, most importantly, 
the physicians in this community, have been pushing for to 
remove some of the burden that people feel coming with 
meaningful use.
    The other thing I would point out is, for any physician, 
you have given us now more flexibility and authority to grant 
hardship exemptions to physicians so that we are not needlessly 
penalizing small docs who are really just trying to take care 
of their patients.
    So I think there is very positive momentum, and I think as 
the details come out, I am hoping you will be very pleased.
    Senator Thune. As you know, some of the other members of 
this committee and I are closely watching the effects of the 
rollout of the competitive bidding program for durable medical 
equipment and the impact that it will have on beneficiary 
access.
    Ensuring that seniors have access to this equipment really 
is vital to ensuring that they may remain in their homes. In 
2014, CMS released its final rule relating to the national 
rollout and stated, and I want to quote, ``CMS will monitor 
access and health outcomes using real-time claims data and 
analysis,'' without any further explanation.
    So I have a two-part question. One, can you explain how CMS 
is monitoring the national rollout to ensure beneficiaries 
still have access to this equipment, and two, would you 
consider extending the current phase-in beyond July 1st?
    Mr. Slavitt. I think there has been some legislation which 
has helped us in that arena to do this, but I think at the 
heart of your question--I want to talk about two things.
    One is, we have to watch the effect of everything we do not 
just on the average population, but on the very specific 
communities where sometimes health care is hardest to obtain. 
As you rightly point out, we have to do, and we do now as a 
matter of protocol, a real impact analysis on all of these 
things.
    The way we have to roll these out thoughtfully is by doing 
it in stages and measuring the impact and taking in feedback, 
and we have the absolute authority, if we see access issues, to 
step in and prevent them.
    So we cannot let the goals of this program, which are noble 
and I think good for our budget, get in the way of common sense 
when we run into those issues.
    So we have been, hopefully, responsive along the way, and 
we will continue to do that.
    Senator Thune. Do you think 6 months is enough?
    Mr. Slavitt. I think that is exactly what we should be 
testing right now. I think we should not assume that 6 months 
is going to be enough until we work through it.
    So, candidly, I want to see the data from our team that is 
conducting the data monitoring and understand the impact, and 
if we believe that we are going too fast, we will slow down.
    Senator Thune. Thank you. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator.
    Senator Cardin?
    Senator Cardin. Thank you, Mr. Chairman. I very much 
appreciate this hearing.
    Mr. Slavitt, first of all, thank you very much for your 
service and all your hard work to ensure the success of the 
Affordable Care Act. It is very much appreciated by people in 
Maryland and this country.
    I want to talk about a CO-OP that is in Maryland, because 
it is truly unique: Evergreen Health Cooperative. It has been a 
leader in innovation in Maryland's health insurance 
marketplace.
    It is unique in that it operates a tightly affiliated, 
nonprofit organization of primary care offices--so it provides 
the direct services--which offers state-of-the-art, 
comprehensive, patient-centered care, including health coaches, 
wellness centers, behavioral health, primary care, and care 
coordination onsite.
    While we all talk about how we can improve the way we 
actually deliver health care, they are doing it. They are not 
just a payer of services. They are a provider of what we are 
trying to get done, and it is the diversity that we wanted in 
the Affordable Care Act as regards patient choice.
    So close to 6,000 Evergreen members use the center as their 
primary care provider. I can give you an example where they 
designed a unique protocol for patients with diabetes so that 
they can get all the different components covered, from 
pediatric care to primary care visits, eye checks, et cetera.
    So here is the problem. They look at the risk adjustor as 
hopefully helping, but like most of the CO-OPs, I think all but 
two, the result of the risk adjustors is they actually have to 
give up money--they pay money.
    I am not a technician. I do not understand all of the 
aspects or the pluses and minuses, and I will be glad to become 
better informed about that, but I do know that there is a 
difference between a relatively small operation and a large 
operation which has been in existence for a long period of 
time, where they can have a better opportunity to reflect on 
the risk adjustor issues, whereas the small operator may not 
have those same opportunities.
    The full implementation of that negative impact on 
Evergreen would be devastating. So we have been looking at 
whether there are any ways--I know you are looking at 
adjustments in the risk adjustor issues that go through the 
normal rules process, but one suggestion that has been made is 
to have a 2-percent ceiling on the amount that they would have 
to pay, because the percentage, I have been told, in Evergreen 
is a huge part of their annual premium budget. I think it is 
like 15 percent, which is just not manageable.
    Could you just share with us whether ideas like this could 
be worked into the risk adjustor so that the small CO-OPs can 
have a more predictable life and, therefore, have a better 
chance of succeeding in a very competitive marketplace?
    Mr. Slavitt. Thank you, Senator. If I might, Evergreen is, 
from what I know about it, exactly the kind of example of the 
kind of competition and the kind of innovation that unique, 
small companies can provide that I believe the CO-OP 
legislation was hoping for, and we certainly understand the 
challenges that they face.
    I believe, if I am not mistaken, that they may be the first 
new entrant in the State of Maryland in some time, maybe 20 
years or so. So it is an enormous challenge for them.
    And in respect to the risk adjustment process, which is 
what you have asked about--and I might say that the risk 
adjustment process is what allows insurance companies to take 
on sicker people. So it is very, very important.
    In a world where we do not want people to be prohibited 
from getting insurance because they have a preexisting 
condition or they may be sick, it is very important that people 
who take on sicker people can get fairly compensated for them.
    It is very important because, in fact, as you point out, 
the people with sicker populations take in money, the people 
with healthier populations pay out money. The government 
actually just sets the rules. We do not know where the money 
goes, into the government coffers or out of the government 
coffers. That those rules are known by folks in advance and 
that they are predictable is important so people are playing by 
the same sets of rules.
    So it is very, very important, as we look at a process 
which works today, that we find opportunities to make it 
better, that we do it in a way where all the participants can 
participate in it, and that we do not change the rules on 
people after the game has been played.
    So we have, I think, announced a session where we are 
having all of the participants in the market, the CO-OPs and 
otherwise, come in and provide ideas. We think there may be 
opportunities to make the risk adjustment process better along 
the way, as has happened in Medicare and in other places, and 
we are very much looking forward to supporting Evergreen as it 
continues its growth.
    Senator Cardin. I thank you for that. I would just make one 
final observation. If you were to observe the target population 
that is in Evergreen, you would know that they are certainly 
taking all comers, and they are encouraging the widest possible 
group, including those at high risk. So it was somewhat 
counterintuitive that there would be such a large negative for 
them.
    I would just ask CMS to look at some type of a circuit-
breaker so that they can at least put into their financial 
projections a manageable number as they look to the future 
viability of the program.
    Mr. Slavitt. Sure. Thank you, Senator.
    The Chairman. Thank you, Senator.
    The vote started 16 minutes ago.
    Did you vote, Senator Portman? You are next.
    Senator Portman. I have not voted, Mr. Chairman. I am 
willing to take a risk to be late for the vote.
    The Chairman. Well, I am going to take off, and I will tell 
them. I will try to get them to hold.
    Senator Portman. They said they would hold it open for a 
while. I do not want to miss my opportunity to have a dialogue.
    Senator Wyden [presiding]. You are on.
    Senator Portman. Thank you, Senator Wyden.
    First, I appreciate your testimony this morning, Mr. 
Slavitt. Thanks for all your information. With regard to the 
lock-in program, this is critically important for Ohio and 
other States right now.
    We have, as you know, this heroin epidemic. On average, we 
are losing 20 people a week in Ohio to opiate overdoses. Most 
of it is now heroin, but most of it started with prescription 
drug abuse.
    So what we are trying to do is simply make it harder for 
people to be overprescribed, both because we do not want them 
to be able to sell those pills on the street, which happens, 
but more importantly, so that they themselves do not become 
addicted through this over-prescription, and one way to do that 
is to lock in under Medicaid as we do under Medicare.
    So this is part of a much broader answer. We have 
legislation, the Comprehensive Addiction Recovery Act, which we 
are also trying to move. But I thank you today for your stated 
support of this legislation, and I urge the committee to move 
forward on marking this legislation up.
    With regard to the CO-OPs, I have lots of questions, and I 
guess the key for me is, how could this have happened and what 
can we learn from it?
    As I look at it, it is a program failure. It has wasted up 
to $1.2 billion now in taxpayer money. I heard you say earlier 
you thought some of that money might be recouped. I would make 
the point that, to my view, none of it has been recouped--zero.
    These are failed enterprises. So I think saying $1.2 
billion has been wasted is probably accurate. That is enough, 
by the way, to pay for health care premiums for more than 
300,000 Ohio families in 1 year.
    It is our job to be the oversight committee here and to 
find out what the heck happened and how could it have happened, 
particularly under the purview of HHS.
    I think we could have protected taxpayers better, we could 
have protected these patients better, many of whom were finding 
themselves without any coverage because their CO-OPs failed.
    Instead of cancelling loans or reducing loans to deal with 
these failing CO-OPs, as I look at it, HHS actually accelerated 
so-called solvency loan payments for these failing CO-OPs. Some 
of this may have happened before your time, some after your 
time, but the point is that HHS, in my view, did not provide 
adequate stewardship over these CO-OPs.
    Let me clarify a point in your testimony. I read that you 
say that 85 percent of the $2.5 billion in CO-OP loan funding 
was awarded--and this is a quote--``before coverage began in 
January 2014.''
    I do not think that is true. I believe it is true that more 
than half of that $1.2 billion in taxpayer-backed loans 
received by the failing CO-OPs we talked about, the $1.2 
billion that I would argue is essentially wasted taxpayer 
money, was actually disbursed after January 2014.
    Would you like to comment on that?
    Mr. Slavitt. I want to make sure I get your words correct. 
There may be a difference between ``awarded'' and 
``disbursed,'' but the loan awards, in order to have enough 
capital for the CO-OPs to enter the markets--and, as you would 
say, this was a little bit before my time--as you say, 85 
percent of the loans were granted, and then they were disbursed 
on a schedule to move the capital as soon as the CO-OPs needed 
it to support the business that they had written.
    Senator Portman. I think if you look at the public 
financial statements of these CO-OPs, you will see a different 
answer, which is, again, that more than half of the $1.2 
billion that was loaned to CO-OPs that have failed was actually 
received by these CO-OPs after that 2014 date.
    I would encourage you to look at those financial 
statements. They are public.
    Throughout 2014, HHS was writing a series of multi-million-
dollar checks to the CO-OPs. As they were doing that, exactly 
what financial indicators did HHS review to make sure that each 
loan disbursement continued to be a sound investment? What were 
you looking at?
    Mr. Slavitt. Again, I think we probably want to get 
together to make sure we are looking at the same sets of 
numbers, but I think there were approximately 15 percent of the 
loans that were granted during the course of 2014, again, 
before I became Acting Administrator. So I am a little bit 
tracing history here.
    But I have looked at the paperwork and the documentation, 
regardless of what the number is, that the companies went 
through--and they were very extensive applications, required 
third-party review, required in-depth evaluation. While it was 
not the largest portion of the funds that went out, these were 
funds that went out at a time when the solvency needs were 
really, I think, driven by the size of the business.
    The other thing I would point out is, Senator Portman, in 
focusing on the people who were making the decisions at that 
time in 2014, this was, obviously, before there was even a full 
year of financials, and given the way, of course, that claims 
work in the insurance industry, there was a very limited amount 
of claims information to work from.
    So I think that the decisions were made with the best 
information that folks had. I would say it was not until the 
first and second quarter of 2015 that at least I felt we 
started to have a really good picture of----
    Senator Portman. If I could interrupt you for a moment, 
because my time is expiring and we have a vote on, as you know.
    In addition to that, let me just say this. There were 
monthly reports concerning enrollment, net income, and medical 
loss that were available to you. These are publicly available 
documents.
    They show that not just every single one of those CO-OPs 
that failed was losing money. All of them were losing money. 
This was while you were providing this taxpayer money to these 
entities. They also show that they had dangerously high medical 
loss ratios.
    So you are saying we needed to wait. There was no good 
information; it was all negative. So I think these are the kind 
of financial red flags that any prudent regulator would have 
looked at, and I think HHS blew it.
    So I do not have time to go into further detail now. I 
would love to get together and talk more about this. As you 
know, we are doing a more in-depth investigation of this issue. 
But the point is to avoid, going forward, losing this kind of 
taxpayer money and, also, having the very real issue of these 
patients losing coverage.
    Ohio, probably to our benefit, has looked back on its 
status quo. In that first year, we could not get approvals, 
and, as a result, we only got about 15 percent of the 
enrollment that we expected. As a result, we are not in as bad 
a shape.
    Mr. Slavitt. Right.
    Senator Portman. But these other CO-OPs, I think this was 
terrible management, and I think we need to ensure that we have 
better management going forward, and I think we need to look 
carefully at what happened and why.
    Thank you, Mr. Chairman.
    Senator Wyden. Thank you, Senator Portman.
    Chairman Hatch had to leave. He has a lot of 
responsibilities this morning. He has a statement that I want 
entered into the record, by unanimous consent. I also want to 
remind members about making sure that they get their questions 
in promptly.
    Mr. Slavitt, you have done, in my view--this is just my 
opinion--I think you have done very well, and I think you have 
shown, again, why you would be a very good choice to be the 
permanent Administrator. So I am going to do everything I can 
to try to move that along as well.
    I am just going to wrap up with a couple of thoughts. This 
is the first hearing, the first health-care hearing of 2016, 
and the popular wisdom, of course, is that you cannot tackle 
major issues in an election year. I mean, you just hear that--
if I had a nickel for every time I heard somebody on cable news 
say you cannot do anything big in an election year, you could 
take care of your kids' education. This is just kind of the 
popular wisdom.
    I do not buy that, and I will let Chairman Hatch speak for 
himself, but I know he very much wants this committee to work 
in a bipartisan way. That is what we are doing with respect to 
the chronic disease issue.
    I happen to think both political parties missed that during 
the Affordable Care Act debate. I went back and reviewed 
virtually all of the discussions, and there was very little 
mention of what is going to drive Medicare for decades to come.
    This committee now has begun to work in a bipartisan way. 
We are very much interested in a bipartisan chronic care bill.
    I think we also heard this morning from Senators who have a 
great interest in the issue of opioids--and you can debate the 
various merits of a particular bill. My State has one of the 
highest rates of opioid abuse incidents. So we are very, very 
concerned about it, and I do not think there is anything 
partisan about that.
    So my hope is that we can tackle big questions. I mentioned 
the work that Senator Grassley joined me on. We reviewed 
essentially 20,000 pages of various kinds of e-mails and 
documents and the like, and I came away with the concern that 
we are going to have all these blockbuster drugs in the future, 
spectacular cures for illnesses, and the question is, will 
people be able to afford them? Based on what we saw with 
respect to the blockbuster hepatitis C drugs--and these are 
cures--this is a dramatic, dramatic change in health policy, 
and yet only a fraction of the people can get them.
    My concern is, most people will not get them until it is 
very late, and then they will have suffered very significantly 
from a health standpoint, and their care will cost even more.
    So I think you have given us today the kind of 
responsiveness that makes it clear that CMS wants to work with 
Republicans and Democrats alike on this committee. I will do my 
best to see you confirmed, and, to me, I think the important 
thing to be reflecting on this morning is turning the popular 
wisdom of an election year on its head, not sitting it out, not 
saying it is impossible to do anything, but to do what Chairman 
Hatch and I have been talking about, which is to say, this is a 
committee that really leads in terms of trying to come up with 
bipartisan approaches to major challenges. We appreciate your 
cooperation.
    With that, the Finance Committee is adjourned.
    [Whereupon, at 10:48 a.m., the hearing was concluded.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              

              Prepared Statement of Hon. Orrin G. Hatch, 
                        a U.S. Senator From Utah
WASHINGTON--Senate Finance Committee Chairman Orrin Hatch (R-Utah) 
today delivered the following opening statement at a hearing examining 
the management failures of Obamacare's Consumer Operated and Oriented 
Plans (CO-OPs) and its impact on consumers, patients and taxpayers:

    I'd like to welcome everyone to this morning's hearing on financial 
and oversight controls for health care CO-OPs.

    Six years ago, the so-called Affordable Care Act was forced through 
Congress and signed by President Obama. The law was passed on a series 
of strictly partisan votes over the opposition of the majority of the 
American people.

    At that time, supporters of the law claimed it would both expand 
health coverage and bring down costs. Not surprisingly, as the health 
law has been implemented, reality has had a different story to tell.

    Under the Affordable Care Act, millions of Americans learned the 
hard way that--despite many promises to the contrary--they could not 
keep their previous health care plans, even if they liked them.

    Under the Affordable Care Act, health insurers, unable to sustain 
the losses resulting from the law's draconian mandates and regulations, 
are dropping out of exchanges across the country.

    Under the Affordable Care Act, insurance premiums are rising--at 
astronomical rates in some parts of the country--and options for 
patients and consumers are decreasing, seemingly by the day.

    And, under the Affordable Care Act, the so-called Consumer Operated 
and Oriented Plans are failing left and right. These Consumer Operated 
and Oriented Plans--or CO-OPs--are the subject of today's hearing.

    CO-OP program was designed to encourage the development of a non-
profit health insurance sector, which, according to its proponents, was 
supposed to improve coverage, increase competition, and provide more 
affordable health care options.

    But, as with many other parts of the health law, reality has told a 
different story with regard to the CO-OP program.

    Taxpayers have been forced to foot the bill for the CO-OP 
experiment, to the tune of $2.4 billion in federal loans for 23 CO-OPs 
around the country. And, to date, more than half of the CO-OPs have 
failed, while the vast majority of the others are in poor financial 
shape.

    As a result, hundreds of thousands of Americans have lost or will 
lose their health insurance and taxpayers are still on the hook.

    In some ways, the CO-OPs were doomed to fail from the outset.

    For example, they were limited to less profitable markets, had no 
historical claims data, and had no brand recognition or trust. Some 
were established and run with political aims in mind, rather than 
solvency or efficiency. Several had premium prices that were far below 
that of their competitors, and, not surprisingly, they incurred costs 
that far outpaced revenue. Standard and Poor's aptly described 
establishing a CO-OP as ``learning to ride a bike without training 
wheels.''

    There are a number of questions we could ask about the CO-OP 
program.

    Why was it designed so poorly?

    Why weren't there more safeguards in place to protect taxpayer 
investments?

    Of course, many of these questions should be directed at those who 
actually wrote and passed the health law in the first place, none of 
whom will be testifying in this hearing.

    However, today we will hear from Andy Slavitt, the Acting 
Administrator of the Centers for Medicare and Medicaid Services, which 
oversees the CO-OP program.

    From a congressional oversight perspective, the main question we 
have today is: How has CMS dealt with these problems?

    As it turns out, we know at least part of the answer. CMS has 
apparently encouraged the CO-OPs to cook their books with some creative 
accounting.

    Last year, the agency issued guidance allowing CO-OPs to apply 
surplus notes to program start-up loans, which essentially allowed the 
CO-OPs to record loans as assets in their financial filings.

    Quite honestly, I think I'm being generous when I call that kind of 
accounting ``creative.'' Yet it is, as far as we know, now the standard 
of practice among Obamacare CO-OPs.

    Today, I want to hear more about these types of creative ideas 
coming from CMS, because I believe the taxpayers deserve some 
explanation. Particularly those taxpayers who lost their coverage when 
the CO-OPs they enrolled in were not financially viable enough to 
provide them with the coverage they were promised.

    Mr. Slavitt, you currently oversee an agency that is responsible 
for paying out well over $1.1 trillion through Medicare and Medicaid 
each year--a number that, by the way, will only go up in the coming 
years. While the CO-OP program is a relatively small drop in that 
bucket, it is still a significant investment on the part of American 
taxpayers.

    I look forward to hearing your explanation of what's going on with 
this program and your ideas about what can be done to improve the 
situation.

                                 ______
                                 
 Prepared Statement of Andy Slavitt, Acting Administrator, Centers for 
Medicare and Medicaid Services, Department of Health and Human Services
    Chairman Hatch, Ranking Member Wyden, and members of the committee, 
thank you for the invitation to discuss the Consumer Operated and 
Oriented Plan 
(CO-OP) program. The Centers for Medicare and 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\ With the third Marketplace 
Open Enrollment underway, 9 out of 10 returning customers are able to 
choose from three or more issuers for 2016 coverage, up from 7 in 10 in 
2014.\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.
---------------------------------------------------------------------------
    \1\ www.hhs.gov/about/news/2015/07/30/competition-and-choice-in-
the-health-insurance-marketplace-lowered-premiums-in-2015.html.
    \2\ www.hhs.gov/about/news/2015/07/30/competition-and-choice-in-
the-health-insurance-marketplace-lowered-premiums-in-2015.html.

Moving forward, CMS is eager to build on the progress in reducing the 
number of uninsured Americans--an estimated 17.6 million Americans 
gained coverage 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.\4\, \5\ Through December 26th, 11.3 million \6\ 
Americans have already used the Marketplace to select a plan or have 
continued coverage for 2016.
---------------------------------------------------------------------------
    \3\ http://aspe.hhs.gov/health-insurance-coverage-and-affordable-
care-act-aspe-issue-brief-september-2015.
    \4\ http://www.cdc.gov/nchs/data/nhis/earlyrelease/insur201508.pdf.
    \5\ http://www.cdc.gov/nchs/data/nhsr/nhsr017.pdf.
    \6\ https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/
2015-Fact-sheets-items/2015-12-30.html.

                cms implementation of the 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 of insurance (DOIs), 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 \7\ and the CO-OP Program Final 
Rule.\8\ The framework for implementing the CO-OP Program was based on 
a report submitted by a Federal Advisory Committee appointed by the 
Government Accountability Office (GAO) under section 1322(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.
---------------------------------------------------------------------------
    \7\ https://www.cms.gov/CCIIO/Resources/Funding-Opportunities/
Downloads/final_premium
_review_grant_solicitation_with_disclosure_statement.pdf.
    \8\ https://www.gpo.gov/fdsys/pkg/FR-2011-12-13/pdf/2011-31864.pdf.
    \9\ https://www.cms.gov/CCIIO/Resources/Files/Downloads/
coop_faca_finalreport_04152011.
pdf.

    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, which was led by insurance experts and an actuary 
who was not on the CO-OP program staff. A July 2013 HHS Office of 
Inspector General (OIG) Report found that ``CMS established a 
prospective oversight system to safeguard CO-OP funding and ensure 
timely implementation of the program.'' \10\
---------------------------------------------------------------------------
    \10\ http://oig.hhs.gov/oei/reports/oei-01-12-00290.pdf.

    Of 147 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 CO-OPs, over $2.1 
billion, or 85 percent, of which was awarded before coverage began on 
January 1, 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 governed the basis, timing, 
and amount of sequential disbursements of start-up loan funding was 
incorporated into each CO-OP borrower's loan agreement.
---------------------------------------------------------------------------
    \11\ Including 34 applications that were not subject to a full 
review process, but were subsequently denied due to funding 
rescissions.
    \12\ https://www.cms.gov/CCIIO/Resources/Files/Downloads/
coop_faca_finalreport_
04152011.pdf.
    \13\ Sec. 1322(b) the Affordable Care Act.

    As set forth in the statute, solvency loan funds assisted loan 
recipients with meeting regulatory capital and surplus requirements of 
the 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 1, 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 of 
loans. This included both an external and internal review of updated 
business plans, feasibility studies, programmatic and regulatory 
compliance, actuarial soundness, and financial 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 1, 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 6 to 9 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 of 2012 further reduced 
the remaining $3.4 billion of CO-OP funding by rescinding 90 percent of 
funds 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 assigned to a new contingency fund available for 
oversight and assistance to the existing CO-OP loan recipients.
                  co-op accomplishments and challenges
    CO-OPs have provided health insurance coverage to more than 1 
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 years,\14\ and New Jersey's CO-OP (Health 
Republic of New Jersey) was the first new issuer to enter the state's 
market in 19 years.\15\ In 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 in 2015.\16\ Overall, CO-OPs have added both choice and 
affordability to health insurance coverage options available to 
consumers.
---------------------------------------------------------------------------
    \14\ http://www.nytimes.com/2015/09/16/business/health-
cooperatives-find-the-going-tough.
html?_r=0.
    \15\ http://docs.house.gov/meetings/IF/IF02/20151105/104146/HHRG-
114-IF02-Wstate-MorrisonJ-20151105.pdf.
    \16\ http://www.pressherald.com/2014/09/30/maine-insurance-co-
operative-accelerates-plans-to-cover-new-hampshire/.

    CO-OPs are also introducing local innovation. Ohio's CO-OP 
(InHealth 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 
smoking.\18\ CMS will continue our work to support CO-OPs as they 
pursue innovative approaches to coverage.
---------------------------------------------------------------------------
    \17\ http://www.inhealthohio.org/shop-for-insurance/individuals-
and-families/2016-enrollment-material-individual-family-benefits.
    \18\ https://newjersey.healthrepublic.us/smoking-cessation/smoking-
cessationtobacco-harm-reduction-faq/.

    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 
which 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 entity.\20\ 
The Commonwealth Fund published a report on the factors that 
contributed to the CO-OPs' challenges, which provided further evidence 
of the issues faced by new entrants into the 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 expectations.\21\
---------------------------------------------------------------------------
    \19\ http://oig.hhs.gov/oei/reports/oei-01-12-00290.pdf.
    \20\ https://www.cms.gov/CCIIO/Resources/Files/Downloads/
coop_faca_finalreport_
04152011.pdf.
    \21\ http://www.commonwealthfund.org//media/files/publications/
fund-report/2015/dec/
1847_corlette_why_are_many_coops_failing.pdf?la=en.
---------------------------------------------------------------------------
                             cms oversight
    CMS has obligations to operate as a proper steward of the taxpayer 
dollars issued through the loan program and to administer the 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 DOIs, 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 11 CO-OPs, serving 13 States, are being monitored closely.

    CMS's oversight approach, informed by recommendations from both HHS 
OIG and GAO, consists of four parts. First, all CO-OPs are subject to 
standardized, ongoing reporting 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 verify 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 DOIs 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 Uniform 
Financial Institutions Rating System. CO-OPs have monthly, semi-annual, 
and annual reporting requirements, including financial statements, 
balance sheets, income statements, statements of cash flow, and 
enrollment statistics. Last year, 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, warnings, additional oversight, or any other adverse 
action or determination by DOIs 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 DOIs to help correct issues that are identified.

    Third, CMS regularly uses enhanced oversight plans (EOPs) and 
corrective 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 payment 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 DOIs and shares information to 
assist in their assessments of CO-OPs. If 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.

    In addition to protecting taxpayer dollars, CMS also works to 
protect consumers. For the CO-OPs 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. 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.
                               conclusion
    Since the enactment of the 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. 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. 
Working with State DOIs 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 I am happy to answer your questions.

                                 ______
                                 
                 Prepared Statement of Hon. Ron Wyden, 
                       A U.S. Senator From Oregon
    When Congress wrote the Affordable Care Act, it gave Americans 
shopping for insurance the option of getting coverage from new, 
private, non-profits called Consumer Operated and Oriented Plans, or 
CO-OPs.

    More than a million people turned to CO-OPs for insurance in 2015--
including many deeply vulnerable people who needed access to top-notch 
care. That tells me that there is big demand for CO-OPs, and lawmakers 
should be focused on making sure CO-OPs provide the services that 
consumers require.

    That's not how events have played out. Even though the Supreme 
Court has upheld the ACA multiple times, the political battles have 
continued, and CO-OPs are one of the big targets.

    Right out of the gate, CO-OP funding was cut by two-thirds. Their 
financial flexibility was the next thing to go. Congress denied the 
ability to move resources that would help new CO-OPs weathering growing 
pains to continue serving consumers. So from very early on, these 
private insurance plans have been facing extraordinarily stiff 
headwinds.

    In Oregon, 15,000 people got insurance coverage from Health 
Republic, one of our State's two CO-OPs. It fell victim to this totally 
avoidable financial crunch and announced last October that it was 
closing--due in large part to the inability of Congress to set politics 
aside and work together to improve the law.

    Fortunately, there is still a marketplace where those 15,000 
Oregonians can shop for high-quality insurance. And there are several 
more CO-OPs up and running across the country, including the second one 
in my home State, called Oregon's Health CO-OP.

    Some want to paint the CO-OPs as a kind of token failed government 
program, but the facts don't bear that out. Let's remember what CO-OPs 
are and what they are not. They are not government-run, and they are 
not the ``Public Option'' that was at the center of the ACA debate 6 
years ago. CO-OPs are private, market-
driven plans that now cover hundreds of thousands of Americans.

    In my view, these CO-OPs are start-ups that had early investors. 
They attracted customers. They drew up business plans and opened their 
doors. Then their investments were yanked away. It's no wonder some of 
them have run into trouble.

    Congress ought to be looking for ways to strengthen CO-OPs and 
stoke private competition in insurance marketplaces nationwide so that 
consumers have more choices.

    The fact is, by now, the battle lines over the Affordable Care Act 
are familiar to just about everybody. The House and Senate have taken 
dozens and dozens of votes on proposals that undermine or repeal the 
ACA. But here's the bottom line--the United States is not going back to 
the dark days when health care was reserved for the healthy and the 
wealthy.

    So independent of the ACA debate, Congress should come together on 
a bipartisan basis to take on the big challenges this country faces in 
health care. For example, Senator Grassley and I spent 18 months 
working on a bipartisan inquiry into the pricing of blockbuster 
Hepatitis C drugs called Sovaldi and Harvoni. Figuring out how 
Americans will afford prescription drugs in the future is going to take 
serious work that will only be successful if done in a bipartisan way.

    There's also meaningful progress being made to address what I see 
as the biggest challenge facing Medicare. That's providing high-quality 
care to seniors who have chronic conditions like Alzheimer's, cancer 
and diabetes. Our system today is not built to provide care for chronic 
conditions in a smart, coordinated way.

    Democrats and Republicans should come together to fix it, and I've 
been proud to work with Chairman Hatch and Senators Isakson and Warner 
to bring a chronic care bill before the Finance Committee.

    In short, this committee has an opportunity to start pulling on the 
same end of the rope when it comes to the big challenges in health 
care. With this hearing kicking off our work on health policy in 2016, 
I look forward to working with my colleagues in the weeks and months 
ahead.

    Finally, I'd like to thank Acting CMS Administrator Andy Slavitt 
for joining the Finance Committee here today. Mr. Slavitt is an 
excellent nominee for the job of CMS Administrator, and in the last 6 
months since he was officially nominated, he has proven himself on the 
job. I think it's about time that this committee move Mr. Slavitt's 
nomination through the process as quickly as possible.

                                  [all]
```