you are entitled to be advised by counsel. do any of you seek counsel today? you advise? would you identify yourself? will they be testifying? ok, thank you. e-mails have counsel -- a nybody else have counsel? ok. i will swear you win. in,. . you are now under oath of the u.s. code. we'll start with the insurance commissioner from tennessee. you may get a five-minute summary of your statement. >> good morning chairman murphy. representative blackburn and numbers of the committee. thank you for inviting me to testify. i'm the commissioner of the tennessee department of insurance.

in addition to my responsibilities intimacy, i serve in leadership roles on the national association of insurance commissioners. and as a member of the federal advisory committee. i spent most of my career and insurance regular can, previously serving in kentucky. i have a strong affinity for the state-based oversight. my testimony today will highlight the history of tennessee co-ops. my comments will focus on events this year that ultimately led to on october 14. they were awarded loans and advances to launch the company. in first offered plans 2014 with plans and five of disease eight service areas -- of tennessee's eighth service areas.

options,mited network the company memberships and rate challenges were compounded by a population that was love healthy and sought -- less healthy and sought more services. the loss was $22 million in 2015. enrollment grew financially, during open enrollment. and are the same period, medical costs continued to increase. the department and cha quickly recognized that it was too much too fast. our department or letter, exhibit one, on january 8. freezeing an enrollment due to accompany triggering the hazardous financial condition standard. it was and remains the right decision for the company, and most importantly for tennessee consumers. in 2015, the department conducted a thorough review of the proposed 2016 rates.

after the review, the department approved a rate o increase. lives,ed down to 25,000 where there may today. we approved the rates to meet the deadline. but we were not going to formally unfreeze the company until the reviewed initial results to evaluating expenses, and liabilities. in late september, the department was a divide -- i think you have that as exhibit two. that announcement was followed by risk corridor guidance. the announcement medially created a deficiency for cha. if theyd the department

start loan could be counted as surplus if the loan terms were changed to be identical to the terms of a solvency contribution. the department did not think that option was appropriate but thatcha, exhibit 3, statutory principles would because five as surplus if they bilaterally agreed to the terms. after a review of the department, cms concluded the loan conversion was not proven. they voluntarily entered one in october. anddepartment of commerce contractors are working in close cooperation to ensure successful runoff. our focus is on tennesseans. the runoff will continue well into 2016. there may be additional surprises. but as of today, cooperation between the entities has helped us have a smooth operation. thank you, and i look forward to your questions.

>> i now recognize mr. donaldson, the commissioner from louisiana. >> thank you very much. >> please put the microphone on and put it right up to your face. >> maybe i should put it on. >> put it on your face. >> thank you mr. chairman for the invitation and the opportunity to be here today to speak briefly about our experience in louisiana with the creation and now the demise of our co-op. let me start at the outset by telling you about myself, and if the sizing the point that i am here on the half of the state of louisiana and not as a representative with the national association of commissioners. though i am an active participant having served the president in 2013. i have been chairman in louisiana since 2006. recently, i was reelected for

the third time last month, beginning my next four-year term as we speak. the creation of the louisiana health cooperative, along with co-ops in 23 states around the u.s., was a welcome part from my perspective. although i have said repeatedly throughout my time as commissioner that if i had been here, i would have voted no for final passage on the affordable care act for other concerns. but not for the opposition to the creation of co-ops. i saw that as a mechanism to address competition, which i believe is the most important aspect of consumer protection in my state. where my top insurer, blue cross, has 70% of the market. my friends next door in mississippi have a more dominant blu them thate. alabama is even more dominant. that is the well-intentioned purpose of the creation of these

co-ops. to put consumers in control of an insurer and also to create more competition in our states. i welcome them at the outset. having said that, i'm now described the effort --describing the effort to create insurance as the rollout of the aca. in hindsight, i have analogized it being similar to learning how to sail in a hurricane, it truly was not possible in my judgment to succeed under those circumstances. much happened in my state that affected that. we licensed our co-op in april of 2013, and then began signing up enrollees in accordance with the loan agreement with cms in october of 2013. that loan agreement called for lives. sign up 28,000

they ended up with 9000 lives instead. in the several months between their approval and beginning of their doing business, they had the challenges of the issues presented by guarantee issue, no lifetime limits, age caps, etc. not to mention the need for them to go out and rent a network of providers in a not very friendly to purchaser of service environment. they had a higher someone to do claims, the premium collection and payments on. they had to build a marketing network. in aents all of that hindsight market that was not functional. the next challenge game on june 30 with the rollout of transitional reinsurance program numbers, and the risk adjustment program numbers.

and where the co-op would receive $10 million under the would 07ce payment, it $.5 million under the readjustment. that represented a $5 million hit to the bottom line and triggered our calling them in on july 1, the leadership of our co-op, to tell them they should actually make the decision to go into runoff before the enrollment. period began. on july 7, their board voted to accommodate that request from our folks. and it began doing that. the situation is dire, and we are doing everything we can to preserve the network of providers to make sure their policyholders will continue to have coverage through the end of 2015. now state regulators have the unenviable task, as i have had, of trying to wind down a

company, at the same time conserving it -- in my state, unlike tennessee -- without the protection of the guaranty fund to assure the health care providers that their bills would be paid. let me talk for a few minutes about our relationship -- >> we do not have minutes. you're out of time. here's the thing, we have one vote. he?lso have staff, is >> mr. chairman, the problem is there down to two or three minutes. i don't think they will hold open for us. with all due respect, i will invite my members to go down and vote. unless someone wants to -- be very quick. come back as quickly as possible. we should be up to reconvene in about 10 minutes.

thank you.

. .

>> we were the first commercial insure e in 25 years. that was the case in many different states. >> co-op states have lower premium rates. was that right that they were able to drive prices down in 2014. >> apparently in 2015 it was more like 13%. we believe that co-op played an important role on that.

but it's a question that requires further study, obviously, there are other factors that work. >> the health insurance industry is facing a wave of consolidation, etna are considering merger, what will this do to prices, will we expect higher premiums? >> we think that's one of the reasons co-ops were created, we take the mission pretty seriously. >> thank you, we have work to do for consumers across the country. thank you very much. >> mr. chairman? >> yes. >> may i be excused? i have a flight that leaves in 38 minutes. >> good luck getting into the

airport. [laughter] >> thank the witnesses for coming today. i'm a private sector guy that understands how you're supposed to capitalize and fail and succeed based on pricing and product and what you delivered to your customers and basically if you make money you succeed, if you lose money, you don't. i'm from new york where the new york co-op cost american taxpayers $250 million, well, you know, somebody asked me, would i be surprised we are here today, i predicted this over two years ago. i remember sitting down with some insurance executives, health insurance people and asked them how they were going to be pricing their products for obama care, and for the enhanced benefits, and what basically came out of those meetings is they were going to underprice their products because of the

risk corridors and they were confident they would get the money back. i said, what are you presuming for the number of healthy subscribers under the age 30. a third of subscribers will be young and healthy. and i said, what do you guys smoking? that's not going to happen. the government is going to make it up to us. this was set up for failure from day one. the insurance company knew it was going to fail. you know, mr. morrison when you talk about it being not capitalized properly, would you agree with me that if the co-ops made money we wouldn't having this discussion? isn't that's just fundamental common sense? >> i would agree with that. >> so here -- >> all the companies lost money. >> so we are here because obama care was set up for failure, low

premiums to deceive the american public, you can put lipstick on a pig and it's still a pig. that's how we got here. everyone knew they were underpriced. that's why we are here today. a product that was underpriced knowingly underpriced, now the complaint is we didn't -- we cut the moneys from 2.4 from 6 to 2.4 billion, the 6 billion was based on 50co-ops. they got every dollar they were supposed to get had we not cut from 6 to 2.4. they would be 50co-ops, i have to disregard your comment, throwing 6 billion at 23cop-ops

would have shortened up. the 23 were not harmed in anyway. they failed because the product was underpriced. obama care was meant to deceive the public and all i can say is now we are a couple of years in. the deception is obvious. i don't know what the polls would say. i think obama care now would be, you know, probably in the 20% range. now we've got these problems, new york, 150,000 members on the new york plan lose their insurance in two weeks. and we are forcing the private companies to take those policy holders for 30 dais who all hit their deductibles, so the bluecross blueshield, they are going to have to take these, 150,000 people for 30 days, eat those losses and have those folks set up a new plan. this is obama care at its worst.

i saw this coming three years ago because i have a certain level of common sense and knowing the private sector. and this product was deliberately underprice from day one, they didn't give me as much money as i expected, you expected to lose a lot of money and thought the taxpayers should sure that up and it didn't happen, i can't say i feel sorry for the american taxpayers who are baring this financial burden and it's coming home and we see it every day with price increases in policies, the turmoil within the american public trying to find doctors. again, private sector you make money, lose money you don't do fine, the product was never priced correctly.

>> mr. colins, can i -- can you give an answer is would you have priced it differently if they were not risk corridors? just or no? >> we actually priced conservatively and we are making a property in the last three months. >> would it have been priced differently? >> i don't know that i would characterize as back-stop but certainly eliminated when nay excess profit needs to be paid back to the other insurers. >> got it. >> unless the entire market marked appropriately you will not have enrollments. >> thank you. thank you. five minutes. >> thank you, mr. chairman. this has been a constructive hearing and the dialogue has been good. it seems to me that there are a lot of different experiences

with co-o punishing s and some had problems. my co-op in kentucky was not -- did not have an enrollment problem. as a matter of fact, the initial projection was about 30,000 and peeked at 57,000 and ensuring 51,000 because of the risk corridor reductions it could not sustain itself, but, in fact, it had gone from losing $50 million in the first year to losing $4 million in 2015 and was on track to make a profit in 2016, so not every experience has been right, and i think looking at the various factors that could affect this, commissioner, tennessee didn't expand medicaid, tennessee and this is not partisan statement but tennessee did not have an administration that supported necessarily the affordable care act, so as opposed to kentucky's experience, administration was supportive, marketing it and running pr campaign and alerting

the population to the options that were available to them, that experience was going to be different than tennessee's or louisiana's where it seems to me you had an enrollment problem first and foremost. would that be a fair statement that all of these factors would affect how the co-o punishing s and whether they have had a better or worse chance of succeeding? >> certainly, statewide we had positive enrollment through the marketplace, but we did not expand medicaid, but the skewed enrollment of less than a thousand people for the co-op made it difficult to survive. >> exactly. we have different health conditions as well. montana probably has a lot healthier population than tennessee. we have serious challenges in that regard. but you know, one of the things that impresses me and this

relates just to mr. colins' statements is that while our co-op is going out of business we have three private insurers that joined, we now have seven insurers and so they are seeing opportunity in kentucky and not a disastrous situation. so our consumers are going to as a result partially of the co-ops we are going to see competition in the market through exchange so it could have benefit as well, would that not be true? >> that's very encouraging and i think that the benefits of introducing a co-ops in the dynamics of the marketplace has a ripple effect. that's one that i wasn't aware of. >> we talked about a question how can you answer insurance

policies 20%less than commercial, well, there's no profit margin involved. i don't know it would be 20% different. but there's some factor there that would allow co-op that would allow pricing, even apples to apples would be below. would that be correct? >> yes, that's true, but i want to make the point that the co-ops were not outliers in the low-end in price, mckenzie did a report in late 2013 about the initial prices and co-ops were toward the bottom within 10% of the lowest 47 or 42% at the time. the point is when these companies set the prices an filled -- filed them with the commissioner, they don't know what the commissioner is doing. it caused the other companies to price more aggressively. >> what i'm taking away from

this is there are a lot of reasons why the co-ops have succeeded or not succeed and this was a useful hearing to analyze that and not necessarily to prescribe blame and what i think what i would conclude is there was not a fundamental flaw act in the affordable care act that caused co-ops to fail just like in any situation. with that, mr. chairman, i yield back. thank you for the witnesses. >> thank you, gentlemen, for the questions. this will conclude the second panel. you can rush to the airport if you have a tight flight. we had so many members that had flights to connect, to some extent i apologize the attendance, thank the members that did stay and your testimony which is on the record is very helpful. thank you very much. [inaudible conversations] >> so we are now going to bring

the third panel which is representative from cms and representative from oig. [inaudible conversations]

>> sue we'll begin our third panel here. i want to thank the witnesses for joining us today. and before we get going on this committee, we want to make sure that awitnesses are aware that we are holding an investigating hearing and when doing so, we have the practice to taking testimony under oath. do you have any objection to testifying under oath? the chair then advises you that under the rules of the house and the committee you are entitled to be advised by counsel. do you desire to be advised by counsel during your testimony today? no. in that case, if you would, please rise, raise your right hand,ly swear you in.

do you swear that the testimony that you're about to give is the truth, the whole truth and nothing but the truth? thank you very much. you can be seated. you are now under oath and subject to the penalty set forth title 18 section 1001 of the united states code and we now will recognize you to give a five-minute summary of your written testimony beginning with dr. colen, chief of staff. >> good afternoon and thank you for inviting to inviting me chairman murphy, who i know has gone and other members of the subcommittee, we appreciate the opportunity to talk about the co-op program. cms takes taxpayers very seriously, our priority is to make sure they have affordable coverage. in the years before affordable care act we have seen increase in exerttion and more choices

for consumers, consumers can choose from five issuers from 2016 coverage. nine out of ten will have three or more to choose from. co-ops entered in the insurance market with a number of challenges including building provide e network and no previous claims experience in which to base pricing as well as uncertainties that the early years of new market, as with any new business ventures some have succeeded while others have encountered more challenges. there have been successful co-ops of health insurance and has improved exerttion. there have also been co-op for a number of reasons and have faced technical or operational and

financial difficulties, congress had made substantial rescissions, initial $6 billion for co-ops impacting operations and available funding. in the face of multiple pressures it's not surprising that some new entrance have struggled to succeed. cms plays a dual role. cms to give co-ops to succeed and looking for flexibilities. at the request of co-ops, surplus notice and infusion of outside capital consistent with framework of the co-of op program. cms plays oversight role, serve as primary regulator of insurance in the state, work the ensure that the co-ops are well round and financially sound. evaluating applications, monitoring financial performance and conducting oversight, all

co-ops are subject to standardized activities including calls to monitor goals and challenges, periodic on-site visits, performance and financial auditing and a host of additional measures employed as needed such as the evaluation of co-op sustainability. if a co-op experience issues, it's required to describe steps to resolve those. as part of our oversight efforts, cms has put co-ops on enhanced schedules or plans, despite the support and oversight, some new entrance markets have struggled to

succeed. our first responsibility is to make sure current policy holders are able to retain coverage till the end of the year. cms's priority to have quality affordable care coverage. we are working with local officials to make sure retain coverage. like other consumers, we are able to shop in the marketplace right now. in 2016 nearly eight or ten consumers will be able to buy a plan with premiumsless than $100 a month after tax credits, we continue to encourage already enrolled in the marketplace coverage to come back to the marketplace and update their information, compare their options and make sure they're enrolled in the plan that meets families' needs. the co-op program was designed to give consumers more choice and promote competition and has

done so in a number of states. cms will closely work with co-ops to provide best outcome for consumers. we appreciate interest and happy to answer anymore questions? >> thank you, now i want to hear from ms. garmen. >> thank you for the opportunity to testify today about oig's work as it relates to cms's oversight of financial loans and operating oriented plans. as part of strategic plan to oversee, oig has performed three reviews related to co-ops, most recent report that review

whether enrollment of profitability met the co-ops projections in in-law loan applications. understanding that co-ops face challenges, we conducted this audit work to assess status of the co-ops. we review it had status of the 23co-ops as of december 2014, we found that most co-ops had lower than expected enrollment numbers and significant net losses, some financial concerns may limit the ability to repay loans. improve financial oversight and sol -- solvency. two, providing guidance or establishing criteria to determine when a co-op is no longer viable or sustainable. three, working closely with

state and insurance regulators to identify underperforming co-ops and four terminated co-ops. with respect to enhanced oversight, with the 2011 funding opportunity announcement and loan agreements, cms has the ability to place underperforming co-ops on enhanced oversight plans. with respect to guidance, to ensure that cms can appropriately identify co-ops with high risk of failure, assess whether a co-op is vie -- viable or sustainable. cms should enhance oversight by working close with entities that

oversee c-o punishing s, by doing this, cms can obtain timely insight as to the co-ops's performance. finally if cms in longer believes it's viable and sustainable, cms should pursue remedies for recovery of funds from co-ops, option to terminate loan agreements that would require the co-op to forefit. in closing, we appreciate the subcommittee's interest in this important issue and continue to urge cms to fully address oi. >> speaker4: 's recommendations and financial solvenc within the

program. oig is committed to provide in program and program requirements and managing federal funds. in addition, oig will reassess financial status and identify cms actions to oversee the loan program and monitoring underperforming co-ops we anticipate reports in 2016. this concludes my testimony, i'll be happy to answer any questions. thank you. >> thank you, i'll now recognize myself for five minutes. ms. coheni am going to accept you at face value, cms as responsible stewards of responsible dollars. comments made that would somehow

correlate states that would not increase, expand medicaid to some of failures on co-ops, new york state absolutely aggressively expanded medicaid, actively promoted obama care probably more so than any other state in the country. in the hearing today is recognizing the failure of a co-op that was oversubscribed, not undersubscribed and cost the taxpayers over $250 million, which is almost 25%. so i don't know that some of these others comments would accurately portray the problem. i'll just go back to the products were underpriced from day one and if you underprice the product, they'll be a price to pay. my worry about new york and the loss of $250 million plus. dr. cohen, sorry. >> no problem.

>> it appeared that it was in distressed and i just wondered, i'm assuming you're aware that -- that there was an additional loan of $91 million after they lost 35 million, so could you speak to what that rational was that the taxpayers now lost another $91 million? >> sure, as we looked at the co-op program over the first few years, you heard a lot about the early years having uncertainty. we are still in the second year of the program in terms of folks facing a number of challenges, when any co-op approached us for additional request for funds, we evaluated that on an individual basis as we did the start-up of any one of these companies, we looked at projection of where they were going to go, how they intended to get to a place of good standing, againing, to say

that we want to be good stewards of taxpayer dollars and if we are going to be further investing in a company, that we are going to be seeing those dollars. we can only look at the information that we have on time that the expert panel who reviews these felt that a further investment in new york -- in the new york co-op was the right decision and we move forward with that investment and as we do all, we continue oversight and information on the ground change and we make different decisions as we move forward. >> with that said, i would appreciate if you could provide the committee with the analysis that you indicate did occur that after losing $35 million in their first year, i have to presume that analysis would include such things as the difference -- i would hope much higher rates charged in 2015, they lost a lot of money in '14

more adequate to cover loses, would the rates increase? >> it's important to share the oversight responsibility here. the responsibility for rate setting is done at the state level in the new york department of insurance and dfs in new york. primarily responsible for saying, are these rates adequate to cover the expenses. >> was that done? >> they do their own rate in new york. from our perspective, cms, we do do oversight in terms of stability of the program according to oig recommended the oversight, but the rates themselves are set by new york, by the company and then approved by the state department of insurance h. >> do you know how much the rates increased for '15? >> i don't have off the top of

my head, i know that they did request and were granted a rate increase for 2015. >> i think it's important to note that, again, it's a little concerning that cms is making a 91 million-dollar loan, which ultimately was proven by the fact they're not shutting down to have been totally bogus. if you can share that information from the committee -- >> i would be happy to provide that. >> i will be -- my office sending you a letter for asking a for thorough investigation of what happened in new york state and what we may learn from the failures of the new york state co-op. thank you for that. with that, i recognize ranking member for five minutes. >> thank you so much,

mr. chairman. ..

>> the risk adjustment program is not based on size. it's agnostic decides but as you point out what is really look at the math formula focus on the total risk and the health of the population. >> so there was nothing in the statute to target not for profit or profit speak with no. >> was that the intention of the program, do you know? >> it was intended to be a program for all the ensures that participate in the marketplace. >> the risk program also ended up not coming through the co-ops as a learned very painful colorado and the last couple of weeks.

some state insurance commissioners including mine make management decisions aced on the co-ops inability to deal with losses. i want to ask you some questions about that. but 2050 cromnibus legislation made it so ensure payments into the risk program are the only source of funding to reimburse claims. effectively making the program budget neutral come is that correct? >> it is a mathematical formula that decides the proration rate or the ins and outs of that program but yes, you're correct. >> i am correct, thank you. in july 2015 cms reiterated a couple months ago, cms reiterated to state insurance commissioners that they anticipate risk quarters collections will be sufficient to pay for all risk corridor payments, is that correct? >> that is correct. >> yet a few weeks ago cms revealed it would only be able to pay 13% of the reimbursements

that the co-ops are owed, is that correct? why is that? >> that's correct. as i mentioned that one that is based on information that we come from the issue with themselves that was not information that cms had prior to actually the month of september. originally that data came in as you may know over the course of the month of july, and it was -- we needed a short to resubmit it. >> here's the problem. in to lock your senior be sufficient, and then in october you are saying it's only 13%. so irrespective whether you have the data, you had co-ops like the one in my state with 83,000 people in it who were relying on that. and i guess it was bad information? >> it's important to remember the risk quarters is one of three, and in the reinsurance program we actually paid 25%

more than we thought we would be able to pay. again under -- >> video a co-op that is on the edge, that didn't solve the problem. >> i'm running out of time. i want to ask you a couple of questions. do you think you can do anything to give more certainty to this program without statutory changes, yes or no? >> could we get more certainty to -- >> can you make changes that will give more certainty to these co-ops so they can stay in business without statutory changes? >> we are always looking for options. >> if you can supplement your responses by giving us the ideas, do you believe there are statutory changes that congress could pass to give more certainty? >> i think the opportunities, yes spirit that would be helpful if you will supplement that. thank you very much. thank you, mr. chairman. >> thank the ranking member for comment.

>> thank the witnesses for being here. dr. cullen, who also he made the decision to give out 91 million tenure as was said, 66 million, 6590 kentucky health co-op i can go on but three, there's a few more but three of the six i have listed failed. i wanted a person who made the decision to give them the money. >> we have a very rigorous process with an outside -- >> here's the thing. you've already described a process. i understand about people to look at all the data but what i want to know is someone put their signature on the loan from cms and said we're giving this money. you do that? >> i don't know. >> was a you? >> it wasn't me. i can let you know. >> i'm sure, i'm sure you have every intention of doing that but i can tell you as a member of coders with experience asking

this question that i will never find the answer to that because no one is going to take that responsibility and i understand that. but do you know if those a political appointee or a full-time cms the? >> i don't know who signed the loan agreements but again i can talk more about the process that we went through in terms of evaluating information we had. >> i understand. dr. cohen come he also testified before ways and means and asked when cms new the co-ops would fail your decision really give a clear answer some going to ask it. wended cms no these co-ops with they'll? >> within the oversight of the co-op program since its inception, and each circumstance is very unique. there were different periods of time where we have information in front of us, when we knew folks were potentially going down the wrong path. we put folks in enhanced

oversight, and information presented it so. we took action, we are still in the very early stages of this program and i think from the discussion today you can see that we have taken our oversight responsibility very seriously. we do feel like we're trying to be the best stewards of taxpayer dollars as possible. >> i'm going to run out of time. is there political pressure to keep these co-ops a lot of? >> i would say we're trying to do our best job possible to make sure that consumers can know that if they go to the marketplace not i want to sign up for the co-op, that they are strong and stable. and that we have done a tough job. i think if there was another way we could've had arrived year we would have but we've been doing some tough work. >> that doesn't answer the question but i understand that. why do we need the three r's?

>> because of -- >> i think mr. collins pointed out if i was going to start a business summer i wouldn't rely on the three r's to make sure that if something didn't work out i all of a sudden got a check from the federal government. fundamentally i did it about first of all, after this question will quickly. cms has always said they want this budget neutral, great? >> all of the three r's program -- >> no. in cms always intend for risk corridors biggest i will have to get back to you. >> that's what it says on my paper. you can go into why we need the three r's in the first place. i know that, i understand you didn't make these decisions but you are here. >> happy to answer. the programs were based on our experience with the medicaid part d program, the drug program and medicare that had the similar programs. as you stand up a new market there's uncertainty. we have been hearing a lot about

that uncertainty earlier today and so again those programs, one, we wanted to make sure that sick people were not some are not covered by the insurance. we want those folks to be covered. the reinsurance program specifically was to cover the cost of a high-cost in early years. we know the maven pent up demand speakers so it is basically the capitalize the business, right, so that the capital to get off the ground? >> i think it is to keep premiums stable. >> following up, you thought earlier in the are you would be able to make the payment and then you found out in october you couldn't. and what's the reason? basically what is the reason for that? >> honestly it is a math formula, the way the data came in from the issuers and that's the way the math worked out. and so we were able to pay 12%

which is the dollars coming in dollars going out, and that's the way we move forward. we've always said we would take from next year's collections and payback to this year. it is a three-year temporary program. >> thank you and i yield back. >> thank the gentleman for his questions. now recognize mr. yarmuth. >> thank you very much, mr. chairman. welcome to the witness. i can help dr. bucshon a little bit on the background of the co-op. one of the problems we face when we were drafting legislation was that in certain states the availability of private insurance was limited to one provider or i think in alabama there with blue cross blue shield dominated over 90% of the market. in many states that was a situation. the idea was to create competition. and the idea was you could that

we create the kind of price competition that was meaningful. but we knew and we knew in kentucky when the co-op was established and i have talked with him many times as you're yr getting started they had no idea what kind of amateur published they're going to. they did the with h. is going to be. they have no data to predict that. they did not have many would enroll. they did know how many would've never had any health care. automatically once it became insured they would have a rush of care, try to get testing because, treat things that never been able to triple or the people who have medical care and just lost their insurance. the unpredictability of it was certainly the rationale. i'm really proud of experience with ac a kentucky. we have led the country into reduction in the amount of uninsured, more than 50% of our previous uninsured are not covered. more than 540,000 people.

in my district alone in illegal we've reduced the uninsured rate by 81% -- in louisville -- and more poorly than that i think is every day i hearing from people who now have insurance that have a family member or a neighbor or a friend whose life has been saved because they had insurance that they otherwise would not have had. i can talk about that for a long time, with the focus of this ring is on the co-ops i want to try to set the record straight about what happened with kentucky. unlike most of the co-ops reviewed by your office is it your understanding of the kentucky health cooperative have far higher enrollment than expected, nearly double? >> we should have a chart in our report on the enrollment projections. of 2014 and for kentucky yes, it was like 183%.

right, one of the few. >> is it your understanding a very high percentage of those enrollees were much sicker or utilize much more care and, therefore, were more expensive to ensure than the general population speak with i don't have that information. >> that's what we established this program and why it was so important. and that's what happened to kentucky's co-op. they relied on this. kentucky's co-op as i mentioned before lost $50 million in its first year. in the first half of 15, that lost has slowed down to a rate of 4 million. they were on track to make a profit in 2016, and, unfortunately, when the risk corridors program was cut by 87%, they were unable to continue. dr. cohen, is it your understanding had congress not cap the payments that kentucky health cooperative would still be open for business? >> no. i think there were a number of

factors that contributed. that was one of the last and certainly, we have heard was an important factor for them. but you have to know that there were many factors as we've been talking all along with the uncertainty of the challenges for the co-op program. >> that having been said is that you understand even without the co-op, kentucky residents was a lot more in health insurers to choose from in 2016 than they had in fragos speak with yes. very exciting. >> i could talk for a long time about the success of the affordable care act in kentucky. we are at a much healthier state because of it and i know somebody through a rounded figure that maybe the approval rating of the affordable care act is down to 20%. in kentucky is well over 50%. >> i will give you an enough to put out today, new reduction in the uninsured rate to 9%, historic. i appreciate your leadership on

the. >> thank you, dr. cooper i yield back. >> can i take a moment of personal privilege? you might've noticed this is not one of the new members of congress. this is a dear, dear friend of mine and chairman upton's, and max has been helping us with 21st century build it most of the staff and members have met him. last night max was very honored to receive an award at the every life foundation for rare diseases, a reception. and also chairman upton and i've received awards but max is the one that he is why we're doing this so thanks for letting me -- >> thank you. we all welcome max. [applause] when i look back to the unanimous vote out of our committee on 21st century cures, eigenvalue backs with more than one vote. [laughter] spent max is our secret weapon. >> we make it look at a future

majority whip sitting next to her that i'd like to recognize ms. blackburn for five minutes. >> thank you so much. and thank you for our witnesses and for your patience today. we appreciated the i'm sorry that mr. yarmuth left. i think it's important to note in kentucky, when tennessee had 10 care, a lot of kentucky resident come into the state to try to get health care and the kentucky co-ops did close and kentucky approval rating of the obamacare products that are in the marketplace is really quite low. as was evidenced in the state. dr. cohen, i want to come to you. i had commissioner mcpeak here. were you in the room for the first panel? okay. i'm really concerned about what has happened with taxpayers and the liability they are with, with what took place with the loans and then the solvency

grants. and we all should be concerned with it. that is not your money to give away. it is taxpayers money. and this is just money down the hole. it appears. because this didn't work. and to going here and here from the co-ops that they now have the loan conversion options, startup loans, classified as assets rather than that, and i don't see how you get there. doesn't that type of loan conversion really give a false picture of what is going on in that co-op? is that not a falsehood? >> when talking about the conversion which is what some of the co-ops approach cms with, we evaluate each of those on an individual basis and i think you

heard ms. mcpeak mention in that case, that was not a right step forward and we did not go -- >> who had suggested that? is that not giving an inappropriate picture of the financial stability of that co-op? >> that was requested by the co-op to see ms. we did evaluate whether not that was the right speak to you look at whether they could call debt and asset. let me ask you, in the business world, the private business were i think if you didn't you be accused of fraud, if you started we characterizing your debts as assets and put them on your balance sheet as an asset. i mean, i just never even heard of somebody saying that the federal government would approve such a process. how do you all of you that? >> i believe that came in guidance in july of this year as we do our work. we will be looking at it.

>> you are going to go back and redo the? >> as part of our follow-up. >> we will appreciate getting that. is that not an odd business practice? i've never seen this type characterization viewed as being a standard operating procedure spee-1 it appears unusual, right. >> it does appear unusual and i think that leads us, dr. cohen, if there are other unusual business practices that are surrounding the stability of the co-ops, or the lack of stability, of the co-ops in the entire lack of stability of the affordable care act programs. this is highly unusual. vermont health club, how much if any for the vermont health co-op

has been or will be returned to the federal treasury? >> work aggressively if we wanted any co-op to return funds back to the taxpayer. >> how much? >> i don't have the numbers. >> would you get that number four is? >> i will do what i can. >> when money is awarded and then they don't get a license to stand at the co-op, every penny of that ou ought to be coming bk to the federal treasury. and i think you know that. >> we work aggressively to recover loans in accordance with the -- >> i can imagine what the irs would say people would say well, you know, we are going to work to get that money back to you, irs. we are really working on it. so we want to see that that comes back because i think it is inconceivable that the taxpayers are going to be held responsible for this. when should we expect that many? what is your timeline for getting that money back in? >> we are working through that

process right now. i don't have -- >> you have all this money out. no, ms. cullen, listen to yourself that you got all this money out here. it is being wasted. half of your co-ops are insolvent and you've got this week your position process going to take your debts and make them appear to be assets. that is highly unusual, and you want to sit i and say well, we e looking at a. when are you doing at? are continue to meet on it every week? do you have a timeline for coming up with getting this money back? is it a top priority? >> so, my speech yes, please read the note that has been passed to you spent we got all the money back from vermont which ousted the rest of the co-ops that we've been working with over the last several months, obviously are still in business. they continue to provide coverage for consumers into the

end of year and then we work through the process at the point in accordance with the loan agreement to recover funds for the taxpayer spent so there is something in process, thank you. >> thank you. >> if you eat you will continue to provide that type information for us. that is what we need to know, the specifics. it does not help us in doing due diligence and being certain that people have coverage. it doesn't help us if you coming to a hearing and you cannot say this is where we are exactly where we are and what we are going to do. it is helpful when ms. jarmon says this happened after our july review and they were going to come back in and we're going to look at this very unusual business practice and have a recommendation for you. that's the kind of thing that is hopeful. i am way over my time. i yield back. >> that's okay. we are missing a lot of our members. we will maybe ask a few more questions, you know, to dig down

a little bit deeper. and again i'd like to set the stage. all of us. agree we need to be good stewards of taxpayer money. that's the purpose of this hearing. learning from what's happened the last two years, and losses have occurred. it sounds like a few co-ops are doing okay. half of them failed. there's lessons to be learned and i think the purpose of this hearing and our request for more information will be how can we take all of that and hopefully not continue to lose taxpayer money but ms. jarmon, there is a question for oig that the loan agreements as i understand it between cms and the co-ops do have provisions in them, enforcement provisions. and i just wondered, could you, you know, explain what some of those provisions might be? and in a very direct question would be, to the best of your knowledge, and i will go to dr. cohen, have we taken any of

these enforcement measures against any co-ops? >> the loan agreements to allow, there's options to terminate the loan agreements which would require a co-op to forfeit all unused loan funds. and there's also within the loan agreement and the funding opportunity, there's the issue of enhanced opportunity plans and correction action plans which cms has actually took several of the co-ops under enhanced enhanced plans and corrective action plans so those are part of the loan agreement. >> have we terminated, and cms terminated into the agreements? >> i am not aware. >> we have for those 12 co-ops that you've heard that are shutting down. so we are terminated all we will -- >> did we get the moneyback? >> let me clarify and i want to make sure for the record i have it right. in vermont we did get the vast

majority of the money. and with some funding and which is in the start up funds that was not recovered. on the go forward basis were making sure that consumers have coverage to the end of the year. these entities will be operating through the end of the year and at that time we will do a run out of claims, and understand the financial health of the organization, then use all of our ability with the terms of the agreement to recover funds. >> that's not the case in new york. it's my understanding th that cp in new york which lost $250 million in fact is shutting down a few weeks time so that doesn't -- >> that's right. >> -- doesn't line up with your testimony. >> that's right. that's why we've been so much of the artwork right now before this open enrollment period started so we understood the financial health of any one of these co-ops is because we want consumers to be confident it would not be a major closure of any one of these co-ops. in the case of new york we went

to wind them down and terminate the loan agreement back in the september timeframe. when we sent in our audit team after we then decide to wind down we went and found out that the financial situation was even more dire and we understood it to be women make the decision to wind and that and that is why we're in this unfortunate situation. i will say the folks in your, the governor's office, the department of insurance has jumped on this problem and is working very aggressively to make sure consumers have a smooth transition. this is exactly why we're doing all the stuff work right now so this doesn't happen in other places. >> i purchase a lot of distressed companies in my private sector career. let me tell you a bank of england money in many cases which what you may call work out, there's literally daily and weekly reports. and you are under a magnifying

glass until the bank who has money at risk is confident that they will be able to be paid back. it quite frankly sounds as though cms has accepted a lot of information at face value, and had not done deeply into the details is okay, too much later we are totally shocked, the finances are much worse. if somebody was really watching, if $259 loan day by day and week by week i don't think you would wake up too much later you would've found out too much earlier and maybe we would've lost 200 million instead of 250 million. i think there's lessons learned in that when you're good stewards of taxpayer money, the taxpayers expect a level of scrutiny. is at least consistent with big banks do when they make loans. in fact, you could argue they issue be more than that. so my last few seconds, another question, i know that there's going to be outstanding claims to these co-ops are shutting down including new york.

i'm assuming there's no money. who's going to pay those claims? >> as i said the co-ops continue to wind down over the course of this year and they do the funding that -- >> take new york. is there enough money speak with new york as a different circumstance where they need to wind down by november 30 and wind out of those claims. one of the big things that we did in partnership with the state department of insurance is nature they go into receivership be by doing that we are able to better control over their finances and the claims payout as well as -- >> do you feel there will be enough money, if there is.com is the government going to make, the provider, that is no money. how do they get paid? >> as you said it's a day by day type of situation. we're watching very closely to make sure we -- >> could there be more taxpayer money having to go in? >> our first primary goal is to protect the consumer and the taxpayer. and so we're going to do

everything possible to make sure we can have a smooth transition. that's a partnership between ourselves and the new york state department of insurance and we're working collaboratively in that process to make sure that -- >> we would encourage you to continue to do that and thank you for your testimony. i'd like to see a ranking member degette as if you follow on question ki-moon. i just want to go back to something that mr. morrison said in the previous panel when we set up the insurance co-ops under, we set them up to help get people who are sicker, who were poor who was less of a choice, a choice of an insurance plan. as we all know quite clearly the co-ops don't have a lot of the same benefits as private insurance companies. they don't have the capitalization from other products and so on. wouldn't that be a fair statement? >> yes.

>> so when you're just starting out some co-ops, it's not like you are a private company saying okay, let's offer this new product, and if it takes us a few years we can do that. so i really think that the comparison of the co-op to a private business is a little unfair. and that's why i think we set up these three cars to try to help the co-ops get established, then the concept, dr. cohen, with they would become self-sufficient and they would be able to sustain their business model, is that right? >> i think those programs were set up the entire market transition. >> okay. and so, so i guess i was a little concerned when i heard you say earlier that you were