the failed co-ops have more than 700 million in unpaid medical claims to doctors and hospitals. i'm played -- unpaid medical plans. by the policy of other insurance companies other insurance's have to pay increased premiums going back to our constituents. in other states doctors to hospitals, individual patients stand to suffer large out-of-pocket losses. we will talk about this more. real people that hurt by including more than 700,000 americans have lost their health plans. today i plan to ask hhs whether they accept responsibility.

at this point i would like to ask my colleagues if they would like to make opening statements. as i mentioned earlier you have done a lot of work in the issue of opportunity and its effect on your constituents in nebraska. >> yes. thank you, chairman. also, i would like to acknowledge your colleague and ranking member. we all wish her well. today's hearing is about the families who lost their health care plans on the taxpayers who were swindled, the bureaucrats who mismanage the program and the local governments had to cut budgets from firefighters and schools to make up for washington's failures. everyone in the room has a duty to get the whole story. the program created 23 not-for-profit health

insurers using 2.4 billion of loans. the private consultant they warned that this is the case. the callco-op failure rate of more than 50 percent. sadly 740,000 americans were given $1.2 billion through the taxpayer. as we suspected for some time the subcommittee's report concludes that these loans will never be repaid. these companies impose varying degrees of disruption. unfortunately the mess began in my state. headquartered in iowa but operated in both nebraska

and iowa. things seem to be going well at 1st when they announce they had signed up far more enrollees anticipated. however, despite ample funding and more than enough enrollees as before signing up for the 2015 coverage one month later in january last year the insurance would be impossible and had a court order for liquidation. the new health insurer would collapse completely. 120,000 enrollees120,000 enrollees heather coverage canceled and were forced to find new insurers. cooperative of millions of dollars to doctors and hospitals plans for its

enrollees that will not be repaid. 's they guaranteed fund such as co- opportunity. financed by assessments on other insurance companies selling similar plans and our state at prices that were at market rates which is why they had far too many enrollees. help pay for opportunities insurers were assessed fees totaling $47 million last year alone. not enough to cover losses and the guaranteed fund had to take out a loan. it is improbable that they guaranteed fund will ever be repaid this 47 million. these insurers had to pay the outstanding bills and there is no reason to believe they will ever pay this money back. as a result tax revenues

will be increased because insurers are subsequently going to bail out which means in my state will have much less revenue to pay. thus nebraskans only have to pay for 1st is individuals became uninsured now as taxpayers have to bailout. as previously mentioned $11 have now failed likely initiating variations on the same story. moreover, depending on the viability it could happen and more states in the years to come. indeed we know that as of february 25 cms placed eight of the 11 under corrective action plans. updated financeupdated finance reports show that conditions have greatly work -- greatly worsened.

despite this mess cms has offered very little in terms of substantive explanation. i've been questioning the department of all of this. assume for letters to your agency over the course of this period. hhs owns all opportunities and federal taxpayers i look forward to the hearing and hope for new and substantive answers. >> thank you. >> i do not have an opening statement. >> thank you. >> we would now call our 1st panel of witnesses. acting administrator of the

centers for medicare and medicaid services before becoming acting administrator. fiscal deputy administrator in july of 2014. he was group executive vice president. chief executive, cms deputy administrator. he served as ceo connecticut self-insurance exchange, access connecticut. we look forward to your testimony. at this time i ask you to please stand and raise your right hand. >> these were the testimony you are about to give will be the truth,truth, whole truth, nothing but the truth so help you got?

thank you. having heard in the affirmative i appreciate you being here again. your writtenyour written testimony will be printed in the record in its entirety. limit your oral testimony to five minutes each. >> chairman, thank you. i want to offer my best to ranking member mccaskill as well. i know your all aware. having close their doors prior to the end of 2015 and i understand the questions you have. as you know, the affordable care act allocated over $2 million to start the program. being very difficult for small companies.

in the 1st clarifier oversight purview. under law the federal government is not granted authority reserved to the states attorney who is qualified to offer insurance. the responsibility is to awarded oversee funds and ultimately maximize the likelihood the funds are returned. the remaining 15 percent or awarded during 2014. loans were made threat evaluation process and review in scoring from a third-party which resulted in 16 percent of applications being granted loans. by the time i took this job all the loan funding have been obligated in my principal focus was to ensure we have the best possible oversight

practices. one of the 1st things i did was hire an independent actuarial consulting firm. now, from that our approach was driven by three unique challenges and overseeing co-op loan programs. the challenges should not be viewed as a co-op problema co-op problem but as a small business startup problem in the difficult industry. i hazard to say that all the small companies experienced similar challenges. while we were making loans they are typically competing with companies with multiple thousands of people and were tens of billions of dollars in capitol. trial and error is a part of creating success command in the situation but limited capital available the co-op said very little room for error. second, as will be

elaborated on come across the marketplace there was actually very limited actual performance information available where plans filed rates for the 2015 year and for the co-op oversight team to evaluate the financial position of the co-op. you to make one person decision per year. this is why our decisions to shut down the co-op's were largely made prior to the 3rd open enrollment period. finally, all of the loan funding have been granted. our strongest remaining tool of oversight is to call it alone which i can tell you we did not take lightly, ramifications for disrupting consumers come as you know, and would certainly not have increased the collectibility of co-op loans. in light of these three challenges we set up extremely active oversight process, created other

oversight tools, new methods of gathering information and focused decisions around events like open enrollment. we were guided by the view of the bestthat the best way to maximize the opportunity for federal loans to be repaid as if the co-op makes it through the start of stage when most failures occur and reaches the point of stability. making recommendations to withhold funds the place co-ops on corrective action plans and work with states to shut down operations. represents as knowledgeable and capable an executive as there is. and he and his team have been hesitating make tough-minded calls. when any program does not fully succeeded raises important questions. we go through after action

review to see what we would do differently. ultimately our goal is to make sure that the programs are working as they should. today more than 90 percent of americans have health coverage and even in states where co-ops proved unsuccessful in the 1st year the overall uninsured rate decreased by 20% and has continued to improve. challenges like the ones we're discussing today a part of every program, and we must always be ready to work with them with urgency, accountability in the best interest of taxpayers and consumers. thank you for allowing me these few minutes. >> members of the subcommittee thank you for the invitation. the team at cms has been charged to specifically

oversee the federal loans made to be startups supporting the co-ops so that consumers have access to uninterrupted competitive insurance coverage and providing information to state department of insurance so they can make the best possible decisions about the future of the co-ops in the state. i came to cms from a long career in the private sector. have executive roles and have overseen for successful health insurance exchanges. leveraging our experience we worked with the teams to build and improve the oversight operation for the co-op, a formal this committee and enhanced monitoring process. these processes are robust with built-in controls and utilize the knowledge of top professionals and actuaries. the lifeblood of any oversight processes data-driven decision-making. i will pick up on something and he said.

make the best decisions that they can taste upon the information available at the time. i think it is important to explain more about the information available to the co-ops, state department of insurance at cms. an insurance you know your revenues relatively quickly. what you don't know your claims costs because of the back way to nature of how cares consumed in the lag time and have claims are submitted, processed, and paid. due to the lagging claims data as we neared the end of 2014 meaningful and complete data from the 1st and 2nd quarters of the year was all that was available. the 1st reliable financial information on the co-ops 2014 performance from actual claims only became available in the middle of 2015. this was well after pricing decisions for plan year 2015

were made by the co-ops, well after funding decisions needed to be made command well after certification and licensing decisions needed to be made by the state department of insurance for 2015 open enrollment. even when information is not readily available aggressively gather and analyze the best information we can on program performance and early warning signs. please each of the oversight tools to support and correct the co-ops on issues identified. in 2015 the conducted 27 financial operational reviews, 16 in person visits and had 4343 communications, not to mention hundreds of phone calls with the co-ops. this is done in close collaboration with the state department of insurance who has the full authority over all insurance a mistake. we have several oversight tools short of calling alone

including corrective action plans and using the leverage of cash disbursements when possible to push for performance improvement. approximately one 3rd of the time we have withheld some or all of the requested disbursement until the company's more clearly demonstrate the need or took some other action. this toy limitations. because a company to be out-of-state compliance, unable to play -- pay claims and ultimately default on the loan. even with the oversight of support provided having operated insurance businesses, i can tell you the outcomes of these companies are very much in their own hands. more so than the regulators or lenders. plan your 2016 is a critical year. vital for their ability to

predict, manage, and control costs. to the co-ops in the wind down process we are working with the department of justice to use every tool at our disposal to maximize recovery of federal funds owed, including recently at the request of doj putting a hole in tens of millions of funds is the process plays out. cms will continue to work closely with the subcommittee, the co-ops, and the state department's to provide the best outcome for consumers and taxpayers. we appreciate the subcommittee's interest command i'm happy to answer your questions. >> thank you. we have a number of questions. ii appreciate you both being here and your testimony. some of what you have just said confuses me. you talk about not having adequate information. a lag in data.

hhs have monthly financial data to work with. you receive the quarterly financial reports. there is plenty of time to cut your losses before sending them in the open enrollment. i just don't think that's accurate. it is interesting also when you say the strongest tools to call the loan, there are a lot of other tools. some of those have been laid out to deal with co-ops. corrective action plans, enhanced co-op plans, termination. this o'brien said these are all valuable tools. and i you are using the now more frequently. throughout 2014 hhs did not use the tools at all.

in fact, five of the 12 were never put on a corrective action or enhanced oversight despite the fact again you were receiving these regular monthly and quarterly financial reports showing massive losses. six of the 12 failed co-ops reported net income losses that exceeded the worst-case scenario in their own business plans. by the end of the year ten of the 12 that exceeded there projected worst-case scenario losses by at least 300 percent, 263 million. so i just don't think it is accurate to say you did not have information and there was aa lag time that made it impossible to respond. the loan agreement says master oversight should be used when a co-op consistently on performs relative to its business plan. that is in the agreement. how could consistent monthly losses exceeding the worst-case scenario by 300 percent happy considered

under performing? >> thank you. and let me just start by saying, these are very fair and appropriate questions and questions i have asked myself to go back and look at 2014. a lot of this was before my time. you may remember that 2014 in the exchange is off to what i'm might charitably call a slow start. open enrollment had to be extended. and so membership did not come in until late. and then the way health insurance works people have deductibles. claim filings don't happen for a while. you don't really get an accurate picture. you don't really get a good, accurate picture. the question i ask is to the people have enough information to effectively shut down a co-op or call because if they did not they

would put the plan out of compliance and obviously the kind of situation we had is not the kind of situation we want to be in. i look back and will say that core opportunity should never have been allowed. i think that is a fair criticism and something that we would all think. a look at the others and all the evaluations notwithstanding that many were ahead, somewhere behind. the expression that once you have your 1st customer a business plan goes out the window is true. and in this case the team did the best job they could evaluating information they had. six months in when i look at it, and this is someone who

reads different from what i look at these co-op teams and find it difficult to criticize them with the exception of cooperative for not closing -- for letting those co-ops move forward reset pricing and to move forward and see what happened in 2015. looking back on judgment today we have the information we did not have been and i think that is why these are fair. >> what i would add is based on my experience startup health insurance companies are high risk. over half of them failed. they take three to five years to stabilize and mature. it is seductive to look back and say look at what happened, should have done something here. if you look at open

enrollment and when it ended , it took us until october and november to have any credible experience because in the 1st three months there is very little. and it continues to get better which is one of the reasons when issuers set the rates they are setting them on manual, not based on experience. 2016 was the 1st year in which issuers are credible claims experience. again, a lot of different factors. >> i know you are not there. totally inappropriate to say they did the best job i could with the information they had we are talking about taxpayer money. 1.2 billion lost, 700,000 people losing healthcare, and somehow you guys seem to

be saying is just fine. in terms of startups is co-ops fail at a much higher rate than the average. despite the fact they had something in the startup i have ever known as the millions of dollars and subsidize government loans. wouldn't you love to have those millions of dollars? you say -- let's talk about that. two of the co-ops had already exceeded the protections for the year. they exceeded more than 150 percent within the 1st month of enrollment. new york co-op more than doubled. there's plenty of information out there. you weren't there. i'm not blaming you personally. for hhs not to take responsibility or accountability, were there any objective standards?

>> yes. >> what were those? >> there was a series of things. >> what were they? let me just tell you something. we gave you guys this report to look at. it is a thorough report. you gave us comments. we took your comments. here is what we heard from the person who is in charge of the program. she told the subcommittee there was no standard. she said there still isn't, by the way. that is information we have. to say that there is and was an objective standard is not what we learned. don't you think it would have been good to have some

kind of metric? >> thank you. the thing that i would say is, what the team does goes a little further. they really get in to these businesses. we sent teams out into the field not just to evaluate but to provide technical assistance and the best advice we can. even when we put a co-op on an enhanced oversight plan, it is not a silver bullet. the co-ops themselves have to perform. after price right, have a good enrollment strategy, sell, service. the department of insurance are watching them every step of the way to make sure they are doing it right. these are such early and precarious operations.

it is absolutely -- and i can speak more to the time. very intense activity. >> 2014 and the 2015. 300 percent was not enough. but you did not have standards in place that enabled you to react quickly enough. senator, i turn to you for questions. >> thank you. first of all, i just want to acknowledge something. the failure should have never entered 2015. >> that is correct. >> thank you for that. more broadly, as far as

distinguishing between different regulatory responsibilities i understood your opening statement he said many are failures of state department of insurance in the primary responsibility was to maximize potential repayment of loans. >> i would not use the word failures. >> let's distinguish between co- opportunity, should have never been able to go. the next 11 that failed in the 11 that remain. any repayment? >> it is too early to say.

>> well, there are three sources of funds that we look to. the department of justice is in the lead and would be happy to answer your questions. i don't want to say anything publicly that were my negotiating position. briefly three things and we look at. first is after the co-op demo again there is a lag effect. second, there are series of receivables that we have just put a hold on funds that the co-ops have been expecting. that is the 2nd source. >> what are those? >> receivables for things. and then the 3rd source of funds is lawsuits and

judgments with contractors and vendors. i don't want to venture into someone else's fight, but co-ops have been poorly served in terms of providing financial information. that is a potential source. the doj looking at all three of those categories, taking the lead. it will take some time to play this out. we don't expect 100 percent recovery. we are between those sources >> if you had to guess, what percentage? >> i cannot guess. >> a fair bet on over under be hundred?

>> they are not going to take the bait. what the pulitzer do their jobs. what state department of insurance pays 35 it reads the cash on hand will ultimately be assumed to achieve the total enrollment by the end of 2014 which is 55,000 more than original projections. that is pretty extraordinary. page 35. essentially the additional solvency loan funding request report. the 2nd page of that

addendum, there is a critical assertions point. it says that -- >> we all have a. >> this chart. >> the over enrollment is extraordinary. i have never heard of any start a business over performing is projected volume of subscriber base. i think you will say that this is primarily a department of insurance in iowa and nebraska problem. were you talking to them? if not, on what basis -- a

recognize you were not there personally. i willthat what basis could you possibly conclude they were assaulted to make other insurers and brokers in the state were talking widely that we obviously, 93 counties into metropolitan call bunch of cattle country. pricing is complicated as you only have a couple hospital systems. trying to project utilization and rates a year into the future is difficult. there is a rough sense of how pricing should work. they did give them additional money. either you should've known or you are going to assert the department of insurance

should have known and that i wonder if you were talking with them. >> we both should have known particularly relative to moving in the 2015, you know,, you know, a couple of things, if we had done our autopsy we do think that the benefit design attracted disproportionally sicker populations. weird, constant dialogue because it's challenging. when someone beats the projections on revenue someone look at that is a

good thing. others will look and say you underpriced your product. they have to live through the entire year. the real decision point should have been what do we do about entering the next year. the situation deteriorated pretty rapidly. it became apparent to everyone involved that both the departments and ourselves should have taken action. became uninsured and nebraska and iowa became uninsured with plans of the reenrolled and acknowledge that they would be uninsured by the end of january. i will acknowledge that.

complete regulatory travesty. but it begs questions comeau what kind of technical assistance as possible. >> folks it covered. opted for another plan. we can certainly talk about guaranteed fund. >> certainly a cost. we can talk about the challenges. our priority was to set up a team focusing on each individual. they sure people game coverage. we did track that. >> you made some good insights.

actuarially developed. they have to be presented to the actuary from the actuarial departments. those do a pretty good job. i'm trying to understand the rates. and we trust them. done something differently. but we tried to do is acknowledge, moveon, learn from it, and make sure the patient's got coverage. >> thank you. >> let me just follow up. will these federal loans ever be repaid. therepaid. the answer was we're not going to talk about it. the real answer of course is no. our investigation shows in the aggregate the failed co-op not alone, not

counting what they are the treasury committee seat 1.13 billion which is 93 percent greater than the reported assets. in case you did not know, your answer is where will it come from. we are talking about on loan liabilities forgetting the 1.2 billion we talked about. so i think it is a near certainty that you will have a complete loss. let's talk for a 2nd about another issue that was raised briefly. the huge problem with the way in which this was handled, the issue of unpaid medical claims. in certain states there is a substantial amount of unpaid

claims. one example would be new york. 379.5 million unpaid medical claims. the 221 million. the patient's the relied on it. in other states that might be covered. amended on the state. but in new york because unpaid medical claims are not covered. my question is what will happen? they are likely to go unpaid.

>> what will happen, senator in all likelihood i don't know the complete answer. in all honesty it is premature for me to say. there is no guarantee fund for health insurance. the present they don't have one for health insurance. expert tell us if anything the claims numbers are likely to worse. i just don't know how you can imagine that these claims will be paid for the balance sheet like this. and if all those assets which is devoted. >> and i don't know that

they are. >> i don't know that they are. i would like to talk a little bit about new york in this context, but i also have to say the numbers you quoted me about assets and liabilities, i need time to review this report. some of our staff got to review yesterday. i'm not willing to accept that those are accurate numbers until i have had a chance to review. >> your smart guy. why should we be having give you publicly available numbers? you should have already had these. you're saying you don't trust our numbers. we showed you the report, give you a chance to respond. we have made all the changes you suggested and you are saying you can trust our numbers. you should know these numbers. this is your job. let me give you more numbers. in three states with no

guarantee coverage, no guarantee fund failed co-ops are reporting $500 million in unpaid claims and not nearly enough assets to cover them and we are talking about new york and kentucky, louisiana. imagine that. sign up for health insurance company your premiums on time i do everything right, and then your insurance company goes bust. the hospital can sue you for your unpaid bill. i mean,, it is amazing you guys are not more concerned. can you give those patient's insurance? >> we are certainly concerned. it's a complicated process. and also the federal government.

there are precedents, winding down, processes and states we try to represent our own interest. i will say we have, and you may criticize us for this, but we have released funds. $30 million of funds last year to co-ops that were closing down so that they could pay claims for consumers. you could argue that that was 30 million they could have been the federal treasury, but it is the same people. these are taxpayers have found themselves losing their insurance and a potentially facing claims from providers because the health insurance company that was federally established and subsidized and bust.

>> let me tell you the new york co-op. could vastly overshot enrollment targets. in response to consider scaling down the operations. they gave the co-op 90 .7 million. which it used to scale up. so you made it worse. the resulting losses led to a $544 million loss and left doctors, hospitals command patience with medical costs with hundreds of millions. as you give out more taxpayer money i hope you will look at the example. did not help the individuals

who are now facing this prospect of having to pay twice. >> i would like to try to respond. i want to make sure that if there are individual cases where individuals are in difficult situations not getting covered we have a unit that sets up. that will be a high priority. less material in making sure that if there are situations , new york is an interesting situation. days and days and days on end. conducted separate. what is interesting is when the original loan was made as i look back on the reports new york had scored

over 90 percent, and even when i hired an independent auditing firm when i took the job in february new york was not identified as high risk. there was a narrative of belief based upon the fact that claims are not come in yet for many independent sources that new york was doing really well. we saw the early warning signs and ordered an independent audit. presented to the state and the co-ops. what happened in new york is the financial systems were not as accurate. the reports that we were being sent was not accurate. it was not until we didn't independent audit that we

realized this was a situation that would come back and hurt. >> i think you said it well. >> if there have been proper oversight we would have been able to address the issue because they did overshoot their enrollment targets. underpricing premiums it to this enrollment target. it created even more problems. want to give the senator question. >> i would like to look at the report. the main report to my go to

pages 56 and 57. roman numeral for misconceptions. when i asked a few if you really thought any of these 12 were considerably going to ever repay the taxpayer he said potentially accounts receivable would become a source of some of the funding that might come back , and i asked what that meant.meant. you said the reinsurance program at the yielding funds. if you go with me to page 56 and 57, as the chairman has said, these are publicly available numbers. i would like you walk me through what this means. the co-ops have much healthier populations than the overall obama care more affordable care act marketplace. this means that on that our co-ops paid-in 116 million. they are not getting money back.

the arizona example, i'm not familiar with them. they are going to receive 2 million in reinsurance payments. on that they paid-in 6.4 million because that healthier populations. >> that would be bad if it did. there is confusion. between risk adjustment in reinsurance. i should have used the term risk adjustment. >> that's one potential source of receivables. so is reinsurance. and so is riscrisk core door. no one really has a good feel for how much. so those are reserved separately.

all three are potential sources of funds. we just put a hold on tens of millions of dollars of receivables that they have been expecting from those sources. the funds are available. >> were talking about 1.2 billion. how much are we talking about? >> i don't have the exact figure. >> that is 2 percent. >> let's say it's 90 million. >> we're still less than 5 percent of the real question. >> from that particular hold, correct. >> are there other sources? >> that does not represent the entirety. i know it will be helpful if ii could give you an estimate command i understand you would why. hope you understand why i am

reluctant. but to your general point we are not -- do i expect we will recover? no. >> do you really expect to mac. >> i don't know. >> what is the universe that you get us to 10 percent? >> i don't know that i could be more specific. >> on the taxpayer money. >> i will be happy to follow up and go through the report. sit down and try to see how much information we can provide. >> your distinction between risk adjustment and reinsurance is important. it is still based on the underlying premise that maybe they failed because they have a much sicker population.

they were actually healthier than the average population. the broad idea that the failed because they accidentally attracted much sicker population, there is no evidence that shows that to be the case. >> i don't think i made that claim. i also don't know that they had a healthier population because of the risk adjustment. the co-ops would tell you that they had the sicker population but were not able to get the number submitted and kevin walk-through that if you like. >> well, essentially the risk adjustment program is highly sensitive. and diagnostic codes. and they are not done properly or thoroughly that a real impact on the financials.

>> the financial system new line. the incompetence of trying to plan a program like this. whether or not anyone is confident -- competent, i have seen no evidence yet. humbly come i am not asserting villain. the more you look at the numbers the less plausible it is that anyone knew what they were doing when they looked at the co-ops when one of the core answers for why this subsection could have failed would have been because the co-op attracted an unusually sick population. it would appear based upon the snapshot we have from the risk adjustment market

that the net pay in of 116 million is not aa net zero and it is not a net pay out. i think your evidence would suggest these are healthier than average which makes it harder to understand how we would not recognize the failure rate. >> thank you, mr. chairman. >> thank you. i don't want to catch you unaware. let's follow up on new york. you indicated that you spend a lot of time looking at that. he made a statement that said that you thought that your team that done the best job they could with the information they had. when hhs ordered additional solvency loans when they

were in danger of missing the capitol requirements he had to know they were in financial trouble and at risk of being shut down by state regulators and yet you invested hundreds of millions of additional dollars. in your written testimony you confirm for you said today, and evaluating additional solvency loan application cms undertook a rigorous review process to substantially similar to what was conducted for the initial rounds.

on page one of the packet you see the analysis of the new york co-op application for additional solvency. right at the top, the lord will not provide an opinion regarding the reasonableness of the proposed changes to each co-op business plan. all will it provide an opinion regarding the likelihood of each co-op achieving sustainable operations based on the revised business plan. so this notion that it was substantially similar to what was conducted is not accurate. i am told that they said you guys did not give them enough time. but they did not do that analysis. in light of that do you stand by your testimony that

the review was rigorous? >> and i know i don't need to keep stipulating it was before my time. >> i understand that. >> in your testimony you are making the statements that are important for this hearing because we're talking about this question of competence but also accountability. what can we learn from this? if you're saying everything was done right, that's just not accurate. >> it is a fair question. the way i interpret the statement is that they are not ultimately responsible for the decisions. >> did not provide an opinion. period. but here is our opinion that you guys are ultimately accountable. they did provide opinions.

i talked about the concerns that they raised. they should have been a red flag but they did not even do it is the point. i think the team, the risk committee getting multiple sets of eyes and what there saying is, hey, you can't count on what you are seeing from us to be with their warranting that they should not -- we should not count on their analysis in making this judgment. >> they did not do an analysis. that is the point. ..

that's what this is, this is an analysis. they provided an analysis and they should use this analysis. >> you are saying they didn't provide opinions for the additional loans? >> no, not i'm not saying that. c best for your statement is. your review process is substantially similar. in one case there's an opinion and in another case there's not an opinion? >> i think i would find the word substantially similar enough

that i would stand by that statement regardless of the fact that they said hey we are not willing to say that this is an opinion. i think the work is substantially similar. i understand that you don't think that it is. >> well look you probably had some internal experts analyze the question and therefore you felt like you didn't need to do it which is probably you know what you are accurate answer would be. my view is you need a third-party analysis and a third party opinion. again let's recap what happened in new york. there were public projected loss of 60 $8.2 million, 23 million in the next year so we know the co-op's original business plan wasn't working. the original projection we talked about earlier. its losses were 14 times greater and yet you awarded an

additional 90.7 billion dollars without having a third-party opinion as to whether this is reasonable or likely to work through the consequence was the co-op was 77.5 million in 2014, $544 million are than half a billion dollars in 2015 and again we are talking about the consequences of the human toll which is families and individuals not just having to be dislocated but now facing the possibility for claims that have not been paid. doctors hospitals and clinics could come back on them so they wanted to pay their premiums than they did everything they were told to do and now they have this risk. so i would hope that you would say again you would actually ask for the third-party analysis in the opinion that you had in the initial lung that you say was substantially semi. with that but may turn to the chair and committee who has joined us and thank him for his help with regard to psi and

specifically this investigation. >> thank you mr. chairman and i appreciate you calling this hearing. i apologize it could be earlier. i was in the foreign relations business meeting which is an important resolutions we had to be passing. i miss a lot of the detailed testimony questions and i don't really want to hop into where the people have to read so let me pull back and let's go to the obvious. mr. slavitt your background is in the private sector, correct? >> that's correct. >> you came in to optima which is a division of united health? what was the average prophet margin of united health after tax? >> four, five come 6% perhaps. >> relatively low. on average public corporations have 10% average not a wildly

profitable or outrageously profitable. >> that's correct. >> i know you are new to this issue, from your standpoint would you have real concerns as the private sector and sure that under the old system when the government set up a bunch of these co-ops they were going to subsidize them with these risk corridors these reinsurance plans? weren't you concerned that maybe these co-ops might tend to gain market share by underpricing the premiums? >> you ask a really good and difficult question. >> i would like just a basic obvious answer to it. from the private sector. isn't that a legitimate -- isn't that exactly what happened? >> these companies entered markets that had no new competitors in some cases in decades to your crack the company would not like to see someone come in and offer more. >> what was the natural result of what was going to happen with

these government-run co-ops going to come in and underpriced their product and what their loss ratio would be, correct? is not exactly why the american taxpayer is on the $2.5 billion downloads? >> these were loans to local nonprofit company so i don't think it was a goal. i would imagine they had it as a to price themselves out of business. i think. >> it's exactly what happened though, correct? >> it's correct in many cases. >> in the private sector did you ever believe for a moment under obamacare lacossa family health care would climb by $2500 a year? did you ever think that was possible coming from the insurance industry where you know that the profit margin is 5%. there is about a trillion dollars, $2.8 trillion we spent annually in 2012 for insurance companies.

the average after cash profit is 4.4%. so again that's about 45 to $50 million in profit out of a 2,800,000,000,000-dollar a year market. did you ever think for a minute that this magic, this government run health care system would actually deliver health care costs $2500 less per year per family? >> the way interpret that $2500 if i'm interpreting correctly is a health care costs trend under the affordable care act. >> do you think that's the way the american people heard that? >> i think that to some people are at it. do think that's what the majority of american turbine they listen to president obama in support of bill promised that if we pass us wonderful build of the average cost for insurance per family would climb by $2500 a year? otherwise would go up higher by 25 and a dollars.

see b when i look at the statement that's how i interpreted and also 20 million people have health insurance and we have a rate below 10% pretty think, no think anybody could have predicted the outcome of a new law that cites the complexities and it's a good thing but it reflects some bad things and challenges. cynic in your private sector experience did your participate in high-risk pools? >> another promise obama made and other supporters that other supporters the bill made is if you like your health care plan you can keep it. matt began coming for the private sector understanding of the high-risk pools by the way we had one in wisconsin 22,000 people were getting coverage that they liked and they could afford coming from the private sector looking at the obamacare lie you nailed the private sector those high-risk rules would be gone, correct? the people that were being injured in the high-risk pools would not have access to those

health care plans, correct? did you have any doubt that those things would survive? in other words did you believe president obama's repeated assurance of promised that if you like your health care plan you can keep the? did you ever for a minute believe that claimed? >> what i believed was there their would be guaranteed coverage in the marketplace so that everybody could get coverage. >> you did not believe president obama's claim that if you like your health care plan you can keep that? >> i think what happened there were folks of that coverage that was below a standard in the affordable care act that some of those people did in fact lose their coverage. >> you also understand insurance products change as the network's narrow. people might lose, if they lose a health care plan they will basically lose a plan that they can afford that they like to give them access to a doctor and they were forced onto a different plan. maybe a comparable plan may be one with better deductibles although it hasn't happened prepare being forced into

another health care plan might cause them to lose access to a doctor but they trust, correct? president obama's repeated assurance that if you like your doctor you can keep that doctor period was incorrect wasn't that? >> in my perspective lacks. >> i just really want you answer the question. >> hospitals and physicians have been moving in and out of the health care network or 20 to 30 years and i don't think anything in the affordable care act change that so yes i guess his answer to to that. >> my point is those promises made by president obama, coming from the private sector have you made those this kind of assurances to your policyholders do you think your company would still be in business had your business has you as the ceo or the senior manager of those businesses conduct that level of massive consumer fraud what would have happened to a private sector business? >> you wouldn't be around, would

you? you would be facing enormous numbers of lawsuits. >> i think your interpretation is a little bit different but i understand your point. >> so again getting back to the issue at hand and part of this hearing, is it cms' loan $2.45 billion to co-opt that obviously were not going to be able to survive. we continue to pump money into these co-ops knowing they would ever be able to repay them. you have not done due diligence. the review has not been rigorous. it was obvious he would never be able to pay them back. now the taxpayer is on the hook for $2.5 billion that's assuming you don't continue to pump money into these failing enterprises. anybody want to refute that? >> i guess what i would suggest and i don't know if i'd repeat a lot of the things i've said

today but clearly starting up a small insurance companies one of the biggest challenges imaginable particularly because as you said significant competitors with years of history, thousands of people in small enterprises and is fair to say the risk of failure is quite high. what we tried to do the best we can and i do accept our share responsibility and criticism certainly is to oversee these programs maximize the opportunities to get these in the early start of stage the point where they can be able in the federal taxerpayer can get their money back. in several cases we have not been able to do that in some cases the companies of not had a forward strategy that it succeeded in the market and i was certainly acknowledge that. >> that's great you are taking responsibility but the american taxpayer will be on the hook for the $2.4 billion. >> thank you and again gentlemen thank you for coming today and

giving us your perspective. i want to just and if i could on two points. one is there was a discussion earlier about the stage role here and i want to be very clear about one thing and i'm happy to hear your response to this but to shift the blame to the states i think is an appropriate. hhs had sole authority to be able to stop these disbursements making clear that the co-ops were not likely to be financially viable and sustainable and we talked a lot about that today. the loan guarantee doesn't give the power to the states. eight h. hsm equal has sold absolute discretion in determining load loan agreement hhs have the power to withhold these disbursements when the co-opted and performed which were not put in place. for five of the 12 they were never put in place, never. for another five he waited until september of 2015 so i just want

to be clear in the record here and i'm happy to hear your comments on this but shifting the blame to the state is not where the appropriate accountability have to be here and with hhs despite monday warnings to watch these co-ops lose a net of $1.4 billion to take corrective action and in some cases not at all. any comments? >> you are correct, there is no question that we have the discretion to hold that cash to disperse from these co-ops and in about a third of the cases of requests for cash the team didn't make that disbursement. but i think the challenge that we have and the important question is ultimately if we don't disperse the cash at some point to the startup co-op we are most assuredly putting that co-op out of business and most

assuredly putting other consumers at risk so the team has to make very tough choices. if a fund that co-op there are certainly note to current -- guaranteed that the grant has been made and if they don't find that they will most certainly put a lot of compliance and putting them out of business. i suggest that the team made every so just the right way. i would suggest it is not as if the team is turning a blind eye and there were lots of situations in this oversight project. as you very well-known overseeing a small company in a complex environment is a challenging and it's not a defensive effort and certainly not the point. i have gone back and continually try to ask questions with the information given available at the two choices they had in notwithstanding the fact that we put someone in oversight plan at the end of the day if we don't withhold cash he can't force an

action and want to withhold cash people don't get paid and the loans never come back and that's a difficult challenge that we faced and recognizing your point suggesting we could have done a better job. >> well again there were plenty of tools and putting the corrective action plans we talked about him the enhanced oversight plans but the reality is there are 700,000 consumers not just is located at some of them facing the possibility of losing their premium and now claims that were never paid to health care providers. that's a tragedy. we thank you for your testimony today and we will go on to the second panel. thank you. [inaudible conversations]

[inaudible conversations] >> thank you for being here. we are going to move quickly because we have a vote coming up and we have lots of questions for you and i knows note you have got a presentation for us. doctors that harrington is the allenby dollar offers management and business economics and public policy at pennsylvania's wharton school. he is also the chair of the health care management department. he is a senior fellow with the

leonard damon is suited for health economics and adjunct scholar at the american enterprise institute and present of the american risk and insurance association and risk society. he -- his policy research focus on the affordable care ask impact on research market and insurance radio. issues. he is a true expert and we appreciate his input and being here today. we look forward to your testimony. it's a custom of the supplement is when our witnesses so he wouldn't mind please stand and raise your right hand. you swear the testimony are about to give before the subcommittee is the truth, the whole truth and nothing but the truth so help you god? >> yes. >> excellent. let the record reflect the -- answered affirmatively. we ask you limit your world testimony. i think we initially asked you to take 10 minutes and if you could do it shorter that would be great because i know we will have questions for you and again thank you for your input today and we look forward to your

testimony. >> thank you chairman portman and chairman johnson. i published price recognition capital risk the causes of insolvencies solvency prediction regulation regulation rescap row requirements and state guaranteed funds. i've done private work on financial conditions. i have not read the majority partner have not seen anything about corrective action plans. i did review a lot of documents before preparing my testimony especially for iowa nebraska new york south carolina and tennessee including is this planned feasibility studies pro forma financials pricing analysis and all funding request delayed reviews and some financial information provided to the subcommittee staff. 358 million was for start up loans, $2.09 billion was for solvency loans to me this day

greatly to write o. requirements. the longevity of the 11 co-ops still providing coverage in 2016 is uncertain. future closures seem likely. eight of the 11 are reported to be subject to some cms corrective action plan. they close cost are going to depend on the resolution of a lot of claims and a final tally of what the claim costs are. as i will elaborate a little bit little if any of the 1.24 billion in federal loans will be repaid to those, from those co-ops release ever will be unable to meet their obligations to enroll as health care providers and some will require significant state guaranteed fund assessments. the co-opted face significant operational challenges and baca 2014 reforms impose major challenges and risks associated with pricing and utilization of the previous plan ensured and transition of previously insured

people today see a compliant client. the co-ops were inherently vulnerable to unpredictably high claim costs including many adverse selection from established areas renewing their 2014 plans especially if enrollee growth increase projections. they had little ability to diversify pricing and linklaen's risk across geographies and products are co-ops have none of their experience data to consider pricing. they work possibly -- pricing to load generating large enrollment and losing lots of money. uncertainty remains high for 2015 premium rates which have had to be filed in the summer of 2014 when the co-ops still had relatively little data to ask -- ask us claim experience in the adequacy of premiums. insurers must pose substantial capital to achieve the high solvency probability. economic literature stresses that insurers and other financial firms salton sea consensus depends on the amount

of progress on the firm's values which could be lost for financial distress customers demand to insolvency risk and on external monitoring by lenders and other county parties. co-op's financial strength growth and potential for underpricing should have been a central focus from the programs inception great co-ops faced considerable pressure to capture market share. they had almost no private capital, no financial ratings and was likely many potential customers would be insensitive to insolvency risks. very importantly history indicates that insolvent insurers often charge low prices with an adequate reported claim liabilities ultimately producing claim costs much larger than reported. there is lots of rest that insurers will grow their way out of financial trouble hoping or gambling for survival. this history in context co-op's financial strength and potential

adverse consequences of rapid growth should have been paramount especially given slow development of information on claims. they proved co-ops award applications included detailed business plan feasibility studies including actuarial projections of growth profitability and abilities to repay government loans rate originally there start up loans were recorded on their financial statements but to me state predatory requirements solvency loans were treated as surplus notes. subordinates counted as capital for the purpose of meeting regulatory requirements. actuarial analyses supporting solvency awards disbursements for line of pricing cost enrollment assumptions over longer rise and the analyses are reviewed contained what i would consider modest stress test. they did not combine or consider much higher than projected enrollment combined with worse than expected claim costs to the baseline pricing assumptions however did -- sicker

population. safer this morning some co-op's experience vastly larger enrollment than projected greatly increasing their need for capital. the should have been a cost -- cause for lampett is co-ops generally have low premium rates compared with competitors. other co-ops generally with relatively high premiums and low enrollment and 2014 bits am co-ops continued rapid growth in 2015 further increasing their need for capital. some with low enrollment reduced rates and grew rapidly in 2015. six co-ops were approved for 355 $.5 million in additions to solvency loans in the last few months. three later closed in regulatory takeover of co-ops after disbursement of this additional 32.7 million dollars solvency to produce the denial of a late october press for another

55 million. the helper pug of new york scott for 2014 which was tonight following cms approval of an additional 90.7 million in september. the additional cells a loan exhausted $2.44 billion in funding. cms did not have the funds to improve additional requests for co-ops and the health republic or any other co-ops. with state regulators approval however cms produced seven co-ops to start up loans to surplus funds that they could be counted as capital for meeting target the requirements. a total of 82-point $9 in startup funds to surplus notes before their closure. cms also accelerates disbursement of solvency loan funding to many co-ops during 2014 and 2015. a couple of quick comments on

growth. by september 2014 company opportunity helped over eight times the originally projected the original enrollees for 2014 of 14,000 more enrollees after projected for 2020. they generally have the lowest rates in nebraska and the lowest rates in the iowa small group market in the lowest rates in the iowa individual market. regarding new york health republic of new york in june 2015 alone was over four times the base point 2015 projection over three times the projected high enrollment scenario for 2015 and more than double the baseline projection for 2020. health republic generally have the lowest premiums in the region that operated. it received increases for 2015 but it's rates still generally remained low compared with

competitors. i have done some analysis on the wrist stabilization programs. if they had received their risk order requests at the time they would have lost $50 a month for the entire 18 months of operation basis without risk quarter receivables they were losing about $150 or $150 per month. updated financials provide to the subcommittee. assets were less than other obligations for seven of the 10 and only marginally greater than those obligations than the other three states colorado and south carolina fund assessments. the program experience raises a number of key questions down the fundamental program.

i will conclude with these. was it appropriate and prudent to push for -- and 2014 as opposed to waiting a year to selling tens of thousands of policies and uncertain environment. second why would a low premium rates charged by some co-ops not use as a signal to trouble from the get-go especially when their plans and rate filings anticipate a relatively high provider reimbursement and third why were some as opposed to having formal or informal limits imposed by cms or state regulators and forth why didn't cms terminate low agreements when confronted with enrollments far greater than projected and early evidence early operating

license. my time is up. my time is up so happy today questions. >> thank you dr. harrington previewer right on time for what we asked you to do. you have ascii questions one nay of which have been discussed today with hhs. i would like to do my colleagues further questions so they would come back to the hearing. we have a boat at 11:30 so we'll try to keep questions and answers a short as possible. senator johnson. >> thank you mr. chairman. dr. harrington i want a good basic economics on this. let's talk about premiums but real people pay. we have janice from wisconsin who before the health care law was implemented was paying $276 a month. as he or she is paying $787 per month. i held a california town hall yesterday and i don't have permission to usage him as man but he was claiming he was paying $40 a month now is paying a thousand dollars per month.

these are for lesser policies. their deductible for higher and their co--- previous dryer. as i said in my earlier question of private sector it was obvious what was going to happen. you use the word inherently vulnerable. was obvious what would happen. the experience people have argued had a skyrocketing premiums visa been constrained because it's co-ops correct? in a markets there and oppressing their premiums which pressures on the other health insurers so anything premiums have not skyrocketed but would you agree with that? >> i would agree that at least in 2014 and 2015 the co-ops had a restraining influence on premiums. i'm not sure about 2016 because i haven't reviewed the filings. >> the game is a breakdown but you know going forward we know how these losses are going to be

recovered. certainly the american taxpayer lose the loans but also the pains to providers these losses will be spread over other insurers in the states and their reaction is going to be what? >> i think the big issue if it is becoming more apparent that the cost of the new risk rules under the affordable care act is higher than anticipated and that will produce higher premiums and the rating restrictions in the affordable care after going to lead to especially high premiums for certain cohorts. >> described in greater detail. what do you mean certain cohorts? >> on thing that has happened just prior to the affordable care act bringing restrictions people in their 50's and 60s that were in relatively good health were able to get premiums on a risk-free basis guaranteed renewable covered so they rates would go up with deterioration of the health status. under the new regime if you are not eligible for any kind of the

subsidy you now have to buy insurance in a risk pool that limits the amount that can be paid based on your age but nonetheless a risk pool that includes lots of unhealthy people. more evidence will show a healthy people that try to buy coverage outside of that employment dates market going forward if they are in their 50's and early 60s probably are going to face higher premiums than what they would have prior to the fordo care act so that's one of the cohort. the other cohort would be young people that are facing higher premiums. >> we have seen rates in wisconsin a 27-year-old on average have seen a 127% increase in a 27-year-old female has seen dramatic increases. let's talk about adverse selection and gaming system that we have heard anecdotal reports of people. one of the reasons you need a high level to participate in

dental insurance for example is otherwise people would just delay getting dental care until they have one month worth of renaming get all the care and then they stop coverage. ..

>> they get the pre-paid tax credits and get tax credits or deductibles and it is shown $750 million in pre-paid tax credits were paid on behalf of individuals who in the end were unable to prove their eligibility. just speak a little bit to that in terms of -- again, those are totally predictable, correct? >> i haven't studied the particular issue. i am familiar with the reports. i think any time you impose a gigantic with complexity there is going to be many slips and unintended conscioequencconsequ. >> i know one of the reasons people passed obamacare is they hated the idea of anyone making

a profit off health care. i want to go through the figures. in 2012, america spend $280 b l billi billion. i am looking at the profitability of the top seven companies in health care and profit 4.4 after tacx. take 4.4% of a trillion and that is about 45 billion of profit out of an industry, a sector of the economy that is $2, 080 billion large. does that seem like profit to allocate the system and do the things the free market does. is that out of whack? >> no. >> what is the result of having

government come in and stamp out 1.6%. that is what the profit represents. 1.6% of total health care spending was profit and in order to wipe that out; which is the goal of obamacare, take a look at the dislocations. we have $276 before obamacare and $870 now for a lesser policy is what people are paying. in the end do you think it was a damaging law to people? >> i approached the law when it was enacted. i think there was better ways of promoting the growth of insured people in the united states than passing this law. >> i would agree with that assessment. thank you, mr. chairman. >> thank you, chairman johnson. senator lankford. >> thank you, mr. chairman. i appreciate you being here and bringing the facts to fair. like others on this panel i will tell you person after person in my state oklahoma talk about the

same issue. they are spending more on health care than every, their deductibles are high, all of their premiums are going higher, they have fewer options than before. the hospitals have more benevolent care than in the past because though they have "insurance" they cannot afford to use it. they are failed state exchanges from around the countries in states that tried to start the process and that is millions that have been lost in the process. then we talk into the coop issue. and there would be non-profit institutions that would stand to compete and in theory they would be non-profit insurance institutions that were created to compete in areas where there wasn't good insurance available or not enough available. my initial question is did you find their coops to be in places where insurance wasn't available?

>> that is an excellent question. i have not studied that. >> my impression is they were starting in areas with good markets already. we put out loans and expected a 40% loss rate, which by the way, they are going after pay-day lenders with a 40% loss and interest rate they are putting down, and for whatever reason they thought that was a good idea to do this with the coops, which is baffleling to me. but they seem to have this unique challenge in places they were in and i am trying to determine what happened here. when the coops came in and gave arbitrarily low amounts that were not business possible and it has been proven by half of them failing and the rest of them struggling. they put out a pricing strategy. other companies in the area,

other insurance companies, had to compete with the lowcast arbitraries that were not sustainable and forced them down. i believe some of those insurance companies have left the market. many states have fewer insurance options with the coops leaving and other companies. do we know the connection or is it too early to know if the coops in the market were driving prices down and forcing other companies to compete and they have since left the market giving fewer options? >> that is a subject that needs to be subjected to high quality research and investigation. low prices in principle can have a negative affect on the market when they are written well below what the consensus estimate of cost s. i would add there was a lot of variation in 2013.

some are high prices and sold little business. so negative spillovers from pricing were not there in those cases. in a few cases where we had these enormous, explosive growth during 2014, i think it is plausible there were adverse affects in terms of pricing in the overall market that could have contributed to poor results in the overall market. we know when you have a new intern with no experience coming in with a low price someone should be paying close attention to their early enrollment and getting whatever data they can about early claims and asking the hard question of when is enough is enough. shouldn't we be putting a speed limit or brake on this enrollment so that you can not run up an enormous tab they cannot afford to pay. >> if the coops were competing

on a public market would they have been able to get these loans based on the model? cms testified that only 16% of the people applying got the loan which gives the impression we were limiting. 84% were turned away so we were getting the cream of the crop and more than half are out of business now. my question is of the business models that were presented could they have gotten private funding? or are these individuals presenting a business model only government would have provided a loan for them? >> that is an important question. the business models i reviewed, i think it would have been really difficult to make a sell to any private investigators with those models. the private investors would be looking for something that is disruption and beneficial to have a higher model going forward and i think that is unlikely.

a lot of significant private money has gone into the health insurance startups and some of them have reported pretty large losses and 2014 and 2015 so private investment doesn't have a monopoly here. >> private investment is tracking the day to day operations figure out if you are going to make it or not, keep dumping money into this or force changes internally to be successful. >> yes. and private investors will be paid over time based on clear evidence the performance is being met. if there are warning signs things are problematic it could get shut off. >> rather than changing the rules saying you cannot use this and count it as capital and assets and the rules change. they will not do that on the private sector? >> no. >> the class act was a long term care insurance program created by obamacare. let me ask another question. at the very beginning to was studied to be implemented, it was in the law, do it.

secretary sab came out and said this is motsustainable and if we try to implement it can can't be doeb on this model. congress agreed and they pulled the funding and the program went away. they saw the long-term care insurance in place is not sustainable, studied and pulled it. the coops they went after, started it, and put two billion into something that we are now discovering is just as totally unstuta unstustainable. what is different about the class act? >> that is a difficult question. i think one difference is with the class act you had various independent government agencies doing the projections and forecast with an eye toward budget implications from the beginning and recognizing that

the program had to be financially sustainable in order to go forward. with the coops, there may have been more uncertainty in the short run about what was likely to happen. and the coop business plans were companied by feasibility studies by major firms and advisors that were putting out scenario suggesting they might be libel. >> thank you. i yield back. >> thank you. and thank you for your help on this and your expertise has been helpful. one question you asked in your testimony that i would like you to answer is should they have launched these at a time when there was so much regulatory uncertainty or should they have waited a year? >> there was a concern if you miss 2014 you would miss the

boat and my opinion is it would have waited more sense to wait a year, if not longer. >> yeah. it was a lousy time to start a health startup in any category and certainly in the insurance sector. you talked about enrollment being a key determinant of performance. would you take about that for a second? you said there should have been speed limits in place and deviation from what was projected both over and under. the over enrollment multiplied the problem. and yet there were no red flags appare apparently or no reaction by the government to pull back the taxpayer support. can you talk about why that is important? >> it is important given the history of insurance and mr. the pricing problem.

you can sell insurance at low prices because the claims don't come until later. you have to be on your toes to guard against the under pricing and rapid growth. given that context it made sense to be on top of enrollment. i was puzzled by the lack of public discussion as things rolled out and the lack of commentary about risk in this market. it is as if no one understood insurance companies do fail and those that do have under pricing. that background and context and lack of incentives for safety given the type of government funding should have overall made the environment be one of much greater caution about how these things would be permitted to grow. >> again, just to be clear, as compared to some of the testimony we heard earlier there was information. we had monthly and quarterly reports including on enrollment. let me ask you this.

it is a speculation on your part but why did this happen? it was so obvious that the underpricing and overenrollment and other business factors were problematic. there were reports and data. why did they keep putting money out the door and not take the obvious step which was to cut the losses to the taxpayers and the families that ended up loosing health care insurance and some who are facing the risk of having providers have claims against them even though they paid their premiums. the providers were not paid because the companies went insolvent and now the consumeer -- consumers are told they may have to pay for what the companies didn't when they were required. how did this happen? >> i think partly is even though you are getting information the accuracy of the information

about claim cost wasn't there. there was a much bigger bill than what was anticipated. it seems there was a strong commitment to the co-op program. a strong belief this model would work in an environment where insurance companies were making excessive cost in markets that were regarded to not be competitive. there was a commitment to the program and the success of the program. having said that, i am point out once you get information a company might be in trouble, there has been a fine line that regulators have to draw about doing something that definitely will put the company over the edge or giving it a little more runway to try to work things out. in those scenario, when you give a little more runway to let companies work things out, you want to make sure they grow, if at all, at an orderly pace. you want to make sure they have

the speed limits. the last thing you want to do is provide funding to enable growth when you have soft experience about claims experience at that point in time. >> given your academic background and lots of experience here i respect what you are saying and i think you are right. there was an idea ideology and a commitment that blinded folks. it was a commitment to co-ops or against the insurance companies they felt were making excessive prauc profits and i think it was to get the numbers up in obamacare which was a desire by the white house at the time and continues to be. so i do believe we have to learn from this. we have to come up with ways to ensure that we are not going to lose more. hemorrhage more taxpayer dollars.

1.2 billion appears to be lost at a minimum. we talked about that and couldn't get hhs to acknowledge that. but when you look at it the companies who have to repay that have assets far lower than their liabilities even taking out the loans and getting the money they owe the federal taxpayer. and not a single one paid a penny in principle or interest. so i appreciate your focus on this. i hope you will continue to work with us on trying to figure out moving forward how to avoid this problem going further and how we deal with this problem we have in some states where you have consumers who actually might get tagged with additional cost. they lose health care, have a dislocation, and they are now looking at the possibility these claims might come back on them. to you have final comments before we go to our vote on that

or other topics? i want to thank you for your willingness to come before us. any final thoughts? >> no, thank you for allowing me to testify. >> thank you for your good work in this area. it has been helpful to have you. we will give additional questions -- >> just to thank you for holding this hearing. this underscores what a spectacular failure this effort was. you had states that know how to do these things, regulate, prevent insurers getting into too much trouble. if they start getting into trouble how to resolve them and you have the arrogance of the federal government walking in and spending 1.5-2 billion in support of these things. this is incredibly important hearing and we are not getting the press attention to what a spectacular failure obamacare is. how couples lost health care plans in high risk pools they could afford.

premiumed skyrocketed and out of pocket max skyrocketed. i hope he learn lessons. i am not convinced we will but thank you. >> thank you for the witnesses again. dr. harrington thank you for your expertise and thank you ken senior mccaskill. we missed having her here today and look forward to her return soon and her good health. i will say we talked a lot about how this money was lent to these dozen co-ops that failed and others saz you have said dr. harrington are in big trouble and at a minimum 1.2 billion in taxpayer money that is going to be lost. it will be more than that at the end. we all know that. there was not corrective action taken. in some cases not at all.

in some cases it took more than a year. what we are looking forward today is someone to take accountability for it. we heard a little of that and i appreciate it. but it wasn't the fault of the consumers, the states, but the fault of hss and the way the program was structured and then the lack of adherence to the basic requirements in the load agreements. so i would hope that we will learn from this. and avoid further disruption and the risk of having to pay more. there are claims from our analysis that could be brought against consumers which would be adding an additional insult to the taxpayers who have already been out so much money. this hearing record remains open 15 days and additional questions and comments by subcommittee

members and with that we are adjourned. [inaudible conversations] [inaudible conversations]

is >> this year's studentcam documentary was our largest one. 6,000 middle and high school students took part in alone or in team of three. we received entries from schools as far away as taiwan and the united arab emrites. now it is time to reward the prize money.

for this year's contest students were asked to produce documentary films using the road to the white house campaign. students told us the economy, equality, education, and immigration were all top issues they wants presidential candidates to talk about. we have one grand prize winner and four first place winners and 150 prizes in all. there is one fan favorite selected by you. we are happy to announce the top prize winners. our grand prize winner is olivia hurd, a tenth grader from jenks, oklahoma. "up to our necks" addresses the debt. >> the united states is 1.53 trillion in debt. that doesn't happen overnight people. how exactry did america get up to its neck in debt? every year a budget dealing out

large sums of money to three main areas. the first is discretionerary spending that received 1.1 trillion in 2015. the second section is mand tor that received 2.4 trillion in 2015. lastly is the interest on the federal debt which received $229 billion. >> as your grand prize winner olivia hurd wins $5,000 for her documentary and the c-span bus travels to her school to present the check for the grand prize. our first prize winners from middle schools are sisters mia and ava lazar. mia is an 8th grader and ava is a 6th grader fromblack. >> you see fliers in the mailbox and see advertisements on tv and the radio. this is the way paul tikz

politicians try to get aelected. every day congress is in session there are fundraisers all over the country. in 2012 the presidential elections cost 2.6 billion. you can't help but wonder where all this money comes from. >> 12th graders griffin olis, michael frazier, and zen all attend troy high school in troy, michigan and they documentary is called "the 1%" and it is about the water crisis. >> leaked e-mails and terrorism are important topics but the issue that will affect most americans is the issue of the "the 1%." >> one percent! >> no, not that one ercent. this one percent. the shining blue jewel of the united states. the great lakes.

>> truly one of the unique resources in the world. the largest fresh water resource in the world. >> our studentcam first prize winner from the high school west category is this 12th grader and 10th grader who attend metropolitan art institute phoenix. rethinking reform: prisons in america is their documentary title. >> the prison systems around the united states have changed radically in the last 20-30 years. let me show you arizona. 20 years ago our prison population was about 20,000 people. now our state prison system is over 40,000. the composition of the prison population has drawmatically changed. >> finally our fan favorite was selected through your online voting.

we are happy to announce the winners receive an additional $500 our first prize winners for high school east. ben miller, william eder and charles degree from montgomery high school in silver spring, maryland. their documentary tackles the topic of highway and bridge funding >> americans love moving around with fast cars, big trucks, road trips, 70 miles per hour speed limits. we drive further and have more cars than any other country. we tend to take what we drive on for granted. two million miles of roads and 600,000 bridges are aging, congested and often dangerous. >> thanks to all of the students and teachers who competed this year and congratulations to the winners.

all of the winning entries are available online. >> here is a headline from politico. obamacare saying he is not responsible for the rise of trump. while he acknowledged his buty as president to bridge divides between the american people and chief executive obama found it novel the gop would argue his efforts over the last sever n years have led to trump's march to republican nomination. i will not validate the notion that the republican crack uptakeing place is a consequence of actions i have taken the president said. that is from politico again. the president made those remarks in the rose garden with justin trudeau, canadian prime minister who is vis