national security professionals in both parties. >> 12 out of 23 health insurance co-ops have announced they will be shutting down. a house panel investigates those closures next on c-span. patrick leahy and later, the conversation about refugees coming into europe. every weekend, the c-span network features programs on politics, books, and american history. as a nation commemorates veterans day saturday, starting at 11 a.m. eastern, we will be live from new orleans -- as we look back 70 years to the war's end. we will tour the museum exhibits and take your calls and tweets. starting this week and every sunday morning, our new program, road to the white house rewind takes a look at past campaigns

through archival footage. this sunday will feature ronald reagan. and on c-span saturday night at 8:30, the steamboat freedom conference debate looks at the effect of legalized marijuana in colorado and other states. sunday evening at 6:30, coverage continues with former maryland governor and presidential candidate martin o'malley. he will speak at a townhall meeting of the university of new hampshire in durham. on c-span2 book tv, starting at 4:00, it is the boston book festival -- featuring nonfiction presentations. including jessica stern on isis. iraq and on two afghanistan war veterans. connectionsn the fiction writing and life. sunday night, a book discussion

with former first lady of massachusetts, anne romney. about her journey with multiple sclerosis. get our complete schedule at c-span.org. more than half of the nonprofit health insurance companies created under the aca have failed. :andy: and several of -- mandy and several others testified -- mandy cohen and several others testified.

>> experimental programs that awarded government loans to non-profit health insurance. plans, a that sold the total of failed hav 12 have fai. pay any-ops must outstanding debts or obligations before repaying the loan, it is unlikely the federal government will ever recover these funds.originally intended to create competition among insurers, they are structurally flawed. as early as 2011, we predicted that 26% will go unpaid. in 2012, the office of budget management estimated taxpayers would lose 43% of loans on the program. the following year, and report expressed concern about the financial stability and the inability to repay the loans. even staunch supporters of the

aca predicted it would fail. senator rockefeller back in 2009 said there has been no significant research for the broad expansion of health insurance. what we do know is that the model was tried in the early part of the 20 century and largely failed. the senator also called co-ops dying business model for health insurance. despite these widespread concerns, we awarded $2.4 billion to 23 co-ops in three states. it does not include the co-ops that failed before single persons. cms awarded a co-op in vermont over 30 million taxpayer dollars. license, and was called fatally flawed. the federal funds that have been spent were never recovered. the next co-op to fail was a cooperative an in the brassica.

nebraska. it is seemed to be a success. however, premiums were too low and it was concerned about its ability to pay claims providers. upon liquidation, it had operating losses of $163 million. we will be joined by senator ben sasse who had to run up to vote on the senate side. but he will be here to talk about the program's in nebraska. cms the end of 2014, awarded money to bolster six co-ops. 3 has since closed. will doubtful the cms cover any additional funds. in some cases, low enrollment was to blame. in other cases, premiums were too low.

rushdit issued before the of co-op closures found that 21 of 23 incurred net losses. in 2014, net losses were estimated to have an ability to repay the loans. less money was paid into the risk program that was expected. insurers ended up with 12.6% of the payments they were anticipating. given the dismal financial situation, co-ops hoped risk corridor payments would bail them out. it was always intended to be budget neutral. only what was paid into would be paid out. a spokesman from cms confirmed that a policy modeled on the risk corridor or, which was supported on a bipartisan basis,

it was intended to intimate as designed. we are here today to hear what went wrong. will you from individuals on the ground and state regulators -- we will hear from individuals on the ground and state regulators. we will hear from individuals who established co-ops to keep them afloat. we will hear from auditors of the co-ops. it was because the financial challenges. we will hear from cms about what went wrong and how we can fix it. the goal of recovering taxpayer dollars to the co-ops. i would think all the witnesses testifying today. now, magically appearing, the ranking member. >> i'm sorry that this important hearing has impacted by the vote today. because it is an important hearing. from day one, i worked with the state of colorado and the ministration to help our co-op

succeed. across the country, the co-op has provided consumer coverage options and have injected competition into the health insurance market. yet a number of co-ops are facing financial challenges, and unfortunately they will not be able to compete in the 2016 marketplace. we've all seen announcements in the last two weeks about co-ops closing their doors, including the one in my home state of colorado. itm very disappointed about being shut down. it faced challenges, but it also served a critical need for r 80,000 coloradans. it was on his way to fiscal way toty -- on its fiscal stability. something equally to blame is us, congress. i believe that congress has not worked as a partner to support

the emerging co-op market that is attempting to bring more competition and choices to a market frequently dominated by one or two insurers. i do wish we had saved the co-op in colorado. but we cannot do that, i hope we would use our time productively today to make sure the remaining co-ops are successful. unfortunately, i know better than that. i know that in hearing the subcommittee title with obamacare in the title, it will somehow be a productive endeavor. we will not spend the next several hours learning from the experts about the challenges will begin to improve them, we could be doing meaningful oversight. instead of taking 61 votes to abolish the affordable care act. and instead, my colleagues on the other side of the aisle prefer to sit on the sidelines and root for the law to fail. congress has squandered the last

five years by celebrity every in some of my we -- colleagues admitted harder to for constituents to access care. the aca is far from perfect. but these bonds in the road -- bumps in the road should move the ball forward. work can do that, we will together to improve coverage for millions of americans. senator, id, the guess he will testify, he said "this is not about spreadsheets, it is about people. " i cannot agree more. it is about people before the aca faced skyrocketing costs. it was about people at the mercy at the insurance of health

insurance companies could raise rates or deny coverage for arbitrary reasons to protect profits. people who feared that uninspected medical costs would bankrupt them, but thanks to the affordable care act, they do have to face these uncertainties anymore. americans are no longer one accident or illness away from financial ruin. our constituents should be able to depend on congress to work productively in a bipartisan manner to improve the health care landscape in this country. that is what i hope to do today. i'm going to use my time to hear from the experts before us about how we can make the remaining co-op succeed. frankly, as i said earlier, i have some hard questions for cms. i want to know what went wrong with the risk mitigation mechanism that were designed to promote competition and ensure stability in the insurance marketplace. i want answers about how the co-op wound owing money to the big insurance companies through risk adjustment programs.

i want to understand why cms over the summer said risk corridor or payments would be sufficient. lesson three months later, they revealed they would only be up to pay 30% of the requested amounts. in short, i want to know whether cms is thinking outside the box. coming up with a path forward to support competitive ingredients. thanks to all of our witnesses for coming today. thanks for waiting while we went to vote. i think we will wait again -- you will be waiting again while we go back to vote. but your expertise will improve the law and the lives of our constituents. and i hope the members on both sides of the aisle have come ready to hear your ideas. so we can finally have a productive hearing on the affordable care act. i yield back. >> mr. mckinley is recognized for five minutes. mr. mckinley: i agree with a

lady from colorado that this is about people. the failure these co-ops have had have had real-life consequences. the collapse of the west virginia kentucky co-op leaves 56,000 policyholders searching for coverage before the close of the enrollment. period. seven years ago, coal industry was booming. but now fast-forward to 2015, the and employment rate is the fifth -- the worst in the nation. 45% of coal miners have lost their jobs. and thousands more affiliated with the coal industry have lost their paychecks. these individuals and their families are hurting. they found a piece of mind in knowing -- peace of mind in knowing their health care was secure. unfortunately, the comfort and not last long.

families enrolled in the west virginia and kentucky co-op had the rug jerked out from under them, because the cms did not do its job. address the red flags that were raised after the iowa, nebraska co-op failed. instead of hitting because millionthey awarded $50 in additional funding. 12 of the 24 co-ops have already failed. this year, i didn't ask, who will be responsible for the medical costs incurred? who will pick those up? will cms gives much ability to families? , with only one statewide exchange available in west virginia, one statewide exchange -- senator this will now result in families paying 120% higher premiums than they were the last year.

is that fair? this issue is not just about another failed obamacare program costing taxpayers in excess of billions of dollars. it is an opportunity for us in this room and in congress to express our compassion and empathy for the hard-working families that have lost their sense of security. i look forward to the presentation today. i yield back the balance of my time. >> dr. burgess will take the rest of the time. dr. burgess: thank you for the recognition. i think it is important we have this hearing today. there is a lot of policy in the affordable care act. a lot of it was bad. and the co-op program was no exception. it has wasted millions of dollars, suffer from a lack of oversight, and created and stability for millions -- instability for millions. it was unsound from the start, another example of the

administration's desire to conduct dangerous experience with health care. let us not forget that the themate protection is insurance that their health care will not evaporate into the night believing them without the coverage on which they rely. at last count, 12 had shut down. the rate of failure continues to accelerate. in fact, the subcommittee staff struggles to finalize materials for this hearing because co-ops were failing and announcing failures faster than they can announced the memorandum. we will hear from witnesses today through the center for medicaid and medicare services. they continue to stand in the way of sustainability. so we should not stand by as more and more dollars are lost. and more are invested in failed experiments, and millions remain

at risk of losing their insurance as coverage for co-ops close and continue to close their doors. thank you mr. chairman. i yield. >> thank you. i want to thank our witnesses, especially i want to thank the commissioner from tennessee for joining. we are fortunate to have you in our state. and we are fortunate to have your guidance, and we look forward to what you will tell us about the failed co-op that we have had in our state. we also appreciate cms taking the time to be here today. there are answers that we need as we conduct our oversight and due diligence on the system. mr. chairman, i yield the time back to you. >> i now recognize as to alone for five minutes -- mr. polone for five minutes. dramaticallye change the health care landscape in this country. the law has been a historic

success, with access to conference of health care in reality for the american people. before the affordable care act was passed, the insurance system in this country was broken. it was a system with rapidly rising costs, gross inefficiencies, and painful inequalities. a headline in february 2010, month before the law was passed, declared that soaring premiums were unsustainable. up to 129 million americans could be distributed against for pre-existing medical -- could be discriminated against for pre-existing medical conditions. many plans lacked important benefits. these are no longer true. people who were previously deemed uninsurable because of a pre-existing condition are finally getting coverage. today, insurers cannot cancel a policy because someone comes ill. women are no longer discriminate

against. the co-op fill a critical role in this new post-aca world. they put choice in the consumer s' hand. they foster competition in the market place by bringing down rices. they do exactly what we had in mind when we passed the law. today's hearing should be an opportunity to examine how we can ensure the remaining co-ops succeed. we should be talking about how to infuse competition to bring premiums down. we should be figuring out ways to make sure our constituents have access to affordable health care. but i' this committee has had dozens of hearings since it was passed into law. they have only one purpose -- to undermine the aca, regardless of our people is actually helping. the highlight the flaws in the program. i look forward to having a hearing where we can

applaud. we should be taking the opportunity to do valuable oversight. has neithersight served to enlighten or improve the law. it is on the opposite. in short, it is credibly frustrating your republicans criticize the law without offering productive ways to improve it and get better health care to those who need it. with over 60 votes to repeal are undermining, the record is clear that most in the majority would rather root for favor. many of my colleagues on the other side of the aisle lament that in the closing of the co-op, many beneficiaries will now have to find new policies. my republican colleagues are crying. mr. burgess in texas, why don't you get the governor and the state legislature to expand medicaid? that might help a lot of people. or ms. blackburn, although she did not bring it up today, i usually hear about. the fact of the matter is people

that signed up for the co-ops today had no insurance prior to their existence. where are the voices of concern when people cannot afford insurance or were uninsurable? because the child had a pre-existing condition? it is time to have a productive conversation about how to improve the lives of our constituents. let us get to the place where he can work together to improve the law. i yield back. >> the gentleman yields back. we will get your testimony, if you do not need the full five minutes, you do not have to use it. we will come back and ask questions. when so doing, there is a practice of taking testimony under oath, do any of you have any objections? you all answered no. the chairman advises you that 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 are joined by senator ben sasse, who taught mr. fortenberry everything he knows. does make sure you turn your microphone on. senator you are recognized for five minutes. se: thank you for inviting me to testify today. i appreciate the opportunity to think about how we should respond to the failure of co-ops in 13 states. i'm tempted to joke that two have failed while you were offloading. problem. before we dive into the details, i suggest we take our partisan hacksaw. i'm a fierce opponent of the

informal care act. i know many of you might be strong supporters of the aca. but that is not what you're hearing is about today. this is about getting to the bottom of what is actually going on, why so many of our neighbors are losing their health care coverage. the tumultuous failure of the co-op began in my own backyard. co-opportunity.-oppor i want to speak to two issues. first, while there is much we need to understand, we would suggest a systematic failure of the co-op program. and an even greater bureaucratic incompetence. the lack of transparency is harmful. in the department of health and human services owns the american public answers. our constituents deserve nothing

less than a full accounting of what is happened. the co-op program was included in the aca to purportedly foster competition by federally funding the startup of 23 nonprofit health insurers. to get them off the ground, taxpayers loaned them to $.4 billion. ther less than two years, program has a failure rate of over 50%. the first failure, headquartered in iowa but majority of subscribers in nebraska, was arguably the messiest because members of the program lost their health plan in the middle of a plan year. co-opportunity have bee awarded millions of loans. in a garnered 10 times the number of enrollees and was seemingly successful. despite ample funding and obviously far more enrollees, on

-- onper 16 2014, december 16, 2014 -- 23, the iowa insurance commissioner deemed it impossible and sought liquidation. after just one year from the new not-for-profit insurer abruptly collapsed. this was a terrible midyear shock. these people were forced out of their plans and had to go through the grueling process of thcare.gov on heal all over again. so why did co-opportunity failed? curiously, nine months later, we do not have any answers. sadly, the messy demise was just the first of the dominoes to fall. now a total of 12 co-ops will be

closed by the end of the year. these 12 were awarded more than $12.1 billion in loans and had more than half a million enrollees. another failure is health republic of new york -- the largest in the nation. it received more in taxpayer loans than anyone. in late september, the announced they would be ceasing operations at the end of the year, but just last friday, the state health insurance regulatory body revealed the situation was actually much worse than have been understood. a review conducted in conjunction with cms now finds the previously reported findings were not an accurate representation of health republic's financial condition. the co-op is planning to close down as fast as possible, instead of being in business until the end of the year. that means that more than 200,000 enrollees in help her public will have to pick a new insurer and plan to maintain, as

well as planning for next year. the new coverage, which they now have to sign up for, will be expiring at the end of the next month. and they will have to begin the process all over again of trying to find a health insurer. it is eerily similar to what happened to the brascan's and iowans --nebraskans and i once. owans. with inaccurate filings on the new york co-op and with more than $1 billion in taxpayer loans out the door, there are more questions than ever regarding the co-op program at large. and if those that are responsible for regulating it knew what they were doing. i do believe it is essential that we answer some basic westerns, and all of us should be demanding that. cms awarded additional solvency o co-opportunity and

health republic new york. doubling down on the initial misjudgment by awarding additional loans, how to decide to make these loans? did they decide any expectation, or were they going to be used to loans?itional operating at substantial losses, one analysis measure the difference between the silver plan premium for a 27-year-old to the corresponding insurance market for all other carriers. co-opportunity in nebraska and health republic in new york and in kentucky they were pricing their products more than 20% below competitors. how could this be possible? should they have given more taxpayer numbers given the anomalies of the model?

moreover, have yet to address if and when taxpayers will be repaid for the loans that have closed. these are the types of questions that we should be providing to the american people through congress. why are they not? the lack of transparency thus far has been terribly disappointing. i started asking questions right after co-opportunity failed, without receiving a response to my question, i asked more when a second co-op failed in louisiana. by the time eight more had gone under, i elevated my answer. these are not partisan questions. i elevated my questions by pledging we would oppose the fast tracking of all nominations for the senate. since that announcement less than three weeks ago, four more co-ops have closed. still, we do not hear from hhs.

consumers of faith the disruption and the taxpayers that footed the bill deserve answers. cms needs to provide a complete accounting of what is going wrong, and i hope that starts today with your important hearing. thank you for the invitation. >> i thank you, senator. i think he will head back to the senate. we do appreciate your insight and persistence on this. we want to continue to work with you. >> let me just add, you do not hear my opening statement, i said the same thing as you did. this should not be a partisan issue. we need to figure out what is going on with the co-ops closing. [inaudible] you.ank we will now continue with the panel, next up is dr. peter the limb. your recognize 45 minutes. >> thank you for inviting me to

testify today. as the chairman said, i am president and ceo of evergreen health co-op in maryland. i also serve, as to all of the ceos, is a board member for the national alliance of state health cooperative. in every city opportunity to appear before you today -- and i appreciate the opportunity to appear before you today. as several of you have said, while many of the elements of the aca have engendered significant is agreement, the notion of establishing local consumer driven and innovative options, while enhancing competition in the marketplace, should be appealing across the ideological spectrum. the question we now confront with remaining 11 co-ops, how can we succeed and how can taxpayer investment be preserved? unlike the difficulties experienced by many others in their first two years, evergreen health in maryland is strong, due to our quick and nimble response.

going into the current open enrollment, started a few days ago, we have a healthier than average population due to a diversified business. we have $35 million in assets. we have solvency inadequacy of 30%, and we haven't turning a profit. -we have been turning a profit. our strong relationship with governor larry hogan and his staff continues to provide us with significant support. evergreen, like all others, takes very seriously our obligation to pay back the loans granted to us by the federal government. however, regulations developed by cms at their discretion, not as required by provisions of the aca, are significantly impeding the ability of the remaining co-ops to successfully innovate and compete with a few carriers left on each state's respective

markets. i would like to highlight three solutions that can forge a successful path forward. these do not require an act of congress, they do not require additional appropriations by the congress. first, as the co-op successfully market themselves and capture large enrollment, they would need additional solvency dollars to continue to meet state regulatory requirements. however, as you know, cms has no additional funds to assist. the solution to this issue is to allow individual co-ops to raise capital. in fact, as you may remember, the ability to obtain private 1322 was onection of the measures by which the original applications were judged. cms should amend the loan agreements to allow for its ability in raising capital because the restrictions on obtaining additional capital are not required under the aca

section 1322. second, risk adjustment creates additional issues and formal is applied by cms are skewed due the benefit of pre-existing insurers with administrative ability and years of claims data. the solution? create arevise it to level playing field. third and finally, the risk corridor payments. a swift resolution to the current funding deficit for the program will go a long way to improving the balance sheets and long-term outlook. finally, we at evergreen health look at both sides of the aisle to recognize that the nonprofit member governed co-ops are trying to forge a new path to give consumers increased choice in their coverage. this competition has had demonstrable effects. the co-ops have brought innovative approaches. for example, evergreen health

offers a value-based product for diabetics in maryland. which removes virtually all financial barriers, co-pays, and adoptable's to services, medications, and care that is needed to keep a diabetic patient from developing a disease. in conclusion, i share the concern protecting the initial investment. the solutions i propose today do not entail an act of congress or any additional appropriations. a simply require cms, the congress, and the co-ops to work together to make sure the remaining 11 co-ops are preserved and taxpayer dollars preserved, as well. thank you very much. >> now we will hear from john, the vice chairman in montana. john: ranking members, neighbors of the subcommittee, thank you

for inviting me to testify. my name is john morrison. i was montana's insurance commissioner. i'm the founder and past president of the montana health club. inops into the marketplace 2014 and are now providing coverage to a million americans. they are brought much-needed competition to the marketplaces, giving consumers more choices and introducing innovations. live, as aere i co-op. wyoming does not. in 2013, montana's average premium was 80% lower than wyoming. in 2015, with the montana health co-op, based on the second lowest of her plan, my tenant is 40%40% -- montana is now lower.

delta5, among states, the was about 13%. and over $500 per person for the year, based on the roughly 3.7 million americans and rolled co-op states in 2015, consumers in the states have already saved more than the total cost of the co-op program. moreover, when rates are lower, subsidy cost to the federal government are lower. taxpayers have already saved at least hundreds of millions in subsidies and would have saved billions of the decade ahead. one study published projected that if co-ops kept rates down by just 2.5%, the savings over $17next five years would be billion. so the question is not how much their cost the taxpayer. the better question, how much have the co-ops cost the consumer and the taxpayer for years to come? this question should be studied carefully.

so i think you are holding this hearing today. thetor kent conrad said lawn guys came out to kill the co-ops in their cribs. we need to get to the bottom of this and find out who killed these co-ops and how much americans will pay for that mistake. i got involved in the co-op project at the request of others, because it believed co-ops can break the inflationary spiral in our system. in my opinion, the following conduct of congress and the administration has contributed significant. one, the $6 billion in capitalization grants were changed to loans. two, they were prohibited to market. three, in 2011 when dozens of groups began meeting to turn them into a nation right reality, congress slashed funding from $6 billion to $3.4 billion. four, omb directed caps to

prevent co-ops from achieving 5% market share. five, in late 2012, 24 co-ops and signed loan agreements and more than 40 additional groups were awaiting review. congress responded by rescinding the main lending authority and prohibiting cms from operating. although co-ops and not yet opened doors, congressional committees attack them and tied them up with excessive document demands. seven, requirements were more than twice as high as other insurers. toht, they were allowed degrade the marketplace pool. toe, were prohibited access private capital. 10, in year one, co-ops were primitive from a limiting

enrollment. 11, many co-ops were forced to pay risk adjustment to existing carriers without consideration of the effect of early renewals or the co-op solvency requirement. congressrecently, reneged on the risk corridor. thanks $.13 on the dollar -- paying $.13 on the dollar. americans will pay more because these co-ops are closing. there are 11 co-ops remaining in 13 states. in my written statement, i make recommendations for measures that should be taken to maximize the chance for long-term survival. i hope we can discuss some of these options today. thank you, i look forward to your questions. was inme start questions. many factors contributed to the failure of the co-ops. lower than higher expected enrollments, restrictions on investors, rk adjustment

formulas, lots of those. let me start off. what are the top reasons the co-op failed in your state? >> thank you for your question. our co-op had challenges from inception, in that as the commissioner mentioned, going into a state without provider networks cause the company to have to lease those. there were a ministry of cost that were new to the startup, that any startup would have. but in 2014, we had disastrously low enrollment. truly come at most, 1000 people signed up for the co-op plan. mostly because the rates were somewhat higher than the leader and the well-established companies in tennessee. overcoming those challenges became extremely difficult. and is why we saw significant rate increases for 2015 and beyond because of the enrollees

across the market intimacy, we had higher-than-expected utilization, i claims costs, and insufficientl premiums. >> did they lose money with a lower cost of the premiums? >> yes, every plan on exchange lost. >> nationwide, a bid to get enrollees, they had to underbid. and we found out how many of them realized to make up for the losses by charging more. some survive, some did not. any copy not have accurately project the claims cost that were going to be coming from these enhanced if it plans that were sold in the state mandated affordable care act. some of our larger established companies could withstand losses and offer plans. but the co-op did not have the resources available. >> thank you. what would you say are the top

reasons that 12 out of 23 failed? internal problems, too. .ot just external >> i don't know specifically what happened with the other groups. although the risk corridor was clearly an issue, there were surprising payments and vice versa. >> mr. morrison? mean toison: i don't suggest that there were no mistakes made in management and co-ops. but if you look across the marketplace, what you see is that this is a very competitive marketplace. and insurance companies all priced aggressively. everybody lost money. the difference was that the co-ops were new, they do not have other business and surplus to offset the losses. and their capital was continuously reduced andc capped.

so sailing in a hurricane is accurate, we were pivoted from building a big boat -- we were prohibited from building a big boat. hearden that roll up, we it was the website, not a lot that was clearly rolled out. it was pushed out, more like it. with the web enrollment, what we found out, would you say it was not ready? more foresight should have gone into setting up for the co-ops were drawn into the hurricane? mr. morrison: to my knowledge, there's never been a situation where 22 new health insurance companies entered the health insurance market across the country in the same year, two years after they chartered their business. and so that was certainly a challenging situation. but it was much more challenging and indeed fatal for some,

because it did not have adequate capital to deal with the risks they were put into. >> mr. donaldson, can you comment on that, too? microphone. mr. donaldson: thank you for the chairman's question. my situation was worse. thoughtsne of the last to be approved before the termination of the program. as of the time frame from licensing in may to selling in october was so constrained the building our company was quite a challenge. i was initially very encouraged because the group that got approval from cms for co-op loans and from us for licensing was closely associated with our optional health plan back in new orleans. a maybe 100-year-old hospital and clinic operation, internationally respected. it had been in the health insurance business until the 90's when they sold off the health plan to humana.

so with their credibility and their experience and expertise, i was hopeful and optimistic that we would be successful. muchndsight, it was too into short. of time. other problems of and described a. >> another five minutes. >> this is what i was talking about in my opening statement. the aca started in 2010. then these co-ops started to later, heyears had a couple years to get going. it was not like we were trying to stand up 22 companies all at the same time we were doing the enrollment on the website and all that. this was staggered, is that right, mr. morrison? yes or no will work. the awarding of the loans was staggered. that is true. >> surreally copart of the

--soem we have, yes really, part of the problem is that there was no support as it went along. with that be a fair assessment? mr. morrison: in adequate capital -- >> that is kind of what i want to talk about. the co-op was initially conceived as a grant program. within the startup funding ultimately came in the form of loans. is that right? mr. morrison: yes. >> then congress cut the program. mr. morrison: then 22.4 million. fiscal cliff deal, which have against, it essentially blocked further co-ops. even though 40 additional groups had limited application. is that correct? >> very correct.

>> irrespective of that, 23 co-ops got established. and like all of the other insurers in the marketplace took into account the affordable care act risk stabilization program. the health insurance mitigate the risk of ensuring new losses. rs, but those do not seem to have worked. the risk ask you, adjustment formula have been problematic. as we have been discussing. a lot of the small co-ops are writing checks to large insurance companies under the risk adjustment formula. does that seem fair to you? >> it does not. >> it does not. >> i also understand because of congresses rule of budget

neutrality, the risk court or program has failed to help the co-op. this was the problem with the colorado co-op. we recently learned it lacks sufficient funds to reimburse. the first quarter program is only reimbursing the co-op at 12.6% of what they are owed. is that correct? >> correct. >> would it be fair to say the payments from the first quarter program would have likely made a different in keeping a lot of these co-ops solvent? >> i've read in news accounts from half a dozen or so co-ops that specifically turreted their closure to the government on the first quarter appointments -- risk corridor payments. >> what additional steps do you think we can take to ensure the

continued viability of the co-op? >> the revising the risk .djustment formula it was tweaked several times over 10 years. is probably most important to allow us to have the flexibility to go after private capital. >> mr. morrison? >> i made recommendations in my written statement but these ones that peter suggested are important. i want to say about the risk corridor that when you send boats, iss -- important there be a federal backstop. that's why the risk corridor payments were important. the first quarter payments -- corridor payments was promised repeatedly to the collapse and

the co-ops and other actuaries took that into account. >> you say we need a federal backstop. what's the public interest in having that? >> it takes a few years. we didn't know until 2016 what this risk will look like. the federal backstop allows room for aggressive competition. the co-ops come in and provide and add to that competition. everybody lost money. $2.5 billion the wall street journal said to doug days ago on how much all the insurers have lost. >> the co-ops didn't have any way to recuperate. were pricing competitively. everyone lost money but the co-ops need of the federal backdrop. >> thank you very much. >> thank you all for

being here. it's important to note any business can be successful at it had a federal backstop and somebody who was going to be there and people have grown quite weary of bailouts. talk about the enhanced oversight plan. was the tennessee co-op under an enhanced oversight plan? >> the verse notification we the tennessee co-op was on september 29 when we received a letter i have attached. what's problematic is that we were also in discussions with cms to list the enrollment fees for 2016. >> you are getting conflicting information. the enhanced oversight plan for the tennessee co-op included what? >> there were five pages of

issues in the letter that were identified that were areas the co-op needed to focus on to create greater financial stability and a better viability for their plan going forward. >> they were giving you conflicting information. you had this on one hand and this on the other. >> we were under the impression with thepressure stability of the co-op and week requested to list the moment fees by october 1 so the programming could be available for open and moment starting november 1. startingnrollment november 1. >> let's talk about the solvency. they converted the solvency loans in seven co-ops. the loans would artificially appear more financially secure. did cms approach you about converting those loans so the co-op would appear to have more

capital? >> cms indicated they were in agreement with that approach and the request came from our co-op itself. >> to recharacterize those lines. did you think it made sense to convert? a we decided it was not prudent course of action because you're not adding any capital or revenue to the benefit of the company. they are creating the impression that the debt could be subordinated in the company would appear more financially healthy. >> is a smokescreen type practice. the premium prices were appropriate and consumers were protected? atit's difficult to look

premium increases that have been approved in tennessee. has been mentioned today, we need companies to be able to make good on the claims. we took an interest in making sure premiums were appropriate. lot havehe cut a enough money to support consumers and pay its claims through the end of the year? that the claims will be paid through all services rendered through the end of the year. back to dr. murphy's question. you were talking about the enrollment. what was the projected enrollment?

>> i would have to research the number but i believe it was probably close to the 12,000-15,000 range for the first year growing among the 20,000 range 2015. >> their projection was 12,000-15,000 people and what they got was about 1000. >> that is correct. >> thank you very much. >> let me just get my questions out here. established co-op to do a number of things the private market have not done and specifically created to compete with large for-profit insurance companies and hopefully put downward pressure on premium prices and serve part of the

country with fewer insurance options. remind us of what the landscape looked like prior to the involvement of co-ops. >> in montana, the uninsured rate went up 20%. with the introduction of the co-op, the difference in average premiums between montana and wyoming went from a tin of being 13% lower to being 20% lower. we now have an uninsured rate is closer to 11% or 12%. many thousands of people are now covered who didn't used to have insurance. many thousands of people are now .ble to afford insurance

and consumers now have more choices. >> regarding what the landscape looked like prior to the affordable care act, most states markets for individual health insurance were dominated by one or two carriers that competed on how well they were able to screen and select people. they have little incentive to compete by providing efficient services and their focus was on introducing the risk of covering for him might have a high medical cause. that sounds like a bleak landscape. can insurance companies compete by denying coverage? andegmenting the market cherry picking to provide health insurance to healthy people and exclude or price up people with health issues is what was going on and that was happening in montana.

i saw it across rural america. >> would you agree? i agree but it's not my area of expertise. clerics is it accurate to say prior to the aca, many rural areas were underserved and what did that mean for montana residents? if they were unable to get health insurance, they were unable to get the health care they needed. care has health improved. blue cross blue shield, which is now owned by health , one ofvice corporation the blue cross corporate groups, still is the dominant carrier in the state of montana. their market share is much smaller now and consumers have the choice of the co-op.

there's more competition. clerics were there many rural residents being rejected for insurance are only being offered costly policies? found most of the uninsured were people who work full-time for a small business the greatest area of difficulty in delivering health coverage to people was through small businesses who wanted very much to provide health coverage to their employees. that's why we undertook a .rogram called insure montana experience,your have co-ops serve the rural west ? has it provided important competition and access to health care that previously didn't exist?

>> co-ops have a great tradition in rural america. take senator conrad when he introduced the idea of a co-app and talked about those people and are part of the country and that have longt used the co-op model for credit, andtricity, agriculture, other kinds of needs where they want to spread risk. >> i'm concerned we may again find ourselves walking adequate -- letting adequate competition in rural areas. thank you. i am a strong believer in competition as a way to drive down health care costs. i was a provider before a heart surgeon so i'm a believer in provider competition, including

price transparency, quality transparency, and other measures that help consumers know what product they are getting and help drive down cost. thatnk it's unfortunate we're in this situation with the whyps and we to figure out and what we can do to prevent the others from going under for the -- under. cms is an enhanced oversight plan to violate troubled co-ops. these plans have been deemed as burdensome. co-op been placed under an enhanced oversight plan? >> most of the co-ops have been. >> what kind of requirements do they put upon you based on that?

>> one is enrollment getting to 30,000. we will hit that by the end of december. transition.resolved we expect to come off the corrective action plan. d believe these oversight plan can be effective? >> they can be. >> it has certainly been a challenge for co-ops to face not only state regulation but several levels of cns regulation and congressional oversight investigation, which began before the co-ops ever opened their doors. there's no question administrative research has been distracted to comply with multiple levels of regulation that far exceed the regulation

of others. >> understood. a personal kind of question. creating more competition. if expanding the traditional health care private insurance market across the country rather than having essentially state-based, is that a concept that would work to create more competition? >> thank you very much. i would caution why republican colleagues who have made a strong push toward authorizing companies to sell health insurance on a national basis, which they can do already but subject to the individual states regulation. i would be concerned about a race to the bottom and the least regulation similar to what happened with aig.

truly -- i had a meeting with one of my delegation members this morning and passed on that advice. --o want to point out when tennessee is better served than louisiana at this point. their hmos are protected on a safety net. we have tried that in the past but unsuccessfully. the ranking member was talking about a federal backstop. in closing, please support this. it's served all forms of insurance. when i was asked to come to the oval office, he strongly

expressed his continued support for regulation of insurance at the state level. >> i expected. any other conceptual thoughts on that? the whole idea is competition for consumers to have more choice, to know what's the product is they're getting and help consumers drive down the cost. i'm a former commissioner and i testified in the senate small business committee about the hp -- ahp bill and i opposed it. >> by think we would have more interest in companies selling across state lines if we had uniforms single health benefit plan design. it's very difficult for a company to sell across state

lines and program their system to pay for different benefits. >> what you state laws apply? if you live in california and have a plan from a company in new york, which state law would apply? i appreciate all your comments. i yield back. under the affordable care act, congress limited to foster more competition among insurance providers to benefit consumers. this was one of the primary reasons behind the formation of the co-op and to some extent, they have achieved their goals. they have faced headwinds. i will like to understand how co-ops can continue to meet the original goal of providing the

public with more insurance choices and benefits through greater competition. for those who may not closely follow health care economics, why are co-ops and important ingredient in today's insurance market? orthe insurance markets locking competition to begin with and now we see in the news there is increasing mergers of the largest health insurance companies in the country. there are mergers at the largest hospitals in the country. the need for competition has never been greater than it is today. co-ops can come into the marketplace to have a fundamentally different motive. its not make as much money as they can. if deliver quality health care at an affordable price. that a guy's corporate decisions in a different way and that competitive influence can be very positive in the marketplace where they need in order to

is adequate capital. premiuman they keep prices in check? competitor, we have a big insurance company that is 75% of the marketplace and stop i want to point out a couple things about the co-op. we have gotten all sorts of great ideas and it's very consumer driven at the co-op. the program was meant to be. we are a nimble boat, if you

will. innovative things like our diabetic program where we get rid of all co-pays and deductibles for proven practices to keep diabetics under control. that sort of the sweet spot health care reform. how many americans are enrolled today? >> i am not sure. >> does anyone know? 400-something thousand. >> in the march 2015 press release comments and for the second year in a row, average inmium rates are lower states than those without. can you explain how what has actually happened, how have the co-ops affected the premium prices and plan choices in the states where they are operating? >> is being a new competitor in

a market. in maryland, where the first new commercial insurer in 25 years. . police cites another announcement that shows co-op states had premiums it percent-9% lower than in non-co-op states. is that accurate? were they able to drive down premium rates in 2014? >> the delta between the co-op space and the non-co-op space in 2014 was about 8%. apparently in 2015, it was more like 13%. the believe co-op split is significant role and there have been -- played a significant role in that. it is a question that requires further study because there are

other factors. >> and there are other trends right now. the health insurance industry is facing a wave of consolidation such as aetna and anthony are considering mergers. nthem are considering mergers. newly expect higher premiums as a result? >> competition drives lower prices. we think that's one of the reasons the co-ops were created and we take that mission seriously. >> thank you. we have work to do this -- to do on this for consumers. >> may i be excused? i have a flight that leaves in 38 minutes. >> good luck getting to the airport. you are excused. [laughter] thank you. and thank the witnesses for coming today.

a private sector guy that understands how you are supposed to make money in business and how you capitalize companies and how you fail or succeed based on your pricing and products and what you deliver to your customers and if you make money, you succeed and if you lose money, you don't. we're talking about co-ops and i am from new york where the new york co-op and its failure cost the taxpayers over $250 million. someone asked me would i be surprised we are here today, i predicted this over two days ago . i remember sitting down with insurance executives in early 2013 and asked them how they would be pricing their products for obamacare. of thoseckly came out meetings is they were going to underprice their products because of the risk corridor doors. doors -- corridoors.

a third of our subscribers will be young and healthy. i said that's not going to happen. what's going to happen when a dozen? we lose money and the government will make it up. this is set up for failure from winer and stop -- dave -- day one. when you spoke about it not being capitalize properly, would you agree if the co-ops made money, we wouldn't be having discussion? you don't need more capital if you make more money. >> i would agree. >> so we are here because obamacare was set up for failure. it was set up to encourage low premiums to deceive the american public.

that's when we got here. everyone knew these projects were underpriced and they would make it up on the backs of the taxpayers. that is why we are here today. the problem is the product meant you lost money and now the complaint is we didn't -- we cut the money from $2.4 billion. 60 co-ops.d on they got every dollar they were supposed to get. they would be 50 co-ops. i have to categorically disregard your comment that had we thrown $6 billion. that was never the intention. the $6 billion was for 50 co-ops. he 23 were not harmed in any way. they fail because the product .as underpriced

obamacare was meant to deceive the public. all i can say is now we are a couple years in and the deception is obvious. i don't know what the polls would say but i think obamacare now would be in the 20% range. and we have these problems. new york -- on hundred 50,000 members on the new york plan was their insurance in two weeks. we are forcing private companies to take those policyholders for 30 days. the blue cross blue shield. the take these 150,000 people for 30 days coming in the losses, and have them set up for new plans. this is obamacare at its worst. it's not surprising to me. i saw this coming three years .go

if you underprice your product, there will be a price to pay. this product was deliberately underpriced from day one and is me,ople say woe that's because even expected to lose a lot of money. it didn't happen. i feel sorry for the american taxpayers during this financial burden who were deceived from day one and it's all coming home to roost and we see it every day with the price increases and policies. not surprisingly are not doing fine here. the project was never priced correctly. >> can you give an answer with regard to would you have priced it differently if there were not

risk core doors -- corridoors. conservatively and we're making a profit the last three months. was that a backstop you saw? >> i don't know i would characterize it as a backstop but if the incentive to appropriately price alumina did what any excess profit needed to be paid back. unless the entire market priced appropriately, your pricing less else out of the market -- pricing yourself out of the market. >> i think the witnesses. this has been a very constructive hearing and dialogue has been good. there are a lot of different experiences with co-ops and a lot of different reasons they've had problems. my co-op in kentucky did not

have enrollment. the initial was 30,000 enrollees, it peaked at 50,000. itselfd not sustain believe gone from losing $50 million to losing $4 million in 2015 and was on track to make a profit in 2016. not every experience have been right. there are various factors that could affect this. did not have an administration that supported the affordable care act. as opposed to contact his experience with a supportive administration, alerting the population to the options available to them, that

experience was going to be different than tennessee or louisiana where it seems to me you had an enrollment profit first and foremost. would it be a fair statement all of these factors would affect how the co-ops operate and whether they had a better or worse chance of succeeding? >> certainly. statewide, we had a positive enrollment through the federally facilitated marketplace but we did not expand medicaid. the enrollment of less than 1000 people made it extremely difficult. >> obviously we have different health conditions as well. montana probably has a lot healthier population than kentucky and tennessee. in kentucky, we have serious challenges. one of the things that impresses , is that while our co-op is

going out of business, we have three new private insurers and now have seven insurers. they are not relying on risk corridors. disastrousot seen a situation. haveonsumers will competition in activities and we see enhanced capitation in the private market through our exchange. could have a benefit. would that not be true? >> that's very encouraging and i think the benefits of introducing a co-op into the dynamics of the marketplace can have a lot of ripple effects. i am glad to know about that. talked about the question of offering insurance policies 20% commercial insurance company can. there is no profit margin involved in ou can.

can. you would that be correct? >> that is true. the co-ops generally were not outliers on the low end in price. mckenzie did a report in late 2013 about those initial prices and co-ops were toward the lowestwithin 10% of the 42% of the time but when these companies set their prices and filed them, they don't know what the other companies are doing. the fact they were there to cause the other companies to price more aggressively. >> that are a lot of different reasons they co-op has succeeded think this is a

very useful hearing to analyze about the factors involved. include there was not a fundamental flaw in the affordable care act that caused any of these co-ops of fail. there were different factors just as there is an any business situation. thank you again to the witnesses. >> i think all of the witnesses. this will conclude our second panel and you can rush to the airport if you have any flights. i want to thank the members that did stay. we had so many members that had flights to connect. i apologize for the attended. you for your testimony. it's very helpful. we're not going to bring out our third panel, which is a representative from cms and oig.

we will begin our third panel. i want to thank the witnesses for joining us today and before we get going, we want to make sure the witnesses are aware we are holding an investigating hearing and when doing so, we have the practice of taking testimony under own. do you have any objection to oath?ying under both -- you are entitled to be advised by counsel. do you desire to be advised by counsel during her testimony? no. in that case, if you would please rise and raise her right hand. i will swear you in. do you swear that the testimony you are about to give is the truth, the whole truth, and nothing but the truth?

thank you very much. you are under both and subject to the penalty set forth in and we8 section 1001 recognize you to give a five-minute summary of your written testimony beginning with dr. colin, chief of staff for cms. afternoon and thank you for inviting me. we appreciate the opportunity to talk about the co-op program. our priority is to make sure consumers have access to quality affordable coverage. in the year since the passage of aca, we seen an increasing competition and more choices for consumers. in today's dynamic market, consumers can choose from 50 .lans and five issuers

nearly nine out of 10 returning consumers have three or more issuers to choose from, which research shows has typically intensified price competition. the insurance market campus pressures and early stages. co-ops entered with a number of challenges, including building provider networks, no previous claims experience, and competition from more experienced issuers and the in theinty a company early years of a new market. some co-ops succeeded will others encountered more challenges. there have been successful co-ops that provided consumers additional choices. there have also been co-ops that have faced technical operational or financial difficulties. congress made a substantial revision to the initial $6 billion in spending, impacting

program operations. surprising some new entrants have struggled to succeed. providinga dual role, oversight and support. sharingd to give co-ops best practices in looking for additional regulatory flexibility. at the request, we have approved the surplus and the infusion of outside capital consistent with legal and regulatory framework. cms also plays an oversight role. worked to ensure the co-ops are well run and financially bound. cms and lamented a program as required by statute, evaluating applications, monitoring financial performance. all co-ops are subject to standardized, ongoing oversight activities including calls to monitor goals, periodic on-site

visits, auditing, reporting obligations, and additional measures like the evaluation of co-op sustainability. cms increased the reporting requirements to provide quarterly statements saying they're in compliance. financial data collection has helped cms develop financial issues and give us an opportunity to work with insurance regulators to correct issues. has put some co-ops on enhanced oversight schedules. despite the support and oversight, some new entrants have struggled. when states determine a co-op should wind down, our responsibility is to make sure policyholders are able to retain

coverage. it's necessary to make sure customers have access to quality , affordable coverage. we're working to do everything possible to make sure consumers stay covered. like other consumers, co-ops are able to shop for 2015 coverage now. nearly eight in 10 returning consumers will be able to buy a plan with premiums that than $100 per month. we continue to encourage consumers already enrolled in the marketplace. since the enactment of aca, cms has worked to increase access to quality affordable coverage .hile being responsible the program was designed to give consumers more choice and improve quality in the insurance market and has done so in a number of states. cms will closely work with state

department to provide the best outcome for a -- for consumers. we appreciate the committee's interest. >> thank you. >> good afternoon. i am gloria jarmon. thank you for the opportunity to work.y today about oig's plan,t of our strategic oig has performed three reviews related to co-ops. 's testimony focuses on oig most recent report in july 2015 that reviewed whether enrollment met co-op projections.

understanding co-op space numerous challenges, we conducted this audit to assess the status of the co-op. we reviewed the status of the 23 31, 2015.of december these financial concerns might limit some co-ops ability to give loans. oig issued four recommendations. these recommendations include one, continuing to place underperforming co-ops on enhanced oversight plans. to, providing criteria determine what a co-op is no longer viable or sustainable. three, working closely with to identifytors underperforming co-ops. four, --

i will briefly discuss each of these recommendations in more detail. what respect to enhanced oversight, with the 2011 funding opportunity announcement, cms has the ability to place underperforming co-ops with enhanced oversight plans. this provides authority to cms to conduct reviews of the co-ops operations. guidance, toto ensure cms can appropriately with a high risk of failure, they should establish criteria to assess whether a co-op is viable or sustainable. with respect to state insurance regulators, cms should enhance its oversight by working closely with state and -- regulators who are the primary entities that health co-ops as insurance issuers. by doing this, cms can obtain

insight into the co-op's performance and work with them to address ongoing financial and operational problems early. should pursue all available remedies for recovery of funds and pullouts. this would include the option to terminate loan agreements, which would require the cu opt -- to recover some portion of the loan. in closing, we appreciated the subcommittee's interest in this important issue and continue to urge cms to formally address oig's recommendations for financial solvency. oig is committed to providing continued oversight in this program.

our work will assess whether co-ops were in compliance with federal regulation and program requirements and managing federal funds. oig will we assess the co-ops 2015 financial status and identify cms actions and monitoring the co-ops. we anticipate issuing these reports in 2016 and look forward to sharing the results with the committee. this concludes my testimony. i would be happy to answer any questions. >> thank you. i now recognize myself for five minutes. i'm just going to accept you at and say cms considers themselves responsible stewards of taxpayer dollars. this begs the question whether that is totally accurate. made have been comments that have somehow tried to correlate states that did not increase, expand medicaid to

some of these failures on co-ops. i would point out in a new york state, we aggressively expanded medicaid and actively promoted obamacare probably more so than any other state, and the hearing is recognizing the failure of a co-op that was oversubscribed, not under subscribed, and cost the taxpayers up to $250 million. i don't know that some of these other comments would accurately portray the problem. i will go back to the products were underpriced from day one and they will be a price to pay. i worry about new york and the loss of $250 million. it would appear the work is in distress right from the beginning. are aware thatou

there was an additional loan of $91 million after they lost $35 million. could you speak to what that rationale was that the taxpayers now lost another $91 million? >> as he looked at the co-op program over the first few years, you have heard a lot about the early years. we're only in the second year of the program in terms of people facing a number of challenges. weighted -- we evaluated any request for funds on an individual basis. we looked at their financial health at that time, the projection of where they were going, how they intended to get to a place of good standing. to say we want to be good stewards of taxpayer dollars and what to be sure if we are going

to be investing, we see those dollars. you can only look at the information we have on hand at that time. our independent expert panel who reviewed these felt a further investment in new york was the right decision and we move forward with that investment as we do and we continue oversight. information changed and we made different decisions. >> i would appreciate if you could provide the committee with the analysis that you indicate losing $35that after million and the first year, i have to presume the analysis -- the difference in the much higher rates charged in 2015. they lost a lot of money in 2014 based on rates that weren't adequate to cover losses. were the rates substantially

increase the next year by 20% or more? cmss important to remember shares of partnership the oversight responsibility but the responsibility for ratesetting is done at the state level near the department of insurance. they are responsible for saying are these rates adequate. they do their own rate review and new york. new york also runs its own exchange. from our perspective, we do oversight in terms of the financial stability of the program according without oig recommended the additional enhanced oversight but the rates themselves are set by the company and then approved by the state department of insurance. >> do you know how much were the rates increase for 2015? >> i know they did request and were granted a rate increase for 2015.

>> i think it's important to note that it's a little concerning that cms is making a $91 million loan based on what sounds like an analysis by the new york state department of insurance, which ultimately was proven by the fact they are now shutting down. if you could share that information, we could learn something. andrtainly appreciate that i will be sending you a letter to ask for a more thorough investigation as to 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. you, mr. chairman. i want to thank our witnesses for coming today and i want to start with the risk mitigation mechanisms which we commonly refer to as the three r's.

those were designed to promote competition and ensure stability in the insurance marketplace, is that correct? >> that is right. >> yet somewhat argue does programs are what led to the insolvency act the co-op. i don't really understand how programs that were under -- formed to help would end up hurting them. the risk adjustment program is designed to transfer funds from lower risk plans to higher risk plans. >> it is designed to make sure that companies are taking care of the people who really need the care, does that are sick, and making sure they are not cherry picking the healthy people but really offering coverage. >> what that does then is transfers money from lower risk plans where there aren't so many severely sick people to higher risk plans.

the co-op, how is it ended up owing money to big insurance companies through the risk adjustment program? >> the risk adjustment program is not based on size. it's really looking at the math formula, the total risk and help of the population. >> there was nothing in the statute to target not for profit? >> is agnostic -- >> was that the intention of the program? >> it was intended to be a risk program for all insurers that participated. programisk corridor also and that not coming through the co-ops as we learned through colorado. some state insurance commissioners, including mine, made management decisions this on the co-op's inability to deal with losses. some questionsou

about that. the 2015 legislation made it so ensure payments into the risk corridor program are the only source of funding to reimburse claims, effectively making the program and budget neutral, is that correct? >> did is a mathematical formula that decides the ends and outs of that program but you are correct. >> thank you. reiterated thems state insurance commissioners that they anticipate risk will bes selection sufficient to pay for all quarter payments. and 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? >> yes. >> why is that? >> that formula is based on

information we got from the stewards themselves, not information cms had prior to the month of september. originally, that data came in over the course of the month of july and it was -- we needed issuers to resubmit it. >> in july, you say it will be sufficient and you can cover all the payments and in october, you it's only 13%. irrespective of whether you had -- thea, you had co-ops one in my state was 83,000 people relying on that. i guess it was that information. >> the risk corridors is one of r's and in the reinsurance program, we paid 25% more than we thought we would be able to. >> if you have a co-op on the edge, that didn't solve that problem.

so i'm running out of time and i just want to ask you a couple questions. do you think you can do anything to give more certainty to this program without statutory changes? -- can you make changes that will give more certainty to these co-ops so they can stay in business? >> we are always looking -- >> if you can supplement your responses by giving us the ideas. do you believe there are statutory changes congress could pass? >> i think there are opportunities. >> thank you very much. >> i think the right number for her comments. >> i think the witnesses for being here. who ultimately made the decision to give out $91 million to new york, $65 million to kentucky

health co-op? but threea few more of the six i have listed failed. i want to know the person who made the decision to give them the money. >> we had a rigorous process -- >> here is the thing -- you have already described your process. you have outside people that look at the data but i want to know is someone put their said wee on a loan and are giving them this money. who did that? >> i don't know who signed it but i can get back to you. >> was it you? >> it wasn't me. i can let you know. >> i'm sure you have every intention of doing that but i can tell you with experience asking these questions that i will never find the answer because no one will take that responsibility. i understand that. do you know if it was a

political appointee or full-time staff? >> i don't know who signed the loan agreements but i can talk more about the process we went through in terms of evaluating information we had. >> i understand. >> we can get you that information. and theyso testified asked when they knew cms would know the co-ops would fail. give a clearidn't answer. when did cms know these co-ops would fail? >> we have been doing oversight since the co-op inception. each circumstance is very unique. periods ofdifferent time we had information where when you folks were going down the wrong path potentially. they put enhanced oversight and action plans and we took action. we are in the very early stages of this program.

i think from the discussion today, you can see we have taken our oversight responsibility very seriously. trying to like we're be the best stewards of taxpayer dollars possible. is their political pressure to keep these co-ops alive? >> i would say we are trying to do our best job possible to make sure consumers can know that if they go to the marketplace now, they are strong and stable. we had done a tough job here. i think if there was another way we could have arrived here, we could have but we have been doing some tough for. >> that didn't answer the question but i understand. r's?o we need the three if i if i was going to start a business, i would not rely on

's to make sure that if some did not work out, i would get a check from the government. fundamentally, i get it, but answer this question real quickly. they intended the program to be budget-neutral. is that correct? that question, specifically. dr. cohen: i would have to get back to you. senator because that is what it says on my paper. senator: i understand that you did not make these decisions. programs aree based on the drug program and medicare. in a new market, there is uncertainty. we have been hearing about that earlier today. again, we wanted to make sure that sick people