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. we were one of the last thoughts the time frame from licensing in was soelling and october constrained, 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. in hindsight, it was too much into short. of time. plus all of the other problems described. >> another five minutes. >> this is what i was talking about in my opening statement. the aca started in 2010. then these co-ops started a couple years later, he 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. mr. morrison: the awarding of the loans was staggered. that is true. >> so really, part of the problem is that there was no support as it went along. with that be a fair assessment? >> that is kind of what i want to talk about. the co-op was initially conceived as a grant program. thy 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 thank the ranking member 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? there are a few more but three 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 signature on a loan and said we 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. >> you also testified and they asked when they knew cms would know the co-ops would fail. it says you didn't give a clear 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. there were different periods of 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. we do feel like we're trying to 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. why do we need the three r's? if i was going to start a

business out of there, i wouldn't rely on the three r'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. cms said 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. dr. cohen: the programs are 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 were not somehow not covered by the insurance. we want those folks to be covered. the insurance program was to cover the cost in the early years. we know there may have been pent up demand. >> at the end of the day, it is just to capitalize the business. dr. cohen: i think it is to keep premiums stable for consumers. >> you thought earlier in the year that you would be able to make payments and you found out in october that you could not. what is the reason for that? dr. cohen: it is the math formula. it is the way the data came in from the issuers. that is the way the math worked out. we were able to pay at 12%, which is the dollars coming in, dollars going out.

that is the way we are moving forward for this program. we said that we would take from next year's collections and pay back. it is a three-year temporary program. >> thank you. i yield back. >> i now recognize mr. yarmouth. >> thank you very much. i can help the doctor out a little bit on the background of the co-ops. one of the things we faced when drafting legislation was that, in certain states, the availability of private insurance was limited. in alabama, there was blue cross blue shield. in many states, that situation was not that high. the idea was to create competition. the only way you could do it was to create a new entity. we chose co-ops as a nonprofit. the idea was that you could create the kind of price

competition that was meaningful. we knew when the co-op was established, and i talked with them many times as they were getting started, they had no idea what kind of insured population they would have. they did not know what the age was going to be. they had no data to predict that. many had never had any health care. once they became insured, they would have a rush of care. they would try to get tests to treat things they had never been able to treat before. or whether they had people who had medical care, but just lost their insurance. the unpredictability of it was the rationale for that. i am proud of the experience with aca in kentucky. we let the country in the reduction of uninsured, more than 50% of previous uninsured are now covered. more than 520,000 people in a state of 4.4 million.

in my district alone, we have reduced the uninsured rate by 81%. that is an astounding accomplishment. every day, i am hearing from people who now have insurance and have a family member or neighbor or friend whose life has been saved because they had insurance that they otherwise would not have had. i could talk about that for a long time. the focus on this hearing is on the co-ops. i want to set the record straight with what happened in kentucky. unlike most of the co-ops reviewed by your office, is it your understanding that the kentucky health coop had far higher enrollment than expected -- health co-op at far higher enrollment then expected? ms. jarmon: we actually have a chart in the report and for kentucky, yes, it was like 183%. that was one of the few.

rep. yarmuth: and is it your understanding that they were much sicker and utilize much more care and were more expensive to ensure than the general public? ms. jarmon: i do not have that information. rep. yarmuth: that is why it is so important and that is what happened to kentucky's co-op. it lost $50 million in its first year. in the second half of 2015, it slowed down to a rate of $4 million. they were on track to make a profit in 2016. unfortunately, when the program was cut by 87%, they were unable to continue. is it your understanding that had congress not capped payment that the kentucky health cooperative would still be open for business? dr. cohen: i think a number of factors contributed.

that was one of the last. certainly, we have heard it was an important factor for them. you have to know that there are many factors, as we have been talking about all along. rep. yarmuth: as i mentioned before, that having been said, is it your understanding that, even without the co-op, kentucky residents will still have more health insurers to choose from than they had in prior years? dr. cohen: yes. very exciting. rep. yarmuth: i can talk about the success of the affordable care act in kentucky. we are a much healthier state because of it. someone threw around a figure that maybe the approval rating was down. in kentucky, it is well over 50%. dr. cohen: there is a new reduction in the uninsured rate to 9%. historic. i appreciate your leadership on that. >> can i take a moment of

personal privilege? this is not one of the members of congress. this is a dear friend of mine and chairman upton. max has been helping us with our 21st century cares bill. last night, he was honored to receive an award at the every life foundation for rare diseases. chairman upton and i also received awards, but max is the one -- he is why we are doing this. rep. upton: thank you. we all welcome max. i look back at the unanimous vote on 21st century cares and i can tell you max whipped more than one vote. >> he is our secret weapon. rep. upton: we might be looking at a future majority with. -- whip.

representative: i am sorry mr. yarmuth left. when tennessee had tencare, a lot of residents were coming into the state and the kentucky co-op did close. the kentucky approval rating of the obamacare products in the marketplace is really quite low. as was evidenced in that state. this week. ms. cohen, i want to come to you. were you in the room for the first panel?

dr. cohen: i was. representative: what happened with the loans and the solvency grants? we all should be concerned about that. that is not your money to give away. it is taxpayer money. this is just money down the hole. this did not work. to go in here and here from the co-ops that they now have these loan conversion options, start up loans, classified as assets rather than debt, i do not see how you get there. doesn't that type of loan conversion really give a false picture of what is going on in that co-op? is that not a falsehood? dr. cohen: when talking about those conversions, we evaluated

each of those on an individual basis. i think you heard it mentioned that, in that case, it was not the right step forward. rep. blackburn: who suggested that? is that not giving an inappropriate picture of the financial stability of that co-op? dr. cohen: we did evaluate whether or not that was the right -- rep. blackburn: you looked at whether or not debt could because an asset. in the private business world, if you did that, you would be accused of fraud. if you started re-characterizing your debts as assets and started putting them on your balance sheet as assets. i have never heard of someone saying that the federal government would approve such a process. how do you all view that? ms. jarmon: i believe it came out in guidance in july of this year. we're going to be looking at if

you rep. blackburn: you are going to review that? ms. jarmon: we will look at it as part of our follow-up. rep. blackburn: i have never seen this type of characterization viewed as being a standard operating procedure. ms. jarmon: it appears unusual. rep. blackburn: it does appear unusual. it leads us to wonder if there are other unusual business practices that are surrounding the stability of the co-ops or the lack of stability of the co-ops and the entire lack of stability of the affordable care act program. this is highly unusual. vermont hills co-op. $33 million in federal loans have been awarded to the vermont health co-op. how much, if any, of the money will be returned to the federal treasury?

dr. cohen: we work aggressively if we are winding down any co-op to return funds to the taxpayers. rep. blackburn: how much? dr. cohen: i do not have that number. rep. blackburn: would you get that money -- that number for us? when money is awarded and you do not get the license, every penny ought to be coming back to the federal treasury and i think you know that. dr. cohen: we work aggressively to recover the loan funds. rep. blackburn: i can imagine what the irs would say if people would say, well, you know, we are going to work to get that money back to you. we are really working on it. we want to see that that comes back because i think it is inconceivable that the taxpayers are going to be held responsible for this. when should we expect that money? what is your timeline for getting that money back in? dr. cohen: we are working through that process right now.

rep. blackburn: you have all that money out there -- listen to yourself. you have all this money out here. it is being wasted. half of your co-ops are insolvent. you have got this recharacterization process going to take your debts and make them appear to be assets. that is highly unusual. and you want to sit here and say, well, we are looking at it. when are you doing it? are you continuing to meet on it every week? do you have a timeline for coming up with getting this money back? is it a top priority? yes, please read the note that has been passed to you. dr. cohen: we got all the money back from vermont. the rest of the co-ops we have been working with over the last several months are still in business. they continue to provide coverage for consumers until the end of the year we will work through the process at that

point in accordance with the loan agreement to recover funds for the taxpayer. rep. blackburn: so there is something in progress. thank you. continue to provide that information for us. that is what we need to know, the specifics. it does not help us in doing our due diligence. it does not help us if you come itit does not help us if you come into a hearing and you cannot say, this is where we are, exactly where we are and what we are going to do. it is helpful when ms. jarmon says, this happened after our july review and we are going to come back and look at this practice and have a recommendation for you. that is the kind of thing that is helpful. i yield back. rep. upton: we will ask a few more questions today down a little bit deeper. again, i would like to kind of

set the stage. all of us agree we need to be good stewards of taxpayer money. that is the purpose of this hearing. learning from what has happened the last two years, losses have occurred. it sounds like a few co-ops are doing ok. half of them fail. there are lessons to be learned here. the purpose of this hearing and our request for more information will be, how can we take all of that and hopefully not continue to lose taxpayer money? there is a question for oig. the loan agreements between cms and the co-ops do have enforcement provisions in them. i just wondered, could you explain what some of those provisions might be and then, to

the best of your knowledge, have we taken any of these enforcement measures against any co-ops? ms. jarmon: the loan agreements do allow -- there is an option to terminate the loan agreements which would require the co-op to forfeit the unused loan funds. within the loan agreement, and the funding opportunity, there is the issue of enhanced corrective action plans, which cms says put several of the co-ops under enhanced plans. those are part of the loan agreement. rep. collins: has cms terminated any loan agreements? ms. jarmon: i am not aware. dr. cohen: we have terminated the loan agreements for the 12 co-ops that are shutting down. rep. collins: did we get any money back?

dr. cohen: in vermont, we did get the vast majority of the money. there was some funding that was used in start up funds that was not recovered. on a go forward basis, we are making sure that consumers have coverage through the end of the year. the entities will be operating through the end of the year. at that time, we will do a run out of claims and understand the financial health of the organization and use all of our ability with the terms of the loan agreement to recover funds. rep. collins: that is not the case in new york. the co-op in new york which lost $250 million and is shutting down in two weeks time -- that does not line up with your testimony. dr. cohen: that is why we are doing so much of the hard work right now before the open enrollment period to make sure we understood the financial health of any one of these co-ops and because we want consumers to be confident that there would not be a midyear closure at any one of these co-ops.

in the case of new york, we went to wind them down and terminate their loan agreement in the september timeframe when we sent in our audit team. we found out that their financial situation was even more dire than we understood it to be and that is why we are in this unfortunate situation. the folks in new york, the governor's office, the department of insurance has jumped on this problem and is working on it very aggressively to make sure consumers have a smooth transition. this is exactly why we are doing all of this tough work right now, so it does not happen in other places. rep. collins: i purchased a lot of distressed companies in my private sector career. a bank that then loans money in asset-based lending agreements, there is literally daily and weekly reports. if you are under the magnifying glass, until that bank who has

money at risk is confident that they are going to be able to be paid back, it sounds as though cms has accepted a lot of information at face value and has not dug very deeply into those details to say, ok, two months later, we are totally shocked the finances are so much worse. if someone was really watching a $250 million loan, i do not think you would wake up two months later and found out. he would have found out two months earlier and maybe you would have lost $200 million instead of $250 million. there are lessons learned. when you are good stewards of a taxpayer money, the taxpayers expect the level of scrutiny consistent with what big banks do when they make loans. you could argue it could even be more than that. the last thing is not a question.

i know that there will be outstanding claims. who pays -- i assuming there is no money. who pays those claims? dr. cohen: they continue to wind down over the course of the year and they do have funding. rep. collins: take new york. do they have money? dr. cohen: new york is a different circumstance. they need to run down by november 30 and -- rep. collins: they will be able to pay all of those? dr. cohen: we make sure that they go into receivership and they will have better control over their finances -- rep. collins: do you feel there will be enough money to pay out? if there is not, is the government going to make -- how do they get paid? dr. cohen: you said it is a day by day situation. we are watching closely to make sure -- rep. collins: could there be more taxpayer money having to go in? dr. cohen: our first goal is to protect the consumer and the taxpayer. we are going to do everything

possible to make sure that we can have a smooth transition. that is a partnership between ourselves and the new york state department of insurance. we are working collaboratively in that process to make sure -- rep. collins: it would occur to you to continue to do that. thank you for your testimony. representative: i want to go back to something mr. morris said in the previous panel. we set up the co-ops to help give people who were sick or poor or have less of a choice a choice of an insurance plan. as we know quite clearly, the co-ops do not have a lot of the same benefits as private insurance companies. they do not have the kind of capitalization from other products and so on. would that be a fair statement? dr. cohen: yes. they face a number of those challenges. rep. degette: when you are just

starting up as a co-op, it is not like you are a private company saying, ok, let's offer this product. if it takes us a few years, we can do that. i really think that the comparison of the co-ops to private business is a little unfair. that is why i think we set up these three r's, to help the co-ops get established. the concept was that they would become self-sufficient and be all of able to sustain their business model. is that right? dr. cohen: those programs were set up to help the entire market transition. rep. degette: ok. so i guess i was a little concerned when i heard you say earlier that you were reviewing all of these situations on an individual basis.

here is why. i saw this from my end, being in congress, where my state thinks, in july, that the money is going to be sufficient risk order patients. then they hear in october that that is not going to happen and there is a real degree of uncertainty with how cms is viewing that state co-op, how they are viewing their capitalization and liability. they do not know, day to day, whether they will be able to offer product in the open enrollment that starts on november 1. the concern is that you do not have a bright line rule. the uncertainty is those stays are contributing to instability in the whole insurance market. i assume you understand those points i am making.

dr. cohen: absolutely. rep. degette: i am hoping you and your staff would continue to meet on the committee staff on both sides of the aisle to help us figure out how we can help you get some certainty so that we do not have situations where states like new york and colorado are suddenly going out of business just a few weeks before the open enrollment period. the other providers are scrambling to try to figure out how to absorb this. and the 83,000 people of colorado, i do not know how many in new york, but this is affecting real lives it would be helpful if we could get more clear standards going forward. rep. collins: thank you. it was 155,000 in new york. as we conclude this hearing, i would ask dr. cohen if we could get an analysis of the

additional funds awarded at the end of 2014. and if you could commit that cms would provide us any co-op corrective action plans that may exist. could you forward those to the committee? dr. cohen: i will have to look and see. some of those are market sensitive, but we will do our best to get what we can to the committee. rep. collins: i would like to enter into the record a "wall street journal" article that has a quote from cms that risk corridors were intended to be budget neutral. so moved. as we conclude our hearing, i want to say that we would ask unanimous consent that members' written opening statements be introduced into the record. without objection, they will be introduced to the record.

i would like to thank our two witnesses for your comments as we want to work together to be good stewards of taxpayer money. i would like to remind members to submit questions for the record and the witnesses all agree to respond promptly to those questions. with that, this meeting is adjourned. veterans affairs secretary robert mcdonald will give an update on v8 health services and take questions.

his remarks will be live at the national press club. health officials will discuss possible ways to improve the health care system and reduce costs. live at noon eastern. >> next, democratic senator patrick leahy of vermont and republican senator mike lee of utah talk about bipartisanship in washington, d.c. >> then a conversation on the syrian refugee crisis on your. -- in europe. any -- you can do anything you want to. i we thought the first lady should get paid. thought the first lady should get paid. it is such a great soapbox and opportunity. i would advise any first lady to

do what she wanted to do. you will be criticized no matter what you do. i got a lot of criticism. you learn to live with it. you expected and you live with it. she was her husband's political partner from their first campaign. as first lady, and she attended president jimmy carter's cabinet meeting, champion women's right and mental health issues. their partnership on health and peacekeeping issues has banned watcher decades. carter, this sunday night at 8:00 p.m. eastern on c-span's original series, first ladies: influence an image. examining the public and private

lives of the women who filled the position of first lady and their influence on the presidency from martha washington to michelle obama. sunday at 8:00 p.m. eastern. on c-span3. the u.s. house has approved a multiyear highway funding bill. on the next washington journal, joe lo he talks about transportation funding and the legislation. former world chess champion garry gaspar of will discuss u.s.-russian relations and his recent book -- winter is coming. and eric a grocery and at the bureau of labor statistics and wall street journal reporter employment october numbers. washington journal's live every morning at 7:00 a.m. eastern. you can join the conversation by phone and on facebook and on twitter. next, democratic senator

patrick leahy and republican senator mike lee of utah talk about bipartisanship in washington dc. they sit on the judiciary committee. the edward kennedy institute posted the discussion. it is moderated by susan glasser of politico. [applause] susan: good morning, everyone. thank you so much. thank you, louisa. thank you very much, mrs. kennedy. it is an honor to be here this morning. this is a perfect representation of what the new kennedy institute is aiming for. our conversation here this morning. i can tell you that there is such a thing as bipartisan legislating. i have seen it in action backstage in our union station greenroom here. people thought that it was dead,

but i can tell you that it is not a dinosaur. i actually heard these two senators from different parties discussing legislative tactics right here and who they should call from across the aisle to lobby this morning on their bill. that is a perfect starting point for our conversation this morning. these two have teamed up on perhaps the most interesting project. which is criminal justice reform. it has brought together a very unlikely coalition of advocates. you have the koch brothers sponsoring the big event today on criminal justice reform. president obama, earlier this week, having his own big and very interesting role with sentencing reform actions. and here on capitol hill, we have senator leahy and senator lee teaming up on this measure. i want to jump on into this question.

everyone here wants to know -- there is lots of conversation around this bill. how are we going to actually move it forward? what are the biggest pressure points in each of your view? where can this coalition break apart? number two, what is the stumbling block you are most worried about? is it your colleagues in the house? is it just election-year timing? sen. leahy: first, thank you for having this. i was listening to mrs. kennedy talk before we came out. of course, her late husband, senator kennedy, was wonderful. he used emphasize to me and everybody else, both democrats and republicans, it has a chance of passing. it is something we have worked on now for three years.

trying to get a coalition. both senator lee and i are former prosecutors. we do not need somebody to say, we have got to be tough on crime. we were tough on crime. but it is also being sensible to -- sensible. having a quarter to a third of the budget going to the bureau of prisons because of people who are sentenced for nonviolent crimes makes no sense. besides, societal problems. let us concentrate on real crimes. having someone whose life is ruined because of a drug addiction or a mistake, that makes no sense. mandatory minimums, the sentences that come from them, why don't we trust our judges to do a good job with them? it takes democrats and republicans to work together.

mike and i are enjoying the fact that, when we announced this, it went across the political spectrum. that is the only way, these days, you are going to get something passed. susan: what is the challenge in getting this bill passed? sen. leahy: we have got to bring it up. the electronic communications act, we can get it passed if it gets on the floor and we have a real debate. people are thinking, you are going to lock everybody up. the american people got beyond that and the same with the electronic communications.

americans want to know that their communications are safe and the government is not prying on them. these are things that can bring liberals, conservatives, everybody together. i think the congress, which is not the most highly-rated organization in this country these days, i think the american people saw us actually debating on these real things and voting on them. susan: senator lee, do you need to persuade senator mcconnell and new speaker ryan to get this measure to the floor and then it will pass? sen. lee: it will be important for us to convince both of them that this needs to go to the floor. the good news is, i think we are headed in that direction. we had a vote a couple of weeks ago on the senate judiciary

committee, on which we both serve, and we ended up passing this bill on committee with a super majority vote of 15-5. that is really good news. it is a good omen for getting it to the floor, as is the fact that chairman grassley is supportive of it. i think we have a good chance of getting it passed. it is one of those issues that is needed. it is simply an american ideal. it is core to who we are. fairness is a core principle and they understand that our current sentencing system has real problems. susan: is there a bill that the house can support as well? what is your anxiety about keeping your republican colleagues supportive of this measure? sen. lee: as senator leahy was saying, the biggest challenge we face is among those, and they are more prevalent in my party, who are inclined to say, i do not support this bill because i

am tough on crime. i think those people have not read the bill yet or do not understand the bill yet. just as importantly, they do not understand the human stories behind it. i like to tell a story -- one of the things that got me interested in this, ironically, 12 or 13 years ago, when i was a federal prosecutor, there was a young man in his mid-20's. he was prosecuted for selling marijuana in relatively small increments over a 72-hour period. he had a gun on his person at the time. the way the case was charged resulted in amendment mandatory sentence of 55 years. this young man has two young children, sentenced in his mid-20's to 55 years in prison.

if he serves the whole sentence, he will be a most 80 by the time he gets out. i have never met a single person, republicans, democrats, anyone, who believed that sentence was just. the sentencing judge issued an opinion saying, i think this is horrible. this is a miscarriage of justice. but i have no choice. my hands are tied. only congress can fix this problem. i remembered that all this -- all these years and when i got here, i decided it was a problem i wanted to address. susan: do you know what happened? sen. lee: he is still in prison. i always have them and him in my mind as we are working on this bill. sen. leahy: i think what senator lee raises the point that we have to understand, everybody wants to go to war, but they

never served in the military. people have never served in law enforcement. i have, in my office, the plaque and my badge from when i was a prosecutor. when you have these mandatory minimums, one-size-fits-all. anyone who has been a prosecutor, judge, in law enforcement, knows that one size does not fit all. we make a horrible mistake if we try to do that. we have got to change this. you know, california did the year -- their three strikes and you are out and people were getting locked up for life at $50,000 a year for stealing a

toaster or something in the store, shoplifting. come on. it makes no sense. they were almost bankrupted by it. i think we can get back. there are so many things. we worked together on the usa freedom and trying to change the way the nsa and others could listen in on us. we got together, republicans and democrats, and we got it done. i strongly believe, if we are going to have congress relevant, we have got to come to some of these issues -- i mean, we will have things where we disagree, but there are so many things where both parties can come together. let's start working on it. frankly, the bill that we talked about, the president has told me, if we passed that, he will sign it in a minute.

susan: i want to dial it back one second. everyone wants to understand what lessons you have learned in some of your previous workings together. first, we want to know, how did this odd couple come together? you guys are kind of an unlikely duo. but seriously, there are 100 members of the senate. tell us, what is your story here? sen. leahy: tell them what your wife said. sen. lee: i have mentioned this to senator leahy before. a few months ago, when he and i were working on the usa freedom act, which dealt with a collection of metadata under section 215 of the patriot act and got rid of the domestic collection of this bulk metadata

under the patriot act, i was calling pat leahy so much that my wife said to me, you talk to senator leahy more than you talk to me. but we started working together fairly soon after i got to the senate. 4.5 years ago. i recognized early on that he and i shared a lot of things in common. we are both former federal prosecutors who understand that the power of government needs to be restrained. individual liberty is paramount to who we are as a society. nowhere does the power of government need to be restrained to protect liberty more than in the case of, for example, our private conversations over the telephone, over e-mail. especially in the case of long-term incarceration. those all involved heavy intrusions by government into individual liberty.

that is what has brought us together on projects like the usa freedom act, which we passed into law in june. the electronic communications privacy act amendments, which we hope to get passed by the end of this august, and criminal justice for, which passed two weeks ago. susan: is it not a global problem for you back in utah? you have a liberal democrat from vermont as your partner. i am just assuming that you will always be reelected, senator lee. sen. lee: no. not a problem in the least. the american people expect us to work together and find areas where we can achieve common ground. we have found some of those areas. i do not intend to stop finding

common areas. there are lots of them. sen. leahy: i am the only democrat vermont has ever elected senator. senator sanders was elected independent. my senior senator was senator robert stafford, who is also a close friend of senator kennedy's. he took me under his wing and he said, i will give you one bit of advice. he said, work across the aisle. you and i will work together on things, which we did. work across the aisle. you form those coalitions and actually get something done. i have never forgotten that. mike has experience on these things. we talk about privacy and all. it does not make a difference whether you are republican or democrat. in my state, you really have a sense of privacy. i will tell you very quickly a story. the only thing i kept on my wall is a sidebar.

i live on a dirt road and old farmhouse since i was a teenager. neighboring farmer told me since i was in grade school, the whole story goes like this -- a reporter sees an out-of-state car. does senator leahy live up this road? are you a friend of his? no. is he expecting you? no. never heard of him. we like our privacy in vermont. susan: i am glad the intrepid reporter found you anyways. sen. leahy: he did. good reporter. he then found out my home phone number and he has never called me again. susan: in your collaboration on the usa patriot act, on the

issues that started off this collaboration, could you give us some of your learnings and your takeaway on what does not work anymore? many people are struck by the waning of the old schools of power in the senate and the house. leadership is not as strong anymore. individual entrepreneurs like you can get stuff done. how do you make things happen? what works now or does not work now that used to work when you first came into the senate? sen. leahy: i keep asking myself that question. there is not enough ability of leaders to work things out. that does not mean you are always going to agree with the leader of your own party, but there are certain things that you could work out. you would do a lot of things by consent.

now you have one or two people, we can disrupt that and get on the local news or the evening news by doing it. we do not spend enough time here, developing personal relationships. when i first came here, campaigns do not cost what they do today. people were not out fundraising all the time. you learned to develop relationships across the aisle. your children would know each other. you would know each other. that made a big difference. it is a private, personal meeting. i am fortunate to have a nice office in the capital because of my seniority. but i have had meetings with mike, just sitting down and talk without having every word recorded and talked about.

you have got to go back to those personal relationships. again, when i first came here, leaders of both parties would encourage you to take trips together. we have got to find a time to come back to doing that. i remember harry reid once asked john mccain to come to a caucus of everybody to just talk about his experiences as a prisoner of war. most people had not heard the whole story. you could have heard a pin drop in that room. there was a sense, when we walked out, maybe we ought to start treating each other as individuals and not just adversaries.

susan: can you think that the power of committee has waned? does that make your job easier or harder? sen. leahy: of course, the committee chairman has the power to bring up a bill. that is very important. the most important thing, as committee chairman -- i have chaired a couple of major committees. i know how to get a piece of legislation so that it does not pass the partyline vote. usually, a chairman can pass a partyline vote, but it will not go anywhere. you have to work -- as might -- as mike mentioned, the bill on sentencing reform, that was a lot of work to get into the coalition. those are the only bills that really do pass. the usa freedom act we were able to get through even though the majority leader had a different

idea of what should be done because an enormous coalition came together in the house and we had an enormous coalition in the senate. and we dramatically improved the laws that affect how americans are listened to or watched. so chairmen determine when a bill comes up, but you have got to have a coalition. susan: senator lee, there is a sense that some of your colleagues who have came in with tea party support, the burn it down attitude towards the the old institutions, do you think that anger is finally burning itself out? what do you think about the new

budget deal that was bipartisan? is that a sign that the institution may be getting back some of its established order or are the fires still burning? sen. lee: i explained my view of congress in an op-ed that i wrote a few weeks ago. i talked about change coming to congress. the american people are experiencing some of the benefits of decentralization of power with things like uber and airbnb. the information economy is making it so the old centers of power within the economy are no longer enjoying the longevity that they once enjoyed. i think they are starting to expect this demand -- similar things will happen in congress. similar things will happen in washington. not every decision has to be made in washington. within washington, we will have more people who serve in both houses of congress, both political parties, who will

participate in the spirit of legislative entrepreneurship. they are expecting and demanding that power be pulled more and more to their rank-and-file member level. but there is not a lot of agreement. i voted against the budget deal. i have some real concerns with it. but i think we should embrace this change that is coming. i think we're going to see a lot more members, a lot more young ventures like me who are eager and willing to work across the aisle because we recognize that the only way we are going to get anything done. it is also consistent with this model that power needs to be decentralized in congress. susan: with the rise of entrepreneurs like senator cruz, are we going to see more government shutdowns, extreme tactics?

sen. lee: i don't know any member of the senate who sets out and says, i want to see the government not funded. i do not see that as the goal. the way we have been spending money in congress, where we put everything together as part of a package and you have a binary choice at the end of the year, at the end of the funding period, that involves funding everything at current levels or nothing, that is something that needs to come to an end. we need to get back to a process that involves passing a dozen or more separate appropriations bills so there is not a single binary choice at the end of the year. sen. leahy: i would agree with that. i and the seniormost member of the appropriations committee. more and more, we wish we could

just go and do each one of the bills. might be a wise way to do it, to have a two-year budget cycle instead of every year. agencies could plan what is going to be spent more. but vote on each one. vote on the interior bill, the defense bill, the foreign operations bill. and try to have, if you are going to have amendments, have them relevant to what you are talking about. forget the riders that are there for a special interest group on the right or the left. the government would run better. and congress should be exerting his power. the way it is done now, basically, we are saying, whether we like the president or not, we are giving the power to the executive branch. we are not being very specific.

i think it should be a shared power. it is more work, but if you are running for the house or the senate because you expect a vacation, you made a mistake. most members want to do the work and get it done. susan: i want to have a quick news round before we bring in questions from the audience. you two are working on another shared project, which is patent reform. if anything, it is as controversial as some of your others. >> i wanted to ask why you hink this is the right session for reform and it hasn't moved

this year? > the first overall patent reform took years to get there. when we passed the leahy-smith bill, that was the biggest upgrading of patent law in 50 years. it took years to put it together and get the coalition together. now you're talking about the so-called patent control bill. we have again a coalition. senator cornyn of texas, myself and others want to get it through. what we're trying to get across to everybody, no group is going to get everything they want that as long as any one group, lobby group or anything else thinks they have to have everything they want, that's a prescription that nobody gets anything they want. but we are determined to get