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, risk 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 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. day, it isnd of the 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 move 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. 12%,re able to pay at 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 last year's collections and pay back. >> thank you. i yield back. >> i now recognize mr. yarmouth. >> thank you very much. -- outelp the doctor off 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. the idea was that you could create the kind of price competition that was meaningful. we knew when the co-op was and i talked with 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. 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 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 the -- 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 cool had far higher enrollment than expected 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. and is it your understanding that they were much sicker and utilize much more care and were more expensive to ensure than the general information -- 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. of 2015, itd half 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. 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. 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.

upton and i also received awards, but max is the one -- he is why we are doing this. 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. upton: we might be looking at a future majority with. -- whip. representative: i am sorry mr. yarmuth left. tencare, asee had lot of residents were coming interstate and the co-opted close. the kentucky approval rating of the obamacare buttocks 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 estimate -- for the first panel? dr. cohen: i was. what happened with the -- happenedative: what 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. and here from the co-ops that they now have these loan conversion options, start up loans, classified as assets

debt, i do death -- 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. that --ard it mentioned i think you heard it mentioned that, in that case, it was not -- right step forward and 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 pulling them -- 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. neverlackburn: i have seen this type of characterization viewed as being a standard operating procedure. ms. jarmon: it appears unusual. rep. blackburn: it does appear unusual. if thereus to wonder 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. 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? aggressively work 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 on 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. see that that comes think it is i 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.

?hen are you doing it are you continuing to meet on it every week? do you have a timeline for coming up with hitting this money back -- 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. so there isrn: 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 into a hearing and you cannot ,ay, this is where we are

exactly where we are and what we are going to do. it is helpful when ms. jarmon after our happened 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. 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 , losses haveyears occurred. it sounds like a few co-ops are doing ok. .alf 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 and then, toght be the best of your knowledge, have we taken any of these enforcement measures against any co-ops? 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

plans.under enhanced those are part of the loan agreement. 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? 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. basis, we ared making sure that consumers have coverage through the end of the year. the identities 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.

which lostn new york $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 rozier 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 said -- 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. inank that then loans money 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 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. 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. inc. you for your testimony. -- thank you for your testimony. representative: i want to go back to something mr. morris said in the previous penalty --

panel. we set up the co-ops to help give people who were sick or aor or have less of a choice 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. 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 s, to help the

co-ops get established. the concept was that they would become self-sufficient and be able to sustain their business model. is that right? 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. , being in from my end thinks,, where my state in july, that the money is going to be sufficient risk order patients. thatthey hear in october that is not going to happen and there is a real degree of uncertainty with how cms is howing that state co-op,

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 and roman that starts on november 1. that startsllment 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 peri od. the other providers are

scrambling to try to figure out how to sort this. 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. thank you.s: it was 155,000 in new york. if we conclude this hearing, i en if we couldcoh 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. hearing, iude our 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 toee to respond promptly those questions. with that, this meeting is adjourned. [captions copyright national cable satellite corp. 2015] [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy.

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the bill in 2012 would have dealt with critical it infrastructure. out an, obama put executive order. congress needs to go back and ask if that is enough.

>> watch the communicators tonight on c-span two. ♪ >> this week on "q&a," author and radio host eric metaxas discusses his writing career and best-selling biography of theologian dietrich bonhoeffer. he also talks about his more recent books and the use of religion in politics. brian: eric metaxas, how would you describe what you do? eric: i wouldn't. would you suggest i try? brian: give it a try. eric: honestly, it is impossible because i am principally a writer. some people know me as the author of the 600 page biography of the german theologian dietrich bonhoeffer.

other people know me as a humorist. i was recently published in "the new yorker" making fun of donald trump's bible verses. i am a little all over the place. so i now have a radio show in , addition to being a writer and writing and speaking a lot. i have a daily radio show from the empire state building where i get to talk to everybody. sort of like your job but higher up in terms of altitude. i would describe myself as somebody who is at collect it. eclectic. i enjoy communicating whether in my books or on tv or on the radio. that is the long version. would you prefer the short version? brian: we can start by going back in history. eric: how far do you want to go?

brian: at the prayer breakfast in washington. let's run a little clip of you speaking. [video clip] eric: people would say who are you going to write about next? i say, whom will you next write? as a yale major i want to say whom. you may want to use the word whom and you can use it as an app. you just download it. whom will you next write? there's only one person besides wilberforce whom i would write. i remember bonhoeffer. and i did write that book. i know it was read even by president george w. bush who's intellectually incurious. as we have all read. he read the book. no pressure. i just want to say, no pressure. [laughter] [applause]