The Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) established health insurance exchanges (commonly referred to as “marketplaces”) for individuals and small businesses to shop for health insurance in all 50 States and the District of Columbia. To expand the number of health insurance plans available in the marketplaces, the ACA established the Consumer Operated and Oriented Plan (CO-OP) program for consumer-governed, nonprofit health insurance issuers. HHS provided loans to help establish CO-OPs in every state that were expected to become profitable after the initial start-up period. CMS awarded loans totaling $2.4 billion and by January 1, 2014, there were 23 CO-OPs offering health coverage in 23 states. Four of the 23 CO-OPs are or will be offering coverage to neighboring states. Loans were to be awarded only to entities that demonstrated a high probability of becoming financially viable and must be repaid with interest. However, the Office of Inspector General (OIG) found that most of the 23 CO-OPs had not met their initial program enrollment and profitability projections as of December 31, 2014.
A prior OIG audit examined the selection process for CO-OP loans and identified factors that could adversely affect the CO-OP program, including some CO-OPs having limited private monetary support and having budgeted start-up expenditures that exceeded available funding. The agency reported on their progress during the start-up phase and the CMS strategy for overseeing them during the start-up phase and after the launch of the exchanges. The 2015 OIG Work Plan included additional audits at 19 of the 23 CO-OPs to verify their eligibility for federal funding and their use of start-up and solvency loans. During those audits, the OIG identified concerns related to low enrollment and financial losses and identified factors such as low enrollments and net losses, which were limiting the ability of some CO-OPs to repay start-up and solvency loans and to remain viable and sustainable. Specific findings included:
- Member enrollment for 13 of 23 CO-OPs was considerably lower than initial annual projections.
- 21 of the 23 CO-OPs had incurred net losses.
- The Iowa/Nebraska CO-OP was liquidated in March 2015 due to financial problems.
The OIG performed a more limited review of enrollment and profitability for the four remaining CO-OPs.
CMS has authority under the law to place a CO-OP on an enhanced oversight plan and/or terminate the loan agreement if it failed to meet quality and performance standards, including implementation of milestones and enrollment targets. If a CO-OP’s loan agreement is terminated, the organization forfeits all unused loan funds received under the CO-OP program as well as the remaining loan funds, interest, and, if applicable, a penalty must be repaid in accordance with the terms of the loan agreement. A CO-OP must resolve any outstanding debts or other accommodation of outstanding claim obligations before repaying the loan funds to CMS.
The OIG noted CMS had recently placed four CO-OPs on enhanced oversight or corrective action plans and two CO-OPs on low-enrollment-warning notifications; however it also noted that CMS had not established guidance or criteria to assess whether a CO-OP was viable or sustainable. As such, the OIG recommended further CMS action, including:
- continuing to place underperforming CO-OPs on enhanced oversight or corrective action plans, in accordance with federal requirements;
- working with state insurance regulators to identify and correct underperforming CO-OPs;
- providing guidance or establishing criteria to determine when a CO-OP is no longer viable or sustainable; and
- pursuing available remedies for recovery of funds from terminated CO-OPs, in accordance with the loan agreements.
CMS concurred with the recommendations and stated it has taken a number of steps to further oversee CO-OP compliance by requiring external audits, site visits, and additional financial reporting. The OIG stated they will be continuing to review other aspects of the CO-OP operations.
Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.
Copyright © 2015 Strategic Management Services, LLC. Published with permission.