tv Key Capitol Hill Hearings CSPAN March 11, 2016 12:00am-2:01am EST
>> well, it seems like we have a long way to go and i just know given your tech background if you're on the outside of this looking in, you would say not acceptable, private sector would have created an app for this years ago and we'd be able to look at every piece of property, be able to compare it, policymakers could utilize it, the public could. the public could assist us by finding property that are unutilized and maybe trying to repurpose them saving us money. whether you're a liberal or conservative, none of us hopefully like to see idle property that could be put to use or sold. florida, i have a
tom de frank, he covereded reagan administration, he'll share his thoughts about nancy reagan's legacy. join the discussion. >> join c-span friday at 1:30 p.m. eastern for the funeral service for nancy reagan at the ronald reagan presidential library in simi valley california. firstycve lady michelle obama, former president george w. bush and laura bush will be among the dignitaries attending the funeral. mrs. reagan will be buried next to her husband at the library. live coverage on c-span, c-span radio and c-span.org. more than half of the original 23 federally funded co-ops have become insolvent since the rollout. they talked about these programs at a senate subcommittee
we get started now. four of our colleagues have noted they're going to join us today. let's bring the hearing to order. i want to thank senator mccaskill, she's at home attending to some very important health issues. i suggest that we postpone this hearing until she got back. her answer was, no, there's lots of work for our subcommittee to do, and we should allow the senate's business to go on. which is the way she is, i appreciate her attitude. she will be submitting questions for the record, and i want to -- on behalf of the subcommittee thank the staff for their hard work in preparing for this hearing. we're here today to discuss the
administration's unfortunate -- the consumer operated and oriented plan, it was really a gesture that favored the political option. under the co-op program, the department of health and human services awarded taxpayer money to 23 nonprofit and health insurance co-ops. as of today of those 23, 12 have failed. these 12 collectively received about $1.2 billion in taxpayer money that is almost certainly lost. we can talk about that later in the q & a. their collapse caused 740,000 people in 14 states to lose their health insurance provider and have to scramble to provide coverage. over the last nine months.
our subcommittee has carefully investigated these failures. we wanted to know whether hhs when it played the role of investor made good or bad decisions with taxpayer money. unfortunately, what we found out is that a lot of bad decisions were made. in a majority staff report released today. we detail those findings. this report is here and you all should have it. we detail findings that hhs was aware of serious problems concerning the failed co-ops enrollment strategies. before the department ever approved the initial loans. once the co-ops got going in 2017, things got going in a hurry. the failed co-ops ultimately wracked up $376 million in losses in 2014. more than a billion dollars in losses in 2015. despite getting regular reports that co-ops were hemorrhaging
cash, hhs took no corrective action for over a year. worst department approved additional loan awards to three of the now failed co-ops. this happened in 2014. this was despite clear warnings that these co-ops did not have plans for turning things around. the majority of the staff -- let me give you a few highlights. when hhs approved start-up loans for the failed co-ops, it asked a reputable firm to evaluate the loans and business plans. we have reviewed the analysis. here's what we found. you will probably hear from our witnesses that deloitte gave the co op's a passing score. it was based on a grading scale. and deloitte warned hhs very specific concerns with the failed co-ops. it foreshadowed the problems we'll talk about today, the
problems that were to come. they said among other things, many of the failed co-ops could not identify their failed leadership team. seven had serious enrollments in their strategy. many of them submitted budgets that were incomplete, not reasonable, not cost effective or that didn't align with the co op's own financial projections. deloitte warned that several co-ops relied on unreasonable projections about their own growth. co opportunity, a co-op for iowa and nebraska had a target profit much lower than the industry benchmark of 4.8%. that was an understatement. co opportunities stated target and profit margin was zero percent. nevertheless, hhs approved all failed co-ops to the tune of $1.2 billion. after they entered the
marketplace in 2014, the health deteriorated rapidly. they received key financial information from the co-ops, including monthly reports and audited quarterly financial statements. starting almost immediately, the failed co-ops experienced severe financial losses that exceeded the worst case scenarios. cumulatively by the end of 2014, they failed by $263 million, which is four times above the projection. the co-ops enrollment numbers were no less problematic, according to the 2014 monthly report submitted to hhs. five others overshot their projections by wide margins. both errors can cause serious financial losses. excessively high enrollment was greater.
despite having that information at your fingertips, hhs did not step in. the department's loan agreements with the co-ops, entitled it to invoke a number of accountability tools. hhs chose to take a pass inexplicably for over a year. the agency took no corrective action. in order to put any co op on enhanced oversight. five of the 12 were never subject to corrective oversite. five of the 12 failed co-ops were never subject to corrective action by hhs. and hhs waited until september 2015 to put five others on corrective action or enhanced oversight. 12 months later, all 12 co-ops had failed. hhs had the power to stop disbursing funds. it never did. instead, over the course of 2014, hhs dispersed money to the failed co-ops, even as they lost
more than $1.4 million. that's about 1.65 in losses. 1.65 in losses for every dollar that hhs gave them. more unbelievable near the end of 2014, hhs approved more loans for having insufficient capital. despite clear warning signs that those co-ops could not turn things around. hhs asked deloitte to complete a revi review. according to deloitte hhs truncated this review. deloitte did not evaluate the likelihood that the co op would achieve the facts outlined in the business plan. the new york co-op and the kentucky co-op did not have
sound footing. they received $355 million in additional solvency loans from taxpayers. all have failed by the way. the kentucky co-op collapsed after suffering losses in 2014. another $115 million in 2015. at the time of co opportunities closure, that company is operating losses exceed $163 million. and most staggering of all. after the hhs gave $90 million rather than allow it to scale down. they went on to lose another $544 million in 2015. those statements show that none of the failed co-ops have repayed a single dollar. principle or interest. of the $1.2 billion of federal loans they received. it's unlikely they will receive any repayment.
the failed co-ops none loan liabilities exceed $1.13 billion. which is 90% greater than the reported assets. on top of that, they owe $1.2 billion to the federal government. we shouldn't hold our breath on repayment. the american taxpayer is not the only one to lose. failed co-ops have more than $700 million in unpaid medical claims. by the policyholders of other insurance companies, who have to pay increased other insurance companies, have to pay increased premiums. this is going to go back to our con sit u ends. to the taxpayer. doctors, hospitals and individual patients suffer out of pocket losses. we'll talk about this more in relationship to the new york co op. these failed co-ops were a costly experiment gone wrong, and real people got hurt.
including more than 700,000 americans who lost their health plans. today i plan to ask hhs whether they accept responsibility for the taxpayer waste. at this point i'd like to ask my colleagues if they'd like to make opening statements, all of you are welcome to do so. you've done a lot on the issue of co opportunity. and its effect on constituents in nebraska. >> thank you, chairman for your leadership and for holding this important hearing today. i'd like to acknowledge our colleague and ranking member senator mccaskill. we wish her well and a speedy return to the senate. today's hearing is about the families who lost their health care plans. it's about the taxpayers swindled. the bureaucrats who mismanaged the program. and local governments who had to
cut budgets from firefighters and schools to make up for washington's failures. everyone in this room, republican and democrat has a duty to our constituents to get the whole story. the 23 not for profit health insurers used loaned from the taxpayer. less than a year into operation, the financial condition of many of these co-ops was unstable at best. deloitte warned this was the case. since then, 12 of the 23 have gone out of business, representing a co op failure rate of more than 50%. 740,000 americans covered by these 12 defunct insurance companies were given $1.2 million in so called loans from the taxpayer. the subcommittee's reports the loans will never be paid.
unfortunately, the mess caused by this program began in my state. the opportunity was headquartered in iowa, and operated in nebraska and iowa, the newly created insurer was given a total of $145 million of taxpayer funded loans. things seemed to be going well at first. when they announced they had signed up far more enrollees than anticipated. despite ample funding and more than enough enrollees, on december 16th, 2014, as people were signing up for their 2015 coverage. the iowa insurance commissioner placed opportunity under a supervision order. the iowa insurance commissioner said that rehabilitation of opportunity would be impossible. and he sought a court order for liquidation. after one year of operation,
120,000 enrollees had their coverage cancelled and were forced to find new ensurers. co opportunity owed millions of dollars as the chairman has mentioned to doctors and hospitals for claims for its enrollees that will not be paid. to address the insurer collapse. the state of nebraska pays claims in the event of insurer collapse. such as co opportunities and the guarantee fund is financed on other insurance companies. prices that were at market rates. unlike what co opportunity offered originally, and that's why they had far too many enrollees. to help pay for co opportunities unpaid claims. insurers were assessed fees totaling $47 million last year alone, it should be noted this sum was not enough to cover their losses, and the guarantee fund had to take out a loan. as co opportunity has no remaining assets. it's improbable that the guarantee fund will ever be
repaid this $47 million. it will be assessed into other insurers into the market. these insurers had to pay co opportunities outstanding bills, there's no reason to believe co opportunity will ever pay any of this money back. nebraska tax revenues will be decreased by $47 million, because these insurers are subsequently able over a five-year period to reduce their tax liability to the state. this means that my state will have much less revenue to pay for priorities like education, roads, firefighters and other issues. they're going to have to pay for the co opportunity failure again, first as individuals became uninsured and now as taxpayers have to bail out co opportunity. on top of the $145 million they as taxpayers made in federal loans. as previously mentioned, 11 other co-ops have now failed. likely initiating variations on the same story. moreover, depending on the remaining co-ops, it could happen in the states in the years to come.
in the 11 co-ops that remain in operation. cms has placed 8 of the 11 under corrective action plans. updated financial reports show conditions here have gravely worsened for four co-ops with data available from the fourth quarter of 2015. despite this mess, cms has to date offered very little in terms of substantive information for the problems. i've been questioning the department since last may about all of this, after only one failure, we have 12 and potentially more on the horizon. i sent four letters to your agency and have been working alongside chairman portman. hhs owes all co opportunity enrollees and particularly taxpayers an answer. i look forward to this hearing. i hope for new and stantive answers from the witness panel today. thank you. >> thank you, senator.
>> i want to thank the chairman for holding this important hearing, i do not have an opening statement. >> we'll call our firstcmsanel f witnesses. angie is the acting administrator before becoming acting administratorp he served as principle administrator. he year saw the delivery of clinical, technical solutions. the marketplace chief executive before joining cms, he served as ceo of connecticut's health insurance exchange. i appreciate both of you for being with us this morning, we look forward to your testimony
at this time i'd ask you to stand and raise your right hand. do you swear the testimony you're about to give before the subcommittee will be the truth, the whole truth and nothing but the truth so help you god? >> yes. >> having heard in the affirmative, i appreciate your being here again. your writteny2ç printed in the record in its entirety. we request you limit your oral testimony to five minutes each. >> thank you. members of the subcommittee, i want to offer my best to ranking member mccaskill as well. thank you for allowing us to participate on this hearing. i know you're all aware of the challenges the co-ops have faced. 12 having closed their doors. prior to the end of 2015. i understand the questions you have about how cms provides oversights to co-ops. and cms's level of accountability when a co op closes. as you know, the affordable care
act allocated $4 billion to start the program. the idea to stimulate new local competition in an industry that has a history of being difficult for small companies to enter. some entering markets that hadn't seen a new competitor in decades. let me first collar phi our oversight per view. the federal government is not granted authority for the states. analyzing certifying rates and surplus levels and determining who's qualified to offer insurance during open enrollment. cms's responsibility is to award and oversee funds and maximize the likelihood that taxpayer funds are returned. co-ops were selected and the remaining 15% of funds who were awards during 2015 loans were made through an evaluation