Acting CMS Administrator Andy Slavitt believes mergers or private capital investors could help improve the financial stability of the co-ops this year, even though 12 of the original 23 have failed after a steep cut in risk-corridor payments.
Slavitt, testifying Thursday before the Senate Finance Committee, said that the remaining co-ops have “every opportunity to become successful” in the long term and that they are needed because they provide coverage for those in poor health.
Deep Banerjee, the director of insurance rating for Standard & Poor's, said during an interview that private capital is an interesting idea, but the co-ops aren't likely to attract many investors. Even if some private capital was secured, the co-ops would have to make up for losses in the past two years before turning to 2016 financials.
“Without appropriations, we just don't think there's money to overcome it,” he said.
Slavitt said the co-ops faced multiple challenges getting started. They did not already have relationships with hospitals and other providers, had to work with multiple vendors and did not have data about consumers. They faced the same challenges as any small businesses, he said.
Then CMS announced last year that the risk-corridors program, meant to cover losses from those first years of uncertainty, would provide the co-ops with only 12.6% of their requested amount. That came after Republican lawmakers inserted a provision into a budget agreement stating the program must be budget-neutral. That same requirement was included in the December budget deal.
Slavitt said the co-ops are now required to submit more financial data and the CMS is looking at ways to free up money and regulations for them.
Committee Chairman Orrin Hatch of Utah criticized the $2.4 billion the government loaned the co-ops and said he doesn't think the money will be recouped. The Republican also said the CMS has “encouraged the co-ops to cook their books with some creative accounting.”
The agency has allowed co-ops to record loans as assets in their filings by saying they could apply surplus notes to program startup loans, he said.
Slavitt acknowledged that it was too early to determine how much, if any, of the loans would be repaid.
Sen. Rob Portman (R-Ohio) also blasted the program and said HHS could have protected consumers and taxpayers better. “HHS did not provide adequate stewardship over this program,” he said.
Slavitt did not say which of the remaining co-ops are still in trouble. Though recent reports show co-ops serving Maine, Massachusetts and New Hampshire are considered in peril.