[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]





                        THE STATE OF OBAMACARE'S
                             CO	OP PROGRAM

=======================================================================

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            NOVEMBER 3, 2015

                               __________

                          SERIAL NO. 114-HL05

                               __________

         Printed for the use of the Committee on Ways and Means




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                      COMMITTEE ON WAYS AND MEANS

                      SAM JOHNSON, Texas, Chairman

KEVIN BRADY, Texas                   SANDER M. LEVIN, Michigan,
DEVIN NUNES, California              CHARLES B. RANGEL, New York
PATRICK J. TIBERI, Ohio              JIM MCDERMOTT, Washington
DAVID G. REICHERT, Washington        JOHN LEWIS, Georgia
CHARLES W. BOUSTANY, JR., Louisiana  RICHARD E. NEAL, Massachusetts
PETER J. ROSKAM, Illinois            XAVIER BECERRA, California
TOM PRICE, Georgia                   LLOYD DOGGETT, Texas
VERN BUCHANAN, Florida               MIKE THOMPSON, California
ADRIAN SMITH, Nebraska               JOHN B. LARSON, Connecticut
LYNN JENKINS, Kansas                 EARL BLUMENAUER, Oregon
ERIK PAULSEN, Minnesota              RON KIND, Wisconsin
KENNY MARCHANT, Texas                BILL PASCRELL, JR., New Jersey
DIANE BLACK, Tennessee               JOSEPH CROWLEY, New York
TOM REED, New York                   DANNY DAVIS, Illinois
TODD YOUNG, Indiana                  LINDA SANCHEZ, California
MIKE KELLY, Pennsylvania
JIM RENACCI, Ohio
PAT MEEHAN, Pennsylvania
KRISTI NOEM, South Dakota
GEORGE HOLDING, North Carolina
JASON SMITH, Missouri
ROBERT J. DOLD, Illinois

                       Joyce Myer, Staff Director

         Janice Mays, Minority Chief Counsel and Staff Director

                                 ______

                         SUBCOMMITTEE ON HEALTH

                      KEVIN BRADY, Texas, Chairman

SAM JOHNSON, Texas                   JIM MCDERMOTT, Washington
DEVIN NUNES, California              MIKE THOMPSON, California
PETER J. ROSKAM, Illinois            RON KIND, Wisconsin
TOM PRICE, Georgia                   EARL BLUMENAUER, Oregon
VERN BUCHANAN, Florida               BILL PASCRELL, JR., New Jersey
ADRIAN SMITH, Nebraska               DANNY DAVIS, Illinois
LYNN JENKINS, Kansas
KENNY MARCHANT, Texas
DIANE BLACK, Tennessee























                            C O N T E N T S

                               __________

                                                                   Page

Advisory of November 3, 2015 announcing the hearing..............     2

                                WITNESS

Mandy Cohen, Chief Operating Officer and Chief of Staff, Centers 
  for Medicare and Medicaid Services.............................     6

                    MEMBER QUESTIONS FOR THE RECORD

Adrian Smith.....................................................    59
 
                        THE STATE OF OBAMACARE'S
                             CO-OP PROGRAM

                              ----------                              


                       TUESDAY, NOVEMBER 3, 2015

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:37 p.m., in 
Room 1100, Longworth House Office Building, the Honorable Kevin 
Brady, [chairman of the subcommittee] presiding.
    [The advisory announcing the hearing follows:]
    
    
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    Chairman BRADY. Good afternoon, everyone. First I would 
like to thank our witness, Dr. Mandy Cohen, of the Centers for 
Medicare and Medicaid Services for coming today. We appreciate 
your time and look forward to hearing your testimony.
    We are here to discuss the Consumer Operated and Oriented 
Plan Program known as CO-OP. Supporters of this program argued 
it would increase competition in individual and small group 
health insurance markets. That very premise should have been 
cause for alarm. Only in Washington would a group of 
bureaucrats think they know how best to micromanage competition 
instead of letting consumers and markets do what they do best.
    Well, what could go wrong? Well, it turns out quite a lot. 
First, CMS essentially allowed anyone to participate in the 
program regardless if he or she had any prior experience 
running an insurance company.
    And for financing, Democrats turned predictably to the 
American taxpayer to provide two types of loans: start-up loans 
and solvency loans, both with incredibly favorable loan terms.
    As our newly-elected Speaker said last week, ``What matters 
are results.'' So let us look at the results of the CO-OP 
Program to date: $2.4 billion in taxpayer funds have gone out 
the door; 11 CO-OPs out of 23 have failed; and thousands of 
Americas--and this is where there is bipartisan concern--have 
found their health care security thrown out or in limbo.
    I am interested to hear Dr. Cohen's position, but I suspect 
we are not getting this money back. What is most surprising, I 
think, is the Administration and everyone else knew this was 
coming. Their own credit estimates project massive losses for 
the program, and no matter the capital start-up funding or the 
backstops, a model that is wrong is not going to succeed as 
much as people want it to.
    I am not interested in blame. I am interested in 
understanding how many of these programs are headed to failure, 
discussing where do we go from here, and figuring how we're 
going to bring some stability to those families that have been 
affected.
    The hard-earned tax dollars collected from working 
Americans sitting at Treasury right now are not venture 
capital. You know, bureaucrats in Washington or wherever do not 
have the expertise to institute top-down programs in the name 
of competition.
    We have got serious problems with provider participation in 
some areas. For example, Blue Cross Blue Shield of Texas just 
shut down a plan and narrowed the network in another, a major 
impact on our patients.
    But artificially trying to inject competition into a market 
by backing what I think were shoddily designed start-ups is not 
a fix.
    For true choice and competition, we need to empower 
patients. We need to eliminate the mandates that eliminate or 
reduce choice. We need to increase transparency so patients can 
be informed shoppers. On that we can all agree.
    Today, we are going to learn more about this failed CO-OP 
Program. I look forward to a robust conversation, and I hope we 
can use the lessons from today to help us identify better ways 
to protect American tax dollars going forward and ensure 
greater choice, greater competition, greater quality and access 
for beneficiaries and their families.
    Before I recognize the Ranking Member, Dr. McDermott, for 
an opening statement, I ask unanimous consent that all members' 
written statements be included in the record.
    Without objection, so ordered.
    Chairman BRADY. I now recognize our Ranking Member, Dr. 
McDermott, for the opening statement.
    Mr. MCDERMOTT. Thank you, Mr. Chairman.
    The Republicans were opposed to a public option. So the CO-
OPs were an alternative that was put into this bill. For the 
past five years Republican colleagues have systematically and 
deliberately sabotaged the implementation of the Affordable 
Care Act through phony hearings and frivolous lawsuits and 
meaningless repeal vote, draconian funding cuts, and in a 
nationwide smear campaign they have done everything in their 
power to undermine this landmark law.
    The yearly challenges facing the CO-OPs are just the most 
recent consequence of this destructive Republican agenda.
    The CO-OPs played an important role in providing 
competition. They are community based, non-profit health plans 
that, first and foremost, exist to serve consumers. If Congress 
gives them the support they need to get off the ground, they 
will provide the American people with more choices and help the 
for-profit insurers keep honest.
    But my Republican colleagues have shown they have no 
interest in making this happen. Instead they have weakened and 
undermined the CO-OPs at every turn, and now they point the 
finger at the Administration when they struggle. In 2013, the 
Republican Congress slashed funding for loans and grants to CO-
OPs by nearly two-thirds. These cuts have devastated CO-OPs 
across the country and prevented CMS from approving dozens of 
new applications.
    Moreover, my Republican colleagues have sabotaged the risk 
mitigation programs designed to provide the financial stability 
to insurers, including CO-OPs. In the CR omnibus legislation 
passed at the end of last year, the Republicans inserted a 
rider that blocked discretionary money from being shifted into 
the ACA Risk Corridor Program. As a result, that program has 
been badly underfunded and insurers across the country have 
received only one-eighth of what they expected.
    Many of the fledgling CO-OPs simply do not have the capital 
to absorb this unpredictability which contributes to the 
failures we have been seeing. It is not a problem with CO-OPs. 
It is a direct consequence of Republican sabotage.
    When my colleagues continue to brazenly attack the 
Affordable Care Act, they refuse to put forward any 
constructive ideas. This is particularly ironic when it comes 
to risk management, risk mitigation because based on their past 
behavior, they should know better.
    When the Congress enacted Medicare Part D, we created 
several risk mitigation programs that are very similar to the 
ones in the ACA. My Republican colleagues have strongly 
supported these measures for more than a decade, even longer 
than many experts believe was necessary to get Part D up and 
running. It is really a subsidy of the pharma companies.
    The result has been a stable program and a stronger market 
for the Part D plans. In other words, Republicans 
enthusiastically support risk mitigation, but not when it is 
part of the Affordable Care Act.
    Rather than play Monday morning quarterbacking and blaming 
everybody but the people who control the purse strings, we 
should be talking about things we can do to actually strengthen 
competition. That conversation should examine how we can make 
the CO-OP Program stronger, and there are some changes we need 
to consider.
    Despite being brand new companies with no existing customer 
base, the CO-OPs are prohibited from using Federal start-up 
money on marketing. That makes it nearly impossible for them to 
compete against some of the most powerful corporations and 
advertising budgets in the world. We need to fix this and let 
the CO-OPs operate on a level playing field with the for-profit 
insurance industry.
    And an honest conversation about competition must also 
include a discussion of creating a public option to compete 
with private insurers on the exchange. This would place a 
meaningful check on the insurance industry, give consumers more 
choices, and reduce the deficit by more than $100 billion.
    We spent $480 billion on paperwork last year in the private 
industry, but do not expect to hear anything like that from my 
Republican colleagues this afternoon. Instead we will hear more 
of the same: complaints about problems they have created 
through their own sabotage and nothing constructive about how 
to make the system work better.
    I yield back the balance of my time.
    Chairman BRADY. Thank you, Dr. McDermott.
    Just for the members' information, I know we started late 
today because of votes in the House. I know that Dr. Cohen does 
not have unlimited time.
    We appreciate you being here today. So we are going to be a 
little tight on the timing and the questions today. Dr. Cohen, 
you are recognized for five minutes, and again, welcome.

STATEMENT OF DR. MANDY COHEN, CHIEF OPERATING OFFICER AND CHIEF 
      OF STAFF, CENTERS FOR MEDICARE AND MEDICAID SERVICES

    Dr. COHEN. Thank you very much for having me here today, 
Chairman Brady, Ranking Member McDermott, Members of the 
Subcommittee. I appreciate the opportunity to talk about the 
Consumer Operated and Oriented Plan Program, or the CO-OP 
Program.
    CMS takes its commitment to CO-OP consumers and taxpayers 
very seriously. A priority is to make sure that consumers have 
access to quality, affordable coverage. In the year since the 
passage of the Affordable Care Act, we have seen increased 
competition and more choices for consumers.
    In today's dynamic market, consumers can choose from, on 
average, 50 plans and five issuers for 2016 coverage. Nearly 
nine out of ten returning consumers will have three or more 
issuers to choose from, which research has shown typically 
intensifies price competition in the market.
    New entrants to any market, especially the insurance 
market, can face pressures, particularly in the early stages. 
CO-OPs enter the health insurance market with a number of 
challenges, including building a new provider network, no 
previous claims experience on which to base pricing, and 
competition from large, experienced issuers, as well as 
uncertainty that accompanies the early years of the health 
insurance marketplace.
    As with any new set of business ventures, some CO-OPs have 
succeeded while others have encountered more challenges. There 
have been successful CO-OPs which have provided consumers in 
their State an additional choice of health insurance and 
improved competition, and there have also been CO-OPs that for 
a number of reasons have faced technical, operational, or 
financial difficulties.
    In addition, Congress has made a number of substantial 
rescissions to the initial $6 billion in funding for the CO-
OPs, impacting the program's operation and available funding.
    In the face of multiple pressures, it is not surprising 
that some new entrants have struggled to succeed. CMS plays a 
dual role to the CO-OP Program, providing both oversight and 
support. CMS works to give CO-OPs tools to succeed, including 
sharing best practices among CO-OPs and looking for additional 
regulatory flexibilities.
    At the request of the CO-OPs, CMS has approved conversion 
of surplus notes, and we have provided and approved the 
infusion of outside capital and additional flexibilities that 
the legal and regulatory framework of the CO-OP Program allows.
    CMS also plays an important oversight role. CMS along with 
State Departments of Insurance, which serve as a primary 
regulator of the insurance in States, works to ensure that CO-
OPs are well run and financially sound.
    CMS has implemented the CO-OP Program as required by 
statute and with available funds evaluating applications, 
monitoring financial performance, and conducting oversight. All 
CO-OPs are subject to standardized, ongoing program oversight 
activities that include calls to monitor goals and challenges, 
periodic on-site visits, performance and financial auditing, 
reporting obligations, and a host of additional measures 
employed as necessary on a case specific basis such that the 
evaluation of CO-OPs' sustainability.
    CMS increased the financial and data reporting requirements 
for CO-OPs, requiring them to provide quarterly statements that 
they are in compliance with all relevant State licensure 
requirements. If the CO-OPs have experienced any compliance 
issues with State regulators, the CO-OP is required to describe 
the steps being taken to resolve those issues.
    Financial data collection has helped CMS to identify CO-OPs 
with financial issues and gives CMS the opportunity work with 
State insurance regulators to help correct those issues that 
are identified.
    As part of our oversight efforts, CMS has placed some CO-
OPs on enhanced oversight schedules or corrective action plans.
    Despite the support and oversight, some of these new 
entrants to the insurance market have struggled to succeed. 
When States and CMS determine that a CO-OP should wind down, 
our first responsibility is to make sure current policy holders 
are able to retain coverage through the end of the year. CMS' 
priority is to make sure that the consumers have access to 
quality, affordable coverage. We are working with local 
officials to do everything possible to make sure consumers stay 
covered and retain access to high quality choices and issuers.
    Like other consumers, affected CO-OP enrollees are able to 
shop for 2016 coverage on the marketplace right now. In 2016, 
nearly eight in ten returning marketplace consumers will be 
able to buy a plan with premiums for less than $10 a month 
after tax credits.
    We continue to encourage those consumers already enrolled 
in marketplace coverage to come back to the marketplace, update 
their information, compare their options, and make sure they 
are enrolled in the plan that best meets their needs.
    Since the enactment of the Affordable Care Act, CMS has 
worked to increase access to quality, affordable coverage 
through the marketplace, while being responsible stewards of 
taxpayer dollars.
    The CO-OP Program was designed to give consumers more 
choice, promote competition, and improve quality of health 
insurance market as it has done so in a number of States. CMS 
will continue to work closely with the CO-OPs and State 
Departments of Insurance to provide the best outcome for 
consumers.
    We appreciate the subcommittee's interest in this topic, 
and I am happy to answer your questions.
    Chairman BRADY. Thank you, Dr. Cohen.
    I think given the number of failures where we have seen it 
and the predictions going forward, it is pretty clear to me the 
history of the CO-OPs is one of the, I think, poor decision 
making and failed execution.
    I would like to start by asking about the action CMS is 
taking now with the remaining CO-OPs. We all know how insurance 
works. Insurers have to collect enough in premiums to cover 
what they expect to pay out in claims. That is why having well-
funded reserves are so crucial. Insurance is a delicate balance 
between risk and capital.
    So if an insurer takes on too much risk and does not have 
enough capital, well, then they will quickly become insolvent. 
So as part of the monitoring of the insurance market 
regulators, as you made the point, keep a sharp eye on 
insurers' ratio of risk-based capital.
    It is my understanding the CMS required the CO-OPs to have 
higher risk-based capital reserve than most States generally 
require of the insurers they monitor, which seems to me to be a 
good thing; is that correct, Dr. Cohen?
    Dr. COHEN. That is correct. As you know, we have wanted to 
make sure that we are being good stewards----
    Chairman BRADY. Sure.
    Dr. COHEN [continuing]. Of taxpayer dollars and wanting to 
be more conservative in these first few years.
    Chairman BRADY. You know, I suspect CMS sets the rate of 
risk-based capital standard for CO-OPs at 500 percent because 
they knew new entrants were riskier than the other insurers 
they were competing with, and they institutionalized financial 
discipline among the start-ups. Again, this makes sense to me. 
Is that a fair characterization?
    Dr. COHEN. That is accurate.
    Chairman BRADY. Okay. Regulators use the risk-based capital 
measure as an early warning sign of trouble, as a sign an 
insurer is in need of monitoring. It is an important test to 
ensure plans are appropriately capitalized for the risk they 
have taken on. This helps ensure the right protections are in 
place for those who purchase the plans from the CO-OPs and for 
the tax dollars backing the CO-OP experiment.
    And this is why my question really is concerned about the 
start-up conversion process. Media reports indicate CMS is 
allowing CO-OPs to move their start-up loans, and let me 
underscore these are loans, from the liability side of the 
ledger where they belong to the equity side of the ledger.
    So, Dr. Cohen, three fairly clear questions, I think, can 
be answered with a yes or no. All things being equal, without 
any material changes to the financial situation, a CO-OP that 
undergoes a start-up conversion gets a boost of capital on 
their books; is that right? On their books.
    Dr. COHEN. So yes, and it's an accounting mechanism to 
create a liability into an asset, yes.
    Chairman BRADY. And all things being equal, again, without 
any change in their financial situation, the CO-OP who gets a 
start-up conversion could go from failing your risk-based 
capital requirement to passing it; is that correct, because it 
increases the equity?
    Dr. COHEN. The idea, again, yes, is to improve its capital 
position.
    Chairman BRADY. And all things being equal, again, apples 
to apples, the CO-OP that gets a start-up conversion could go 
from being in a position to undergo monitoring and enhanced 
oversight to one not be required to do so. Again, on paper the 
equity looks stronger.
    Dr. COHEN. Yes, that is accurate, and that is why we were 
careful to make sure we did this in coordination with the State 
Departments of Insurance. I think we share the concerns that 
you are articulating, and that is why we wanted to make sure 
the State regulators, who are the primary regulators in this 
space, were supportive of this conversion.
    And so we would evaluate each one of these individually. 
They were based on the particular circumstances of that 
individual CO-OP. They had to request that from us, and we did 
not move forward unless the State Department of Insurance also 
thought that it was a wise move to move forward as well.
    Chairman BRADY. Well, see, I would respectfully disagree. I 
do not understand why CMS is allowing this. Why put a test in 
place if you are not going to follow it?
    We just came through a financial crisis where reserves on 
the books really did not prove to be reserves, and so when you 
allow CO-OPs to make changes on paper to make then appear 
healthier than they really are not, you are undermining your 
own oversight measure.
    And given the number of CO-OPs that have failed and what 
looks like very shaky CO-OPs going forward, can you explain the 
logic behind this? Because they are not financially healthier 
or more sound. They just took the loan they got and made it 
appear to be capital and equity.
    Dr. COHEN. Right. Chairman, I appreciate the question. 
There are questions we made sure to ask ourselves, some tough 
questions, about is this the right thing for any one of these 
individual CO-OPs to make sure that improving their capital 
position with this conversion was the right thing, to make 
sure, again, our primary responsibility and our primary job is 
to make sure that the consumers of any one of these CO-OPs are 
protected. That is why each one of these went under individual 
scrutiny before we would make that decision, and we did it in 
coordination with the State Departments of Insurance.
    And, again, there are a number of factors that went into 
that, and this is only one small slice of what would be their 
capitalized assets, but again, that is why we looked at each 
individual situation to understand whether or not it made sense 
for that CO-OP, that in coordination with the State Department 
of Insurance.
    Chairman BRADY. I will just say I think you need to reverse 
it. This does not make sense. It does not give a true picture 
of the CO-OPs. Those who do not have the adequate reserves 
ought to be getting extremely high oversight and monitoring 
because these are patients' lives on the line.
    The destruction has already been large in States, and the 
Members on this dais who have had families, patients lose their 
care, and so going forward it seems to me we ought to always be 
erring on the side of accurate, honest bookkeeping for these 
CO-OPs.
    And, again, thank you for being here today.
    Dr. COHEN. Thank you, Chairman.
    [The prepared statement of Dr. Cohen follows:]
    
    
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    Chairman BRADY. Dr. McDermott, you are recognized.
    Mr. MCDERMOTT. Dr. Cohen, in my opening statement I 
suggested that the Republican Congress in 2013 slashed the 
funding for loans and grants by nearly two-thirds; is that 
correct?
    Dr. COHEN. That is correct. We started with, when the 
Affordable Care Act was passed, with around $6 billion. We have 
awarded about $2.5 billion, which is the remaining money which 
was left for the program after rescissions.
    Mr. MCDERMOTT. So your chance of supporting these CO-OPs 
was cut by two-thirds.
    Dr. COHEN. That is correct.
    Mr. MCDERMOTT. And then the risk mitigation, that is, you 
open the doors of your CO-OP and you look out there and 50 
people come in. You do not know what they have got when they 
come in. You charge them a premium you think is the proper one, 
but you may have some very sick people; is that correct?
    Dr. COHEN. It is true. In the first years of the 
marketplace there was a lot of uncertainty about the risk pool 
for any one of these CO-OPs. That is correct. So they had quite 
a challenge in terms of setting prices because they did not 
know exactly who their population would be that they would be 
covering.
    They were also building new provider networks and trying to 
arrange those contracts, obviously starting all of their back 
ends. So a lot of work to be done to start a new insurance 
company in this space.
    Mr. MCDERMOTT. And so like the drug companies when they 
started on the Part D, they did not know who they were going to 
get either, and we set up risk mitigation programs, correct?
    Dr. COHEN. That is correct.
    Mr. MCDERMOTT. If it cost more than they anticipated, we 
would support them at least to a certain extent to get through 
that.
    Dr. COHEN. That is right. For the marketplace we have three 
risk mitigation programs, a risk adjustment program which 
allows folks to make sure that they are not cherry-picking up 
the well folks, to make sure that they are actually covering 
folks who need coverage that are sick; a reinsurance program 
that helps to cover the cost of high cost enrollees; and then a 
risk corridor program that really gets at that uncertainty 
about pricing. And all of those work in tandem with each other.
    Mr. MCDERMOTT. And so it would be similar to that program 
in Part D that we put in with the CO-OPs. We gave a pot of 
money to be used to mitigate any unforeseen kinds of problems 
that came through the door without them having any way of 
knowing?
    Dr. COHEN. Yes. These were programs that were not just 
exclusively for the CO-OPs but for all of the issuers 
participating in the marketplace because we knew it was a 
transition time for all of the issuers moving into this net 
market for the first time, needing to cover preexisting 
conditions, making sure that they were covering the essential 
health benefits. So it was a transition for all of these 
issuers, and that is why those three programs were in 
existence, modeled as you said after the Part D, you know, very 
successful programs in Part D.
    They are meant to be temporary. At least two of the three 
are temporary, again, to get us through a transition period.
    Mr. MCDERMOTT. When did the CO-OPs discover that they were 
only going to get one-eighth, 12 percent of the money they 
expected? Was that the 1st of October?
    Dr. COHEN. Yes, that is correct, the end of September, 
correct.
    Mr. MCDERMOTT. So when you looked at the books and what had 
been appropriated by the Republicans, you only had that amount 
of money, and you announced to them, ``You are only going to 
get an eighth of what you thought you were going to get''?
    Dr. COHEN. So the risk corridor dollar amount was really a 
product of a mathematical formula based on the information 
submitted by the issuers themselves, based on their 2014 claims 
and premium experience. So whatever happened in 2014, they sent 
us the data on it, and that was at that point when we were able 
to calculate what the ins and outs of that program would be, 
and as you mentioned at the end of September we were able to 
share that information with folks.
    Mr. MCDERMOTT. So what happened then is the insurance 
companies in all the States looked at their reserves and so 
forth and aid to these CO-OPs, ``You are no longer able to 
offer insurance because you do not have the proper reserves 
because you have not gotten from the Federal Government what 
they promised you.''
    Dr. COHEN. I think that was one of a number of factors. I 
think CO-OPs had, as I have mentioned, a number of 
difficulties. Certainly the lower risk corridor payments 
certainly was one of the things that contributed to some of 
their challenges.
    I would also mention in one of the other risk corridor 
programs, the reinsurance program, everyone actually got more 
money than they were expecting, about 25 percent more money. So 
one program more, so one program less.
    So while I would say, on balance, those are contributing 
factors. As I mentioned, there were a lot of challenges for the 
CO-OPs, the uncertainty of pricing, the difficulty of provider 
networks competing against more established insurers, but 
certainly the reinsurance and the risk adjustment and risk 
corridor certainly impacted that.
    Mr. MCDERMOTT. What is the longest standing CO-OP that you 
have? How long has it been running, two years?
    Dr. COHEN. This will be their second year.
    Mr. MCDERMOTT. This would be their second year. So they 
have been one year in operation. They lost two-thirds of their 
money in the loans and so forth, and then they lose the 
mitigation. They are in their second year.
    How many years do you think it takes for them to stabilize?
    Dr. COHEN. It is a good question. Certainly more than two, 
more than two to stabilize.
    Mr. MCDERMOTT. Thank you.
    Chairman BRADY. Thank you. Thank you.
    Mr. Johnson is recognized for five minutes.
    Mr. JOHNSON. Thank you, Mr. Chairman.
    Thank you for testifying today. We appreciate that.
    I am just going to be frank with you. You know, back in 
Collin County, Texas, people do not like Obamacare, and as a 
result of the law, they have seen their insurance premiums and 
costs increase and their access to doctors and other providers 
decrease, all the while having to pay higher taxes to pay for 
Obamacare.
    Now, we do not have a CO-OP in Texas, but the recent 
failing of the 11 CO-OPs is still important to my constituents. 
The reason why is because over $1 billion in taxpayer money has 
gone down the drain, and that is what happens when almost half 
of the Obamacare CO-OPs have failed.
    Dr. Cohen, it seems with so much taxpayer funding on the 
line, CMS should have been more proactive to ensure the 
solvency of these CO-OPs. In fact, Vermont refused to allow a 
CO-OP to set up shop because of unrealistic assumptions on 
rates, enrollment and other key factors.
    So these CO-OP failures ought not to have been a surprise. 
My question for you is: when did CMS become aware that the CO-
OPs were failing, and why did you not do more to protect 
taxpayer dollars?
    Dr. COHEN. CMS has been doing oversight of the CO-OPs from 
the beginning of the program. As I mentioned, we are just in 
the second year of the program now, and we have been doing 
oversight over the course of the first year of business.
    Mr. JOHNSON. Yes, but when did you figure out that they 
were not going to make it?
    Dr. COHEN. So as you mentioned, the State of Vermont was 
not even able to comply with State licensure and we did not 
even allow them to move forward in that circumstance. So all 
along there are guideposts and check points that we make sure 
to look at oversight.
    If we feel like they are going beyond the guard rails that 
we set up, we enhance our oversight, put folks on enhanced 
oversight or corrective action plans. We do on-site visits to 
gather more information than just them sending us information. 
We want to go on site and see it with our own eyes, have our 
actuaries do on-site and make sure we are doing evaluations.
    So, you know, I will say I do not think we have been easy 
on the CO-OPs, as you can see with some of the recent actions. 
We have taken our job as stewards of the taxpayer dollar very 
seriously. We work within the parameters of the statute and the 
existing funding, and you know, we will continue to do that for 
the life of the program.
    Mr. JOHNSON. It seems like you just want more dollars. 
Well, I think the taxpayer just deserves more.
    Thank you, Mr. Chairman.
    Dr. COHEN. Thank you.
    Chairman BRADY. Thank you.
    Mr. Thompson, you are recognized.
    Mr. THOMPSON. Thank you, Mr. Chairman.
    Dr. Cohen, thank you for being here.
    I cannot help but chuckle that their side of the aisle cuts 
two-thirds of the funding and then they blame you for not 
having proper oversight to make sure these CO-OPs exist. I 
think that is an interesting tactic, but I do not think it is 
particularly accurate.
    Just as a bit of a refresher, can you just succinctly state 
the top three reasons why these CO-OPs failed?
    Dr. COHEN. Why the CO-OPs failed? There were a number of 
reasons. It is a challenge to start an insurance company in 
this market. It is a challenge just to think about it without 
even having to start a brand new market, which is what was 
created here.
    Whether it was building a provider network and not having 
the relationship with providers to get the best rates possible; 
I think the uncertainty as mentioned by Congressman McDermott, 
the uncertainty of what the consumer would look like. How sick 
was that population? And thus, how to set the proper pricing 
for that to cover their costs, and then I think obviously the 
lack of brand name. They are competing against big, experienced 
players with long relationships with their community.
    So I mean, it was an uphill challenge from the beginning. 
Obviously some CO-OPs have risen to that challenge and have 
been very successful and are expanding into new markets and 
giving consumers new options.
    Mr. THOMPSON. And had the money been there, the six billion 
that was in the original bill, would that have mitigated many 
of those problems?
    Dr. COHEN. Obviously, we know that these entities in early 
years, that it is a challenge to maintain their solvency, and 
additional money would have certainly long a long way to making 
sure they were able to cover a lot of their claims costs, 
figure out some of those uncertainties, and chart a course for 
long-term sustainability, and ultimately paying back the loans 
that we give them.
    Mr. THOMPSON. And I do not want to sound like an apologist 
for the CO-OPs. I was never a fan, but to reiterate what the 
Ranking Member said, this was the option that we had. What most 
of us wanted was the public option, and that would have 
provided the competition needed to really make the private 
insurers perform to a greater degree.
    But when that option was taken away, this was kind of the 
fallback, and I think it is important to state that. And then 
when you take the money out that was put in to make the 
fallback work, it seems near impossible. I am surprised that 
any of them are still going.
    In your oversight role, have you seen consumers and 
providers that value this CO-OP local option?
    Dr. COHEN. Absolutely. Not only do we hear from individual 
consumers. I had the opportunity to meet with some of the CO-
OPs that are expanding and are thriving and about some of the 
innovative and creative work that they are doing for their 
consumers, whether it is targeting diabetic populations and 
making sure they have intensive care management. You know, as a 
physician those are exciting and innovative ways to think about 
caring for a tough disease.
    So, again, they were designed as a nonprofit entity that is 
really connected to the community with consumers on their board 
driving decisions about the entity and really trying to create 
benefits that are really tailored very closely to what the 
community needs, and so I think that there are a lot of great 
things are doing in that space.
    And the ones that are succeeding are able to sort of get 
through this period of uncertainty. I think there is a lot of 
benefit they can bring.
    Mr. THOMPSON. Getting back to where he said he wanted to go 
when he started the hearing is to figure out where the problems 
are and make it work, how would you suggest that we as Members 
of Congress support these local options and to make sure that 
they work and deliver to our constituents?
    Dr. COHEN. So I think, as you know, on Sunday we started 
the next open enrollment period, and we are in it right now. So 
I would hope all Members are doing is educating customers and 
consumers that are in CO-OPs, that are not, about their options 
on HealthCare.gov; if they are in Federal facilitated 
marketplace States, make sure they know if they go and shop 
that they can even save even more money.
    We did some analysis to show that if you can go back, you 
can actually save more money than they already are. We know 
that eight in ten consumers are benefitting from financial 
assistance to the tune of about $270 a month.
    So there are real financial benefits for folks to go look 
at their options, see what is there, see what is right for 
their family, and so I would encourage you to make sure that 
your constituents know what is there for them and that there 
are options out there.
    Mr. THOMPSON. Thank you.
    Dr. COHEN. Thank you.
    Chairman BRADY. Thank you.
    Mr. Roskam, you are recognized.
    Mr. ROSKAM. Thank you, Mr. Chairman.
    Dr. Cohen, thank you for your time today.
    Just to correct the record and to make sure I am clear on 
something, the public option has been discussed today. I am not 
a fan of the public option. I opposed it. Every Republican 
opposed it, but the Republicans were not running the show; is 
that not right, when the Affordable Care Act was crafted and it 
was passed? Is that not right, Dr. Cohen?
    It was all Democratic votes. So by definition, the people 
that took the public option away were Democrats; is that not 
correct?
    Dr. COHEN. That is correct.
    Mr. ROSKAM. Okay. And then as we move forward, the $6 
billion that could have mitigated some of these losses, the $6 
billion works until when? Until the $6 billion runs out, right?
    Dr. COHEN. So we had less than $6 billion to work with, 
about 2.5 billion, but you are right. It was a limited pool of 
funding, and the idea is to get folks through a time of 
uncertainty to a place where they had a long-term plan of, you 
know, having premiums to cover their costs, outside capital to 
fund different parts of their business.
    But we knew in any start-up period that they would need 
both start-up and solvency loans, which is how the program was 
designed.
    Mr. ROSKAM. But the limited amount of funds is, by 
definition, it is finite, and a couple of minutes ago when you 
were asked the question how long can the CO-OPs last by 
themselves, you said, and I am paraphrasing, but my 
understanding was, well, we know they cannot last by themselves 
in the first two years; is that not right?
    Dr. COHEN. Well, we see a lot of the CO-OPs are successful 
right now and moving forward.
    Mr. ROSKAM. Right, but 11 of them, 12 if you count Vermont, 
they have not made it.
    Dr. COHEN. That is true. We have done a lot of work in the 
last few months using our oversight hat to make sure that 
consumers know moving forward if they are shopping in open 
enrollment right now, we wanted to make sure that they knew 
that the CO-OPs that remain in the marketplace were financially 
viable, can make it through the entire year. Our first priority 
is to make sure there was not going to be a midyear failure 
next year for any consumers, you know, and that is how we 
really went about our decision making.
    We played it very conservative in that way, which is why I 
think there has been so much activity in the last several 
months. We worked in partnership with the State Departments of 
Insurance on that oversight and will continue to do so.
    Mr. ROSKAM. So sort of just the sense of restraint and 
reluctance and the wariness that you hear from this side of the 
aisle is based on the representations that were made in the 
past by CMS about how good things were looking, and even your 
language today in your testimony, things like ``the CO-OP 
application review process was rigorous, objective and 
independent and since awarding both start-up and solvency loans 
CMS has closely monitored and evaluated all CO-OPs to assess 
performance and compliance.''
    You know, to Mr. Johnson's point, this is costing a lot of 
money, and it seems like at many levels it is simply a failure. 
It is out of balance. The risk corridors, by definition, were 
supposed to be budget neutral, and yet it seems like there is 
an admonition against a Republican Congress that you are not 
funding these things.
    And to just follow up, to put a finer point on Mr. 
Johnson's interchange with you, you know, a lot of us feel like 
this is good money after bad.
    So why in the world or what hope would you hold out that 
based on past CMS performance and past CO-OP performance and 
the fact that we are in a really limited time frame and things 
like, you know, quotes that come from the CMS spokesman back in 
a Bloomberg article of March of 2014, ``While it is still 
early, we are encouraged by what we have seen so far and will 
continue to work closely with these CO-OPs to monitor their 
progress and assess their performance.''
    I mean, it just seems like it is a disaster. Let us turn 
the page, call it what it is, and move on. Do you not think 
that is a good idea?
    Dr. COHEN. Well, so we have been, you know, at any given 
point in time there is certain information that we have in 
front of us. We continue to work with the State Departments of 
Insurance, which are the primary regulators to make sure we are 
understanding what is happening in the State and with those CO-
OPs.
    We will continue to play that oversight role. At the same 
time we wear another hat, which is to support the CO-OP 
Program, and I think if you are thinking about a value 
proposition of any program, you want to understand why was it 
created in the first place, and when I think about that, you 
know, it is really, as I was mentioning earlier, is to create a 
program that allowed for additional competition in an era of 
insurer consolidation where there are not a lot of choices for 
consumers, you know, just looking to give folks yet one more 
choice of an affordable option that they can choose from.
    Again, we are going to do our best to support those that 
are showing themselves to be successful and moving in the right 
direction.
    Chairman BRADY. Thank you.
    Mr. Kind, you are recognized for five minutes.
    Mr. KIND. Thank you, Mr. Chairman.
    Dr. Cohen, thank you for your testimony here today on an 
important topic.
    But before I do, since you are a representative from CMS 
before the panel today, I cannot help but commend you and CMS 
for moving forward on advanced care planning reimbursement.
    Dr. COHEN. Thank you.
    Mr. KIND. It was long overdue. Many of us were actively 
engaged, including my absent colleague. I am not here to call 
him out right now, but Mr. Blumenauer and the leadership that 
he provided.
    I hale from a part of the country in Western Wisconsin. We 
are very proud of the advanced directive programs that have 
been established at Gundersen Lutheran, Mayo Health Clinic, all 
over my district. I am a member at Gundersen Lutheran myself. 
Ninety-five percent of the patients there have an advanced 
directive on record. I have one. My wife has one. My teenage 
boys do. My parents do, and what a relief that is that they are 
respecting our decisions when it comes to end of life care 
planning.
    And I always thought it was wrong that our health care 
providers were not being reimbursed for the education and the 
consultation that inevitably has to occur to help patients 
through this planning process.
    So thank you for moving forward on that.
    Now, back to the health CO-OPs. Again, I am from Wisconsin. 
Every time you turn around in our State you see a CO-OP. We are 
not afraid of CO-OPs. They are very successful business models 
in the private sector, whether it is farm co-ops, whether it is 
the health care CO-OP we have right now that is thriving in the 
Madison area, whether it is financial co-ops. Shoot, even the 
Green Bay Packers you could claim is a co-op because it is a 
fan-owned team, and granted, I will concede to you that they 
failed miserably the other night against the Broncos, but the 
Packer model has generally worked pretty well, and it is a 
matter of consumer owned, consumer driven, and that is the 
whole concept behind the CO-OPs.
    But as you mentioned in your testimony, they were going to 
face some difficulties. Start-up capital any new business needs 
is tough to come by. Making sure you get the risk corridor, the 
risk management done the right way, and that is my question to 
you.
    For any insurance company, whether it is a nonprofit CO-OP 
or a private or large or small, if you do not get the right 
blend of customers in there from older to younger and 
healthier, it is going to be very tough to stay in this very 
difficult business.
    Are we doing enough in order to attract especially the 
younger, healthier people into the CO-OPs or into the exchanges 
or what have, or is there a lot more work that we need to do in 
order to spread that risk and have a better chance of managing 
it?
    Dr. COHEN. I very much agree that it is very important to 
make sure that we are getting a risk pool that can manage the 
different types of risk of the different patients across it, 
and that is why we target most of our outreach to the 18 to 35 
year old population, most of whom do not realize the financial 
assistance that is available. They think health care is 
something that is unattainable.
    They also think that they are never going to get hurt, 
break an arm, get in a car accident, get an unfortunate disease 
at a younger age. So we have been doing a ton of work with the 
18 to 35 year old population. All of our marketing efforts are 
targeted in that space, and so we continue to do that and make 
sure that we are----
    Mr. KIND. I am sure the CO-OPs are probably experiencing 
the same challenge of trying to attract that risk pool----
    Dr. COHEN. Absolutely.
    Mr. KIND [continuing]. That can make it work and viable for 
them.
    Another concern I want to raise with you and I am wondering 
if you are sharing it is obviously when you have CO-OPs 
failing, it means less competition in the marketplace, but we 
are also seeing on the other end greater mergers in the 
insurance market.
    Is that something that we ought to be paying closer 
attention to, the consolidations and the mergers in the private 
health insurance world right now?
    Dr. COHEN. So I think that is why the CO-OP Program was 
created in the first place, again, in that era of one or two 
dominant players in a market. This is, again, a locally owned, 
locally driven option to give consumers choices. They, you 
know, try to have more relationships with local providers, 
again, so that they can be an affordable, creative, innovative 
option, and I think for the entities that continue on that are 
expanding, they have done just that.
    We are going to try to support the ongoing CO-OPs as much 
as possible, share best practices, have them do some shared 
services if they can help each other out, you know, if they 
share call centers or do some sort of shared services in order 
to help along to improve their operations.
    Mr. KIND. My time is about to expire, but could you also 
just quickly address what is going on with the individual 
health insurance market right now? I am talking about those 
people who do not qualify for premium tax credits. Where they 
are seeing their premiums because I have had a couple of 
encounters back home of individuals who do not qualify and how 
expensive it is and where they are seeing their own premiums 
going right now.
    Dr. COHEN. Yes. So we did a recent analysis of the rate 
increases in the individual market, about a seven percent 
increase of the second lowest cost over within the marketplace, 
and again, we have seen historically double digit increases in 
the individual market. So, you know, trying to rein in the 
prices and I think that the competition speaks exactly to that 
point of being able to keep the prices under control.
    Mr. KIND. Great. Thank you.
    Thank you, Mr. Chairman.
    Chairman BRADY. Thank you.
    Dr. Price, you are recognized.
    Mr. PRICE. Thank you, Mr. Chairman, and thank you for this 
important hearing.
    And I want to thank you for your testimony, Dr. Cohen.
    If you listen to the folks on the other side, the reason 
that the CO-OPs are failing is because there just is not enough 
money and it is those nasty Republicans who have removed all 
that money.
    You mentioned that you were aware of the rescissions that 
occurred for the CO-OPs, and that there were bills that came 
forward to Congress that removed money from the CO-OPs. Do you 
remember what those bills were?
    Dr. COHEN. I do not have them in front of me, but I am 
happy to follow up.
    Mr. PRICE. There were three of them. One was the Department 
of Defense Continuing Appropriations Act of 2011. How many 
Democrats voted for that? Do you know?
    Dr. COHEN. I do not.
    Mr. PRICE. Eighty-one Democrats on that one.
    A second one was the Consolidate Appropriations Act of 
2012. Do you remember how many Democrats voted for that?
    Dr. COHEN. Sorry, sir. I do not.
    Mr. PRICE. A hundred and seventy-two.
    And the third one was the 2012 Continuing Resolution. How 
many Democrats voted for that one? A hundred and eighty-two. 
How about that?
    So the fact is that the CO-OPs have not failed because they 
have not had enough money. The CO-OPs have failed because we 
have got people who do not know how to run insurance company 
running insurance companies and not able to respond to 
individuals.
    As a physician I can tell you that when we talk about this 
stuff people's eyes glaze over when you just talk about money 
and those kinds of things, but I want to talk about patients. 
Five hundred and fifty thousand patients are going to lose 
their coverage through a CO-OP because 11 of the CO-OPs have 
failed; is that correct?
    Dr. COHEN. Well, we are working very hard to make sure the 
consumers have a----
    Mr. PRICE. Five hundred and fifty thousand patients are 
going to lose their coverage, correct?
    Dr. COHEN. That is not correct. They are going to have the 
opportunity to shop during this open enrollment period and can 
transition.
    Mr. PRICE. Are they going to be able to stay in the 
insurance coverage in the CO-OP that they had?
    Dr. COHEN. The CO-OP will end, but they will have the 
opportunity to----
    Mr. PRICE. The CO-OP will end. That is the point. So if you 
like your doctor in that CO-OP, you may or may not be able to 
keep that doctor, right? He or she may not be in the next plan 
that you are signing up for; is that correct?
    Dr. COHEN. That is right. They will need to go to 
HealthCare.gov and look at their options and see whether or not 
their provider is----
    Mr. PRICE. Let me talk about a couple of specific 
challenges that patients have. The individual mandate, which 
would have been complied with because of the CO-OP, does that 
mean that the individual does not have to become subject to the 
individual mandate depending on whether he or she is able to 
get coverage?
    Dr. COHEN. So our goal has always been for coverage, and 
these folks are clearly, you know, saying, ``I want coverage.'' 
And I think we are going to----
    Mr. PRICE. But the question is whether or not they still 
have to comply with the individual mandate even though they 
have already fulfilled that.
    Dr. COHEN. So they have fulfilled it, and the mandate says 
you need to have coverage for at least nine months of the year. 
So at this point they will have had coverage for at least nine 
months of the year, and they will not be----
    Mr. PRICE. There are some CO-OPs that they are not going 
through nine months; is that not correct?
    Dr. COHEN. There was one CO-OP earlier in the year that----
    Mr. PRICE. What about deductibles? If an individual paid 
part of their deductible in the CO-OP and then they move to a 
different plan, does that deductible transfer over or does the 
individual have to make their new deductible?
    Dr. COHEN. It would depend on the individual situation.
    Mr. PRICE. The fact is that it is not likely that the 
deductible will be accepted by the next insurance company; is 
that not correct?
    Dr. COHEN. So we are making sure that folks have coverage 
through the end of the year, which is why it is very important 
that we did our work now to make sure that there are no midyear 
closures so that----
    Mr. PRICE. More money is going to come out of pocket and--
--
    Dr. COHEN [continuing]. They can make it through the----
    Mr. PRICE [continuing]. More difficult access to care.
    I have got just a few minutes left. In the original final 
rule on CO-OPs it said, quote, ``All CO-OP loans must be repaid 
with interest and loans will only be made to private nonprofit 
entities that demonstrate a high probability of becoming 
financially viable.''
    How many CO-OPs got loans?
    Dr. COHEN. A total of 24.
    Mr. PRICE. And how many remain in business as of the end of 
this year?
    Dr. COHEN. At the end of this year we will have 11.
    Mr. PRICE. At the end of this year we will have 11.
    Dr. COHEN. That is right.
    Mr. PRICE. Which means I think 11 are closing, correct?
    Dr. COHEN. So there are 12 that will be closing, one that 
closed a while back.
    Mr. PRICE. So how did you do on a high probability of 
becoming financially viable when 50 percent of them have 
closed?
    Dr. COHEN. So obviously we wish we would have a better 
batting average here, but we wanted to make sure that overall 
that we kept the consumer at the center of this process. We 
wanted to make sure that we did our oversight role and took----
    Mr. PRICE. The fact is that these are not working for 
patients. They simply are not working for patients from a 
health care standpoint or from a financial standpoint.
    I want to touch very briefly in my closing seconds on this 
comment that you just made to Mr. Kind, and you mentioned that 
the amount of increase in premiums for individuals is seven 
percent. You were very careful to mention that it was in the 
Silver Plan.
    What if you take all four of the plans together? What is 
the increase that was seen in 2015 in premiums for individuals 
in all four plans?
    Dr. COHEN. I think it is important when you talk about 
rates you have to talk about----
    Mr. PRICE. Twenty, point, three percent, Dr. Cohen, 20.3 
percent.
    What is the projection of all four plans in 2016?
    Dr. COHEN. So it is important to remember that an average--
--
    Mr. PRICE. Twenty, point, three percent, Dr. Cohen.
    Dr. COHEN [continuing]. Person gets about $270.
    Mr. PRICE. The fact of the matter is costs are going up. 
Access is going down. Quality is being limited.
    Chairman BRADY. Thank you very much.
    Let us ask questions; answer questions promptly. We are 
going to move through this on time, and, Mr. Smith, you are 
recognized.
    Mr. SMITH. Thank you, Mr. Chairman.
    And thank you, Dr. Cohen, for sharing with us your 
expertise and insight.
    I need to express my frustration and I also though want to 
express my understanding that there are perhaps some 
frustrating points of your job as well.
    Back in the summer of 2013, Pam Weldon, a constituent, 
approached me unprompted and presented me with her cancellation 
letter. That was certainly a plan that she liked, and it even 
covered her preexisting condition. She could afford it, and you 
know, fast forwarding a little bit to November 14th, she 
learned that the Platinum Plan she had chosen from the CO-OP in 
Nebraska and Iowa, CoOpportunity Health, she had chosen to 
replace the first plan she lost that was being discontinued. 
She would again have to choose a new plan.
    Then she learned at the beginning of 2015, that 
CoOpportunity Health would be going out of business, forcing 
her to again find a new plan.
    I have a letter here, and I would ask unanimous consent for 
submitting Pam Weldon's letter into the record.
    Chairman BRADY. Without objection.
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    Mr. SMITH. This may be our first hearing dedicated to the 
topic, but certainly Nebraskans have been living with this 
failed CO-OP for nearly a year, and I have asked several 
questions of the department, of HHS. I spoke and wrote to 
Secretary Burwell, and actually I am awaiting more answers, 
certainly more solid answers.
    And I would like to submit for the record the letter that I 
sent Secretary Burwell in January.
    Mr. JOHNSON [presiding]. Without objection.
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    Mr. SMITH. And, Dr. Cohen, we have had, you know, various 
meetings, hearings about the overall situation with Obamacare, 
and I have followed up numerous times with various obviously 
questions and just concerns about taxpayer dollars, and 
actually I would like to also submit for the record, and 
request unanimous consent to place my questions and the 
Secretary's responses into the record.
    Mr. JOHNSON. Without objection.
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    Mr. SMITH. Thank you.
    Now, finally, on September 30th, I joined Chairman Brady 
and my colleague, Mr. Roskam, in sending a letter to the Acting 
CMS Administrator seeking further information on CO-OP solvency 
and oversight. We requested a response by October 14th, but 
have not yet received a response.
    In the meantime, actually in the meantime, seven additional 
CO-OPs have collapsed. I am sure you are well aware of that, 
and I would like to request unanimous consent to submit that 
letter for the record as well.
    Mr. JOHNSON. Without objection.
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    Mr. SMITH. And I have a question. What did HHS or why did 
HHS deny in our case, Nebraska-Iowa CoOpportunity Health's 
request to suspend enrollment?
    Dr. COHEN. Why did we deny their request to suspend 
enrollment?
    Mr. SMITH. Correct.
    Dr. COHEN. I am not actually familiar with that request and 
that denial. I know that I would say any of those decisions we 
do in coordination with the State Department of Insurance, who 
are the primary regulators of the insurance companies. They 
obviously have additional information about the state of play 
of any one of the insurance companies, the state of the risk 
pool.
    I am happy to take back and look further to understand sort 
of the sequence of events there for you.
    Mr. SMITH. Right. I would really appreciate that because it 
appeared then that Tennessee then requested a suspension of 
enrollment and that was granted. So any background that you 
could give to us on that scenario of perhaps what the standards 
are for either granting or denying the requested suspensions in 
enrollment.
    I actually asked the Tennessee Insurance Commissioner about 
her interactions with HHS, and she told us that HHS, quote, 
``certainly had a differing opinion about the financial 
stability of the company,'' end quote, and referring certainly 
to the Community Health Alliance there in Tennessee.
    Now, in Nebraska and Iowa, the Life and Health Insurance 
Guaranty Associations have begun paying out $80 million to 
cover outstanding claims on CoOpportunity Health policies. Will 
providers in other States where CO-OPs have shut down be made 
whole?
    Dr. COHEN. I am sorry. Can you repeat that?
    Mr. SMITH. Will providers in other States where CO-OPs have 
shut down be made whole?
    Dr. COHEN. So the reason we have been doing the work we 
have and the oversight place is to make sure that CO-OPs could 
make sure to pay out the remaining claims over the course of 
this year and have an orderly wind-down process, and we do that 
in coordination with the State Departments of Insurance.
    Obviously like in the case of Nebraska, there is a guaranty 
fund that is a backstop for consumers there to make sure that 
claims are paid.
    Mr. SMITH. I have further questions, but my time has 
expired so I will submit those in writing. I request your 
assistance in getting those answered.
    Dr. COHEN. Absolutely, Congressman.
    Chairman BRADY [presiding]. Thank you.
    Mr. Pascrell, you are recognized.
    Mr. PASCRELL. Yes, thank you, Mr. Chairman.
    Mr. Chairman, I have heard a lot of crocodile tears. Let us 
get down to the nitty gritty.
    You are attempting to do to the ACA what you did to the 
IRS. You are trying to choke the funding. Let us put it all on 
the table. That is the bottom line. That is where you are 
heading.
    I have listened very carefully to our astute folks on the 
other side of the aisle. The health insurance marketplace is 
rooted in competition. I think you are for competition. That is 
all you talk about, or do you believe in it?
    When the ACA was being crafted some advocated strongly for 
the public option because I believed, as many others, that 
would truly drive competition and consumer choice in the 
marketplace. The public option was not part of the final bill.
    It is imperative that local nonprofit insurers continue to 
be part of the marketplace. In the State of New Jersey our CO-
OP, Health Republic of New Jersey, the name of the CO-OP, 
offers 17 plans on the marketplace in 2016. The CO-OP offered 
the lowest priced Silver Plan on the marketplace and enrolled 
over 60,000 residents last year.
    New Jersey was unique in that our State has an unusually 
small number of insurers offering plans. No competition. In 
fact, when you look through all of the 50 States before the 
ACA, there was very little competition going on in those 
States, and we know what the results of it were in premiums and 
everything else.
    Since the marketplace opened for business, new insurers 
have come into the marketplace, into New Jersey. Five insurers 
are now offering a total of 59 plans for 2016, and premium 
increases have been much lower than the average.
    So I have got some questions, Dr. Cohen. I am not the grand 
inquisitor. So I come as a friend. Can you discuss what we have 
seen on a national scale with respect to competition and choice 
in the health insurance marketplaces?
    Dr. COHEN. Yes. Thank you.
    We for the coming 2016 year, we recently released 
information about what consumers can experience now if they go 
to HealthCare.gov in the federally facilitated marketplace 
States, and the average consumer can choose amongst 50 plans 
and five issuers, and 90 percent of folks are looking at three 
or more issuers to choose from.
    So, you know, that is great progress in terms of the 
competition that is available to them in the marketplace, and 
again, I want to make sure that folks know that in addition, 
what is so unique about the marketplace is the financial 
assistance. We know that eight in ten are taking advantage of 
that financial assistance.
    Mr. PASCRELL. Thank you.
    The Affordable Care Act has been successful, I think, in 
arming consumers with the tools that they need in order to make 
these judgments. We want people to go on there, want people to 
study these different plans because my needs are different than 
your needs, et cetera.
    The designation of the plans by metal and the user friendly 
interfaces on HealthCare.gov help consumers compare apples to 
apples when shopping for health insurance.
    Dr. Cohen, during the open enrollment period which just 
started, consumers will be able to do more than compare 
coverage and premiums between different plans. HealthCare.gov 
now has a feature that helps people understand out-of-pocket 
costs.
    Dr. COHEN. Right.
    Mr. PASCRELL. Very concerned about out-of-pocket costs. Can 
you tell us a little bit about how that works and how you think 
it is going to improve the situation?
    Dr. COHEN. Yes, absolutely. We share your concern your 
concern about out-of-pocket cost because it is not just the 
premium per month that people are paying, but it is that total 
out-of-pocket cost.
    Mr. PASCRELL. Do you think most people understand that when 
they go to compare?
    Dr. COHEN. We know that it is a challenge.
    Mr. PASCRELL. Well, why are we not telling people? Why are 
we not educating people?
    Dr. COHEN. Actually when you go to the HealthCare.gov site, 
it actually walks you through the definitions.
    Mr. PASCRELL. Right.
    Dr. COHEN. Premium, deductive, out-of-pocket cost, and now 
for the first time in this open enrollment season we have an 
out-of-pocket cost calculator. It tries to ask you a few simple 
questions about you, your family. Are you a high utilizer of 
health care? Do you have a chronic illness? Do you take 
prescription drugs ongoing, or if something bad happens, do you 
use the doctor?
    And it helps you understand what type of product might be 
the best fit for your family.
    Mr. PASCRELL. Every State had the ability to get money from 
the Federal Government to educate the public about these 
changes that have been going on over the past several years.
    Our State of New Jersey chose the governor--may I finish my 
sentence, Mr. Chairman?
    Chairman BRADY. Yes, sir.
    Mr. PASCRELL. Thank you.
    My State of New Jersey, the governor of that State chose 
not to take the $7.5 million, which is what it was in New 
Jersey, to help educate the public. On every turn my friends on 
the other side of the aisle and their counterparts in State 
governments have tried to close down the ACA, for the record.
    Thank you, Mr. Chairman.
    Chairman BRADY. The gentleman's time has expired. Thank 
you.
    Ms. Jenkins, you are recognized.
    Ms. JENKINS. Thank you, Mr. Chairman.
    And thank you, Dr. Cohen, for being here with us today.
    Dr. COHEN. Thank you.
    Ms. JENKINS. The recent developments and failings of 
Obamacare's CO-OP Program are extremely disconcerting to me and 
should be for all Americans. Hard earned taxpayer money has 
once again been wasted with now almost half of all the CO-OPs 
resulting in failure.
    And according to the Office of Inspector General, many more 
CO-OPs remain at risk of shutting down. This is not only a 
disaster for all of Americans who have lost their health 
insurance plan, but also for the American taxpayer. Billions of 
dollars of taxpayer funding has been wasted; hard earned 
taxpayer dollars were wasted on a program that was improperly 
designed at the most fundamental level.
    This is exactly the sort of thing that I and so many others 
warned about during the debate on Obamacare. When the 
government gets so deeply entangled in the private sector, 
things go badly.
    Now we must seek to understand what led to the massive 
failure and what, if anything, we can do moving forward to 
avoid the situation in the future.
    Dr. Cohen, CMS joined by State regulators allowed certain 
CO-OPs to reclassify their start-up loans as surplus notes, as 
the chairman noted. This means that CO-OPs would be able to 
categorize these loans as equity rather than liability on their 
balance sheet, essentially allowing some CO-OPs to appear to 
satisfy CMS' 500 percent risk-based capital requirement.
    Of course, the truth is the underlying economic substance 
of the CO-OP has not been changed. This is basically an 
accounting trick. Can you tell us and give us any idea how 
popular this shell game is with the remaining CO-OPs?
    So how many States applied for a start-up conversion?
    Dr. COHEN. So I want to make sure to let you know that we 
share your concern about being good stewards of taxpayer 
dollars. We are going to use every tool at our disposal to make 
sure that any funds that can be recovered back for the taxpayer 
will be for this program.
    On this question in particular about the conversion that we 
were talking about, we look at those on an individual case-by-
case basis, as I was mentioning. We do that in coordination 
with the State Departments of Insurance and then make a 
decision about whether or not that is the appropriate thing to 
move forward in that position.
    I believe we have done that for seven of the CO-OPs.
    Ms. JENKINS. Do you know which States?
    Dr. COHEN. I have that I am sure in my many--I am happy to 
search through and give you the list now or I am happy to 
follow up if that is helpful.
    Ms. JENKINS. Okay. If you can put your finger on it 
relatively quickly. If not, if you can get that to the 
committee.
    Dr. COHEN. The seven that have gotten the conversion, I 
have it: Arizona, Michigan, Oregon, Colorado, New Mexico, 
Connecticut, and Wisconsin.
    Ms. JENKINS. Okay. How many States were granted a start-up 
conversion?
    Dr. COHEN. Those are the seven that were granted the 
conversion.
    Ms. JENKINS. So all seven of those States were granted.
    Dr. COHEN. That is right.
    Ms. JENKINS. How many States have applications for a start-
up conversion pending?
    Dr. COHEN. We have a number pending. I do not know the 
exact number that are pending.
    Ms. JENKINS. Can you get those to us and which States are 
pending?
    Dr. COHEN. I will see what I can do in follow-up. I know 
that there is market sensitivity about sharing. Once it is 
done, I am able to share that information, which is why I can 
share who has already been approved. While it is in 
consideration, there are market sensitivities, but I will be 
happy for our staff to work with yours to see what we can 
provide.
    Ms. JENKINS. Okay. How many were rejected for a start-up 
conversion?
    Dr. COHEN. The same thing. I know there are some market 
sensitivities around it, but I will see what we can do in terms 
of providing that information.
    I know I am allowed to, which I have in front of me, I am 
allowed to share those that we have approved, but I will get 
back to you about the ones----
    Ms. JENKINS. Okay. Do you know how many of the remaining 
CO-OPs would have failed the risk-based capital test but for 
their participation in the start-up conversion process?
    Dr. COHEN. I do not know the answer to that question.
    Ms. JENKINS. Okay. Can you try to get us that?
    What specific monitoring and oversight activities has CMS 
conducted for those specific CO-OPs that would not have met the 
risk-based capital test without the start-up conversion 
process?
    Dr. COHEN. So we obviously do a number of oversight 
activities, as I was reading off a litany before, whether it is 
on-site visits and the increased reporting, but what I would 
say is that we do that in partnership with the State DOIs. They 
are the folks that day to day are managing the health of these 
insurance companies and making sure they are operating within 
the parameters of the State.
    And so we work very closely for that ongoing oversight, and 
we will continue to do that for the CO-OPs that continue to be 
in existence.
    Ms. JENKINS. Okay. Thank you, Dr. Cohen.
    I yield back the balance of my time.
    Dr. COHEN. Thank you.
    Chairman BRADY. Thank you, Ms. Jenkins.
    Mr. Marchant, you are recognized.
    Mr. MARCHANT. Thank you, Mr. Chairman.
    I thank you for being here, Dr. Cohen.
    Dr. COHEN. Thank you.
    Mr. MARCHANT. This last week I read four articles about the 
CO-OPs. The first one was in the New York Times. The headline 
was ``Health Care CO-OP Closings Narrow Consumer Choices,'' not 
exactly a right-wing institution.
    Bloomberg Business, ``Your Health Plan Will Now Destruct 
was the headline.
    Newsweek, ``The Calamitous Collapse of the Obamacare CO-
OPs,'' again, not a right-wing organization.
    And the Washington Post, ``Financial Health Shaky at Many 
Obamacare Insurance CO-OPs.''
    So do these articles make a fair representation of the 
status of what is going on with the CO-OP Program?
    Dr. COHEN. Well, the facts on the ground know that 12 of 
the CO-OPs will not be continuing to 2016 of the 24, and 
obviously our job is to protect consumers, make sure that we 
are being good stewards of taxpayer dollars, but also 
supporting what we think is a very important program adding 
additional competition into the marketplace.
    I think it is important to also remember that CO-OPs are 
only one piece of the larger Affordable Care Act which we have 
been talking about and, you know, make up a larger piece of 
what consumers are experiencing when they go to HealthCare.gov.
    So, again, we had some work to do on the oversight front, 
which we have done, in order to make sure that consumers knew 
that if they went to the marketplace now, that they can put 
their faith in the products that are there. They know that they 
are financially viable and will be there to provide them 
coverage for next year.
    Mr. MARCHANT. Is your agency looking to use the surplus in 
the transitional reinsurance program to support the CO-OPs that 
remain open?
    Dr. COHEN. Are we looking at using the reinsurance dollars 
to support the CO-OPs? No. That appropriation is for the 
reinsurance program for the entire market. That will be used 
for the three years that the program----
    Mr. MARCHANT. No, use the surplus.
    Dr. COHEN. No, the surplus carries over to the next year of 
the reinsurance program and will be used with the reinsurance 
program itself, which applies well beyond the CO-OPs to all of 
the issuers participating in the marketplace.
    Mr. MARCHANT. So if you took the amount of money that was 
lost, would you agree that the $1,072,000,000 number is correct 
about the amount that was lost last year?
    Dr. COHEN. That is the number of dollars that were loaned 
to these CO-OPs. As I mentioned to the Congresswoman, we are 
going to be using every tool available to recover taxpayer 
dollars here. Obviously that money went to provide coverage to 
Americans over the past two years. So we know all dollars will 
not come back to us, but we will be using all tools available 
to recover any unspent taxpayer dollars.
    Mr. MARCHANT. That money will go back into the fund?
    Dr. COHEN. To the Treasury.
    Mr. MARCHANT. To the Treasury or will it go back to into--
--
    Dr. COHEN. To the Treasury.
    Mr. MARCHANT [continuing]. A revolving fund that goes out 
to the other CO-OPs?
    Dr. COHEN. No. I do not want to give you inaccurate 
information. So let me follow up on when we recover money where 
that money goes exactly, whether it comes back to the CO-OP 
Program or back to the Treasury.
    Mr. MARCHANT. Is 400,000 a correct number to use? Is that 
participants who have lost or is that the number of policies 
that have been lost?
    Dr. COHEN. That is a good question. I will have to follow 
up whether it is participants or policies. What I would say is 
that that represents folks not just in the marketplace. It 
represents folks potentially inside and outside the marketplace 
in the individual market and in the small group market, and 
depending on the CO-OP and what book of business they picked 
up, some even picked up some Medicaid managed care business as 
well. So those numbers can represent a mix of different types 
of policies.
    Mr. MARCHANT. Well, if you took that number and divided 
using 400,000 into the amount of money lost, it is about 
$2,700.
    Dr. COHEN. So again, not money lost. We still have tools at 
our disposal to recover that fund, as well as that money went 
to pay claims and coverage for Americans over the last several 
years.
    Mr. MARCHANT. And my last question is: using the business 
metaphor, when you inject this loan in there, you have to have 
some repayment scheme in mind. The insurance companies have to 
have some eventual repayment of this money that they presented 
you or did you make them in their business plan tell you when 
and under what circumstances they would pay the money back?
    Dr. COHEN. Yes, absolutely. All of the companies that 
applied for this, and I will say almost 150 entities applied to 
be CO-OPs and we only chose the best 24. Obviously they 
presented business plans--sorry, Chairman--business plans and 
strategies. Obviously though when the rubber hits the road and 
reality hits, business plans are just that, plans, and then we 
have to evaluate them as they move along.
    Chairman BRADY. Thank you. The time has expired.
    Mr. Davis, you are recognized.
    Mr. DAVIS. Thank you very much, Mr. Chairman.
    And thank you, Dr. Cohen, for being here.
    I have always been a big fan of co-ops ever since I have 
understood what they were, and I view them as a great business 
model because they actually spanned opportunity and create 
opportunity for more people to be engaged and involved in the 
process of commerce in our society and in our country.
    I come from Illinois where our experiences with the 
Affordable Care Act have been great, quite good. I mean it has 
generated tremendous returns for our citizens in terms of 
health care and other kinds of benefits that we have 
experienced as well.
    It has also been my experience that with start-up 
businesses, if they do not have enough capital or if they do 
not have the capital resources that are needed, it increases 
the likelihood that they are going to have some difficulty and 
in many instances they actually fail.
    And so we have had CO-OPs that have been successful. We 
have had some that were not so successful, but the one thing 
that we do know is that many important Affordable Care Act 
protections have made dramatic improvements to American lives. 
These include a prohibition on health insurers denying coverage 
for children with preexisting conditions.
    The Administration estimates that 17.6 million children are 
no longer denied coverage by insurers because of an illness. 
Additionally, 105 million Americans have had lifetime coverage 
limits eliminated.
    You obviously travel throughout the country, and I suspect 
that you have met a lot of people from all political parties 
who have benefitted from these protections. What do people tell 
you about the Affordable Care Act and how it has helped them?
    And what would happen to these people if my Republican 
colleagues got their way and were able to actually dismantle 
this law and these programs?
    Dr. COHEN. So it is interesting. Once we get outside of our 
world here at CMS and are able to interact with folks who are 
benefitting from the new options of coverage and taking 
advantage of the tax credits, it is not about politics for 
them. It is really about what is right for their family, and 
that for the first time they are able to compare choices and 
find something that is affordable for them.
    I think poignant in my mind were some particular parents 
who were able to start their own new business. They had wanted 
to for a long time, had been thinking about it, but because one 
of their young children had a severe illness, they worried 
about what coverage would look like for them on the individual 
market and so stayed with the job they had, which they were 
lucky enough to have, but what the Affordable Care Act gave 
them was that freedom and flexibility to start the new business 
and find coverage that worked for them and for their children.
    And that is what we hear about every day, whether it is 
coverage for someone who has a preexisting condition or just 
thought it was out of reach for them; a young person who goes 
and gets one of their preventative care visits and realizes 
they had high blood pressure, and as a physician I am like, 
``Great. Get on your ACE inhibitor now so that they prevent 
problems well into the future.''
    So those are the kinds of success stories, small, but each 
build up to something really great.
    Mr. DAVIS. Well, thank you very much, and I think that they 
would say the risk that we take is worth it even if there are 
some instances where we are not exactly successful, but they 
are in much better shape than they were before the ACA was 
passed.
    Thank you, Mr. Chairman. I yield back.
    Chairman BRADY. Thank you.
    Mrs. Black, you are always good about joining the Health 
Subcommittee. You are recognized for five minutes.
    Mrs. BLACK. Thank you, Mr. Chairman. It is great to be a 
part of this Committee.
    And, Dr. Cohen, thank you for being here to testify today.
    Dr. COHEN. Thank you.
    Mrs. BLACK. Dr. Cohen, my friends on the other side of the 
aisle would suggest that Congress is at fault for this failure. 
We have heard it several times, and because we stopped good 
taxpayer money following after bad, and I suspect that we could 
have pumped billions of dollars more into this program and 
still not overcome what I think are the fundamental problems of 
this program.
    So let us talk about the program that the Democrats 
actually designed. This is not a Republican design. Let us talk 
about that. Let me ask you a couple of questions.
    In this program could a health insurer applying for a loan 
under the CO-OP Program be a for-profit entity?
    Dr. COHEN. So there are restrictions in terms of the types 
of dollars that the CO-OPs could get. They could get a bank 
loan and other types of outside loans. There are restrictions 
about whether or not that outside capital would influence the 
governance structure, which is pretty prescriptive in statute.
    And, again, I think as you have heard, that governance 
structure is really consumer driven, and that was why the 
nature of the program was put in there.
    So it does limit their options. It also prohibits them from 
merging or getting dollars from another for-profit insurer.
    Mrs. BLACK. The answer really is no on that.
    So let me ask you this. Could a health insurer applying for 
a loan under the CO-OP Program use the funding for marketing?
    Dr. COHEN. They are not allowed to use their dollars for 
marketing. What I would say is that one of the things the 
Affordable Care Act does and HealthCare.gov in particular, it 
allows for CO-OPs to be listed side by side of some of the much 
more established plans and so they can compete on price and 
benefits, which is what the CO-OPs----
    Mrs. BLACK. In fact, what happened in the State of 
Tennessee is we had our CO-OP could not market. So what they 
were doing is giving free cell phones, and they were stopped by 
our Commissioner as a result of that.
    Could a health insurer applying for the loan under the CO-
OP Program be one that actually operated as a health insurer 
prior to the law's passage?
    Dr. COHEN. There are some restrictions about getting 
funding from current insurers. I would have to look back if 
there is a statute of limitations of how long ago they were an 
insurer, et cetera, about getting funding.
    Mrs. BLACK. Essentially the answer is no.
    So here is the situation. The American taxpayer has 
invested $2.4 billion, and this is taxpayer money, into a group 
of folks who never operated an insurance company before, never 
made any money at it, and in your testimony you also answered a 
question to say they had no previous claims experience, which 
was a problem, and they could not advertise their product to 
potential customers.
    It seems like it is awfully difficult given those 
circumstances, that there are some really fundamental problems 
with the program to begin with.
    You are an internist; is that correct?
    Dr. COHEN. That is right, ma'am.
    Mrs. BLACK. Have you practiced in private practice?
    Dr. COHEN. I have not practiced in private practices.
    Mrs. BLACK. Oh, you have not. Okay. Well, I would just set 
forward this scenario in real life because I have worked with 
physicians who have practice in private practice, and I know 
how important it is to have a business manager operating their 
particular office. So let us just say they hired someone that 
said, ``Oh, by the way, I have never operated a physician's 
office and I have never made any money at it. I have no 
experience in previous claims, and I am not going to 
advertise.''
    Do you think that office could be successful with that 
business manager being in charge?
    Dr. COHEN. What I think it is important to step back and 
recognize about the CO-OP Program is that they were designed 
specifically to have a governance board that was consumer 
driven. I think that was the heart of it. I think you had some 
of your other colleagues mention that this is not unique to the 
health care space.
    Mrs. BLACK. Just real quickly because I am going to run out 
of time here, I do want to ask a question about what you expect 
to recover. Do you all have a number that you expect to 
recover?
    Dr. COHEN. We are doing the work right now with the CO-OPs. 
As you know, the recent announcements they are still winding 
down over the course of this year. As I mentioned, we take 
taxpayer dollars very seriously but----
    Mrs. BLACK. But you do not have a number that you 
anticipate?
    Dr. COHEN. No, not right now.
    Mrs. BLACK. And I just may close by saying the reason why 
co-ops work in other situations, and I like them; we have 
farmers co-ops. We have an electric co-op. We have other 
utility co-ops, and the reason why they work is because 
everybody in it has skin in the game. It is not taxpayer 
dollars. It does not come from some dropping of dollars out of 
the sky. It works because everybody that is in it has something 
in the skin of the game.
    Here we have taxpayer dollars to the point of $2.4 billion, 
and that is a real concern.
    Thank you, Mr. Chairman. I yield back the balance of my 
time.
    Chairman BRADY. Thank you, Mrs. Black.
    I would like to thank you, Dr. Cohen, for your testimony 
today. I appreciate your continued assistance. A number of 
questions were raised, and if you would follow up with them.
    As well, as a reminder, any Member who wishes to submit 
questions for the record will have 14 days to do so. If any of 
them do, please respond in writing in a timely manner.
    Again, thank you very much for being here today.
    With that, the committee is adjourned.
    [Whereupon, at 3:59 p.m., the subcommittee was adjourned.]
    [Member Questions for the Record follows:]
    
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