The Obama administration pledged to use any tool available to recoup $1 billion in taxpayer money used to fund 12 insurance startups that have folded.
But getting that money back is easier said than done, experts said.
More than half of the 23 taxpayer-funded Obamacare consumer oriented and operated plans will not offer insurance in 2016. A slew of financial problems that include a lack of federal funding helped doom the co-ops, created to offer more plans on Obamacare marketplaces.
Now attention is shifting to how exactly the administration can recover the more than $1 billion in loans it gave to the 12 that are winding down.
Although experts can’t peg how much the administration could get back, Thomas Miller of the right-leaning think tank American Enterprise Institute said he would be shocked if “they lost half of the money or more. That would be a pretty spectacular failure.”
One of the issues is the Obama administration isn’t the only one looking to get back money.
Courts are expected to liquidate the co-ops’ assets to generate money to pay off their creditors. Once that money becomes available, most states have an order of who gets paid first. And usually, the list starts with a fund intended to help cover claims from policyholders.
When an insurer goes under, a guaranty association steps in to make sure the insurer’s claims are paid. Every other health insurer in the state contributes to the guaranty association’s fund.
CoOportunity Health, an insurer that served Iowa and Nebraska, may provide clues for what to expect for recouping lost loans.
The co-op, which received $147 million in federal loans, shut down in December 2014 because it did not have enough money to cover its insurance claims. Its assets were liquidated in February.
Iowa and Nebraska guaranty associations paid out $109 million in claims to healthcare providers, according to a recent report filed with the court handling the co-op’s finances.
The liquidator is awaiting word on whether the co-op will get more federal funds before doling out the liquidated assets, a spokesman with Iowa’s insurance regulator said. CoOportunity could still get some money from federal risk-sharing programs.
Iowa has an order for whom gets paid first, starting with covering the cost and expenses of the liquidation. The federal government is third on the list.
There is another wrinkle that the federal government faces, and it comes in the form of surplus notes.
A surplus note is similar to a bond. The note is not counted as debt on a company’s ledger, but it can be paid only with explicit regulatory approval, said Kevin Fitzgerald, a partner with the law firm Foley & Lardner.
The federal government allowed seven co-ops to convert their solvency or startup loans to surplus notes, which let them record the loans as equity. That helped the co-ops satisfy solvency requirements from the Centers for Medicare and Medicaid Services, which oversees the plans.
The co-ops were in Arizona, Michigan, Oregon, Colorado, New Mexico, Connecticut and Wisconsin. Co-ops in Oregon, Michigan, Colorado and Arizona have shut down.
A major problem is that surplus notes are often at the bottom of the list when creditors are paid out after an insurer is liquidated.
For example, in Iowa, the federal government is third on the list but surplus notes are eighth.
Republicans during a Tuesday hearing criticized the administration for the surplus notes, which made the co-ops look more attractive financially than they actually were.
“This is basically an accounting trick,” said Rep. Lynn Jenkins, R-Kan., during a hearing of the House Ways and Means Committee’s health subcommittee.
CMS refused to comment further on the co-ops beyond the testimony of administration official Mandy Cohen at the Tuesday hearing.
The agency “takes its oversight of taxpayer funds seriously,” she said in her prepared testimony.
Another co-op hearing, in the House Energy and Commerce Committee’s oversight subcommittee, will be held Thursday.
