Feds Ignored Warning Signs of Obamacare Co-Op Flops
Federal health officials approved loans to Obamacare health insurance co-ops despite “specific warnings” about across-the-board failures from Deloitte Consulting, according to a blistering Senate staff report released Thursday.
The report was released by the Senate Permanent Subcommittee on Investigations at a hearing that featured Andy Slavitt, the embattled acting administrator of the Center for Medicare and Medicaid Services (CMS) — the section of the U.S. Department of Health and Human Services that manages Obamacare.
Subcommittee investigators found that the Deloitte reports “showed that, starting almost immediately, the failed co-ops experienced severe financial losses that exceeded even the worst- case scenarios outlined in their loan applications to HHS. Cumulatively, by the end of 2014, the failed co-ops exceeded their projected worst-case-scenario losses by at least $263.7 million—which is four times above the projection.”
Subcommittee Chairman Sen. [crscore]Rob Portman[/crscore], an Ohio Republican, told CMS officials in his opening statement at the hearing, “despite getting regular reports that the co-opss were hemorrhaging cash, HHS took no corrective action for over a year.” (RELATED: Docs, Hospitals May Go Unpaid By Co-op Flops)
Slavitt was defensive throughout the hearing and refused to say how much money the federal government would ultimately lose as a result of the collapse of 12 of the 23 licensed co-ops.
“Do I expect we’re going to recover 95 percent or 100 percent of these loans. No I don’t,” Slavitt told lawmakers.
Nebraska Republican Sen. Ben Sasse shot back at Slavitt, asking “but do you really expect we’re going to recover 10 percent of these loans?”
“I don’t,” Slavitt replied.
The subcommittee staff said the additional funds were sent to the at-risk co-ops “despite obvious warning signs that those CO-OPs will not be able to repay the taxpayer.”
Deloitte consultants told officials at the U.S. Department of Health and Human Services (HHS) “that the proposed budgets of 10 of the 12 failed co-ops were incomplete,” and “Deloitte thought that many were unreasonable, not cost-effective, or not aligned with the co-op’s own financial projections,” investigators found.
Deloitte also expressed “skepticism about the risk-taking and unreasonable assumptions reflected in some of the co-ops financial projections,” according to the report. (RELATED: 8 Of 11 Surviving Obamacare Co-ops Facing Failure)
The consultants warned HHS that co-ops in Colorado, Utah and Louisiana “relied on unreasonable projections of their own growth,” but that federal officials ignored their conclusions.
Senate investigators found that Deloitte “could not trace the assumptions underlying the budgets of the Nevada, Tennessee, and Kentucky co-ops to their actual business plans.” All three of those co-ops failed.
Five of the 12 co-ops that collapsed were not placed by HHS under any corrective action plan until September, 2015 — only months before all five closed their doors, according to the report.
The subcommittee concluded that despite serious financial warning signs, “HHS did not withhold any loan disbursements from the now-failed co-ops — and in many cases accelerated planned disbursements.”
The investigators found that “HHS approved additional solvency loans for three of the failed co-ops in danger of being shut down by state regulators.”
The most disturbing case study was of Health Republic of New York, which received $90.7 million in additional funds despite a Deloitte recommendation that the co-op, which was bleeding funds, should “scale down its operation.”
Health Republic, which was founded by Sara Horowitz, a well-connected liberal political activist and former colleague of President Barack Obama at a New York think tank, originally received $265 million in federal loan money. In 2015 alone, Health Republic lost a $544 million, nearly twice its original federal loan.
The co-op closed down in late 2015 and is now the subject of a formal investigation by the state’s Department of Financial Services for misleading state authorities about the true financial condition of the co-op.
Slavitt told lawmakers that in all likelihood he doesn’t know what will happen in New York where hundreds of millions of dollars are owed from Health Republic of New York to medical providers in the state. “In all honesty, it’s premature to say.”
Slavitt has been nominated by Obama to become the permanent CMS administrator.
In Iowa and Nebraska, federal health officials awarded an additional $32.7 million to Co-Opportunity Health. Less than three months later, Co-Opportunity collapsed.
Slavitt countered that he challenged the report’s financial numbers, saying “I need time to read this report” and said “I’m not willing to accept those are accurate numbers.”
“Why should we be giving you the numbers that are publicly available. Get the numbers yourself,” replied Portman. “You should know these numbers. This is your job to know the assets and liabilities of these companies.”
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