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Low Enrollment and Financial Losses May Affect CO-OPs' Ability To Repay Loans Provided Under the ACA

Pat Kelly, a senior auditor for the Office of Audit Services in Columbus, is interviewed by Mike Barton, an audit manager for the Office of Audit Services in Chicago.

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[Mike Barton] Hi, I'm Mike Barton, an audit manager from the Chicago region, speaking with Pat Kelly, a senior auditor in the Columbus, Ohio office. Pat, your team recently completed an audit of health insurance issuers that participate in the Consumer Operated and Oriented Plan, or CO-OP, program. Can you start by telling us, what is a CO-OP?

[Pat Kelly] Sure. The CO-OP program was established under the Affordable Care Act to expand the number of health insurance options available in States. A CO-OP is a consumer-governed, nonprofit, issuer of health insurance.

[Mike Barton] Ok. So what was the objective of your audit?

[Pat Kelly] The Centers for Medicare & Medicaid Services, or CMS, awarded approximately $2 billion dollars in loans to establish 24 CO-OPs in 24 states. We wanted to determine if actual enrollment and profitability met the initial projections submitted by the CO-OPs.

[Mike Barton] What did you find?

[Pat Kelly] We found that member enrollment and profitability for most CO-OPs were considerably lower than initially projected, which might limit the CO-OPs' ability to repay their loans.

[Mike Barton] What types of loans did CMS award the CO-OPs?

[Pat Kelly] CMS awarded the CO-OPs two types of loans, startup loans, and solvency loans. Startup loans were 5-year loans to assist with costs for beginning operations. Solvency loans were 15-year loans to establish savings for unexpected costs.

[Mike Barton] Can you tell us about the selection process for awarding loans to the CO-OPs?

[Pat Kelly] Yes. CMS required each CO-OP to submit a loan application that included information used to predict the CO-OP's likelihood of success and its ability to repay the loans. The application provided projections on the number of enrolled members and profitability per year. So CMS used those projections to determine the amount of loan funds that were awarded to each CO-OP.

[Mike Barton] So how did the CO-OPs' actual enrollment compare to their projection in the loan application?

[Pat Kelly] As of December 31, 2014, half of the CO-OPs had less than 50-percent of their projected enrollment. Five of those CO-OPs had less than 10-percent of projected enrollment.

[Mike Barton] Okay, enrollments didn't meet projections. Were the CO-OPs profitable?

[Pat Kelly] Maine was the only profitable CO-OP. The others were not profitable and more than half had losses of at least $15 million dollars. For most of the CO-OPs, the cost of medical claims exceeded revenue from premiums, so there wasn't enough money to meet administrative and operating expenses.

[Mike Barton] Have the losses impacted the CO-OP program and do you have any examples from the audit?

[Pat Kelly] Yes, there are two examples. First, CMS terminated the loan agreement with the Iowa/Nebraska CO-OP in February 2015 because of significant losses and insufficient funds to cover unexpected costs. Second, the Tennessee CO-OP recently froze enrollment due to significant losses and concerns about how it would meet unexpected costs.

[Mike Barton] What did OIG recommend to CMS to address these program challenges?

[Pat Kelly] We recommended, and CMS agreed, to place underperforming CO-OPs on enhanced oversight or corrective action plans, to establish criteria on when a CO-OP should be closed, and to recover any remaining loan funds.

[Mike Barton] Do you plan to conduct any follow-up audits?

[Pat Kelly] Yes. We plan to continue monitoring the CO-OPs to ensure that the program works the way it's supposed to and that CO-OPs can meet their obligations to repay loans and provide coverage to enrollees.

[Mike Barton] We look forward to those results. Thank you for sharing this important work on the CO-OP program.