CO-OP funding fiscal cliff deal casualty

Under the two-month patch approved by the House and Senate on January 1 to avert the "fiscal cliff" Congress has permanently cut more than $1.4 billion in funding that was earmarked to help consumer operated and oriented (CO-OP) health plans become established in all 50 states.

According to John Morrison, president of the Helena, Mont.-based National Alliance of State Health Cooperatives (NASHCO), the cuts to the program – which has already awarded nearly $2 billion worth of loans to CO-OPs in 24 states – will not save the government a significant amount of money. He cited analysis from the Congressional Budget Office on the fiscal cliff compromise that showed elimination of the CO-OP program would only yield $200 million in savings to the federal budget.

[See also: House Republicans take aim at health CO-OPs]

“They eliminated billions in potential loan funds and only picked up savings of $200 million which is a strong indication this is not about saving money,” Morrison stated. “This was about eliminating further progress of the CO-OP initiative.”

The CO-OP loan program has been a target of congressional Republicans from the time it was included in the Affordable Care Act. With funding initially set at $6 billion, to be awarded on merit to state-based CO-OPs as seed money, the program has already seen that funding cut nearly in half, to $3.4 billion as part of an earlier budget compromise.

In May of last year, a number of House Republicans also questioned whether the CO-OPs would have the ability to pay back the start-up and solvency loans under the program, the bulk of which are being used to satisfy state insurance regulators’ cash reserve requirements needed by an insurance company.

At issue was whether the loans made by the Department of Health and Human Services to the CO-OPs would be considered liabilities or reserves. HHS, in recognition of these problems, had advised that the loan might need to be classified as “surplus notes,” since they are the only type of loan many states will recognize as assets.

[See also: Consumer Operated and Oriented Plans gear up for 2014]

This raised eyebrows among the signers of the letter, including House Energy and Commerce Committee Chairman Fred Upton (R-Mich.), Cliff Stearns (R-Fla.), chairman of the House Subcommittee on Oversight and Investigations, Joseph R. Pitts (R-Pa.), chairman of the Subcommittee on Health and Marsha Blackburn (R-Tenn.), vice chairman of the Subcommittee on Commerce, Manufacturing and Trade.

“Because the CO-OP regulation does not specify any collateral for the loans … holders of surplus notes are usually at the bottom rung in terms of priority if an insurer goes into rehabilitation or liquidation, the federal taxpayer would be last in line for repayment should a CO-OP experience financial distress,” the letter stated.