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.
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"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.
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.
The intent of the CO-OP program was to allow for the creation of consumer-owned healthcare cooperatives that would participate with insurance products on each of the 50 state-based health insurance exchanges. The premise is that the CO-OPs will provide more competition and be another option available for small businesses and individuals to find low-cost health insurance.
"CO-OPs will provide consumers more choices, greater plan accountability and help ensure a more competitive insurance market," said Steve Larsen, director of the Center for Consumer Information and Insurance Oversight, in announcing proposed CO-OP standards last year.
Advocates of the CO-OPs have long held that congressional opposition has been at least partly based on the influence of large for-profit insurance companies that don't want more competition in the state markets and on the state HIXs. It's a view NASHCO's Morrison also holds.
"Whether it was capitulation to health insurance giants or a political trade-off, either way it is a deal that was done quickly and quietly in the dark," Morrison said. "Not even HHS was aware of it."
For now, NASHCO has begun work on Capitol Hill in an effort to get at least a part of the funding reinstated, and to make funding available to CO-OPs who have already completed applications for the loans. Morrison said that he has been assured by the office of Montana Senator Max Baucus, a Democrat and long-time proponent of the CO-OP program, that he will make efforts on NASHCO's behalf to do just that.