Corridors and they were confident they would get the must be back because i said what are you presuming for the number of healthy subscrapers under age 30 . Well, a third of our subscribers will be young and healthy. And i said you know what are you guys smoking . Thats not going to happen. Whats going to happen when it community . Well, well lose money and the government will make it up to us. This was set up for failure from day one. The Insurance Companies knew it was going to fail. They released a product that was underpriced that could not make money. So mr. Morrison, when you talk about it being not capitalized properly, would you agree with me if the coops made money we wouldnt be having this discussion . You dont need more capital if you start with x and you make money. Isnt that just fundamental common sense . I would agree with that. So and all the companies lost money. So were here because obamacare was set up for failure. It was set up to encourage low premiums, to deceive the American Public. You know the saying you can put pig on a lipstick lipstick on a pig but its still a pig. Thats what we got here. Everyone knew these products were underpriced and they were going to make it up on the backs of the taxpayers and thats why were here today. The problem here is a product that was underpriced, knowingly underpriced, mens you lost money and gnnow the complaint is we c the moneys from 6 to 2. 4 billion but that was based on 50 coops. The 23 got 2. 4 billion. They got every dollar they were supposed to get. Had we not cut from 6 billion to 2. 4 billion there would be 50 coops so i have to cat goally disregard your comment that had we thrown 6 billion but i think youre suggesting throwing 6 billion 2359 cops would have shored them up. That was never the intention. The 23 coops were not harmed in any way. They failed because the product was underpriced, it was knowingly underpriced, obamacare was meant to deceive the public. And all i can say is now were a couple years in, the deception is obvious. I dont know what the polls would say and im not a guy to poll but i think obamacare now would be probably in the 20 range and now weve got these problems. New york, 150,000 members on the new york plan lose their insurance in two weeks and were forcing the private companies to take those policyholders for 30 days whove all hit their deductibles so the Blue Cross Blue Shield, independent healths, theyll have to take these 150,000 people 230r d for0 days and have those folks set up a new plan. This is obamacare at its worse, its not surprising to me. I saw this coming three years ago. Only because i have a certain level of common sense and knowing the private sector if you underprice your product there will be a price to pay and this product was deliberately underpriced from day one and when people say woe is me, the risk corridor didnt give me as much money as i expected, thats because you expected to lose a lot of money and thought the taxpayers should shore that up and it didnt happen. So i cant say i feel sorry for the american taxpayers who are bearing this financial burden who were deceived from day one and its coming home to roost and we see it everyday with the price increases in policies, the turmoil within the American Public trying to find doctors and and and and and. So private sector make money you do fine, lose money you dont do fine, not a surprise were not doing fine here. The product was never priced correctly. Mr. Cohen im going ask in that can you give an answer with regard to would you have priced it differently if there were no risk corridors from the on set . Would you have priced it higher level . Yes or no . No, we priced conservatively and were making a profit the last three months. But ms. Mcpeak, would it have been priced differently. In other words, was that a backstop that you saw that would cover those losses that didnt work . I dont know that i would characterize it as a backstop but its certainly the incentive to appropriately price was eliminated when any excess profit needed to be paid back to the other insurers. So unless the entire market priced appropriately, you were going to be pricing yourself out of the market and not have the enrollment. Okay. Got it. Thank you. Five minutes. Thank you, mr. Chairman, i thank the witnesses. I think this has been a very productive hearing and the dialogue has been good. It seems to me that what weve heard today that there are a lot of different experiences with coops and a lot of Different Reasons they have had some have had problems. My coop in kentucky did not have an enrollment problem, as a matter of fact. Is the initial projection was about 30,000 enrollees, it peaked at 57,000 and was ensuring 51,000 when it announced that because of the risk corridor reductions it could not sustain itself. But in fact it had gone from losing 50 million in its first year to losing 4 million in 2015 and was on track to make a profit in 2016 so not every experience has been right. And i think looking at the various factors that could affect this, is commissioner mcpeak, tennessee didnt expand medicaid, tennessee and this is not partisan statement but tennessee did not have an administration that supported, necessarily, the Affordable Care act so as opposed to kentuckys experience where you had an administration that was supportive, aggressive in marketing it, in running a pr campaign and alerting the population to the options available to them, that experience was going to be different than tennessees or louisianas where it seems you had an enrollment problem first and foremost. Would that be a fair snamt that all of these factors affect how the coops have a better or worse chance of succeeding . Certainly. And i will say statewide we had a positive enrollment through the federally facilitated marketplace but we did not expand medicaid. Is but the skewed enrollment of less than a thousand people ext difficult to survive. And obviously we have Different Health conditions as well. Montana probably has a lot healthier population than kentucky and tennessee. I know kentucky, we have serious challenges in that regard. But one of the things that impresses me, and this relates to mr. Cohens statements is that while our coop is going out of business, we have three new private insurers that have joined our exchange. So now we have seven insurers offering insurance and not relying on risk corridors so they have seen nunt kentucky and not a disastrous situation and our consumers are going to as a result partially of the coops competition, well see enhanced competition the private market through our exchange. So it can have an ancillary benefit as well. That would not be true, mr. Morrissey . Thats very encouraging and i think that the benefits of introducing a coop into the dynamics of the mark place has ripple effects and that was one i wasnt aware of. And one other thing, the senator just asked we talked about the question of how can you offer insurance policies at 20 less than commercial Insurance Company, well, theres no profit margin involved so you can. I dont know whether it would be 20 different as to profit versus nonpro it haprofit but o ams would be twoub it would be what an Insurance Company could offer. Is that correct . Thats true. But i want to make the point coops were not outliars on the low end in price and mckenzie did a report in late 2013 about those initial prices and coops were toward the bottom. They were there within 10 of the lowest 42 of the time but the point is when these Companies Set their prices and file them with the commissioner, they dont know what other companies are doing. So the mere fact the coops were there caused other companies to price more aggressively. I guess the what im taking away is there are a lot of Different Reasons coops have either succeeded or not succeeded and that i think this is a very useful hearing to analyze that. Not necessarily to ascribe blame but talk act the factors that are involved and i would conclude there was not a fundamental flaw in the Affordable Care act that caused coops to fail, there were different factors just as there is in any business situation. With that, mr. Chairman, i yield back. Thanks again to the witnesses. I thank the gentlemen for questions and certainly thank the witnesses. This will conclude our second panel and you can rush to the airport if you have any tight flights. I want to thank the members that did stay. As a flyout day, we had so many members that had flights to connect. We had two votes so to some extent i apologize for the attendance, thank the members that did stay and your testimony on the record is very helpful. Thank you very much. So were going to bring on our third panel which is representative from cms and from oig. So well begin our third panel here. I want to thank the witness, dr. Cohen and miss jarman for joining us today. Before we get going on this committee we want to make sure the witnesses are aware that we are holding an investigating hearing and when doing so we have the practice of taking testimony under oath. Do you have any objection to testifying under oath . The chair then advises you that under the rules of the house and the rules of the committee you are entitled to be advised by counsel. Do you desire to be advised by counsel during your testimony today . No. In that case, if you would, please rise, raise your right hand, i will swear you in. Do you swear that the testimony you are about to give is the truth, the whole truth, and nothing but the truth . Thank you very much, be seated. You are now under oath and subject to the penal seize set forth in title 18 section 10110 of the United States code and we recognize you to give a fiveminute summary of your written testimony beginning with dr. Cohen, chief of staff for cms. Dr. Cohen . Good afternoon and thank you for inviting me here chairman murphy who i know has gone but mr. Collins, Ranking Member degette and other members of the subcommittee, we appreciate the opportunity to talk about the coop program. Cms takes its commitment to coop consumers and taxpayers very seriously. Our priority is to make sure consumers have access to quality affordable coverage. In the years since the passage of the Affordable Care act weve seen an increase in competition and more choices for consumers. Consumers can choose from on average 50 plans and five issuers for 2016 coverage. Nearly nine out of ten returning consumers will have three or more insurer to choose from which Research Shows has intensified price competition in the market. New entrants to any market, especially Insurance Market, can face pressures, particularly in early stages. Coops entered the Insurance Market with a number of challenges, including building a provider network, no previous claims experience on which to base pricing and competition from larger more experienced issuers as well as the uncertainty that accompanies any early years of a new market. As with any new business venture, some are succeeded while others have encountered more challenges. There have been successful coops which provided by consumers an additional choice of Health Insurance and have improved competition. There have also been coops that have faced technical, operational or financial difficulties. In addition, congress has made substantial rescissions to the initial 6 billion for coops impacts operations and available funding. In the face of multiple pressures, its not surprising some new entrant have struggled to succeed. Cms plays a dual role with the coop program, providing both oversight and support. Cms works to give coops tools to succeed including sharing best practices amongst coops and looking for addition aal regulatory flexibilities. Cms has improved the infusion of outside capital consistent with legal and Regulatory Framework of the coop program. Cms plays an oversight role. Cms along with state departments of insurance, which serve as a primary regulate of of insurance in the state work to ensure the coops are well run and financially sound. Cms has implemented the coop program as required by statute and with the funds available, evaluating applications, monitoring Financial Performance and conducting oversight. All coops are subject to standardized ongoing oversight activities including calls to monitor goals and challenge, periodic on sight visit, performance and financial auditing, reporting only negotiations and a host of additional measures employed as needed on a casespecific basis such as the evaluation of coop sustainability. Cms increased the reporting requirements for coops required for them to provide quarterly statements saying theyre in compliance with state licensure requirements. If the coop experienced requirement issues, the coop was required to describe the steps being taken to resolve those. Financial Data Collection has helped cms the opportunity to work with state insurance regulators to help correct issues are identified. As part of our effort, cms has put coops on enhanced oversight schedules or corrective action plans. Despite this support and oversight, some new entrants to the Insurance Market have struggled to succeed. When states and cms determine a coop should wind down, our first responsibility is to make sure current policyholders are able to retain coverage through the end of the year. Cms priority is to make sure that customers have access to quality affordable coverage. Were working with local officials to do Everything Possible to make sure consumers stay covered, retain access to high quality choices of issuers. Like other consumers, coop enrollees are able to shop on the marketplace for coverage right now. In 2016, nearly 8 in 10 returning marketplace consumers will be able to buy a plan with premiums less than 100 a month after tax credits. We encourage consumers already enrolled in the marketplace coverage to come back to the market place, update their information, compare their options and make sure theyre enrolled in the plan that best meets their families needs. Since the enactment of the Affordable Care act, cms has worked to increase access to coverage through the marketplace while being responsible stewards of taxpayer dollars. The coop program was designed to give consumers more choice, promote competition and improve quality in the Insurance Market and has done so in a number of states. Sees me will closely work with the coops and state departments of insurance to provide the best outcome for consumers. We appreciate the subcommittees interest and will be happy to answer more questions. Thank you, dr. Cohen. Now well hear from mr. Jarman. Good afternoon distinguished members of the committee. I am gloria jarmin, Deputy Inspector general for the department of health and Human Services office of inspector general. Thank you for the opportunity to testify today about oigs work as it relates to cmss oversight of financial loans and the financial solvency of the consumer operator oriented plans. As part of our Strategic Plan to oversee implementation of aca programs, oig has performed three reviews related to coops, my testimony today focuses on oigs most recent report issued in july, 2015, that reviewed whether enrollment and profitability met the coops projections on their initial loan applications. Understanding that coops face numerous challenges, we conducted this audit work to assess the financial and operational status of the coop s. We reviewed the status of the 23 coops as of december 31, 2014. We found most coops had lowerthanexpected enrollment numbers and significant net losses and that these financial concerns might limit some coops ability to replay loans. Based on these findings, oig issued four recommendations to cms to improve financial oversight and solvency of the coops. These recommend daugss include, one, continuing to place underperform cog ops on enhanced oversight or corrective action plans. Providing guidance or establishing criteria to determine when a coop is no longer viable or sustainable. Three, working closely with state insurance regulators to identify and correct underperforming coops and, four, pursue available remedies for recovery of funds from terminated coops. I will briefly discuss each of these recommendations in more detail. With respect to enhanced oversight, with the 2011 funding opportunity announcement and Loan Agreements, cms has the ability to place underperforming coops on enhanced oversight plans. This vehicle provides authority to cms to conduct thorough reviews of the coops operations and financial status. The respect to guidance, to insure that cms can appropriately identify coops that pose a high risk of failure, cms should establish criteria to assess whether a coop is viable or sustainable. With respect to state insurance regulators cms should enhance oversight by working closely with state insurance regulators who are the primary regulatory entities that oversee coops as Health Insurance issuers. By doing this cms can obtain timely insights as to the performance and can work with coops to address and fix ongoing financial and operational problems earlier. Finally, if cms no longer believes a coop is viable and sustainable, cms should pursue all available remedies for recovery of funds are coops. This would include the option to terminate Loan Agreements which would require the coop to forfeit all unused loan funds. This may allow cms to recover some portion of the loan. With the recognition the coop must resolve outstanding debts or claim obligations before repaying the loan funds to cms. In closing, we appreciate the subcommittees interest in this importance issue and continue to urge see knows address oigs regulations to improving oversight and financial solvency within the coop program. Oig is committed to providing continued oversight of this program, our ongoing work will assess whether coops were in compliance with federal regulations and Program Requirements i