Iowa Insurance Commissioner Sues Feds Over Failed Health Co-Op

May 23, 2016

Iowa Insurance Commissioner Nick Gerhart says federal health officials are unlawfully withholding millions of dollars owed to a failed health insurance co-op in his state.

Gerhart, who is Liquidator for CoOportunity Health, filed suit against the U.S. Department of Health and Human Services (HHS) and the Centers for Medicare and Medicaid Services (CMS) in United States District Court in Iowa.

West Des Moines-based CoOportunity was a federally funded nonprofit established to provide health care in Iowa and Nebraska. Gerhart took the cooperative over after he determined the nonprofit’s claims would exceed its available cash.

CoOportunity hit a cash flow crunch after a provision adopted by Congress reduced its assets. It insured about 120,000 people in Iowa and Nebraska, according to Associated Press reports.

In a statement released by his office, Gerhart said: “The federal government has tried to jump to the head of the creditor line, but is not following Iowa or federal law in withholding over $20 million due to CoOportunity. We are hopeful for a quick resolution in this matter and look forward to continued collaboration with the federal government in other matters during the continued wind down of CoOportunity.”

The disagreement centers on the federal government’s position that they have “super-priority” ahead of all others creditors, including those with policyholder level claims, in CoOportunity’s receivership.

The federal government loaned $147 million to CoOportunity to capitalize the new entry (2014) in the healthcare market in Iowa and Nebraska.

The lawsuit claims HHS/CMS contractually agreed to make those loans subordinate to policyholder level claims in the case of the $14.7 million start-up loan and to all other creditors under the $132 million insolvency loans.

Separate from those loans, the federal government owes CoOportunity another $130 million in “Risk Corridor” funds under the Affordable Care Act, a program designed to mitigate risks for insurers in the new ACA insurance market, the suit alleges.

Gerhart notes, “The federal government is unilaterally reducing or holding payments owed to CoOportunity, ignoring the fact thatCoOportunity is owed $130 million in ‘Risk Corridor’ funds alone.”

Although HHS/CMS recently filed a proof of claim in the Iowa state court liquidation proceeding, the federal government also claims it is not subject to the authority of the Iowa court, forcing the Liquidator to seek resolution of the issues in federal court in Iowa.

A status report has been filed with the Polk County District Court overseeing CoOportunity’s liquidation by the Liquidator’s Special Deputy.

The report notified the Court: 1) that the Liquidator has denied HHS/CMS’ Proof of Claim due to its self-help actions prejudicing policyholder and other creditors and 2) the Liquidator had filed the declaratory judgment action seeking relief in Iowa federal court.

The suit seeks the application of Iowa law to control the priority of creditor claims in the CoOportunity estate.

In the event the court concludes that HHS/CMS are authorized to reduce certain payments under federal law, Gerhart asks that the government follow its netting regulation, which does not include the start-up and solvency loans as debts which can be netted, and to recognize the fact that loans are contractually subordinated to policyholder and other claims.

“Because the issues involved are ones of first impression under the Affordable Care Act which also created the CO-OPs, and there is a lot of money involved, there’s political pressure on the government to recover loan funds. So they are forcing the issue by holding onto money rightfully due CoOportunity,” Gerhart said. “The fact is, if the government paid CoOportunity what it is owed, the government would get paid back nearly $100 million on the loans.”

Source: Iowa Department of Insurance


Topics Lawsuits Claims Iowa Policyholder Nebraska

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