Insurance commissioner sues feds over CoOportunity repayments
Iowa Insurance Commissioner Nick Gerhart, in his capacity as liquidator of CoOportunity Health, filed a lawsuit today against the U.S. Department of Health and Human Services and the Centers for Medicare and Medicaid Services in U.S. District Court in Iowa. The suit asks the court to find that HHS/CMS has unlawfully withheld millions of dollars owed to CoOportunity.
Gerhart filed for liquidation of the insolvent West Des Moines-based health insurer in January 2015, when the cooperative had an estimated $150 million in claims and $13 million in assets.
The disagreement centers on the federal government’s position that it has “super-priority” ahead of all other creditors, including those with policyholder-level claims, in CoOportunity’s receivership.
The federal government loaned $147 million to CoOportunity to capitalize the new entry in 2014 in the health care 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 startup loan and to all other creditors under the $132 million insolvency loans.
The suit seeks the application of Iowa law to control the priority of creditor claims in the CoOportunity estate.
“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,” Gerhart said in a release. “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 federal government also 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. Gerhart said the federal government “is unilaterally reducing or holding payments owed to CoOportunity, ignoring the fact that CoOportunity 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.
In the event the court concludes that HHS and CMS are authorized to reduce certain payments under federal law, Gerhart asks that the government follow its netting regulation, which does not include the startup and solvency loans as debts that 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.”
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