Iowa insurance division files lawsuit against federal government

Iowa's insurance commissioner filed a lawsuit against the federal government on Tuesday, saying it is withholding $20 million in connection with the liquidation of not-for-profit insurer CoOportunity Health - which failed in December 2014.

'Through the wind down of CoOportunity, we've worked collaboratively with CMS (the Centers for Medicare and Medicaid Services) and the federal government on many issues,” said Insurance Commissioner Nick Gerhart in a news release. 'In this instance, we tried diligently to settle our differences with the federal government in extensive discussions over several months, but were informed by the Department of Justice that further negotiations would be futile.”

Gerhart said U.S. Department of Health and Human Services (HHS) and CMS have 'tried to jump to the head of the creditor line,” and are not following Iowa or federal law.

'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,” he said.

Gerhart took over CoOportunity's operations in December 2014. It had too many members for its reserves and only had about $17 million in cash and assets on hand. That, compounded with the fact that it could not obtain additional Risk Corridor funds from CMS, forced it into a tough financial spot.

To date, Iowa and Nebraska's guaranty associations - made up of all licensed health and life insurance companies - have paid a total of $114.5 million in policyholder claims, according to the lawsuit.

The health co-op was set up with $146 million in federal funds under the U.S. Affordable Care Act. The Iowa Insurance Division said the disagreement centers on the federal government's position that they have 'super-priority” ahead of other creditors.

'If the federal government's claims are given ‘super priority' ...

this would wreak havoc on any co-op insolvency and leave millions of dollars in policyholder level claims unpaid. That was not contemplated or authorized by Congress,” the lawsuit argues.

Separate from those loans, the insurance division said the federal government owes CoOportunity another $130 million in Risk Corridor funds. These funds were designed to limit losses for insurers in the ACA insurance market.

'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,” he said.

The lawsuit, filed in U.S. District Court in Des Moines, seeks the application of Iowa law to control the priority of creditor claims in the CoOportunity estate.

'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,” Gerhart said. 'So they are forcing the issue by holding onto money rightfully due CoOportunity.

'The fact is, if the government paid CoOportunity what it is owed, the government would get paid back nearly $100 million on the loans.”

CoOportunity was not the only health co-op to run into financial troubles. Out of the 23 co-ops created and funded under the ACA, only 11 remain open.