Iowa Insurance Commissioner Nick Gerhart, in his capacity as Liquidator of CoOportunity Health, has filed a lawsuit against the U.S. Department of Health and Human Services (“HHS”) and the Centers for Medicare and Medicaid Services (“CMS”) 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.
“Through the wind down of CoOportunity, we've worked collaboratively with CMS and the federal government on many issues. 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,” Commissioner 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 commissioner said that the disagreement centered on the federal government's position that it had “super-priority” ahead of others creditors, including those with policyholder level claims, in CoOportunity's receivership.
The federal government loaned $147 million to CoOportunity to capitalize its 2014 entry in the healthcare market in Iowa and Nebraska. According to the lawsuit, 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 balance of the amount that was loaned.
Commissioner Gerhart also claimed that 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. Commissioner 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.”
Commissioner Gerhart said that although HHS/CMS recently filed a proof of claim in the Iowa state court liquidation proceeding, the federal government also has claimed that it was not subject to the authority of the Iowa court, which forced the commissioner to seek resolution of the issues in federal court in Iowa.
Commissioner Gerhart as liquidator of CoOportunity has denied HHS/CMS' proof of claim, asserting that the government's self-help actions have prejudiced policyholders and other creditors.
The suit seeks the application of Iowa law to control the priority of creditor claims in the CoOportunity estate. In the event the court were to conclude that the federal government was authorized to reduce certain payments under federal law, the suit asks that the federal government not be permitted to include the start-up and solvency loans as debts that could be netted and to recognize that the loans were contractually subordinated to claims of policyholders and others.
“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,” Commissioner 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.”
Learn more: Iowa Action.
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].