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As Kentucky Health Co-Op Enters Liquidation, Federal Government Looks to Recoup Costs

Flickr/Creative Commons/401(K) 2012

Federal officials are unsure how much the government will recoup of the $1.2 billion spent on loans and startup costs for a dozen health care cooperatives that later failed, including Kentucky’s.

The situation with the Kentucky Health Cooperative is complicated by the liquidation of the entity, which a state court ordered this month.

Under the Affordable Care Act, co-ops were created to increase competition among plans and improve consumer choice, according to a recent story by USA Today.

Of the 23 co-ops created, a dozen have failed, including Kentucky Health Cooperative.

About $2.4 billion of federal funds was put into the creation of the startup health insurance providers.

Since it was established, Kentucky Health Care Cooperative has been awarded a total of $146 million in federal loans, according to the Centers for Medicare and Medicaid Services.

KYHC began providing health insurance in 2013. In October, officials announced the co-op would close at the end of 2015. It was the largest provider of private health insurance plans through the state health insurance marketplace, Kynect.

The closing affected about 51,000 Kentuckians.

Federal regulators are looking at making claims on money still owed to the failed co-ops and can recover additional money through audits, USA Today reported.

USA Today also reported that some states have “guarantee funds” that ensure physicians and other health care providers are reimbursed for services provided through commercial health insurers that go under. Those reimbursements to physicians and hospitals could reduce how much money is reimbursed to the federal government.

That may be precisely what happens in Kentucky.

Last week, the Franklin Circuit Court Judge Phillip Shepherd issued an order to liquidate the Kentucky Health Co-Op, a move sought by the  Kentucky Department of Insurance. The court said the co-op was in hazardous financial condition.

Liquidated assets will be used to pay existing claims by in-network providers. The Department of Insurance will attempt to pay all debts in full, but some providers may be paid at a reduced rate or not at all.

“Deputy liquidators will be gathering claims data and proof of claim forms through Oct. 15. Once everything has been reviewed, they (overseen by Franklin Circuit Court) will distribute the remaining assets,” said the spokeswoman for the department of Insurance in an email.

In October, the Centers for Medicaid and Medicare Services notified the Department of Insurance that KYHC would receive “risk corridor payments” — a system established under the ACA in which insurers contribute to a federal fund they can then tap to cover financial losses due to higher-than-average usage among members or customers.

For the 2014 plan year, KYHC  received $9,642,095 in risk corridor payments. This left a remaining balance of $67,363,499 that can’t be collected until after August 2016.

At the time, the Court said it was doubtful that the co-op would receive some or all of the funds.

Health insurance cooperatives have failed in Colorado, Iowa, Louisiana, Nebraska, Nevada, New York, Michigan and Oregon.

People who were insured by Kentucky Health Cooperative have until the end of February to choose another insurer for 2016.

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