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Obamacare co-ops are focus of four federal investigations

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News,Watchdog,Richard Pollock,Obamacare,Health and Human Services,OMB,Health Care,Darrell Issa,Health Care Coops

Multiple federal investigations are probing the $2 billion Obamacare co-op loan program at the U.S. Department of Health and Human Services, The Washington Examiner has learned.

Investigators from two separate offices within HHS's Office of Inspector General are looking closely at the co-op program being fast-tracked under the Patient Protection and Affordable Care Act, aka Obamacare.

The Obamacare co-op program is also the focus of examinations by the House Energy and Commerce and Oversight and Government Reform committees headed, respectively, by Rep. Fred Upton, R-MI, and Rep. Darrell Issa, R-CA.

Twenty-four newly established Obamacare co-ops in 25 states hope to begin selling health insurance coverage to the public October 1 in competition with private sector firms.

Each of the new co-ops was selected by HHS to receive start-up loans of varying amounts that are supposed to be repaid in the future.

Because co-ops are relatively untested vehicles for selling and managing health insurance programs, the U.S. Office of Management and Budget has predicted that as many as 43 percent of the new groups will go bankrupt within a few years.

Investigators are focusing on the co-op program's lack of transparency, high likelihood of multiple defaults, and recurring charges of political favoritism in the selection process for choosing funding recipients.

One of the IG probes is focusing on the process used by the Obama administration to choose the 24 co-ops to be funded, which critics argue is flawed by favoritism. The IG's Office of Audit Services, its largest division, is carrying out that investigation.

The IG's Office of Evaluation and Inspections is carrying out a second investigation. Auditors are determining whether the new startups will be able to avoid insolvency or default, a major worry among insurance experts.

In Congress, Rep. Marsha Blackburn, R-TN, said an insider deal between the Vermont Health CO-OP and one of its founding senior executives "smells and reeks to high heaven of cronyism."

Blackburn, who is vice-chairman of the energy and commerce panel, added that "what we would like to see are the applications and find out what this [HHS] vetting process was."

Vermont's state insurance commissioner recently rejected the co-op's application for a license to sell health insurance in part due to the insider deal, calling it "illegal."

Vermont Health CO-OP CEO Christine Oliver has claimed that HHS knew of and approved the deal. The company will not be able to begin operations on Oct. 1 unless the Vermont Supreme Court reverses the commissioner's decision.

A spokesman for HHS did not return a reporter's multiple calls and emails seeking confirmation of Oliver's claim that federal officials approved of the controversial deal.

Issa told The Washington Examiner that his panel's primary concern is with the lack of transparency in the $2 billion Obamacare program.

"Almost $2 billion taxpayer dollars are on the line, yet we still know very little about why and how these companies were selected for taxpayer-backed loans," he said. "The viability of the Vermont Health CO-OP deepens my concerns that the selection process was both opaque and flawed."

Scott Amey, general counsel for the Project On Government Oversight, a non-profit watchdog group , also expressed concern about the Vermont co-op's insider deal.

"You know it really causes great concern when it was a sole-source contract that wasn't announced [and was done] without a hint of competition," Amey said.

"I think the federal government has the duty to weigh in because this is federal money that's being spent," he said.

The Vermont insider deal also troubled Elizabeth Abbott, a consumer advocate for Health Access California, a health reform group. "I think it sounds hugely problematic to me," she told The Washington Examiner.

She warned a federal advisory panel overseeing the co-op program in January 2011 that it should "be very mindful of those kind of things."

Abbott is a former regional director of the Medicare program on the West Coast.

The National Alliance of State Health Cooperatives, the co-op's trade association, also refused to comment on the ethical issues surrounding the Vermont co-op.

Richard Pollock is a member of The Washington Examiner's Watchdog reporting team. He can be reached at rpollock@washingtonexaminer.com.

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