Watchdog: Follow the Money

HHS IG fears Obamacare co-ops will run out of money before enrolling first customers

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Most of the 24 health care co-ops created under Obamacare are in danger of running out of money before they even begin offering health insurance to consumers, according to the Inspector General for the Department of Health and Human Services.

The 24 nonprofits, intended to create competition for private insurance companies, are funded by a $2 billion loan program authorized by Obamacare to cover their startup costs. The co-ops are expected to become self-sustaining and repay their loans with interest.

But 11 of the 16 co-ops the IG reviewed said they expect startup costs to exceed what they received from the Department of Health and Human Services via the loans, and none of those reviewed by the IG have enough private support to fund them once they're up and running, even though private support was one of the criteria for preference during the loan award process.

"Monetary support is key to ensure co-ops are not relying solely on borrowed funds for initial operations and to safeguard the long-term sustainability of the co-op. We saw little evidence of monetary support in any of the 16 applications we reviewed," the IG said.

Half the co-ops the IG reviewed said they had no private support at all. The other half said their private funding amounted to less than 2 percent of their federal startup loans.

"The limited private monetary support reported in the co-ops' applications may affect the co-ops and the CO-OP program if co-ops expend all available funds before becoming fully operational," the IG said.

The IG recommended HHS's Centers for Medicare and Medicaid Services, which manages the co-op program, monitor the co-ops to ensure they don't exceed their startup costs before becoming operational, and that they continue to solicit private support. CMS agreed with the IG's recommendations.

The HHS-IG's review of the co-ops isn't the first sign of trouble for them. Thirteen are under investigation by the House Oversight and Government Reform Committee, headed by Rep. Darrell Issa, R-Calif. A continuing Washington

Examiner Watchdog investigative reporting project focused on the co-ops began in 2012 and has since uncovered extensive evidence of financial mismanagement, conflicts of interest, failure to file required tax returns, inadequate capitalization and evasion of public disclosure requirements such as the federal Freedom of Information Act.

A recent Examiner survey found, for example, that all but one of the 24 co-ops failed to file required tax returns, and several may invoke a highly questionable loophole allowing them to avoid doing so in the future.

Even more troubling, two of the co-op loans were awarded to organizations headed by individuals with questionable backgrounds, the Examiner has learned, including an insider trading conviction and a history of child sexual abuse.

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