Obamacare program asks for billions more while expecting to lose $3.1 billion; Congress investigates
Apparently $3.4 billion isn't enough. It now seems that the Obama Administration is asking for a total of $7.25 billion dollars to fund loan grants in its Consumer Operated and Oriented Plan (CO-OP) Program.
The same Administration that gave us Solyndra, had told us last year to expect a CO-OP loan default rate of 30% to 35%.1 Now it appears that the expected loss rate is 43%.2 That's $3,130,000,000 that the Obama Administration expects to lose!3
The CO-OP program offers reduced interest loans to new insurance companies called CO-OPs that will be run by their policy holders. The loans are for startup costs and to meet state requirements for solvency reserves. But because of the way the loans are structured, should a CO-OP find itself in bankruptcy court, taxpayers would be placed towards the back of the line of creditors seeking payment.4
The CO-OP program was included in Obamacare to placate liberals who didn't get their single-payer (government-run) health care system. Ten CO-OPs, many sponsored by leftist organizations and individuals, have already been awarded loan grants totaling $845,012,408.5
Some state insurance commissioners expressed their concerns with these new CO-OPs on a recent conference call of the National Association of Insurance Commissioners. One of their concerns is that, because CO-OPs are run by their policy holders, there may be a bias in favor of lower premiums which might result in premium underpricing.
While in the short term lower premiums may benefit consumers, underpricing could have long term negative effects not just on CO-OPs but also on the health insurance market.
In addition, there was some sentiment amongst the state insurance commissioners on the call, that the influx of loans to be used to meet state solvency requirements might also be bad for state health insurance markets.
We've sent two Freedom of Information Act requests on CO-OPs to the Department of Health and Human Services. In the first FOIA we asked for information on who has applied for the grants and who has been denied.6 Then, on April 16, 2012 we filed a FOIA to find out exactly what is in the contracts the Obama Administration is signing with these new entities.7
And, now, we're not the only ones investigating them.
On April 24, 2012, the House Energy and Commerce Committee sent Marilyn Tavenner, Acting Administrator of the Centers for Medicare & Medicaid Services (CMS), a letter demanding answers to 18 questions by May 8, 2012.
We look forward to reading their responses.
1 “HHS expects one-third of loans to consumer-run insurance plans to default” OBAMACAREWATCHER.ORG (Aug. 11, 2011) available at http://obamacarewatcher.org/articles/211.
2 The budget contains a line that says "Direct Loan Subsidy (in percent)." The Committee on Energy and Commerce’s letter (see note 3) explains this to be the "expected losses percentage.” For 2012, it is 43.21% and it is 43.05% for 2013. Overall that's 3.1 billion dollars that HHS expects to lose on defaulting CO-OP loans.
The White House’s Office of Management and Budget defines the word “subsidy” as the "estimated long-term cost to the Government of a direct loan or loan guarantee, calculated on the net present value basis, excluding administrative costs and any incidental effects on governmental receipts or outlays." (see OMB Circular No. A-11 (2011) page 8 of Section 20).
3 Letter from Fred Upton, Chairman, Committee on Energy and Commerce of the U.S. House of Representatives, et al., to Marilyn Tavenner, Acting Administrator, Centers for Medicare and Medicaid Services, at 2 (April 24, 2012) available at http://republicans.energycommerce.house.gov/Media/file/Letters/112th/042412CMS.pdf.
4 Letter from Fred Upton, Chairman, Committee on Energy and Commerce of the U.S. House of Representatives, et al., to Marilyn Tavenner, Acting Administrator, Centers for Medicare and Medicaid Services at 3 (April 24, 2012) available at http://republicans.energycommerce.house.gov/Media/file/Letters/112th/042412CMS.pdf.
5 “New Loan Program Helps Create Customer Driven Non-Profit Health Insurers,” Healthcare.gov (March 29, 2012) available at http://www.healthcare.gov/news/factsheets/2012/02/coops02212012a.html.
6 “Applications for grants under CO-OP Program,” ALG FOIA Files (March 7, 2012) available at http://algfoiafiles.com/index.php?title=Applications_for_grants_under_CO-OP_Program.
7 “CO-OP Loan Agreements,” ALG FOIA Files (April 16, 2012) available at http://algfoiafiles.com/index.php?title=CO-OP_Loan_Agreements.