Staff Report: Examining the Administration’s $2 billion ObamaCare Loan Guarantee Gamble: Two Case Studies of Political Influence Peddling and Millions of Taxpayer Dollars Wasted

Key Findings:

–          The three largest CO-OPs did not meet eligibility requirements. Three CO-OPs sponsored by Freelancers Union, which were established in New York, New Jersey and Oregon, did not meet eligibility requirements because Freelancers Union owns a for-profit insurance provider. The for-profit subsidiary has provided insurance to members since 2009 (p. 9-12).

–          Freelancers Union lobbied CMS to change eligibility requirements and benefited from close relationships with White House officials.  Recognizing their eligibility problem, Freelancers Union successfully lobbied officials at the Centers for Medicare and Medicaid Services to narrow the definition of a “related entity” so that the group could participate in the CO-OP program. CMS issued the proposed regulation one month after meeting with Freelancers’ representatives. Freelancers Union officials visited the White House more than 30 times between 2010-2013 and communicated with Elizabeth Fowler, a special assistant to the President for Health Care and Economic Policy, during the CMS rulemaking process (p. 12-15; 19-21).

–          Freelancers Union sought to profit financially and politically from the CO-OP program. Documents obtained by the Committee show that Freelancers Union sought to further the group’s “power in markets” and “power in politics” through the CO-OP program. Freelancers Union, by transferring CO-OP funding through one of its subsidiaries, received approximately $25 million of taxpayer funds. Emails between Union officials discuss the intention to “use returns from the CO-OPs to advocate for our members in states where they are served now and served in the future.  Example: We will push to get colonoscopy legislation passed in New Jersey . . . .” (p. 15-19)

–          Independent reviews raised concerns about the financial viability of several CO-OPs. An independent review conducted before CO-OP funding was awarded raised financial and legal concerns about the New York, New Jersey and Oregon CO-OPs sponsored by Freelancers Union. For instance, the review found the New York CO-OP’s “current [debt] ratio is too high compared to the industry benchmark . . . which may indicate that the applicant is holding too much cash in reserves or that they are over-stating assets.” (p. 21-23).

–          The failed Vermont Health CO-OP suffered a lack of oversight and conflicts of interest. The Vermont Department of Financial Regulation (DFR) found that the CO-OP Board’s inattention to oversight created “an enormous risk.” The DFR also found the CO-OP entered into an “illegal no-bid contract” with Fleischer Jacobs, which they deemed “stark, ever-present conflict of interest” that “creates insurmountable risk for the CO-OP.” The Vermont Health CO-OP was denied licensing and folded (p.24-26).