Side Effects: Obamacare’s CO-OPs Put Taxpayer Dollars at Risk for No Good Reason

Alyene Senger

May 16, 2012 at 5:00 pm

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Yet another provision of Obamacare is expected to cost taxpayers more than they expected. The House Energy and Commerce Committee recently sent a letter to the Centers for Medicare and Medicaid Services (CMS) asking for details regarding the probable loss of $3.1 billion out of the $3.4 billion in Obamacare loans to its Consumer Operated and Oriented Plan (“CO-OP”). The estimate comes from the President’s Budget Appendix, and the committee is considering rescinding funds that haven’t already been obligated.

The Obamacare initiative gives CMS the authority to award $3.4 billion in loan subsidies to states to fund start-up costs and to help meet state solvency requirements for the health plans in the CO-OP initiative, The Committee’s letter explains that these loans are a bad investment for taxpayers: “[T]he amount of expected losses is estimated to be about $3.1 billion of the $3.4 billion appropriated (91 percent). These losses exceed the estimate HHS presented in its proposed rule.”

The loss of taxpayer dollars is a serious concern. In addition, the committee also raises further concerns with CO-OP’s potential effect on the insurance market. The letter cites research showing that “Past instances of insurer insolvency demonstrate the severe negative impact on the insurance markets.”

It’s also important to realize that Obamacare’s acronym is a bit misleading. The original term co-op stands for co-operative, meaning a private organization owned jointly by its members. Co-op insurance plans are policyholder-owned, nonprofit health insurance issuers that offer qualified health care plans to individuals and small groups in the states. They’ve actually existed for over a century, often called “mutual” insurers; they include major insurance companies such as Northwestern Mutual and State Farm.

The Obamacare initiative is CO-OP, a deceptive acronym that really just represents another government program. Heritage expert Stuart Butler explains, “[The] CO[-]OP program has start-up funds provided by the federal government and allocated by a federal board. The new membership plan cannot even be an existing co-op organization.”

Obamacare makes it more difficult for private co-ops to succeed. As Heritage expert Ed Haislmaier explains, “[T]he legislation expressly prohibits the most likely and sensible path to setting up a co-op insurer, namely, a divestiture or conversion by an existing health insurer…The only way to create one of the proposed co-op insurers is to start one from scratch—an inherently lengthy, uncertain, and expensive task.” The CO-OP program proves this with the estimated loss of $3.1 billion of its loan.

Furthermore, this provision of Obamacare is a complete waste of tax dollars. If Congress did want to encourage member-owned health insurers, which is a reasonable idea, Haislmaier explains that a change in the tax code would suffice. Haislmaier writes, “[A] simple and almost no-cost change in tax law granting mutual health insurers tax-exempt status (the same as currently enjoyed by credit unions, which are essentially ‘cooperative’ banks) would suffice. But that is not the case under Obamacare.”