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Six Solyndras: Obamacare Blows $3 Billion on Faulty Co-Op Insurance Loans

Avik Roy – Forbes 5/31/12 – A lot of people have been justly offended by the Solyndra scandal, in which the Obama administration squandered $535 million in a failed solar-energy company backed by one of Obama’s largest donors. But $535 million in failed loans is chump change for this administration. Obamacare, according to the White House, will waste over $3 billion on faulty loans to state-sponsored health insurers called CO-OPs. It’s bad enough that taxpayer funds are going down the tubes. But internal documents show that the administration isn’t particularly bothered by it.

First, some of the backstory. When moderate Democrats balked at the government-run “public option” in their health-care bill, they compromised by creating state-sponsored insurers called Consumer Operated and Oriented Plans, or CO-OPs. These CO-OPs, however, are not to be confused with private co-ops, which are privately sponsored cooperative enterprises. The Obamacare CO-OPs were designed to fail.

The Obamacare CO-OPs were allocated $6 billion in subsidized, cut-rate loans, so as to ensure that they would meet state capital requirements. (Insurers have to have a certain amount of money in reserve in order to pay out the claims of their beneficiaries.) Interest on the loans would be a point or two less than Treasurys—a nice deal, if you can get it. But the bigger problem, as Bradford Gray of the Urban Institute explained last summer, is that the CO-OPs aren’t built to function like normal insurers.

Structural flaws in the design of CO-OPs

For one thing, the plans are prohibited from using the loans for marketing purposes. So there isn’t an easy way for the plans to make consumers aware of them. The plans are prohibited from working with insurers already in operation, hence limiting their ability to gain from the experience of existing market players. The plans will have to enroll members and contract with providers—but unless they are able to enroll a good mix of healthy and sick people, they’ll pay out more in claims than they take in premiums: the classic problem of adverse selection. Since healthy people have plenty of options already, it’s sick people who will be most likely to sign up for the CO-OP plans.

Because of these problems, Congress last summer stripped $2.2 billion from CO-OP appropriations, leaving the program with $3.8 billion in subsidized loans. Nevertheless, last July, the U.S. Department of Health and Human Services made public their projection that 36 percent of the remaining loans would go unpaid: a staggering $1.4 billion. When Congress demanded answers from HHS, the agency replied that “we believe that the changes we have made…improve the potential viability of CO-OPs,” but maintained their previous insolvency projections.

White House projects 91 percent of CO-OP loans will fail

Then, in early 2012, the White House’s Office of Management and Budget projected that 91 percent of the CO-OP loans would go unpaid: $3.1 billion of the now-$3.4 billion program.

Rest assured that taxpayers will be stuck with the bill. As a letter from the House Energy & Commerce notes, “Because the CO-OP regulation does not specify any collateral for the loans, and, as mentioned above, holders of surplus notes are usually at the bottom rung in terms of priority if an insurer goes into rehabilitation or liquidation, the Federal taxpayer would be among the last in line for repayment should a CO-OP experience financial distress.” (Emphasis added.)

It’s not just Republicans who are concerned about the CO-OP disaster. Sen. John D. Rockefeller (D., W.Va.), an advocate of single-payer health care, has pointed out that “there has been no significant research into consumer co-ops as a model for health insurance. What we do know, however, is that this model was tried in the early part of the 20th century and largely failed…This is a dying business model for health insurance…I believe it is irresponsible to invest over $6 billion in a concept that has not proven to provide quality, affordable health care.”

Labor union giveaways

Over at the Centers for Medicare and Medicaid Services, however, it’s full steam ahead. Earlier this month, CMS awarded $137 million to two new CO-OPs in Michigan and Nevada. I’ve obtained an internal CMS document containing talking points regarding the two giveaways.

The talking points concern, among other things, the fact that the Nevada plan is “sponsored by a Taft-Hartley (union) plan.” This, despite the fact that existing plans are specifically barred from receiving CO-OP loans. “The Affordable Care Act excludes pre-existing issuers from CO-OP participation,” CMS acknowledges, but because the union plan in this case is not licensed in Nevada, but in Delaware, according to CMS, they’re not an “existing plan.” Okay then.

The funniest part of the document is when CMS asks itself, “aren’t loans like this risky?” Contrary to the agency’s own projections, let alone those of the White House, CMS says everything’s copacetic. “Loans will only be made to private, nonprofit entities that demonstrate a high probability of becoming financially viable.” According to the government, it seems, if you have a 9 percent chance of repaying your loans, you’ve demonstrated a “high probability” of success.

Remember that the next time someone tells you that government-run health care is “more efficient” than the private sector.

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Comments (13)

  1. Wanda says:

    Americans want honest and fiscally responsible government.
    Obviously the current President
    is about as far as you can get from the American Ideal.

    Let’s put the trash out in November.

    • Niko says:

      There are several ways you can help to reiapr your credit quickly. Not overnight, but at least faster than the usual way. These are sort of light coverage answers to your question. I could write an entire chapter on this. I’ll just give you the cliff notes.1. Creditors like to see your debt ratio to be about 60/40. If possible, apply for a new credit card that offers low interest or even zero if you use it to take your money from one account and put it into your new account.What happens is your debt ratio will lower because you now have more credit available. When you apply for credit, it does lower your credit score a tiny bit, so if you don’t think you’ll actually qualify for the credit, don’t use this technique.2. I have only read of this in a book on credit reiapr If you have a friend of family member with A credit. Ask them to add you to one of their credit cards. You will inherit their credit history. They do NOT inherit yours and they never have to give you the card or the number to use it. They only add you to the card. You are also not responsible for it.However, before trying that, I would recommend going to your local bank and asking how that works My father wants to add me to his credit card, does this mean that if he fails to pay I have to? How exactly will this effect his credit if I have bad credit? The book I read is excellent, but I would rather have you make sure to check with a bank than to rely on a book. I have not personally tried this.So, the things you can do over time, say the next 6 months to a year to build your credit, would be to lower your debt ratio, and to of course make sure your make timely payments on all your cards. You can also look into taking off older negative credit from closed accounts. If they are older than 2 years, you can dispute the negative credit. The creditor has to prove it belongs there. Most creditors do not keep that information easily available after 2 years and it’s not worth it for them to try and pay the hours to dig it up. If they don’t prove it, it is removed.That does not apply to bankruptcy’s which stay on your credit for up to 10 years. Those are some ways to improve your score. The disputing one is about a 30 day process if I remember correctly.

    • Alan says:

      Debt Consolidation Help comes in many forms, from payment plans to loans to reoolutisn strategies, so it is important that you spend some time prioritizing your own personal finance needs, concerns and financial situation before signing up for any debt consolidation help program.The four primary concerns for most consumers are: i) monthly payment , ii) time to debt freedom, iii) total cost, and iv) credit rating impact of the debt consolidation program. Be sure to evaluate each program, relative to your prioritization of these factors.Since there are a variety of debt consolidation options, including credit counseling, debt negotiation/debt settlement, a debt consolidation loan, and other debt reoolutisn options, it is important to fully understand each option and then pick the solution that is right for you. I will walk you through each, in turn.Credit Counseling Credit counseling, or signing up for a debt management plan ( DMP ), is a very common form of debt consolidation. There are many companies offering online credit counseling, which is essentially a way to make one payment directly to the credit counseling agency, which then distributes that payment to your creditors. Most times, a credit counseling agency will be able to lower your monthly payments by getting interest rate concessions from your lenders or creditors. It is important to understand that in a credit counseling program, you are still repaying 100% of your debts – but with lower monthly payments. On average, most online credit counseling programs take around five years. While most credit counseling programs do not impact your FICO score, being enrolled in a credit counseling debt management plan DOES show up on your credit report… and, unfortunately, many lenders look at enrollment in credit counseling akin to filing for Chapter 13 Bankruptcy – or using a third party to re-organize your debts. This is typically a good form of debt consolidation help if you have lots of high interest credit card debt and just want a lower monthly payment.Debt Settlement and Debt Negotiation Debt settlement, also called debt negotiation, is a newer form of debt consolidation help that cuts your total debt, sometimes over 50%, with lower monthly payments. Debt settlement programs typically run around three years so they are a short programs with low monthly payments that can save you the most money while avoiding bankruptcy.It is important to keep in mind, however, that during the life of your debt settlement program, you are NOT paying your creditors. This means that a debt settlement solution of debt consolidation will negatively impact your credit rating. Your credit rating will not be good, at a minimum, for the term of your debt settlement program. However, debt settlement is usually the fastest and cheapest way to debt freedom, with a low monthly payment, while avoiding Bankruptcy. The trade-off here is a negative credit rating versus saving money.Debt Consolidation Loan Many people think first of a debt consolidation loan when seeking debt consolidation help. Usually, this is reserved for home owners with equity in their homes that can be tapped to payoff other debts. This option typically means a second home loan (or home equity line of credit) or refinancing your primary mortgage. In a debt consolidation loan, you exchange one or more loans for another. The most frequent form is taking out a mortgage loan, which carries a lower interest rate and is tax deductible, to pay off high interest rate credit card debt.It is important to be aware that shifting unsecured debt to secured debt can create a volatile situation, if there is ever a chance that you cannot afford the new mortgage payment you are now putting yourself at risk of foreclosure! In the case of a debt consolidation loan, most mortgages are 30 year loan, which means that the total cost and the time to debt freedom could be very high… but the monthly payment will be lower than other options and there is no credit rating impact.Net-net: While there are many forms of debt consolidation help, many people with good to perfect credit who own homes should look into debt consolidation loans, while consumers with high credit card debt and poor credit may want to explore debt settlement or debt negotiation. However, each consumer is different, so find the debt consolidation help program and option that fits for you.

      • Ali says:

        The United States Bankruptcy code prohibits diinrimscation by an employer just because you filed bankruptcy.As far as I know there is no limit for CCCS plans .Stay away from any debt consolidation company that promises to cut your debt in half through debt settlement .This is a risky tactic of deliberately ceasing all payments to creditors and forcing your accounts into default to attempt settlements.

    • Hiroki says:

      I say avoid dealing with criedt repair businesses. Do it yourself all it takes is time and patience, I learned on my own repairing my criedt report it took me a year but it was well worth it.1. Obtain your report through ..www.creditreport.com 2. Review all open items (first I would check to see if anything on your report does not belong to you and if it don’t belong to you dispute it with that criedt bureau (ex. experian, equifax and or transunion). 3. The one’s that belong to you call up the collection agency and offer them an amount and let them know what you can afford (ex. I had a bill for $ 1000 that I owed on and I offered to settled $ 300 and they except offer). Also, please make sure you get everything in writing to have for your record. 4. Also, another suggestion you can write letters to and negotiate as well.Believe me it works just time and patience. I hope this information helps.

  2. Mike McDaniel says:

    I’m joining AMAC today. As noted in an accompanying note, I sincerely hope that the AMAC staff will be transparent. I mentioned that one way of demonstrating this would be for AMAC to publish their employees and their complete compensation packages, and publish it again every time either of these values changes substantially (incremental or cumulative).

    My membership is only for a year, and I am curious if the AMAC staff is willing to do this. Or at least, publish an excuse stating why they are not willing to do so.

    Thanks

    • Antibee says:

      Why would you care about the AMAC staff and their personal information? You are FREE to join Amac and if you dont like them then you are FREE to not join.

      When the govt regulates and enforces unfair or fair programs on the American people then they dont have a free choice. They dont have a choice to not pay membership. Their freedoms are taken away by a few and they deserve to know why. Thats what this Administration used (transparancy) to get elected.

      My opinion is that I dont believe you deserve or have the need to know anyones personal salary at AMAC since you have a choice on not joining them. I am wondering what your motive is for asking?

      BTW, you might want to check out AARP if you cant satisfy your curiousity. I am sure they will provide you that information, accurate or not.

  3. william b slater says:

    Our president is a disgrace to all of us Americans. I am 64 and fought for this country,as well as all of my family members. We do not live in a socialistic country,and we are Americans. We need a president that will stand for our country,or get out. Bugs bunny has more sense.

  4. John File says:

    Nothing from this administration surprises me any more. But the fact that they’re getting away with this type of political manuevering right under every ones nose is very frightening and does not bode well for the future of this nation. His administration is transparent alright!

  5. catherine k says:

    this sounds like the thinking of obamas’ criminal mind.

  6. John W says:

    There are a lot of reasons why Obama should be in Jail. This is just another reason to add to the list.

    • Christyam says:

      You would need to determine if you are liookng on filing for a Chapter 7 or Chapter 13 bankruptcy. Chapter 13 (reorganization) will stay on your credit report for 7 years. Chapter 7 will stay on your credit report for 10 years. During this period you will find it difficult to get any sort of credit, and this can extend to renting apartments too. Even if a lender DOES eventually extend credit (either for car or home loan), your payments will be about double that of someone with excellent credit. To hire a bankruptcy attorney you will spend between $2,000 $3,000.Now question would be, do you want to have to face your debt now and pay it, or have your credit over the next 10+ years cost you more . . . in either case it seems it will cost you.

    • Jorge says:

      Go get a book on Credit and Debt Repair.You can settle, neogaitte, and even do a pay on delete.The book will make you a pro.Bankruptcy will show on your reports for 7 to 10 years.Remember that employers check, so do landlords and car insurance companies.Try to do anyting before you consider this.Also get a book on bankruptcy.If you are low in cash the library has these books./

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