by Mitch Kokai
Senior Political Analyst, John Locke Foundation
The federal government is unlikely to recover all of the taxpayer funds lent to failed Obamacare co-ops, according to an audit by the inspector general for the Department of Health and Human Services.
The 23 co-ops that were created under Obamacare received $2.4 billion in taxpayer funds from the Centers for Medicare and Medicaid Services, of which $358 million were designated for “startup” loans.
The startup loans were to be repaid within five years, as opposed to other loans that were to be repaid within 15 years.
The Centers for Medicare and Medicaid Services released a memo on July 9, 2015 informing the co-ops that they could convert their startup loans into surplus notes by amending their loan agreements.
“Under the terms of a surplus note, co-ops are not required to make any repayment on the surplus note that could lead to financial distress or default,” the audit explains. “Co-ops that converted their startup loans into surplus notes could record and report these loans as capital and surplus rather than as debt in financial filings with regulators.”
The audit found that 12 co-ops had undergone this conversion on or before December 31, 2015. …
… “Although the conversions provided increased levels of capital and surplus, 4 of the 12 co-ops approved for conversions ceased operations within 6 months after the conversion,” the audit stated. “[The Centers for Medicare and Medicaid Services] did not adequately document the potential impact of the conversions on the federal government’s ability to recover the loan payments if the co-ops were to fail.”
“The conversion of the startup loans into surplus notes likely reduces the federal government’s ability to recover the loan funds if a co-op ceases operations and liquidates its assets,” the audit said.
For example, the federal government was third in line to be repaid by Michigan’s co-op before it converted its startup loan, but fell into eighth place after the conversion took place. The Michigan co-op is now closed.