Hundreds of Millions of Taxpayer Dollars Directed to Ineligible New York Co-Op

Published May 7, 2013

A new insurance entity created under the auspices of President Obama’s health care law may have been allocated millions of taxpayer dollars it was not qualified to receive.

At issue is the New York-based Freelancers Insurance Company (FIC), a company founded by a former associate of Obama, which received a $340 million federal tax-free loan in 2012. FIC is a for-profit insurance company that provides health insurance for members of the nonprofit Freelancers Union.

Both enterprises were founded by Sara Horowitz, who worked with President Obama while he was an Illinois state senator in 2000 to launch Demos, a left-wing New York think tank funded in part by billionaire George Soros.

Horowitz, a former private practice labor attorney, is a labor organizer who established the Freelancers Union in 2003 as a nonprofit organization to offer health insurance, representation, and other benefits for freelancers and independent workers. Horowitz created the FIC in 2008 to offer health insurance plans to qualified Freelancers Union members in an enterprise modeled after other union-built businesses.

In 2012 the FIC received a $340 million federal tax-free loan from the U.S. Dept. of Health and Human Services’ Center for Consumer Insurance Information and Oversight. This award was part of $2 billion allocated by an obscure ObamaCare provision to establish 24 co-ops, collectively owned organizations that produce goods or services for the benefit of members instead of for profit.

Ineligible for Taxpayer Loans

In March 2013, the House Oversight and Government Reform Committee opened an inquiry into FIC’s eligibility for the loans. According to Rep. Dave Camp (R-MI), chairman of the House Committee on Ways and Means, the FIC is ineligible for the loans under Obama’s law.

According to Camp’s office, the Freelancers Union offers health insurance to union members and their dependents in the state of New York through Freelancers Insurance Company, which it owns. But according to Section 1322(c)(2)(A) of Obama’s law, organizations are ineligible to receive the loans awarded by the administration if “the organization or a related entity (or a predecessor of either) was a health insurance issuer on July 16, 2009.”

The law also forbids any organization from receiving this type of funding if it was “sponsored by a state or local government,” and it requires that loan recipients be not-for profit entities. According to Camp’s office, the Freelancers Insurance Company fails on both counts.

The loans Camp criticized were granted to Consumer Operated and Oriented Plans (CO-OPs) authorized by Obama’s law, and are scheduled to begin operating in 2014. The CO-OPs participate in Obama’s health insurance exchanges, a government-controlled marketplace where individuals and small businesses can shop for health insurance coverage.

Avik Roy, a senior fellow at the Manhattan Institute, says the reports regarding cronyism between Obama and Horowitz are troubling.

“By the letter of the law, the Freelancers’ Union did not qualify for the ACA CO-OP program,” said Roy.

Chronic Complaints, Little Experience

According to the House committee’s findings, Horowitz plans to establish co-ops in New York, New Jersey, and Oregon, despite a chronic record of consumer and regulatory complaints. Horowitz’s FIC has been so bad it has won the dubious distinction of being rated the “worst” insurer for two straight years by state regulators.

The New York State Insurance Department ranked FIC last among commercial insurers, with the most complaints, and 49th of 50 among all the state’s insurance providers in 2011. In 2012 it ranked Freelancers “worst” in complaints and 51st among 54 rated insurers.

Dr. Roger Stark, a physician and health care policy analyst at the Washington Policy Center, says the FIC is part of the same old story of the government picking winners and losers, and raised the possibility of cronyism.

“President Obama was associated with the Demos organization originally, so you have to wonder,” said Stark.

Since none of the people running FIC have a background in health care, he believes their chances of succeeding are very poor.

“Considering their track record and all the complaints against them, I’d say it’s a long shot that they will prosper,” said Stark.

Loan Guarantees Without Requirements

Stark notes there is also the issue of using public funds to prop up a nonprofit insurance company to compete against private companies and the government’s own health care exchanges.

“But then, this administration is taking public funding for private companies to a whole new level,” Stark said.

Sally Pipes, president of the Pacific Research Institute, said the lack of any qualifications for loan recipients is a concern.

“It’s like Solyndra all over again, but in a different arena,” Pipes said.

Devon Herrick, a senior fellow at the National Center for Policy Analysis, says the co-op scheme exposes problems caused by excessive regulation in the state.

“Her nonprofit insurance company would have no reason to exist were it not for the convoluted insurance regulations that make individual insurance all but unaffordable in New York State,” said Herrick. “In a roundabout way, she’s doing what many employers do to avoid cumbersome regulations—create their own employee insurance plan.”

Herrick concludes the entire co-op project is questionable.

“It’s hard to say how the co-op approach will work. There are so few examples that no one really knows what to expect,” said Herrick.