Taxpayer-funded Obamacare health insurance co-op’s may be running afoul of the law by giving extravagant paychecks to their top executives, according to a Daily Caller News Foundation investigation.
More than a million Americans have enrolled in the 23 non-profit Obamacare co-ops since they began in 2011. The co-ops were intended to be consumer-operated non-profits focused on delivering healthcare to the working poor and others needing health insurance.
Eighteen of the 23 co-ops paid their top executives prodigious salaries ranging from $263,000 to $587,000, according to 2013 IRS tax filings.
The high take-home pay for the “nonprofit” executives appears to violate both federal law and Obamacare rules prohibiting “excessive executive compensation.”
The co-ops were originally funded in 2011 with $2 billion under Obamacare in an experiment to provide tax-paid competition to private sector health insurance providers.
Most of the Obamacare co-op executives are paid more than members of Congress, Supreme Court justices, U.S. cabinet secretaries and the governors of all 50 states.
Fears about excessive compensation were raised in 2011 by a key Obamacare co-op advisory board which set rules for the untested co-ops.
At a March 24, 2011, Washington, D.C. meeting, advisory board members openly agonized about the possibility of “unjust enrichment” by unscrupulous founders who sought to capture millions of dollars at the presumably “non-profit” cooperatives. They could not agree, however, on regulatory language to prohibit it.
TheDCNF probe found that their fears were justified.
The six-figure co-op salaries are two to four times higher than the $135,000 median executive healthcare pay reported in an October 2014 nonprofit CEO compensation study published by Charity Navigator. Charity Navigator is a nonpartisan group that tracks philanthropic and charitable organizations.
The Department of Health and Human Services’ Centers for Medicare and Medicaid Services, which oversees the federally funded co-ops, warned them in December 2011 that federal law bars the use of tax funds “to cover excessive executive compensation.”
Aaron Albright, a CMS spokesman, told TheDCNF that “the use of federal CO-OP loan funds is prohibited from, among other restrictions, providing excessive executive compensation.”
Albright did not define “excessive” compensation but he suggested that CMS approved the high salaries because his centers “review employment agreements for top executives of co-ops for compliance with the loan agreement.”
A section of the Bipartisan Budget Act of 2013 established limits for federal contractor executive compensation at $487,000. At least five co-op executives were paid above those limits, including South Carolina, Arizona, Illinois, Massachusetts and Louisiana.
The co-ops were also required by CMS to conduct surveys to “reflect the market rate for a similar position in your area.” Despite the government’s directive, however, only half of the co-ops conducted a review, according to their IRS forms.
The high co-op salaries also appear to conflict with President Obama’s personal campaign against high executive pay, which included his 2009 appointment of a “compensation czar” to investigate executive salaries at private companies.
Taxpayer advocates contacted by TheDCNF were outraged by the generous pay, especially in light of the perilous financial conditions that have many of the co-ops facing doubtful futures.
“I think it’s pretty shocking that they’re making that much money and what’s even worse is that most of these co-ops are failing,” said Elizabeth Wright, health and science director for Citizens Against Government Waste, a conservative non-profit advocacy group that has exposed wasteful federal spending since 1984.
Wright pointed to the collapse in December 2014 of the Iowa-based Co-Opportunity Health as a prime example of Obamacare co-op mismanagement. Co-Opportunity received $177 million in federal start-up loans before state regulators took it over and declared it in “hazardous” condition.
Before its collapse, David Lyons, Co-Opportunity’s president and CEO received $261,000 in compensation. Stephen Ringlee, Co-Opportunity’s CFO, received $257,000, despite having failed in several previous startups. Clifford Gold, its COO, took in $288,00.
Their pay was seven times the income for individual workers in Iowa, according to U.S. Census Bureau data.
“This is really, really shocking, especially when you see how abysmally these co-ops are performing,” said Grace-Marie Turner, president of the Galen Institute and a critic of Obamacare.
“What they have done is the worst of both worlds. Their organizations are failing and they’re paying CEO’s exorbitant salaries that are completely in contrast with the concept the co-ops were supposed to stand for,” Turner said.
Wright said it appears the co-ops have turned the familiar private-sector principle of “pay-for-performance” on its head in determining executive compensation: “They seem to be more careful managing their salaries than they are running the organizations they’re running.”
“As a president of a non-profit, you need to be a lot more fiscally responsible and fiscally cognizant of what you’re doing, and not just seeing it as a landing pad for a high paying salary,” said David Williams, president of the Taxpayers Protection Alliance, another conservative non-profit advocacy group that analyses government spending and programs.