Feds Bar Obamacare Co-ops From Going For-Profit

Richard Pollock | Reporter

Federal health officials are barring Arizona’s nonprofit Obamacare health insurance co-op from transforming itself into a for-profit company, The Daily Caller News Foundation has learned.

Earlier this year, Arizona’s Meritus Health Partners, a non-profit set up under Obamacare, had only $19 million left of its $93 million in federal funding. Its officers sought to change its status to a for-profit company in order to attract private capital, according to Healthcare Dive, an online health newsletter.

But Obamacare officials in Washington, D.C. tell TheDCNF it is illegal to convert an Obamacare non-profit co-op into a for-profit enterprise.

Aaron Albright, a spokesman for the Centers for Medicare and Medicaid that manages Obamacare, tells TheDCNF a rule in the original language of the Affordable Care Act bans any non-profit co-op conversion into a for-profit.

Albright directed TheDCNF to the final Obamacare rule on co-ops which states that “under the final rule, a co-op conversion into a for-profit entity is prohibited in all circumstances.”

As a result, the co-op will be closing its doors Dec. 31 and 59,000 of its customers are scrambling to find new insurance coverage by the end of the year.

Many factors can explain the demise of Meritus. But lavish executive pay can partly explain its shortfall.

As previously reported by TheDCNF, nearly $1 million of the co-op money went to three executives who are part of a for-profit partnership called Eastwick Strategy Group, which includes Meritus’ CEO, Kathleen Oestreich.

In November, the board ousted Oestreich and replaced her with Tom Zumtobel, a former union officer from UNITE HERE and who previously headed Nevada’s failed co-op.

Zumtobel isn’t an inexpensive hire. At the Nevada co-op he earned $414,000, according to the Nevada co-op’s IRS filings.

As the new CEO, Zumtobel apparently attempted to salvage Meritus by trying to raise capital through private markets and converting the nonprofit into a for-profit company.

From its inception, the Obamacare co-op program was originally pitched by the Obama administration to appeal to the liberal love affair with non-profit groups.

Eight of the 15 federal co-op advisory board members that set the final co-op rules came from non-profits. Four others came from academia and two from government.

Also reflecting the anti-business nature of the health law, federal regulators prohibit the hiring of any co-op board member if they had past experience with commercial insurance companies.

To date, 13 of the 24 health insurance co-ops have now defaulted, costing the federal government at least $1.2 billion.

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