Government Loaned Billions To Start ObamaCare Co-ops With No Plan To Repay

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Affordable Care Act (ACA) — “Obamacare” — Co-Ops will likely never repay taxpayer money lent to them, according to an audit from the Inspector General’s office at the Department for Health and Human Services (HHS).

The investigators found that the Center for Medicare and Medicaid Services (CMS) did not account for how the federal government would recover the loans if the Co-Ops failed.

Obamacare authorized the CMS to loan money to support Consumer Operated and Oriented Plans, or Co-Ops. The Co-Ops were to be treated like startups, and repay the loans once they received business through Obamacare’s glitchy online marketplaces.

At issue is a controversial rule which let struggling Co-Ops convert their loans into “surplus notes,” meaning they did not need not make payments on the loan if they were strapped for cash.

“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,” CMS told the Co-Ops in a July 9, 2015 memo, included in the audit.

A total of 12 CO-OPs opted to take the surplus notes. But after the conversions, four of those Co-Ops failed completely without repaying the rest of their loan.(RELATED: The 8 Obamacare Co-Ops Most Likely To Fail This Year)

Even though the conversions were legal, “CMS 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 audit says.

CMS gave $2.4 billion to 23 Co-Ops around the country, and of that, $358 million went to startup loans. The other $2.08 billion went to “solvency loans.”

Though the Co-Ops were required to repay the loans within five years of disbursement, the fact that most of them have failed as businesses does not look good for repaying the taxpayers.

“The co-ops are supposed to repay the money, but we’re talking about entities that are going bankrupt and being liquidated,” Ed Haislmaier, senior research fellow at the Heritage Foundation told the Washington Free Beacon. “So what is the probability that it will actually be paid back? Vanishingly small.”

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