September 22, 2015 | Commentary on Government Waste, Federal Spending, Stimulus, Obamacare

Washington’s boondoggle bandwagon: Obamacare’s co-op plans

The Obama administration is perfecting the art of the “boondoggle” — a colorful term for a taxpayer-funded project characterized by wasteful spending, gross inefficiency, or political favoritism. William Safire, the late New York Times columnist, traced the word’s origins to 1935, when the New York City Council learned that Depression-relief funds were being used for puppet shows and tap dancing lessons.

Obama-era boondoggles operate on a far grander scale. Consider the massive 2009 “Stimulus” package and all those “shovel-ready” jobs that never materialized. Or the $536-million loan guarantee for Solyndra, shortly before the solar power company went belly up.

And, of course, there’s Obamacare. The administration pumped hundreds of millions of taxpayers’ dollars into failed Obamacare health exchanges in Massachusetts, Maryland, Nevada and Oregon. And the recent collapse of the Nevada Health Co-Op could be the harbinger of even bigger busts to come.

Here’s how the co-op mess started. During the 2009 Obamacare debate, Senate liberals couldn’t muster the votes to create a government-run plan (a “robust public option”) to compete against private health plans. So they went with Plan B; to create health insurance cooperatives — nonprofit health plans — to operate in the individual and small group markets. To launch the co-ops, they authorized billions of dollars in government grants and loans, and created a 15-member board to advise the Department of Health and Human Services on how to distribute the funding.

HHS promised that this money would go only to organizations that “demonstrate a high probability of financial viability.” Since then, it has shelled out $2.5 billion in loans to 23 co-ops around the country.

The Nevada co-op took more than $65 million in taxpayer-funded loans. Now it’s closing down after losing $15 million. The co-ops in Iowa and Louisiana have also failed.

In fact, the entire Obamacare co-op program is in trouble. Altogether, 23 co-op plans nationwide got government loans. The HHS inspector general recently reported that 13 of these plans failed to meet their enrollment projections, and 21 of them lost money in 2014. One thing is indisputable: these are real nonprofits.

The co-op scheme is just the latest costly example of political attempts to manipulate health care markets. As with all such “top-down” policymaking, the process is painfully predictable. A “good intention” reaches a critical mass of intellectual support within the “policy community”; allied legislators incorporate it into an unreadable bill the size of a telephone book; following little or no legislative deliberation, unsuspecting taxpayers are forced to fund it; the federal bureaucracy fills in the yawning gaps of often vague statutory language with prescriptive rules and regulations; and federal officials vigorously enforce what’s officially “good” for the folks — whether they want it or not.

In truth, the co-op coverage option did not get a fair chance. Cooperatives are thus traditional American mechanisms for marketing and selling a variety of goods and services that people want and need. Farmers have longed formed co-ops to market their produce. Workers join financial cooperatives called “credit unions.”

Health insurance cooperatives could be a great addition to a rich mix of competing health plans. But not when they are “created” by Congress. To succeed, co-ops must emerge naturally in a real free market, where choice and competition drive innovation and control costs.

Such a bottom-up, consumer-driven approach could make cooperatives robust players in the health insurance markets. Congressional intervention would be minimal, and more taxpayer liabilities would be unnecessary. As my Heritage Foundation colleagues have argued, Congress need only grant nonprofit status to mutual insurance companies, and give people tax relief for buying coverage from a cooperative, (or any other competing private plan) — just as they do when they buy coverage through an employer. Obamacare, unfortunately, epitomizes top-down policymaking. The co-ops are bleeding bucks and short on sign-ups. It’s not working out the way liberals expected or HHS bureaucrats promised.

But then, that’s the way of all boondoggles.

-Robert E. Moffit is a senior fellow in the Heritage Foundation’s Center for Health Policy Studies.

-This piece originally appeared in the Washington Times

About the Author

Robert E. Moffit, Ph.D. Senior Fellow
Center for Health Policy Studies