Obamacare COOPs’ Loans Are “Assets”

My colleague Devon Herrick was prescient about the collapse of Obamacare’s COOPs (nonprofit cooperative insurers set up with government loans to compete unfairly in Obamacare’s exchanges), writing an Issue Brief on the topic last June.

Since, then Obamacare’s COOPs have continued to collapse, stranding almost half a million Obamacare beneficiaries. Chris Jacobs of the Conservative Review has written about the administration’s latest attempt to rescue the remaining COOPs, by rebranding their liabilities as “assets”:

In the wake of yet another collapse of a health insurance co-op created by Obamacare, regulators within the Centers for Medicare and Medicaid Services (CMS) said that other Obamacare co-ops can count their loans—repeat, loans—from the federal government as assets. It’s yet another attempt by regulators to bail out a doomed Obamacare program that appears set to cost taxpayers billions.

In the wake of these co-op failures—with potentially more on the way—regulators within CMS settled on two new ways to keep insurers afloat.

First, CMS announced last Thursday it would “make an early payment under the transitional reinsurance program for the 2015 benefit year” some time next March. The guidance attempts to bolster the cash flow shortfalls of co-ops and other small insurers, by accelerating reimbursements they would otherwise have received later in 2016.

Second, and more controversially, regulators have also moved to reclassify five co-ops’ loans. Politico reported that “five co-ops have received permission from federal and state regulators to treat their start-up loans as capital rather than debt on their financial filings.” The move comes despite the fact that the law itself requires all co-op loans to be repaid within five years—meaning that co-ops that took out federal loans prior to Obamacare’s fall 2013 launch will have to hand over this supposed “capital” within two or three years.

I am not too worried about the administration making this up as it goes along. That is what it has done for five years, so we are used to it. What is of concern is state insurance departments’ marching in step. Insurance departments are responsible for regulating the solvency of insurers.

Real insurers pay premiums to guaranty funds so in case one is forced to wind down, beneficiaries will be made whole. I hope state insurance departments are not risking the prudence of a system which has functioned well for decades.

Comments (7)

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  1. Ron Greiner says:

    Obamacare wiped away decades of state insurance laws except insurance agent licensing and insurance company solvency. All of the States’ licensing laws are still the law. It is illegal for any person to procure an application for Individual Health insurance without a license:

    http://www.naic.org/store/free/MDL-218.pdf this act governs the qualifications and procedures for the licensing of insurance producers. This act states in section 3 “A person shall not sale, solicit or negotiate insurance in this state for any class or classes of insurance unless the person is licensed for that line of authority in accordance with this act.”

    In section 2L of the act a “person” is defined as “means an individual or a business entity” Section 2A then defines a “Business Entity as “a corporation, association, partnership, Limited Liability Company, limited liability partnership or other legal entity”.

    CMS is in fact a Legal Entity and therefore would be considered a Business Entity under the producers licensing modeling act.

    The two sections define CMS as A “Person” and/or “Business Entity” and therefore should hold a valid insurance producer’s license issued by the state to sell or solicit insurance. CMS does not hold a producer license or a qualified appointment in any state with the various companies to act as soliciting agents!!

    It is without question that CMS according to Section 3 is selling, soliciting and negotiating insurance without proper state licenses.

    As Mitt Romney would say, “Yes, Healthcare.gov is a person too!”

    Well just legally under States’ insurance law. Healthcare.gov is a PERSON without an insurance license so all of the [[insurance companies]] who take application from this non-licensed and non-appointed PERSON are committing Unfair Trade Practices against ME and my fellow law abiding insurance agents. We need a class action lawsuit PRONTO.

  2. John Fembup says:

    It may be gratuitous piling on at this point – but still worth remembering – that the funding for co-ops was initially set at $6 billion but the House scaled that back to $2 billion.

    I suppose one could count that de-funding as saving the taxpayers $4 billion. At least a few drops well done in an ocean of malfeasance.

  3. Stella Baskomb says:

    Q- When is a debt not a debt?

    A- When the government calls it an asset.

    Hey Donald! What do you think? Is a loan an asset?

  4. Big Truck Joe says:

    I’m not a CPA, but don’t these companies have to follow GAAP standards? How can they play so fast and loose with accounting rules? Do other health insurance companies now get to do the same thing on their balance sheet?

  5. Don Levit says:

    It is interesting to see the government so blatantly describing loans as assets
    I thought nothing could top the secretive deceptions of declaring the Social Security and Medicare trust funds as assets
    This one though is a whopper!
    Don Levit

  6. Devon Herrick says:

    A loan is an asset on the books of the lender only to the extent the borrower has the capacity to pay back the loan. Of course, a loan is a liability on the books of the borrower. But it’s also an asset to the extent it capital as long as it’s not squandered on worthless endeavors. I think calling loans to CO-OPs “assets” fails both these tests.