17 of the 23 existing non-profit Co-Ops created by Obamacare are paying their executives exorbitant salaries as high as $587,000, according to reporting by the Daily Caller’s Richard Pollock. Not only do almost all co-op executives have zero insurance experience, but according to Pollock, their salaries may violate provisions in both federal law and Obamacare rules that limit executive compensation.
Several executives had portions of their salaries hidden in “obscure tax return footnotes” or did not report them at all. As Pollock points out, the median executive healthcare pay is $135,000 but at least five states paid their executives over $487,000 – more than three and a half times the average. These salaries likely violate a section of the Bipartisan budget Act of 2013 which prohibits federal contractor executive compensation from exceeding this amount. In addition, at least six co-ops (in New York, New Jersey, Oregon, Arizona, Louisiana, and Illinois) hid $26.5 million in additional pay in their footnotes as “management fees.”
Co-ops were first established by Obamacare as an alternative to existing health insurance companies. These co-ops hoped to provide member-driven care that would not need to worry about recording a profit and could keep administrative costs low. Unfortunately, since their enactment co-ops have met financial and management problems and have failed to become an alternative to the current system of healthcare.
23 co-ops, some single state, others multi-state were originally given $2.4 billion in federal loans with very beneficial terms. According to a report by the Galen Institute and the American Enterprise Institute, Co-Ops were able to use these favorable terms to gain an advantage over competing insurance providers by providing lower premium prices. However, things quickly unraveled.
Co-Ops had few individuals, and none on their boards with experience in insurance, resulting in poor decision making. This complete lack of experience amongst executives makes it even more mindboggling that co-ops saw fit to pay salaries far exceeding the average health insurance executive.
Vermont’s co-op failed to even get off the ground because it was denied an insurance license because it had “not shown sufficient evidence that it will be to sustain solvency, repay its federal loans and gain enrollment.”
Those that launched quickly experienced operational difficulties. Because Co-Ops lacked experiential data, they had no basis to draw premium quotes, which resulted in premiums outpacing revenues. One, the Iowa-Nebraska co-op, received $145 million in federal loans, but has struggled to remain in business and has been labeled as a “financially hazardous situation” by the Iowa state health insurance regulator. As of January 2015, the co-op has a total operating loss of $168 million over its existence.
Several other Co-Ops such as those in Tennessee and Colorado are now struggling to develop a realistic business model, while others are going to Washington for more money.
With Obamacare co-ops struggling to remain solvent, many are now relying on what remains of the $2 billion in original loans. Given the poor judgment they have displayed by paying their executives exorbitant salaries, this poor performance is hardly surprising.