Feds Will Struggle to Recoup Loans to Failed Obamacare Co-Ops

The federal government is unlikely to recover all of the taxpayer funds lent to failed Obamacare co-ops, according to an audit by the inspector general for the Department of Health and Human Services.

The 23 co-ops that were created under Obamacare received $2.4 billion in taxpayer funds from the Centers for Medicare and Medicaid Services, of which $358 million were designated for “startup” loans.

The startup loans were to be repaid within five years, as opposed to other loans that were to be repaid within 15 years.

The Centers for Medicare and Medicaid Services released a memo on July 9, 2015 informing the co-ops that they could convert their startup loans into surplus notes by amending their loan agreements.

“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,” the audit explains. “Co-ops that converted their startup loans into surplus notes could record and report these loans as capital and surplus rather than as debt in financial filings with regulators.”

The audit found that 12 co-ops had undergone this conversion on or before December 31, 2015.

According to the agency, converting startup loans to surplus notes improved co-ops’ financial standing in the short term.

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