Federal officials gave $129 million to a Florida firm with a checkered past to establish an Obamacare cooperative in Ohio, The Washington Examiner has learned.
St. Petersburg-based Community Health Solutions of America was selected last October by the U.S. Centers for Medicare and Medicaid Services, or CMS, to establish a statewide health cooperative for Ohio residents. It was financed as part of a $2 billion Obamacare program to establish 24 cooperatives to compete with private health insurance companies in selected states.
Cooperatives are collectively owned organizations that produce goods or services for the benefit of members instead of for profit.
The Ohio co-op -- called the Coordinated Health Plans of Ohio -- is new to the health insurance business. But several of its principals are already well-known in the industry, perhaps for the wrong reasons.
Brett Baby, Coordinated Health Plans of Ohio's CEO, for example, previously started an Ohio health insurance company that lasted only a year before state regulators shut it down in 2009.
Ohio's insurance superintendent said Baby's Physicians Assurance Corp. was in "hazardous" condition, lacking minimal funds required by the state to cover medical claims. When it was closed down, it had only $418,000 left and failed to maintain the minimum $2.5 million in reserves required by the state.
More than 100 investors lost $5.6 million on the endeavor, which was terminated by an Ohio court's order, according to Franklin County court records.
Similarly, co-op sponsor Community Health Solutions' CEO is Dale F. Schmidt. He filed for Chapter 11 bankruptcy in 2006 for four companies he owned -- Community Health Solutions of America, Cadent Underwriters, Cadent Administrators and Bencorp National Corp. -- according to the U.S. Bankruptcy Court for the Middle District of Florida.
In 2011, South Carolina officials charged that Community Health Solutions was overpaid as much as $10 million by the state's Medicaid program. There was also controversy when it was learned that two state officials got jobs with the company about the time the overpayment was made. No charges were filed in the case.
In 2012, Community Health Solutions owed more than $37,000 in back taxes to Kentucky, according to state documents. Florida authorities also attached a lien on Schmidt's company for $13,188 in back taxes.
In 2009, a Michigan-based carpenters union named Schmidt a defendant, charging that he failed to contribute as required to an employee benefit account. The two parties settled out of court.
Neither Baby nor Schmidt returned a reporter's telephone calls and emails seeking comment for this news story.
The new Obamacare cooperatives are such high-risk ventures that the White House Office of Management and Budget has projected a default rate for them as high as 43 percent.
Despite the risks, CMS officials refuse to answer questions about how they select recipients or other information about the program, a fact that troubles Scott Amey, counsel for the Project on Government Oversight, a Washington-based government watchdog nonprofit.
"Having a transparent process assures they are capable of providing health care services and ensures that the government's investment in these companies is deserving," Amey said.
Kevin Brady, R-Texas, chairman of the House Ways and Means Subcommittee on Health, agreed, telling The Washington Examiner that the public needs to learn more about the cooperative decisions.
"If taxpayer dollars are going out the door, then we need to know whom they are going to and what they are being used for," Brady said. "Despite their promises of transparency, this administration's hallmark law illustrates the failure of ensuring transparency is even part of the process."
Last week, The Washington Examiner reported exclusively that the Freelancers Insurance Company, which got $340 million to establish health insurance cooperatives in New York, New Jersey and Oregon, had the highest number of consumer complaints and was the lowest-rated health insurance company in the Empire State for the last two years, according to insurance regulators.
And on Feb. 6, 2013, The Washington Examiner first reported that the Obama administration's creation of the Obamacare health insurance co-operatives has been conducted behind closed doors, with little transparency and no apparent accountability.
Richard Pollock is a member of The Washington Examiner's Watchdog investigative reporting team. He can be reached at firstname.lastname@example.org.