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Stealthy Obamacare co-ops refuse to file public disclosure tax forms

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The co-ops are required under federal law to file IRS Form 990 tax returns each year.

All but one of the 24 healthcare co-ops funded by a $2 billion Obamacare program intended to create public competition for private sector insurers failed to file required tax returns, according to a Washington Examiner survey.

The co-ops are required under federal law to file IRS Form 990 tax returns each year. The 990 is a public disclosure document that provides extensive financial information about the filing non-profit, including its sources of revenue, what it spends its funds on, and the compensation paid officers and key staff members.

Twenty-one of the 24 Obamacare co-ops responded to the Examiner survey, and all acknowledged failing to file their first required 990 for 2012 by the May 15, 2013, deadline.

All 21 of the responding co-ops also refused to tell the Examiner anything about how much their top executives are paid.

Several of the co-ops reported they invoked a loophole that may allow them to permanently avoid any disclosure of their expenditures.

The failure to file means consumers will be in the dark about key aspects of the co-ops' operations, which worries open-government advocates.

"What they are doing is they are hiding behind the delay — using the excuse that they can't prepare the whole tax return, so they don't have to make the information available to the public," said Bill Allison, editorial director for the nonpartisan watchdog group, the Sunlight Foundation.

"Especially when you are taking public money, there's an obligation to be as transparent as possible and to report as soon as possible," Allison said.

Lindsay Nichols, spokesman for Guidestar, a private organization that posts non-profit 990s online for public use, said the co-ops are required to open their books.

"Nonprofits are essentially stewards of the public trust," she told the Examiner in an interview. "The onus is on them to be fully transparent."

Michael Maness, a Knight Foundation vice president who runs an open government initiative, said the co-ops must release their 990s in order to gain pubic confidence in the integrity of their health insurance offerings.

"If you can peer into an organization, it certainly gives you a lot more confidence about what that organization is doing," Maness said.

The co-ops received nearly $2 billion in startup funding from the Centers for Medicare and Medicaid Services in the U.S. Department of Health and Human Services.

State insurance departments routinely disclose a great deal of information about commercial insurance companies, but very little is known about the Obamacare co-ops other than what has been reported by the Washington Examiner.

Earlier this year, Vermont's Insurance Commission denied a permit application by the co-op in that state and in the process disclosed a $500,000 insider contract given to a consulting firm owned by the group's president.

The commission also disclosed that the co-op's president was being paid a six-figure salary that was nearly four-times as much as was paid to his private sector counterpart at Blue Cross Blue Shield.

The co-op president resigned in the wake of the allegations, but the application to offer health insurance to Vermont residents has still not been approved.

None of the co-ops approached by the Examiner agreed to provide information about their executive compensation policies.

John Morrison, president of the National Alliance of State Health CO-OPs, defended the Obamacare co-ops, saying, "the talented men and women leading their respective CO-OPs are not doing so simply for a paycheck. For many, its a labor of love."

Despite the co-ops' refusal to provide compensation data to the Examiner, some information is known from other sources.

Kevin Scanlan, president of the nonprofit Metropolitan Chicago Healthcare Council CO-OP, which sponsors the Illinois "Land of Lincoln" co-op, reported his 2011 salary as $659,329.

In Nevada, the sponsor of the Hospitality Health CO-OP is the Culinary Health Fund, a union-based group tied to the UNITE HERE union. John Wilhelm, UNITE HERE's president received $385,856 in compensation, according to Union Facts.

Sara Horowitz who heads the Freelancers Union, which sponsors of Obamacare co-ops in New York, New Jersey and Oregon, received $261,000 in 2011.

Some of the co-ops filed an alternative 990N, a one-page form that conveys no substantive information. The 990N is reserved for tiny nonprofits that receive less than $50,000 in revenue.

Officers running health co-ops in Louisiana, Montana, Iowa and Nebraska, told the Examiner they could file the 990N because they had no revenues, only debt. Together they received $631 million from Washington.

"The federal loan is considered a debt, not revenue," said Brianna Donoven of the Montana co-op.

But HHS and the National Association of Insurance Commissioners have told the Obamacare co-ops to treat the federal startup funds they received as assets or revenue, called "solvency notes." Otherwise, insurance commissioners would regard the co-ops as undercapitalized.

Allison was astonished the groups were trying to file a 990N. "Boy that's a convenient way to not have to report an awful lot of your activity," he said.

Mark Owens, a former top IRS director for exempt organizations, said the 990N was not appropriate for the Obamacare co-ops.

"It's an absurd loophole. It seems counter to the theory of the Form 990 disclosure to have organizations of significant assets to claim no revenue and essentially avoid disclosure," Owens said.

The only co-op to file a 990 in 2012 was the Maine Community Health Options, which was rocked by scandal when its president committed suicide in 2011 after Maine State Police alleged he had sexually molested boys over three decades.

Five months after the suicide but before the State Police issued the final investigative report. CMS awarded the co-op $62 million and authorized it to conduct business.

The co-op's first 990, which was submitted July 30, showed that, even though Washington awarded the co-op $62 million in March 2012, it reported its liabilities were twice its assets and it lost $175,000.

The 990 also reported CEO Robert Hillman's compensation as $170,000 annually, more than double the salary paid Maine's governor and $50,000 more than the state's Supreme Court Justices receive. Hillman's compensation is at least $40,000 more than the state Health Commissioner, who oversees a $3 billion budget and 3,500 state employees.