When the Nevada Health Co-op announced in August that it would shut down at the end of the year, it was a huge setback for President Obama’s favorite national union, UNITE HERE, which endorsed him early in the 2008 campaign.
UNITE HERE received $66 million from the Centers for Medicare and Medicaid to establish the Nevada Health Co-op under the $2 billion program that was included in the Affordable Care Act, the president’s signature domestic policy achievement.
The Obamacare co-ops were intended to provide tax-funded non-profit competition to private for-profit sector health insurers. It wasn’t long after the first of the 23 such co-ops were approved in 2011 that problems began appearing. Today, all but one of the co-ops face huge losses and five, including the Nevada operation, have failed. Federal officials recently admitted they expect more failures.
A Daily Caller News Foundation analysis found multiple factors contributed to the Nevada co-op’s termination, including political cronyism, insider dealing and the lavish lifestyles of key executives. The Las Vegas Review-Journal called it a “toxic mix.”
Here are 10 reasons why the co-op failed:
- The co-op suffered staggering losses in its first 18 months of operation. Of the $66 million awarded to the CO-OP, $30 million was lost in the first six months of 2015. That was twice the $15 million lost in all of 2014, according to documents DCNF obtained from the Nevada Division of Insurance.
- The co-op’s top three executives were officers of UNITE HERE but they had no insurance industry experience. The union split in 2009 over charges and counter-charges of gross mismanagement, fraud, theft and the misuse of union funds. UNITE HERE is the largest union representative of casino workers in Nevada.
- The co-op attracted less than half the number of customers it needed to become financially viable. The official forecast for 2015 was enrollment of 44,652 customers. The actual number of enrollees was only 20,606 customers, according to the Nevada insurance division.
- Union officials were paid exorbitant salaries by the co-op. Tom Zumtobel, the co-op’s CEO, who served as a UNITE HERE vice president, was paid $414,000 in 2013. Kathy Silver, president of UNITE’s Las Vegas Culinary Union, was paid $376,000. Bobbette Bond, wife of former UNITED HERE national president Donald Taylor, received $221,000. Taylor also served as a board member of the co-op. In its 2013 IRS filing, the co-op said the board decided its own salaries declaring, “All elected affairs compensation is approved by the Board of Directors.”
- The co-op’s largest single vendor was UNITE HERE under what appeared to be a sole source contract awarded without full and open competition. The co-op paid UNITE HERE $1.6 million in “consulting fees,” according to tax documents examined by DCNF.
- Insurance experts in Nevada charge the Obama administration awarded the Nevada co-op to UNITE HERE as “payback” for its early support for Obama. They also charge that the co-op’s managers were incompetent. “In my opinion they chose the wrong group of people,” said Frank Nolimal, a partner with Assurance, Ltd, a Nevada financial firm that includes insurance. He described the co-op as a political award. “They were not the people who should have been chosen to put together the co-op,” he said.
- Co-op CEO Tom Zumtobel lived in Reno, Nevada, and commuted to Las Vegas where the health insurance organization operated. The co-op reported in 2013 its travel fees were $181,000, unusually high travel expenses for an in-state co-op.
- The co-op expected to attract a healthier population of customers. According to a statement issued by the Nevada insurance division to the DCNF, the co-op underestimated its “sick” population by at least 17%. The insurance division calculated the co-op’s loss ratio as 110 percent, which it considered “high” compared to the statewide market loss ratio of 89 percent.
- The co-op offered very few doctors in its network. Nolimal said he was called a few days after the co-op’s plan went into affect from a friend and client who was suffering from breast cancer. The cancer center where she sought treatment told her they weren’t in the co-op’s network even though it was listed on the co-op’s site. “We found out that when they opened their doors only about 250 or 300 physicians had signed a contract with Nevada co-op. Yet they were telling their agents they had 1200 doctors in it,” Nolimal said.
Patrick Casale, a Nevada-based insurance agent for 25 years, said he was angry about the co-op.
“Explain to me how the union members that were on the board were paid big money,” he said. “What I’d like to know is how it’s possible you’re going to be self-sufficient while spending that kind of money? You got to ask what’s going on?”
A spokesman for the co-op did not return calls for comment.