Not-for-profits vying with WellPoint may get $3.8B in loans

Not-for-profits that compete with insurers such as WellPoint Inc. are eligible for $3.8 billion in U.S. financing under the health law, and the government expects more than a third of the loans not to be repaid.

Recipients may include church groups and not-for-profits created after July 16, 2009, the United States said in a rule issued Monday. The funding promotes so-called co-op health plans that the government expects to vie with insurers in marketplaces called exchanges opening in 2014 under the law.

Democrats who wrote the law, led by Sen. Kent Conrad of North Dakota, intended the co-ops as a fallback to a proposed government-run insurance plan called the public option that was abandoned before the law was passed. The rule doesn’t specify when the loans would become available.

The co-ops will give consumers “more choices, greater plan accountability and help ensure a more competitive insurance market,” said Steve Larsen, director of the U.S. Center for Consumer Information and Insurance Oversight, in a prepared statement.

The health law enacted last year provided $6 billion in start-up funding for co-ops. President Barack Obama signed a fiscal 2011 budget deal with congressional Republicans in April that canceled $2.2 billion of the co-op money.

“There must be a level playing field where all companies providing insurance, including co-ops, are required to abide by the same rules and regulations,” said Robert Zirkelbach, a spokesman for Washington lobbying group America’s Health Insurance Plans that includes Indianapolis-based WellPoint, in an e-mail.

Under rules announced Monday by the U.S. Centers for Medicare and Medicaid Services, co-ops applying for government loans must be governed by a board elected by their members. A majority of the board must be members of the co-op.

Loans will “only be made to private, nonprofit entities that demonstrate a high probability of becoming financially viable,” the agency said. Four co-op health plans already in operation in Washington, Idaho, Minnesota and Wisconsin cover “in excess of 1 million lives,” the government said.

The nation’s two largest are Puget Sound Health Plan in Washington, and Health Partners operating in Wisconsin and Minnesota, said Richard Popper, deputy director for insurance programs in Larsen’s agency.

The rule may limit funding to newly created health plans established by not-for-profits that “face a major change in purpose,” according to the rule.

The U.S. created two categories of funding: “start-up” loans to establish health plans and “solvency” loans to help them meet state requirements for insurers. Start-up loans must be re-paid within five years, and solvency loans within 15 years.

CMS said in its rule that it expects 40 percent of the start-up loans and 35 percent of the solvency loans to not be repaid. The defaults will cost the government about $320 million from 2012 to 2031, the agency estimated.

“We certainly hope and frankly don’t expect the default rate to be that high,” Larsen said in a conference call with reporters. “Part of our role is to make sure the money goes out to entities that create sound business plans.”