Health care cooperatives that are being launched in eight states announced Tuesday they will receive a total of $638 million in loans from the Obama administration under the federal health insurance law.
The administration said the new nonprofit health insurers will be run by their customers and will be designed to offer coverage to individuals and small businesses. Supporters say the co-ops will keep pressure on private insurance companies for both price and coverage.
Critics, led by House Republicans who voted last year to repeal the health care law, immediately questioned the administration's decision. The House Ways and Means Committee called the loans a political reward to a friendly constituency.
Republicans noted that the recipient that received the largest loan _ more than $340 million _ was going to a group connected to the Freelancers Union, a nonprofit that serves independent contractors that are a growing segment of the workforce. Members are eligible for health insurance through a company owned by Freelancers.
The legislative panel questioned the organization's eligibility in a statement that said "it appears as though the Obama administration will stop at nothing to reward their political friends."
The administration said they determined the organizations getting the money are able to deliver the required services.
"Freelancers Union clearly met the legal standards under the statute and federal regulations," said Brian Cook, a Centers for Medicare and Medicaid Services spokesman. "They are not an insurer, they are a nonprofit union of independent workers, sole proprietors, and entrepreneurs who do not receive insurance through an employer."
Starting in 2014, millions of people who are currently uninsured will buy private coverage in new state markets under President Barack Obama's health care reform law. Tax-credit subsidies will help customers with the cost of the insurance.
The co-ops will compete in these state-run insurance exchanges, although co-op backers said they do not yet know the cost of premiums when the program will be formally unveiled in late 2013. Initially, they expect to compete for a small share of the overall health insurance market.
The new federal awards were announced for co-ops serving Montana, Iowa, Nebraska, New Jersey, New Mexico, New York, Oregon and Wisconsin. "It will be consumer-governed and will be responsive to consumer needs," said John Morrison, who is helping set up the cooperative in Montana.
Money from the loans will be given to the co-ops over time as they meet benchmarks for setting up claims processes, provider relationships, disease management and other cost-control efforts. Money from the loans will also be used to provide financial footing for the co-ops once they start fielding claims.
The federal government said it will be rolling out awards to co-ops in other states as more applications are processed.
The Freelancers Union said the loans will launch a new health care system that is "more affordable, more accessible, and more responsive to the needs of all workers." It expects to cover 200,000 people in New York, New Jersey and Oregon with five years of opening enrollment.
Some individuals and small business owners helping with the formation of the cooperatives said they believe the new operations will help reduce one of their most worrisome costs.
"Every year it's a challenge," said Tom Murphy, who employs eight people at Door Systems of Montana. "Every year for the last four, five or six years, it seems like we have had to decrease benefits to our employees due to rising costs in the health care system."
Montana congressman Denny Rehberg, a Republican trying to use his position as chairman of a House committee overseeing the new law to block its implementation, said he has been denied requests to see details behind the state cooperative's lengthy application.
"President Obama told us if we wanted to keep our existing health insurance, we could," Rehberg said in a statement. "So I don't think we ought to be using the hard-working taxpayers' own money to subsidize new government-approved health insurance companies that will displace existing programs that people like."
Morrison, a Democrat who used to be the Montana insurance commissioner, said that the volunteers who originally gathered to establish the Montana cooperative will hand over operations to a board of directors elected by the customers who eventually sign up for the service.
Associated Press writer Ricardo Alonso-Zaldivar contributed to this report from Washington, D.C.