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Rumor Check: Obama Uses Obamacare to Pay Off Crony to The Tune of $340 Million


Is President Obama using his administration's landmark legislative accomplishment as a vehicle to reward a longtime friend and political ally to the tune of $340 million?

That viral accusation has just begun making the rounds thanks to several conservative news sites, most notably Lifesitenews and the Washington Examiner. These sites allege that a woman named Sara Horowitz, who heads up the New York-based Freelancers' Insurance Company (and its parent corporation, the Freelancers' Union), has been loaned $340 million by the federal government to help set up Obamacare's "exchanges" in New York, New Jersey and Oregon, in spite of a dubious record when it comes to actual customers. Lifesitenews sums up the accusation this way:

An insurance company known for not keeping its contractual obligations has received $340 million in federal loans to set up a health care exchange under ObamaCare. Critics say the only apparent criteria for the loan is the fact that the company is led by a friend of Barack Obama during his community organizer days. She is also a former leader of a George Soros-funded politically radical organization.

All of these charges are serious, so we thought we'd take a look into the evidence for each. What we found may surprise you.

Sara Horowitz (Photo Credit: AP)

Accusation #1: The Freelancers' Insurance Company is "known for not keeping its contractual obligations"

In assessing this story of alleged political cronyism, probably the most relevant piece to be considered is the complaint that Sara Horowitz's company is demonstrably unfit for the responsibility involved, and is, in fact, a poor provider of health insurance. After all, the nature of cronyism is that it rewards incompetence with connections. In marshaling evidence for the proposition that the Freelancers' Insurance Company (FIC) is an incompetent health insurance provider, Lifesitenews makes the following subset of accusations:

FIC has been rated the “worst” insurer in New York for the past two years by state regulators, and has weathered numerous public relations and customer service crises since it launched in 2008. The company is so unpopular it has spawned its own hate blog, “Upset Freelancers’ Union Members,” where those who buy their healthcare from FIC meet to complain, strategize, and give each other tips on how to navigate labyrinthine restrictions and try to get results from the notoriously frustrating customer service hotline.

In 2011, the New York State Insurance Department ranked FIC dead last in customer satisfaction among insurers. Despite its relatively small size, FIC had the most complaints of all the state’s insurance providers. Last year, FIC again ranked “worst” in complaints. The National Association of Insurance Commissioners says FIC’s complaint rate is more than seven times the national average.

In half the complaints lodged against FIC by its customers, the insurance department ruled that “the health insurer did not comply with statutory or contractual obligations.”

After further digging on our part, it appears that only some of these points are valid, though arguably still enough of them to raise questions. The statistic from the National Association of Insurance Commissioners proved difficult to verify, and the reference to the "hate blog" was potentially overblown, given that the blog in question does not appear to have been active since early 2009. This is relevant, because even according to Horowitz herself, her company failed to be fully profitable or functional during its first year (2008), and as such, the "hate blog" would make sense as a phenomenon from that first year alone. Certainly, the absence of complaints on the site since early 2009 suggests that the people involved either took their business elsewhere or had their issues resolved.

However, given the other evidence regarding FIC's business practices, the former course of action seems more likely. FIC has a record of consumer satisfaction that could charitably be called mixed. Its two year streak as "worst" company in terms of number of complaints is quite real. From last year's "New York Consumer Guide to Health Insurance Companies":

And from the same document in 2011:

Readers will note that in both cases, the absolute bottom rank goes to FIC. It is also worth noting that in 2012, of the 59 complaints that were filed against FIC, 30 were found to be accurate, whereas in 2011, 31 out of 62 were found to be accurate. In other words, at least half of all complaints against FIC have been upheld over the past two years by the New York State Insurance Department, which also ranks them dead last out of all the providers in the state. Not exactly a vote of confidence.

On the other hand, there are mitigating factors that may explain FIC's attractiveness as a model for the administration's health insurance exchanges. In an article offering advice to freelancers on how to obtain health insurance, Forbes Magazine described FIC this way:

If you live in New York State, for example,The Freelancers Union offers insurance through the Freelancers Insurance Company (F.I.C.). It currently covers about 25,000 independent workers and their family members and offers premiums that are reportedly a third below market rates. Individual plans might run from $225 to $600 per month.

In other words, judging by the statistics and pricing, the tradeoff in getting a plan from FIC is fairly simple to outline: Low prices, but also a lower quality of service. Moreover, a profile of Sara Horowitz in Slate Magazine detailed other factors that might lead the administration to find FIC's model attractive - for instance, the low rate of compensation that Horowitz herself enjoys, and the attention by the company to crafting plans that match up to the needs of its specific demographic (IE freelance workers). In other words, even if cronyism is involved, it goes beyond personal affection between the President and Horowitz -- her version of insurance coverage also matches up fairly well with the administration's ideological vision. This can also be seen in this interview with Horowitz from BigThink:

So is FIC a terrible provider of health insurance that could not possibly get federal loans if not for cronyism? Not exactly. It is admittedly an unlikely recipient in some ways, but it also does not operate in the same way as a conventional insurance company, and its model of providing insurance lines up with the administration's ideological goals. As to the accusation that Sara Horowitz is a bosom friend of President Obama? Read on.

Accusation #2: Sara Horowitz is a friend of President Obama's from his community organizing days

While there is little doubt that President Obama and Horowitz have crossed paths and share certain goals, the evidence that the two were affiliated during the president's days as a community organizer is nonexistent, and the idea that they are "friends" as opposed to simply "allies" is also difficult to verify. The earliest association on record for the two occurred during President Obama's days as an Illinois State Senator, when they both served as founding members of the liberal organization Demos. From an archived version of Demos' website (emphasis added):

Demos began as a vision of Charles Halpern--then the president of the Nathan Cummings Foundation and a veteran non-profit entrepreneur. He was troubled by the narrow conversation about America's future. On the eve of the 21st century, it seemed that America no longer had the imagination to tackle its largest problems and build a more just society.

Halpern set out to challenge the status quo with a new institution. He envisioned a dynamic hub for creative scholars and cutting-edge practitioners--an organization that combined ideas and action to chart a new set of priorities for America. By 1999, Halpern had assembled a talented working group to develop Demos. Among them were David Callahan, a fellow at the Century Foundation; Rob Fersh, a long-time policy advocate; Stephen Heintz, Vice-President of the East-West Institute; Sara Horowitz, founder of Working Today; Arnie Miller, a leading executive recruiter; Barack Obama, then a state senator from Illinois; David Skaggs, a congressman from Colorado; and Linda Tarr-Whelan, an internationally recognized expert on women and economic development. This working group would eventually form the core of Demos' staff and Board of Trustees.

In other words, Obama and Horowitz have a past professional connection, but there is no evidence of a personal one. However, it should be noted that in cases like this, a professional connection may be all that's needed. There is one other former leading figure at Demos to whom Obama tried to offer a substantial amount of agenda-setting power: none other than former Green Jobs Czar Van Jones.

Van Jones (Photo Credit: http://www.bet.com)

Accusation #3: Horowitz is a former leader of a Soros-funded group

This accusation is the most unambiguously accurate, and it once again goes back to Horowitz's relationship with Demos. As it happens, in the records of Soros' Tides Foundation, Demos is listed as a grantee under Tides' 2010 list of grantees, having received a grant of $53,970:

As established above, Horowitz was one of Demos' founders. In fairness to her, she may have left before the group appeared on the list of recipients of Soros' money, but the connection remains.

Then again, while this accusation is true, it also is the least conclusive in terms of its value as proof. The idea that President Obama would hire a committed liberal to manage his health insurance exchanges is not, in itself, surprising or newsworthy, and it scarcely proves cronyism exists in this case. Not that the suspicion is entirely unreasonable, given the problematic record of FIC, and the existing professional connection between Sara Horowitz and President Obama, but suspicion is not proof.


Even in the absence of definitive proof of cronyism, the checkered record of FIC leaves open the question of why it received such a large amount of federal money. The existence of such a question implies the need for a greater degree of transparency. Accusations of cronyism are more plausible when the standards by which such loans are given out are left up to the imagination, and certainly, that is the case when it comes to the funding for those who set up these insurance exchanges. Hopefully, the congressional investigation into these matters will shed some light on the subject.

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