Freelance Cronyism

Small union receives $341 million federal loan despite legal questions

The Obama administration has awarded $341 million in loans to the Freelancers Union—a small organization with deep progressive ties whose board members have donated more than $11,000 to Democrats—despite a law suggesting the union should not be eligible for such a loan.

It was recently announced that health care cooperatives launching in eight states will be receiving a total of $638 million in federal loans. The White House hopes the program, created as part of Obama’s health care reforms, will create competitive alternatives to private insurers. Conservatives cite the program as another instance of cronyism.

The largest of these loans went to the Freelancers Union, a New York-based organization that helps independent workers gain access to health benefits, to start health insurance plans in three states.

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According to the Freelancers Union, there are 42 million independent workers, of which 171,000—0.4 percent of the total—are members. Of those 171,000, about 93,000, or 54 percent, are based in New York City.

The federal loan is nearly three times the group’s $120 million annual budget.

The board of directors of the Freelancers Union has given at least $11,700 in political donations between 2007 and 2011, all to Democrats.

Questions have been raised as to the legality of the loan to the Freelancers Union.

Membership in the union is free. The organization covers costs through commissions on benefits bought by members. But members of the union own the Freelancers Insurance Company, a for-profit organization—and have since 2008.

The law governing the program forbids organizations that issued health insurance before July 2009 and for-profit organizations from receiving loans.

The two organizations share board members, employees of both determine the organizations’ direction, and the insurance company advertises on the Freelancers Union website.

Officials with the Freelancers Union say it is only a sponsor of the co-ops, and all of the funding will go to the co-ops. Jackie Kessel, a spokeswoman for the organization, told the Washington Free Beacon that the Freelancers Union plans to "facilitate the start-up of the co-ops, and will provide expertise to help get the co-ops off the ground." The affiliates created by the Freelancers Union will offer insurance to non-members and members.

The Centers for Medicare and Medicaid Services, which is overseeing the co-op program, also defended the Freelancers Union.

"Freelancers Union clearly met the legal standards under the statute and federal regulations," a Center for Medicare and Medicaid Services spokesman told the Associated Press. "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."

The Freelancers Union was founded by Sara Horowitz, an activist with an extensive pedigree in the labor and progressive movement, in 2003. The group has received at least $6 million in grants from liberal-leaning foundations such as the Robert Wood Johnson Foundation, the Rockefeller Foundation, and the Ford Foundation.

Horowitz’s father was a labor lawyer. Her grandfather was a union boss. She formerly worked as a labor attorney and organizer for the National Health and Human Services Employees Union.

Horowitz and Barack Obama, then an Illinois state senator, served together as advisers for the George Soros-funded think tank Demos. Van Jones, who would serve a brief term as President Obama’s Green Jobs Czar before resigning in disgrace, was also an adviser for Demos.

Horowitz described the new loan program as "venture capital for health care." Like venture capital investments, these loans carry higher-than-average risks: Last year the government predicted a nearly 40 percent default rate for the loans.

The Center for Medicare and Medicaid services has not revealed how many organizations applied for loans. It did not respond to requests for comment.

The high risk, as well as the political leanings of the groups receiving loans, has led critics to label the program a politicized handout.

Another group, Common Ground Healthcare Cooperative of Wisconsin, received $56 million in loans. Common Ground formed its healthcare cooperative in August 2011, three months before applying for loans, according to state records. The organization is an affiliate of the Industrial Areas Foundation, founded in 1940 by noted ’60s radical Saul Alinsky.

"These grants/loans reek of political payola as one group, the Saul Alinsky-affiliated, Common Ground Healthcare Cooperative of Wisconsin was formed in August, 2011 just three short months prior to applying for the taxpayer money," Americans For Limited Government president Bill Wilson said in a statement.

Common Ground did not immediately return requests for comment.

When asked to respond to charges of cronyism and payola, Kessel told the WFB, "Freelancers Union's goal is to get people access to the health care they need."