While we wait for the Supreme Court to rule on the constitutionality of the Patient Protection and Affordable Care Act (PPACA), the Department of Health and Human Services (HHS) continues doling out millions of dollars to questionable health insurance Consumer Operated and Oriented Plans (CO-OPs). On Friday, HHS announced it dished out $90 million, including $34 million to the Vermont Health CO-OP.

CO-OPs were created under the PPACA to spur health insurance competition, but HHS estimates that that default rate on CO-OP loans will be 35-40%. I also noted a few weeks ago that CO-OPs have serious structural weaknesses:

First, the Wall Street Journal points out that organizations that issued insurance before 2009 are “barred from applying for loans or any significant role in the operations of a co-op.” Paradoxically, to qualify, these organizations must have no experience.

Second, Forbes contributor Avik Roy wrote, “[T]he plans are prohibited from using the loans for marketing purposes. So there isn’t an easy way for the plans to make consumers aware of them.” Without the right mix of healthy and sick patients the co-ops will “pay out more in claims than they take in premiums: the classic problem of adverse selection.”

Yet HHS continues pouring money into something flawed and untested.

[H/T Rick Moran]