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On the Third Hand: Exit strategy

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The Patient Protection and Affordable Care Act of 2010 (PPACA) has caused a lot of disruption and aggravation even for health insurance agents and brokers who generally support the goals of PPACA.

And, clearly, many PPACA implementers have gone way, way out of their way to create an attitude of “Trip and fall!” in the hearts of licensed producers. Many PPACA implementers have minimized the role producers play in advising consumers, done what they could do to help insurers slash producer compensation, and tried to replace producers with many different types of non-producer exchange plan helpers. (Who have, in turn, gone on to complain about unrealistic performance goals and compensation arrangements for non-producer exchange plan helpers…)

So, of course, many producers will jeer when they hear about organizers of the new nonprofit, member-owned Consumer Operated and Oriented Plan (CO-OP) health insurers failing.

Sen. Max Baucus and other moderate Democrats put the CO-OP program in PPACA in an effort to increase competition in the health insurance market, and also to try to reduce pressure from some very liberal Democrats to set up a completely government run single-payer system, or to at least every American access to a government-run, Medicare-like “public option” health plan.

See also: Baucus Puts Bill In Play

But the very liberal Democrats ended up putting in strange constraints. CO-OP organizers can’t have ties to any established health insurers, including the nonprofit, member-owned mutual insurers established before the PPACA CO-OPs came to life. CO-OP organizers and members cannot sell the CO-OPs.

Organizers of PPACA CO-OPs could and did get startup loans from the U.S. Department of Health and Human Services (HHS), but, because they cannot sell the CO-OPs, the CO-OPs themselves have no value as assets.

In theory, the restrictions were supposed to keep the meanies at the traditional insurance companies from infecting the CO-OP managers with their evil bean-counting ways.

In practice, restrictions mean the CO-OPs usually can’t get financing from any organizations other than government agencies and foundations.

When businesses borrow money, they use the value of the operations to support their ability to repay the loans, either by officially using the value of the assets as collateral or by unofficially using the value to give lenders confidence. Even good, practical CO-OP organizers who create popular, potentially sustainable insurers, can’t use the value of the CO-OP operations to get financing.

One way to give CO-OPs more ability to get ordinary commercial financing, and to keep anything of value that they do create from just going poof, would be to change the PPACA statutes and create some kind of opportunity for the member owners to sell the plans. If the CO-OP managers and members knew they could sell the plans, they could use a plan’s potential resale value as collateral when they went out to get a loan.

Another solution would be to at least establish clear rules HHS could use to take over failed plans, sell any assets of value, and use the proceeds from the asset sales to compensate for losses on CO-OP startup loans. CO-OPs would not be able to use those rules to get financing, but at least other organizations could get some use out of CO-OP systems, marketing programs and member lists, and HHS could get some cash.

On the one hand, many producers who loathe PPACA, and even some who at least sort of support PPACA, may enjoy seeing PPACA-related plans fail.

On the other hand, simply letting any value that unsuccessful CO-OP organizers create just go poof seems excessively spiteful and wasteful.

On the third hand, the great thing about enacting a CO-OP sale law, for Republicans and others who have issues with PPACA, is that giving CO-OP managers and members the ability to sell the plans would drive the “more Fidel Castro-oriented” PPACA drafters up a tree. PPACA opponents and PPACA critics who got a CO-OP sale law enacted would have the pleasure of pointing out that they were doing more to make a PPACA program successful than the PPACA cheerleaders were.