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The CO-OP Dream Is Over

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Last October, I wrote about the “Consumer Operated and Oriented Plans” (CO-OPs) established by the Affordable Care Act (ACA) as an alternative to private for-profit or ordinary not-for-profit health insurers. These entities were supposed to take the profit motive out of health insurance, and put the interests of patients (members/owners) ahead of the interests of solvency. To further protect CO-OPs from the supposedly evil Influence of Insurance Past, employees and former employees of “pre-existing insurers” – that is, those in existence prior to the ACA – would never be allowed to serve on a CO-OP board of directors. And, CO-OPs would get a lot of taxpayer money (in the form of “loans”) to get started and make it all work.

Not surprisingly, most of the CO-OPs have failed and gone out of business. Apparently, a health insurer with a requirement that its board have no experience in health insurance is not at the advantageous position proponents expected. Also, a health insurer that puts patients ahead of solvency can go insolvent and leave patients uninsured and looking for another company.

A few weeks ago, the administration issued new regulations in a last-ditch attempt to save the few remaining CO-OP organizations. They seem to think it’s an emergency, since they waived requirements of the Administrative Procedures Act requiring pre-publication and public comment, thus putting the regulations into effect immediately.

The changes affect two aspects of CO-OPs: requirements for directors, and the possibility of sale to for-profit entities.

The first change would limit the restriction on people with health insurance experience to those who have been “an officer, director, or trustee,” and it limits “pre-existing insurer” to those to who were active in the individual or small-group markets prior to July 16, 2009. This would open up the field of potential CO-OP board members to people who had (a) worked for health insurers active only in the large-group market, or (b) worked for any insurer, but in a lower-level capacity.

Perhaps CMS has realized that for an organization trying to run a health insurance program, having some people with health insurance experience is a good thing, not a bad thing. Unfortunately for the rule of law, this change expressly contradicts the language of the ACA, in Section 1322(e). This is yet another change to the ACA made unilaterally by the administration without Congressional approval.

The second change would allow a CO-OP to sell itself to – or become by selling shares – a for-profit insurance company, (or a non-member-owned non-profit insurance company), if that’s necessary to prevent insolvency. The membership ownership and benefit-the-patients requirements would be removed. It would still, in theory, be required to pay back the start-up loans to the federal government. This utterly misses the point of the program as described in Section 1322(a)(2), effectively ending the CO-OP program entirely, again without Congressional approval.

In other words, now that most of the CO-OPs have gone out of business and lost all the taxpayers’ money they were “lent,” the remaining CO-OPs will be allowed to become regular, ordinary, corporate insurance companies. The only questions, with all that debt built-in already, who would be willing to buy them?

Clearly, the dream of patient-owned, patient-run, profit-ignoring, federally-started CO-OP health insurance is over.