HHS Releases Proposed Rule on CO-OP Program

Healthcare Costs.JPGThe U.S. Department of Health and Human Services’ Centers for Medicare & Medicaid Services (CMS) has issued a proposed rule that would implement the Consumer Operated and Oriented Plan (CO-OP) program under the Affordable Care Act. The CO-OP program is designed to provide loans to encourage the creation of consumer-governed, private, nonprofit health insurance issuers that will ultimately offer qualified health plans in the future health insurance exchanges. According to the CMS, the purpose of the program is to “create a new CO-OP in every state in order to expand the number of health plans available in the Exchanges with a focus on integrated care and greater plan accountability.” To that end, the proposed rule outlines the program’s eligibility standards; establishes additional basic standards that organizations must meet to participate in the program and become a CO-OP; and lays out basic loan terms for borrowers under the program. The CMS claims that the approach to this proposed rule is to provide flexibility for organizations to develop and create a CO-OP.

The first portion of the rule sets forth definitions and outlines the types of entities that would and would not be eligible to participate in the CO-OP program. As a preliminary matter, the proposed rule provides that an applicant must first form a nonprofit member organization under state law before applying for a loan. The following organization are not eligible to participate in the CO-OP program, although the CMS invites comments on these interpretations:

  • a pre-existing issuer, a related entity, or any predecessor of either;
  • a trade association whose members consist of pre-existing issuers;
  • organizations – including medical centers and medical practice groups – that are sponsored by a state or local government, any political subdivision thereof, or any instrumentality of such government or political subdivision.

Those entities that are not considered “issuers” and therefore would be eligible to sponsor applicants for loans under the CO-OP program include:

  • A prospective applicant not licensed by its state as a health insurance issuer on July 16, 2009, but which has subsequently achieved a state license,
  • Self-funded and Taft-Hartley group health plans;
  • Church plans that were not licensed issuers on July 16, 2009, and
  • Three-share or multi-share programs not licensed by their state insurance regulator.

The proposed rule invites comment on how these organizations and others like them would sponsor an applicant.

With respect to CO-OP standards that must be met, the proposal establishes a number of criteria, many of which were recommended by the 15-member CO-OP Program Advisory Board in its April 15, 2011 report. (pdf) A number of these standards involve governance requirements of the CO-OP. Suggested standards involving governance include the following:

  • Every member of the CO-OP must be eligible to vote for each director of the CO-OP during the board elections. In addition, each member of the organization would have one vote in the elections of directors.
  • The CO-OP must demonstrate financial viability and the ability to meet all other statutory, legal, or other requirements.
  • Each director of the CO-OP must act in the sole interest of the CO-OP and its members, avoid self-dealing, and act prudently and consistently with the terms of the CO-OP’s governance documents and applicable state and federal law.

In addition, the proposed rule explains that the Affordable Care Act requires “that substantially all of the activities of the CO-OP consist of the issuance of CO-OP qualified health plans in the individual and small group markets in each State in which it is licensed to issue such plans.” To reflect this requirement, the CMS proposes that a CO-OP meets this standard “if at least two-thirds of the contracts for health insurance coverage issued by a CO-OP are CO-OP qualified health plans offered in the individual and small group markets in the States in which the CO-OP operates. An organization must continually meet this requirement to be considered a CO-OP.”

The proposed rule also sets forth standards to ensure that a CO-OP attracts enough participants to ensure health plan viability. Specifically, the rule proposes that “when offering a CO-OP qualified health plan in an Exchange for the first time, loan recipients may only begin to offer health plans and accept enrollment during an open enrollment period for the applicable Exchange.” The CMS seeks input on this proposal.

Finally, the proposed rule outlines a number of specific loan terms for participants in the program.

Comments on this proposal are due on or before September 16, 2011. All comments must include the code CMS-9983-P, and may be submitted electronically through the federal eRulemaking portal, by regular mail to: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-9983-P, P.O. Box 8010, Baltimore, MD 21244-8010, via overnight mail to: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-9983-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850, or by hand-delivery to: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201.

Photo credit: Andriy Solovyov

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.