By Nancy Lopez

Background

On July 20, 2011, the Centers for Medicare and Medicaid Services (CMS) issued a notice of proposed rulemaking (NPRM)^[1] with comments due September 16, 2011, regarding the Consumer Operated and Oriented Plan (CO-OP) program. Established by §1322 of the Affordable Care Act (ACA), the CO-OP program develops and creates new private, non-profit health insurance issuers to offer qualified health plans (QHPs) through state Exchanges as an alternative for consumers to traditional, for-profit plans. CO-OP plans are consumer-run, and accountable to their individual membership in a way that most traditional for-profit health plans typically are not. The ACA requires HHS to award funds for start-up loans and solvency grants to eligible CO-OP applicants in order to enable each state to have at least one CO-OP. In making these awards, HHS must take into account recommendations from the Advisory Board^[2] created by §1322(b)(2) of the ACA. An earlier Implementation Brief provided an overview of the CO-OP program; this update describes the key provisions of the NPRM.

Recent Agency Action: Notice of Proposed Rulemaking

The NPRM sets forth definitions, describes the entities eligible for CO-OP loans, sets standards for the CO-OP program including governance requirements, and establishes terms for loan and grant applicants.

Definitions:

The majority of definitions set forth in the NPRM are taken directly from the ACA. For certain proposed definitions, CMS seeks comments:

• “Qualified non-profit health insurance issuer” means a recipient of a CO-OP loan that can satisfy or can reasonably be expected to satisfy the governance and health plan issuance standards described in the proposed rule and the ACA.^[3]
• “Formation board” means (on recommendation of the Advisory Board established under the law) the applicant’s or loan recipient’s initial board of directors prior to accepting enrollment and conducting an election of the board of directors.^[4]
• “Operational board” means (on recommendation of the Advisory Board) the elected board of directors of the CO-OP after it has begun accepting enrollees.^[5]
• “Issuer” means an insurance company or insurance organization (e.g., HMO) licensed to engage in the insurance business in a state.^[6]
• “Related entity” means an organization that shares common ownership or control with a trade association whose membership consists of pre-existing issuers and meets one of the following conditions: (1) is responsible for services to be provided by the issuers; (2) provides services to the issuer’s enrollees pursuant to an oral or written agreement; or (3) performs any management functions of the issuer per contract delegation. CMS interprets this definition to allow a non-profit corporation that shares control with an existing issuer to “sponsor” (i.e., develop or create a CO-OP) or facilitate the creation of a CO-OP as long as the applicant and resulting CO-OP do not share the same board of directors with the existing issuer.^[7]
• “Predecessor” means an entity involved in a purchase or acquisition of property or stock, merger, consolidation, or other similar business transaction that results in the formation of the new entity.^[8]

Eligibility of organizations to receive a CO-OP loan

• CMS proposes that organizations eligible to receive a CO-OP loan must be nonprofit organizations recognized under state law.^[9]
• CMS proposes to bar participation by pre-existing issuers, predecessors or related entities; trade associations whose members are pre-existing issuers; and government-sponsored organizations, including medical centers, physician practices, hospitals, and such organizations that are part of a State University system.
• CMS would permit the following entities to sponsor a CO-OP loan applicant: a prospective applicant licensed in the state as a health insurance issuer after July 16, 2009; self-funded and Taft-Hartley group health plans; church plans not licensed on July 16, 2009; multi-share programs not licensed by their state insurance regulator; non-profit organizations that are not issuers but that may sponsor a pre-existing issuer, provided that they do not share any of the same board of directors or CEO with the CO-OP loan applicant; and organizations that have purchased assets from a pre-existing issuer in arms-length transaction where neither party was positioned to unduly influenced the other (thereby permitting an organization to apply if it contracts services from a pre-existing health insurance issuer that does not control the CO-OP applicant).^[10]

Standards that CO-OP Programs Must Satisfy

• Governance. CMS proposes that: CO-OP governance establish procedures that foster and ensure member control; within a year of the initiation of coverage, the operating organization be governed by an “operational board” elected by the CO-OP members; voting rights shall exist for all CO-OP members, using a one-member-one-vote policy; and that board members be elected by contested voting. CMS also proposes that a CO-OP be permitted to reserve certain board positions for members with certain types of expertise (e.g., providers, individuals with expertise in health care systems) but that these members not be a majority.^[11]
• QHP Offerings. CMS proposes that at least two-thirds of the health insurance contracts issued by a CO-OP be QHPs offered in the individual and small group markets. In addition, a CO-OP applicant must offer at least one plan at both the silver and gold level in every individual market Exchange in the geographical market in which it is licensed. If a CO-OP offers coverage in the small group market outside the exchange, then such CO-OP must offer at least one CO-OP QHP at both silver and gold levels in the Small Business Health Options Program of any market area when CO-OP is licensed.^[12]
• Licensure. CMS proposes that a CO-OP loan recipient be licensed by the state in which it operates and offer at least one CO-OP QHP at the silver and gold levels in the individual market Exchange by the earlier of 3 years after the initial draw down of the start-up loan or 6 months following the initial drawdown of the solvency loan.^[13]
• Timeframes for complying with applicable laws. CMS proposes that a loan recipient must satisfy all the proposed standards under the NPRM and the ACA and that it become a CO-OP within 54 months of the first drawdown of the solvency loan.^[14]
• Commencing business during open enrollment. In order to ensure viability of the CO-OP program, CMS proposes that when offering a QHP for the first time in an Exchange the loan recipient may begin offering plans and enrolling members only during that Exchange’s open enrollment period.^[15]

Loan and Repayment Terms

• CMS proposes to begin awarding loans in late 2011 or early 2012^[16] and seeks comment on its interpretation of loan and repayment terms.
• To ensure the success of the CO-OP program, CMS proposes that the solvency loans be structured in a manner that meets a state’s reserve and solvency requirements so that the loan recipient can meet capital reserve requirements rather than counting the loan as a debt. Thus, premiums received by the CO-OP will go first to paying claims and meeting a state’s reserve requirements rather than loan repayment.^[17]
• In order to allow flexibility in repayment, CMS proposes to permit loan repayment modification if repayment difficulties arise. If the loan is terminated by CMS, ACA penalties (110 percent of the aggregate amount of loans, plus interest) will apply.^[18]
• CMS proposes to defer loan repayment until after a CO-OP has begun enrollment.^[19]
• CMS proposes to prohibit the conversion of CO-OPs to for-profit entities. CMS also proposes to bar any CO-OP transaction that would result in a governance structure that does not meet federal CO-OP standards.