The Centers for Medicare and Medicaid Services (CMS) released the Final Rule produced by the Department of Health and Human Services (HHS) to establish the Consumer Operated and Oriented Plan (CO-OP) Program under Section 1322 of the Patient Protection and Affordable Care Act (PPACA) on December 8, 2011.
The CO-OP program is designed to foster the creation of new consumer-governed, private, nonprofit health insurance issuers, known as CO-OPs, that will offer plans under the Affordable Insurance Exchanges (Exchanges). HHS hopes that the CO-OP Program will improve the quality and cost of integrated care by creating "a new competitive presence" in the insurance marketplace.
HHS made noteworthy modifications to the proposed rule in an effort to further these goals and to ensure the flexibility for and improve the potential viability of the CO-OP Program by making it easier for larger employers to participate, recognizing provider sponsorship in governing the formation and transition boards, and ensuring CO-OPs will be operated by participants who are truly "new" to the market.
"Substantially All" Requirement
The Final Rule confirms that many larger employers will be able
to participate in CO-OPs by permitting up to one-third of all CO-OP
contracts to be purchased by such large employers. It provides that
Section 1322's requirement that "substantially all"
health insurance issued by the CO-OP is placed in the individual
and small group markets is satisfied where two-thirds of its
contracts are in those markets. The Final Rule confirms also that
the two-thirds standard applies to all of the activities in the
CO-OP, an interpretation that HHS believes properly encourages
providers who may want to offer a CO-OP option to their employees
to participate in CO-OP provider networks.
In response to concerns regarding extensive State licensure requirements and in an attempt to provide flexibility for and ensure the viability of CO-OP providers, the Final Rule significantly extends the timeline when CO-OPs are required to be offering qualified health plans (meeting the "substantially all" requirement). As a result of this change, a loan recipient will now have two years from the solvency loan draw down dates to begin providing health care coverage in the Exchanges and to meet all minimum CO-OP requirements.
Sophisticated provider organizations and small business organizations have shown significant interest in CO-OP formation. These entities are strong applicants as they are, according to HHS, "likely to be viable [as CO-OPs] because of their private support, healthcare experience, and business expertise."
The Final Rule extends the transition period from the formation to the operational board from one to two years after the CO-OP enrollment begins, permits the staggered election of the operational board, and permits the formation board to fill its vacancies, without a contested election. Additionally, providers are prohibited from composing a majority of the CO-OP board of directors unless, as will sometimes be the case, the provider-board members purchase the product themselves, in which case they can serve as board members in their capacity as CO-OP members. These governance modifications acknowledge the reality that efficient and experienced governance of a CO-OP will permit, rather than hinder, a consumer-focused initiative.
Eligible Participants and Sponsors
Under the proposed rule, the following were listed as not
eligible to apply for or receive a loan under the CO-OP program:
(1) pre-existing insurance issuers; (2) trade associations whose
members consist of pre-existing issuers; (3) entities related to
pre-existing issuers; (4) predecessors of pre-existing issuer or
related entity; and (5) organizations sponsored by a State or local
governments. The Final Rule addressed concerns regarding loopholes
in the proposed rule that would permit pre-existing issuer
influence and control over CO-OPs by modifying the eligibility
requirements to exclude from participation, in addition the
entities listed in the proposed rule: (1) foundations established
by a pre-existing issuer; (2) holding companies that control
pre-existing issuers; (3) organizations sponsored by pre-existing
issuers; and (4) organizations that receive more than 25% of their
total funding (not including loans under the CO-OP program) from
The Final Rule clarifies that private non-profit hospitals and physician hospital organizations, or other organizations that receive financial support from a State or local government are not instrumentalities of a State or local government, and are therefore eligible CO-OP participants, so long as: (1) the entity is not a government organization under State law; (2) no employee of State or local government acting in his or her official capacity serves as a senior executive; and (3) State or local government employees acting in their official capacities do not comprise the majority of the CO-OP board of directors. Additionally, the Final Rule permits applicants to receive up to 40% of CO-OP funding from a State or local government without being considered an instrumentality of such government entity.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.