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Regulation and Compliance > Federal Regulation

PPACA: HHS Completes CO-OP Regulations

By Allison Bell

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The U.S. Department of Health and Human Services (HHS) is moving ahead with efforts to set up the Consumer Operated and Oriented Plan (CO-OP) Program — an effort to create a new breed of nonprofit, member-owned health plans.

HHS is preparing to publish a final CO-OP rule in the Federal Register Dec. 13.

Members of Congress put the CO-OP program provision in the Patient Protection and Affordable Care Act of 2010 (PPACA) to create a compromise between Democrats who wanted PPACA to create a govPPACA regsernment-run “public option” and Democrats who wanted PPACA to preserve the current commercial health insurance market as much as possible.

A CO-OP could serve both individuals and small groups, and it could get some revenue from selling coverage to large groups. A CO-OP could operate in a whole state or in part of a state, or it could operate in multiple states. A CO-OP would be licensed as an insurer in each state in which it operates.

The CO-OP section of PPACA, PPACA Section 1322, calls for HHS to make $3.8 billion in CO-OP startup loans available to would-be CO-OP organizers.

The first round of CO-OP loanapplications was due in October.

“We anticipate making awards in January 2012,” HHS officials say. “We are pleased with the large number of CO-OP loan applications and encouraged by the strong response.”

PPACA Section 1322 states that the new CO-OPs may not be owned by the for-profit or nonprofit health insurers that existed before PPACA was enacted.

If PPACA takes effect on schedule and works as drafters expect, new health insurance exchanges are supposed to begin helping individuals and small business shop for health coverage starting in 2014. CO-OPs are supposed to help increase the range of options available through the exchanges by selling their coverage through the exchanges.

HHS released the proposed CO-OP regulations in July and received about 45 public coments.In the preamble to the final rule, HHS officials emphasize that the organizers of CO-OPs cannot be “pre-existing issuers, foundations established by pre-existing issuers, [or] trade associations that are comprised of pre-existing issuers and whose purpose is to represent the interests of the health insurance industry.”

That provision appears to ensure that neither America’s Health Insurance Plans, Washington, or the Blue Cros and Blue Shield Association, Chicago, will be getting into the CO-OP business.

HHS also has clarified the final rule to emphasize that a holding company that owns a health insurer cannot be the owner of a CO-OP, even though the holding company is a holding company, not a health insurer.

But, in the final rule, indicates that a health insurer might be able to invest in a CO-OP effort, if it chooses to do so.

An organization that is setting a CO-OP could get up to “25% of their total funding (excluding any loans received from the CO-OP program) from pre-existing issuers,” officials say. “This modification would allow applicants to receive limited funding from pre-existing issuers (up to 25% of their total funding excluding any loans received from the CO-OP program) to help with application costs and other expenses while ensuring that preexisting issuers are not providing a level of funding that would give them meaningful control of each CO-OP.”

Critics of the CO-OP program have argued that the CO-OPs will be similar to the nonprofit health maintenance organizations (HMOs) set up in the 1970s and the policyholder-owned mutual insurers set up in earlier decades, and that there is no reason to believe they will be strong enough to maintain a meaningful level of independence.

HHS officials say in the preamble that HHS has tried to do what it can to help CO-OPs get the resources they need to compete.”

In order to obtain a loan and be successful, CO-OPs must demonstrate the ability to gain sufficient enrollment and revenue to sustain their organization,” officials say.

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