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PPACA: Energy and Commerce Eyes CO-OPs

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Republicans at the House Energy and Commerce Committee are asking for evidence that organizers of the new “CO-OP” program cooperative health insurers can pay back CO-OP startup and solvency loans.

The Republican committee leaders have sent a letter asking for documents relating to the Consumer Operated and Oriented Plan (CO-OP) to Marilyn Tavenner, the acting administrator of the federal Centers for Medicare and Medicaid Services (CMS).

Congress has appropriated a total of $3.4 billion for CO-OP startup and solvency loan funding.

A program table indicates that “the loan subsidy percentage, or expected losses percentage, is about 43% of the face amount of $7.25 billion for all the loans,” the Republican committee leaders say.

The expected loss ratio is higher than the 35% expected loss ratio that the U.S. Department of Health and Human Services (HHS) included in a proposed rule published in July 2011, the lawmakers say.

HHS has awarded $845 million in CO-OP loans to 10 organizations in 10 states, lawmakers say.

The loan program is structured in such a way that the government would be last in line to get paid if a CO-OP failed, and, in the past, insolvency problems in earlier programs, such as the multiple employer welfare arrangement (MEWA) market, have led to disruption in the health insurance market, the lawmakers say.

The lawmakers ask for a long list of documents to help them learn more about the nature of the CO-OP loans and the likely solvency of the borrowers, including documents related to CO-OP program surplus notes, documents related to loan applications, documents related to decisions to approve or deny loans, and documents related to HHS and CMS communications with state departments of insurance.

The lawmakers also ask Tavenner to answer questions such as, “What action(s) has HHS taken to ensure that the loans are repaid?” and “How did HHS determine that the loan recipients had a high probability of becoming financially viable?”

The group of lawmakers that signed the letter includes Rep. Fred Upton, R-Mich., chairman of the Energy and Commerce Committee; Rep. Joe Pitts, R-Pa., chairman of the committee’s health subcommittee; Rep. Cliff Stearns, R-Fla., chairman of the oversight and investigations subcommittee; and Rep. Marsha Blackburn, R-Tenn., vice chairman of the commerce, manufacturing and trade subcommittee.

The drafters of the Patient Protection and Affordable Care Act of 2010 (PPACA) created the CO-OP program in an effort to increase the level of competition in the health insurance market. 

PPACA Section 1322 calls for the plans to sell coverage through the new PPACA health insurance exchange system and get “substantially all” of their business from individuals and small groups. A CO-OP plan could operate in a whole state or in part of a state, or in multiple states. A CO-OP would be licensed as an insurer in each state in which it operates. Although a CO-OP plan would offer coverage through the exchange system, it also could sell coverage outside of an exchange.

Program rules forbid for-profit health insurers from creating CO-OP plans or participating in CO-OP  plan governance.

The federal Center for Consumer Information and Insurance Oversight (CCIIO), the CMS arm overseeing the program, are hoping entities to start CO-OP programs that will serve each state and the District of Columbia.

In addition to asking about the program’s finances, the House Energy and Commerce Republicans have asked about the decision to classify Freelancers Union, New York, as a company that is not already a health insurer.

Freelancers Union started the Freelancers Insurance Company, a for-profit health insurer, in 2008, the lawmakers say.

“Since FIC may be considered a related entity that provided health insurance prior to July 16, 2009, this raises a question about the independence of the Freelancers Union sponsored entities from an ineligible, related entity,” the lawmakers say.


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