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The Consumer Operated and Oriented Plan (CO-OP) Program

Posted on June 22, 2011 | Comment (1)

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By Nancy Lopez

Background

The Affordable Care Act (ACA) envisions a health insurance market operating both inside and outside state health insurance Exchanges  that offers a range of affordable choices to individuals and employer-sponsored groups. During the debate that led to passage of the ACA, concerns were raised that millions of individuals and small groups lack sufficient choice among insurers in the existing private insurance market.[1] Proponents (including those who sought a public insurance option) advocated for congressional investment in alternative sources of coverage in order to assure choice and competition,[2] as well as to address the highly concentrated nature of the health insurance market (in most states 3 or fewer for-profit insurance companies account for over 65% of the market).[3]

A “public option” was proposed as a means of promoting an alternative to private coverage. In lieu of a public option, which proved highly controversial,[4] the ACA included the Consumer Operated and Oriented Plan (CO-OP) program, whose purpose is to develop private non-profit alternatives to for-profit insurers.[5] The central aim of the CO-OP program is to create consumer-run health insurers accountable to members, rather than to investors.[6]

Health care consumer cooperatives are not a new concept in the U.S.; in fact, they have existed since the late 1920’s.[7] The Farm Security Administration attempted to encourage rural co-ops in the 1930s and 1940s, but once it withdrew its funding the majority of the co-ops failed.[8] The Blue Cross/Blue Shield movement, also around the 1930’s, had co-op characteristics, but some argue that over time the Blues plans began to look more like their for-profit competitors.[9] In contrast, there are current examples of successful co-ops, including HealthPartners in Minneapolis and Group Health in Seattle, as well as other non-profit integrated delivery systems.[10] A successful co-op is one which contracts with a wide array of high-performing providers and enhances patient access, coordination of care, and efficiency of clinical operations.[11] The ACA CO-OP program was devised to mimic these successful models. 

Changes Made by the Health Reform Law (P.L. 111- 148, §§ 1322, 1324, 10104)

Establishment of CO-OP program

  • The ACA requires the Secretary of the Department of Health and Human Services (HHS) to establish the CO-OP program to promote the creation (or expansion) of qualified non-profit health insurance issuers (“qualified issuer”) that offer qualified health plans (QHPs) through state Exchanges and in the non–Exchange individual and small group markets.[12]

Grants & Loans

  • The ACA initially provided $6 billion in mandatory funding[13] (reduced to $3.8 billion by subsequent appropriations legislation enacted in 2011 to establish CO-OPs, with funds available to “qualified issuers” for start-up costs and/or grants to help meet state solvency requirements.[14]
  • The law specifies that grants and loans must be made available by July 1, 2013[15] and that loans must be repaid within 5 years and grants, within 15 years.[16]
  • In determining the grants and loans, the law requires the HHS Secretary to:
    • take into account the recommendation of a 15-member advisory board that provides advice on grants and loans to CO-OP applicants;[17]
    • give priority to applicants that: intend to offer QHPs on a statewide basis, utilize integrated care models, and demonstrate significant private support; and
    • ensure that there is sufficient funding to establish at least one qualified issuer in each State.[18]
  • The law further specifies that in the absence of applications, the HHS Secretary may use funds to encourage establishment of qualified insurers within a State or for the expansion of a qualified insurer licensed in another State.[19]
  • The law requires grantees to comply with a range of conditions and bars the use of funds for propaganda, marketing, or to influence legislation.[20]

Conditions Applicable to Qualified Nonprofit Health Insurance Issuers

ACA defines a qualified issuer as an entity:

  • That is organized under State law as a non-profit, member corporation.[21]
  • Substantially all of whose activities consist of issuance of qualified health plans in the small group and individual health insurance markets in States where such entity is licensed to issue plans.[22]
  • Is governed by its members and subject to majority vote.[23
  • Whose governing documents incorporate ethics and conflict of interest standards to prohibit interference from insurance industry involvement.[24]
  • That operates with a strong consumer focus, including timeliness, responsiveness, and accountability to its members.[25]
  • That uses profits to lower premiums, improve benefits, or improve the quality of health care delivered to its members.[26]
  • That meets all applicable state[27] and federal[28] requirements that other issuers of qualified health plans are required to meet including, but not limited to, solvency, licensure, provider payments, and network adequacy rules.
  • That operates in a state that is in compliance with the ACA’s insurance market reforms.[29]
  • That itself or through its related or predecessor entity, has existed only since July 16, 2009.
  • That is not government-sponsored.[30]

Advisory Board

  • The ACA specifies that the CO-OP Advisory Board must include national experts in various health care fields, as defined under Section 1805(c) of the Social Security Act,[31] and must meet ethical and conflict of interest standards, and receive travel expenses but no compensation.[32]

Purchasing Council

  • The ACA allows qualified issuers to enter into collective purchasing arrangements, through a purchasing council, for services and items that increase cost efficiencies (such as claims administration, health information technology and actuarial services); however, the council may not set payment rates and is subject to anti-trust laws. The ACA prohibits government representatives or insurers who were in existence as of July 16, 2009, from participating on the council (or on a qualified issuer’s board of directors).[33]

Tax Exempt Status

  • The ACA extends tax exempt status under §501(c) of the Internal Revenue Code to include CO-OP qualified issuers who have received a grant or loan and who are in compliance with the CO-OP program requirements.[34]

Implementation

Agency

The Secretary of HHS is responsible for implementing the provisions relating to the CO-OP program. The U.S. Comptroller General of the General Accountability Office (GAO) is responsible for appointing the members of the Advisory Board and submitting biennial reports to Congress on competition and market concentration in the health insurance marketplace.

Key Dates

By June 2010, the original appointment of the advisory board members had to be made.[35]

By July 1, 2013, HHS must begin to distribute loans and grants for CO-OPs to be established.[36]

By July 1, 2013, and prior to distribution of loans and grants, HHS must promulgate regulations (consistent with State insurance issuer laws) regarding repayment of loans and grants.[37]

By December 31, 2014, the Comptroller General shall report to the appropriate Congressional committee the results of the GAO study required by ACA §1322(i) on health insurance market concentration and competition, including recommendations for necessary administrative or legislative changes to increase competition.[38]

Agency Action

On June 23, 2010, HHS announced the establishment of the CO-OP Advisory Board.[39]

On February 2, 2011, HHS published a Request for Comments (RFC) regarding Provisions of Consumer Operated and Oriented Plan Program.[40]

On March 10, 2011, the Internal Revenue Service released a Notice explaining the requirements for tax exemption for qualified nonprofit health insurance issuers described in new section IRC 501(c)(29), added by ACA §1322(h). The Notice also includes a request for public comments regarding application of IRC §501(c)(29), which were due May 27, 2011.[41]

Key Issues:

HHS has asked for public comments on certain key issues; these questions serve to highlight important matters in implementation:

Definitions: How will HHS define the following terms: “integrated care model”, “significant private support”, “marketing”, “related entity”, “predecessor” and “substantially all” when attempting to define a qualified issuer?

Who will the applicants be? The law does not bar applications by entities that involve a partnership between a non-profit consumer driven corporation and a for profit issuer that manages the entity for its board. Will partnerships such as these develop?

Durability and Viability of CO-OPs: How will CO-OPs be able to exert the purchasing power of larger insurers or Medicare? How will CO-OPs operate and enroll members in rural communities? Will State laws be barriers to a successful operation of a CO-OP? Will CO-OPs be permitted to contract with existing entities to bolster their enrollment opportunities or integrated care options?

Grants and Loans: How will HHS determine funding needs? How will HHS regulate repayment of funds? Will funding differ for regional CO-OPs versus State CO-OPs? How will the restriction on funds for marketing be monitored and by whom? What are other acceptable sources of private funding? Will there be interim benchmarks under a funding schedule? What will applicants need to show to receive funds?

Governance: How will HHS determine “strong consumer focus” or “accountability” for CO-OP members? What will be the rules of governance? How will governance be monitored to ensure profits are used to benefit members?

Authorized Funding Levels

The ACA appropriates $6 billion from U.S. Treasury funds, not otherwise appropriated, to carry out the CO-OP program. However, on April 15, 2011, this amount was decreased to $3.8 billion with the passage of the Department of Defense and Full-Year Continuing Appropriations Act, 2011.[42]

[1] Jaffe S., Public Health Insurance Plan: Should some uninsured Americans be able to enroll in a newly created, publicly administered health plan as the nation works to expand health insurance coverage? Health Affairs: Health Policy Brief (November 10, 2009).
[2] CCH’s Law, Explanation and Analysis of the Patient Protection and Affordable Care Act: Volume 1. Chapter 2: Coverage Choices p. 153. Aspen Publishers, (April 2010).
[3] Testimony of Sabrina Corlette, Georgetown University Health Policy Institute, to the Federal Advisory Board for Consumer Operated and Oriented Plan (Co-op) program, (January 13, 2011).
[4] See, e.g., Cox L., ABC News/Health, “Public Option” or Co-op? Experts Sound Off. (August 18, 2009). Available at: http://abcnews.go.com/Health/HealthCare/story?id=8352840.
[5] Volsky I., Conrad Proposes Co-ops To Replace Public Plan. The Wonk Room. (June 10, 2009). Available at: http://wonkroom.thinkprogress.org/2009/06/10conrad-coop.
[6] Testimony of Sara R. Collins, PhD, The Commonwealth Fund, to the Federal Advisory Board for Consumer Operated and Oriented Plan (Co-op) program, (January 13, 2011).
[7] Davis K., The Commonwealth Fund Blog. “Cooperative Health Care: The Way Forward?” (June 22, 2009).
[8] Jost T., Washington & Lee University, School of Law. “Public Plan or Cooperative: Does it Make a Difference?” Available at: http://law.wlu.edu/deptimages/Faculty/Jost%20Public%20Plan%20or%20Cooperative.pdf.
[9] Id.
[10] Testimony of Sara R. Collins, The Commonwealth Fund, to the Federal Advisory Board for Consumer Operated and Oriented Plan (CO-OP) program, (January 13, 2011).
[11] Id.
[12] ACA §1322(a).
[13] Pub. L 112-10, §1857 (2011).
[14] ACA §1322(b).
[15] ACA §1322(b)(2)(D).
[16] ACA §1322(b)(3), as added by §10104(l)(2).
[17] ACA §1322(b)(4), as redesignated by §10104(l)(1).
[18] ACA §1322(b)(2).
[19] Id.
[20] ACA §1322(b)(2)(C).
[21] ACA §1322(c).
[22] ACA §1322(c)(1).
[23] ACA §1322(c)(3).
[24] Id.
[25] Id.
[26] ACA §1322(c)(4).
[27] ACA §1322 (c)(5).
[28] ACA §1324, as amended by §10104(n).
[29] ACA §1322(c)(6).
[30] ACA §1322(c)(2).
[31] Section 1805(c) of the Social Security Act describes the membership of the Medicare Payment Advisory Commission (MedPAC).
[32] ACA §1322(b)(4), as redesignated by §10104(l)(1).
[33] ACA §1322(c)(2).
[34] ACA §1322(h), adding §501(c)(29) to IRC.
[35] ACA §1322(b)(4)(A), as added by ACA §10104(l)(1).
[36] ACA §1322(b)(2)(D).
[37] ACA §1322(b)(3), as added by ACA §10104(l)(2).
[38] ACA §1322(i)(2).
[39] 75 Fed Reg 120, p. 35816 (June 23, 2010).
[40] 76 Fed. Reg. 5774 (Feb. 2, 2011).
[41] IRS Notice 2011-23 (March 10, 2011).
[42] Pub. L 112-10 (2011).
Jaffe S., Public Health Insurance Plan: Should some uninsured Americans be able to enroll in a newly created, publicly administered health plan as the nation works to expand health insurance coverage? Health Affairs: Health Policy Brief (November 10, 2009).
CCH’s Law, Explanation and Analysis of the Patient Protection and Affordable Care Act: Volume 1. Chapter 2: Coverage Choices p. 153. Aspen Publishers, (April 2010).
Testimony of Sabrina Corlette, Georgetown University Health Policy Institute, to the Federal Advisory Board for Consumer Operated and Oriented Plan (Co-op) program, (January 13, 2011).
See, e.g., Cox L., ABC News/Health, “Public Option” or Co-op? Experts Sound Off. (August 18, 2009). Available at: http://abcnews.go.com/Health/HealthCare/story?id=8352840.
Volsky I., Conrad Proposes Co-ops To Replace Public Plan. The Wonk Room. (June 10, 2009). Available at: http://wonkroom.thinkprogress.org/2009/06/10conrad-coop.
Testimony of Sara R. Collins, PhD, The Commonwealth Fund, to the Federal Advisory Board for Consumer Operated and Oriented Plan (Co-op) program, (January 13, 2011).
Davis K., The Commonwealth Fund Blog. “Cooperative Health Care: The Way Forward?” (June 22, 2009).
Jost T., Washington & Lee University, School of Law. “Public Plan or Cooperative: Does it Make a Difference?” Available at: http://law.wlu.edu/deptimages/Faculty/Jost%20Public%20Plan%20or%20Cooperative.pdf.
Id.
Testimony of Sara R. Collins, The Commonwealth Fund, to the Federal Advisory Board for Consumer Operated and Oriented Plan (CO-OP) program, (January 13, 2011).
Id.
ACA §1322(a).
Pub. L 112-10, §1857 (2011).
ACA §1322(b).
ACA §1322(b)(2)(D).
ACA §1322(b)(3), as added by §10104(l)(2).
ACA §1322(b)(4), as redesignated by §10104(l)(1).
ACA §1322(b)(2).
Id.
ACA §1322(b)(2)(C).
ACA §1322(c).
ACA §1322(c)(1).
ACA §1322(c)(3).
Id.
Id.
ACA §1322(c)(4).
ACA §1322 (c)(5).
ACA §1324, as amended by §10104(n).
ACA §1322(c)(6).
ACA §1322(c)(2).
Section 1805(c) of the Social Security Act describes the membership of the Medicare Payment Advisory Commission (MedPAC).
ACA §1322(b)(4), as redesignated by §10104(l)(1).
ACA §1322(c)(2).
ACA §1322(h), adding §501(c)(29) to IRC.
ACA §1322(b)(4)(A), as added by ACA §10104(l)(1).
ACA §1322(b)(2)(D).
ACA §1322(b)(3), as added by ACA §10104(l)(2).
ACA §1322(i)(2).
75 Fed Reg 120, p. 35816 (June 23, 2010).
76 Fed. Reg. 5774 (Feb. 2, 2011).
IRS Notice 2011-23 (March 10, 2011).
Pub. L 112-10 (2011).

Comment (1)

Commonwealth Fund issue brief reviews CO-OP sustainability strategies
April 17, 2012
The Affordable Care Act (ACA) paves the way for groups to develop innovative, affordable health insurance and care options known as Consumer Operated and Oriented Plans (CO-OPs). These CO-OPs will be nonprofit, consumer-controlled entities that are designed to serve individuals and small businesses, especially in noncompetitive markets. The CO-OP provision was included in the Affordable Care Act to address the lack of affordable health plan alternatives in many state and regional markets and to counter a trend toward market concentration. Despite their promise, CO-OPs face a number of business challenges that go beyond typical start-up hurdles. An issue brief recently released by The Commonwealth Fund lays out a number of innovative strategies CO-OP organizers are developing to increase the odds of long-term sustainability and economic success. These strategies—aimed at building market share, creating integrated provider networks, and achieving cost savings through payment reform—could establish CO-OPs as a viable new entrant in the health care field.
RWJF releases new Urban analysis on CO-OPs
September 2, 2011
A new report written by Bradford Gray of the Urban Institute and funded by the Robert Wood Johnson Foundation examines the future sucess of the Consumer Operated and Oriented Plan Program (CO-OP) under the Affordable Care Act (ACA). The report, "Consumer Operated and Oriented Plans (CO-OPs): An Interim Assessment of Their Prospects," lays out the challenges CO-OPs will likely face over the coming years, and pins their long-term success on their ability to collaborate and evolve in terms of plan administration and provider network development.
CMS awards $639 million in loans to nonprofit health insurers
February 22, 2012
The Centers for Medicare & Medicaid Services (CMS) announced a total of $638.7 million in federal loans to seven nonprofit health insurance co-operatives. The groups are the first to receive loan funds under the Affordable Care Act (ACA). The purpose of these funds will be to improve quality, benefits, and premium affordability for subscribers. The creation of Consumer Operated and Oriented Plans (known as CO-OPs) is a provision under the ACA . CO-OPs are intended to be directed by their customers to offer individuals and small businesses more affordable, consumer-friendly health insurance. CMS issued a final rule establishing the CO-OP program in December 2011 (237 HCDR, 12/9/11). The groups receiving the awards Feb. 21 were...
IRS releases rules on tax exempt entities under the CO-OP Program
February 6, 2012
The Internal Revenue Service (IRS) released new rules for the Consumer Operated and Oriented Plan (CO-OP) Program regarding what will be recognized as tax exempt under Section 501(c)(29) of the tax code. Proposed and temporary IRS rules denote that qualified nonprofit CO-OP health insurers will need to apply for tax-exempt recognition with IRS. IRS and the Treasury Department will recognize them as exempt effective on either their date of formation or March 23, 2010, the date that the ACA became law. To qualify for a tax exemption, the entity must have received a loan from CMS for operation. IRS's upcoming revenue procedure requires that a copy of the CMS notice of award and the fully executed loan agreement are included in the entity's application for exemption. The IRS temporary rules did include statutory guidance for tax exemption: in addition to notifying the Treasury Department that the group is applying for exemption recognition, no private inurement of earnings to shareholders or individuals can exist, (unless it lowers premiums, improves benefits, or improves the quality of health care delivered to the organization's members). Additionally, no attempt to influence legislation or politics can be made. HHS issued the CO-OP final rule in December, which discussed CO-OP Program eligibility standards. For for information on CO-OPs, click here.
Final Rule on CO-OPs released by HHS
December 9, 2011
The U.S. Department of Health and Human Services (HHS) has issued a final rule on the Consumer Operated and Oriented Plan (CO-OP) program. Created by the Affordable Care Act (ACA), the CO-OP program seeks to establish nonprofit cooperative insurance plans in all States. The ACA authorizes HHS to make loans available to eligible prospective CO-OPs, with the goal of creating one CO-OP per State. The ultimate intent is for CO-OPs to be able to offer affordable, qualified health plans (QHPs) to consumers through each State's health insurance Exchange. For more information on the CO-OP program, click here.
HHS issues NPRM on CO-OP plans
July 18, 2011
The U.S. Department of Health and Human Services (HHS) has issued a notice of proposed rulemaking (NPRM) on the Consumer Operated and Oriented Plan (CO-OP) program. Established by the Affordable Care Act (ACA), the CO-OP program allows private, non-profit insurance plans to be offered through the 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. For more information on the CO-OP program, click here.
Update to Consumer Operated and Oriented Plan (CO-OP) Program: Final Rule
January 18, 2012
The Centers for Medicare and Medicaid Services (CMS) issued its final rule implementing the Consumer Operated and Oriented Plan (CO-OP) Program on December 13, 2011. This rule finalizes the notice of proposed rulemaking (NPRM) issued by CMS on July 20, 2011, and takes into consideration the numerous comments received during the public notice and comment period ending September 16, 2011. 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 created by ACA §1322(b)(2). Two previous Implementation Briefs provided an overview of the CO-OP program and set forth the key provisions of the proposed rule; this update describes significant changes to the proposed rule as codified in the final rule.
Update: Consumer Operated and Oriented Plan (CO-OP) Program
August 17, 2011
On July 20, 2011, the Centers for Medicare and Medicaid Services (CMS) issued a notice of proposed rulemaking (NPRM) 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 created by §1322(b)(2) of the ACA.
Health Insurance Exchanges Update: Qualified Health Plans, Reinsurance, Risk Corridors and Risk Adjustment
July 19, 2011
A major problem in the U.S. health care system is the lack of affordable health insurance options for individuals and small businesses. These groups also have no easy way to compare plans in terms of premium cost, benefits and cost sharing, provider networks, or quality of care provided. The Affordable Care Act (ACA) seeks to address these problems by making private health insurance available to qualified small businesses and individuals through health insurance Exchanges beginning January 1, 2014.
State Health Insurance Exchange Navigators
February 28, 2011
One of the great challenges of our health care system for individuals and small employers is figuring out health insurance. Multiple products are available in the market, and they can differ enormously with respect to benefits and cost-sharing, coverage standards, who – and what – is in or out of provider networks, and how to make the best use of insurance coverage. Insurance agents and brokers – sometimes referred to as “producers” – provide an important service by helping people and small businesses make purchasing choices. But brokers and agents perform a specific task: their primary job is to sell insurance products. Thus, while their role is key to a functioning insurance market, brokers and agents may not be sources of impartial advice on how to select among competing plans, and they may not provide post-enrollment assistance in understanding and using coverage once purchased.
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