The Consumer Operated and Oriented Plan (CO-OP) Program
Posted on June 22, 2011 | Comment (1)
By Nancy Lopez
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. 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, 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).
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, 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. The central aim of the CO-OP program is to create consumer-run health insurers accountable to members, rather than to investors.
Health care consumer cooperatives are not a new concept in the U.S.; in fact, they have existed since the late 1920’s. 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. 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. 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. 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. 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.
Grants & Loans
- The ACA initially provided $6 billion in mandatory funding (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.
- The law specifies that grants and loans must be made available by July 1, 2013 and that loans must be repaid within 5 years and grants, within 15 years.
- 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;
- 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.
- 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.
- The law requires grantees to comply with a range of conditions and bars the use of funds for propaganda, marketing, or to influence legislation.
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.
- 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.
- 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.
- That operates with a strong consumer focus, including timeliness, responsiveness, and accountability to its members.
- That uses profits to lower premiums, improve benefits, or improve the quality of health care delivered to its members.
- That meets all applicable state and federal 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.
- That itself or through its related or predecessor entity, has existed only since July 16, 2009.
- That is not government-sponsored.
- 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, and must meet ethical and conflict of interest standards, and receive travel expenses but no compensation.
- 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).
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.
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.
By July 1, 2013, HHS must begin to distribute loans and grants for CO-OPs to be established.
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.
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.
On February 2, 2011, HHS published a Request for Comments (RFC) regarding Provisions of Consumer Operated and Oriented Plan Program.
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.
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.
 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.
 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).
 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).
 ACA §1322(b)(2)(C).
 ACA §1322(c).
 ACA §1322(c)(1).
 ACA §1322(c)(3).
 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).