CO-OPs Should Meet Same Regulations As Private Health Plans, Insurers Argue

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By Sara Hansard  

Consumer-run nonprofit health insurers to be offered in exchange markets under the health care reform law should have to meet the same regulatory standards as private plans, the health insurance industry stressed in comments filed with the Department of Health and Human Services.

“Consumers should have the same protections from every health plan they purchase on the exchanges,” the Blue Cross and Blue Shield Association wrote in a letter signed by Justine Handelman, vice president of legislative and regulatory policy, on the proposed rule establishing the Consumer Operated and Oriented Plan program. BCBSA represents 39 plans covering about 98 million people.

HHS proposed standards July 18 for the private insurers that are to offer individual and small group plans in the exchanges (see previous article). Comments were due Sept. 16.

The Patient Protection and Affordable Care Act originally provided $6 billion to be distributed to the CO-OPs for loans to cover start-up costs and solvency requirements. But the fiscal 2011 appropriations law signed April 15 by President Obama reduced funding for the program to $3.8 billion (see previous article).

BCBSA: CO-OPs Should Be Licensed by States

BCBSA recommended that the Centers for Medicare & Medicaid Services, which is in charge of administering the program, require CO-OP loan recipients to become licensed by states as health insurance issuers before being allowed to sell qualified health plans through the exchanges that are to be in operation in all states by 2014 under PPACA. All plans sold through exchanges must be QHPs that offer standardized “essential health benefits” packages, to be defined by HHS.

There is “some ambiguity” in the proposed rule concerning state licensing, BCBSA said. PPACA “provides that CO-OPs comply with the same rules as other health insurance issuers, including state licensure,” it said.

“Any regulatory guidance should reflect the importance of fair competition and the congressional intent to establish a level playing field among CO-OPs and other issuers of QHPs,” America's Health Insurance Plans said in its letter, signed by Daniel Durham, executive vice president, policy and regulatory affairs. AHIP represents about 1,300 health insurers covering about 200 million people.

“Operational standards for health insurance companies offering QHPs through the exchange should apply to CO-OPs to ensure that a level playing field exists at all points in the process of establishing a health insurance company and offering a QHP through the exchange,” AHIP said.

Individual, Small Group Threshold Challenged

BCBSA and AHIP also challenged the two-thirds threshold proposed by CMS for the percentage of a CO-OP's business that must come from plans offered in the individual and small group markets.

BCBSA recommended that at least 85 percent of CO-OP business come from individual and small group plans. Further, the measurement should not count all contracts equally, regardless of group size, as CMS declared in sub-regulatory guidance, it said.

The two-thirds threshold for individual and small group business “would make it possible for a CO-OP to focus on serving members in the large group market, which is not consistent with congressional intent that CO-OPs focus ‘substantially all’ of their activities on the individual and small group markets,” BCBSA said.

CO-OPs receive many advantages, such as preferential tax treatment and federal financing, that were justified by Congress to increase competition in the individual and small group markets, BCBSA argued.

The health insurance groups also recommended that CMS revise a provision allowing entities that share control with existing issuers to sponsor CO-OPs to ensure that participation by pre-existing issuers is prohibited. That could allow existing issuers to restructure to sponsor CO-OPs, AHIP said.

The Federal CO-OP Advisory Board recommended that some small, pre-existing issuers be allowed to apply for CO-OP funding, BCBSA said.

Existing insurers would not need federal funding because they would not have start-up or solvency costs, BCBSA said. Allowing existing issuers to receive CO-OP funding “would amount to a direct taxpayer subsidy of the issuer's ongoing operations,” and it would permit them to receive preferential income tax treatment as well as a 50 percent reduction in the new insurance excise tax beginning in 2014, BCBSA said.

“An existing nonprofit issuer might even consider restructuring in order to receive the excise tax reduction and gain a market advantage,” BCBSA said. That would increase the tax on all other health plans, because the total revenue from the excise tax is defined in PPACA, it said.

CO-OPs Support Prior Experience

However, the National Alliance of State Health Cooperatives, a Helena, Mont., group organized in 2010 to promote the development of the CO-OP program, supported allowing nonprofit nonissuers that currently sponsor pre-existing issuers to sponsor CO-OPs. The provision would allow nonprofit nonissuers with significant experience to sponsor CO-OPs, NASHCO said in its letter, signed by President John Morrison.

Both NASHCO and the National Cooperative Business Association urged CMS to allow CO-OPs to raise private capital from a variety of sources beyond start-up and solvency loans. “Consumer governance allows the members to control the CO-OP and not be overly influenced by outside involvement,” NCBA said in its letter.

The American Hospital Association said CMS's proposed rule will “frustrate” the development of CO-OPs.

“Health care provider organizations, especially those providers that are self-insured and well down the path of providing clinically integrated health care services, are excellent candidates to sponsor or co-sponsor CO-OPs,” said the AHA letter, signed by Executive Vice President Rick Pollack. AHA represents more than 5,000 hospitals and health care organizations.

“However, we are concerned that the proposed rules may preclude their doing so because the eligibility and governance rules for not-for-profit health care organizations do not allow them to provide financial support to a CO-OP and still meet their own fiduciary responsibilities,” AHA said. Under the proposed rule, a provider organization would have to accept financial responsibility for a CO-OP plan, but the provider would have little input into its governance, it said.

AHA recommended that the governance requirements be revised to eliminate impediments for officers and board members to sponsor not-for-profits to be CO-OP board members.


The Blue Cross and Blue Shield Association's letter on the proposed rule establishing the Consumer Operated and Oriented Plan program is at http://tinyurl.com/3sm2skk . America's Health Insurance Plans' letter is at http://tinyurl.com/3lhox2o . The National Alliance of State Health Cooperatives' letter is at http://tinyurl.com/4ysoflu . The National Cooperative Business Association's letter is at http://tinyurl.com/3zohy8k . The American Hospital Association's letter is at http://tinyurl.com/3qwp5vy .