August 2011

Department of Health and Human Services Issues Proposed Rule on Consumer Operated and Oriented Plan

A Polsinelli Shughart Update

On July 18, The Department of Health and Human Services issued a proposed rule to implement the Consumer Operated and Oriented Plan (CO-OP) program (CMS-9983-P). This program will provide loans to capitalize consumer-governed, private, nonprofit health insurance issuers to enable them to offer qualified health plans by means of Affordable Insurance Exchanges (Exchanges). There is to be at least one CO-OP in every state in order to expand the number of health plans available in the Exchanges, which are scheduled to commence operations in 2014.

What You Need To Know

The CO-OP program was created by the Affordable Care Act, which brought tax exemption for these issuers (IRC § 501(c)(29)). There may be funding for multiple CO-OPs in a state, if there is sufficient funding to foster the creation of a CO-OP in each state. $3.8 billion has been authorized for this program.

The proposal’s executive summary states that individuals and small businesses will be able to purchase health insurance through the Exchanges (which the summary terms “state-based competitive marketplaces”). The summary states that the Exchanges will “offer Americans competition, choice, and clout.” And: “Insurance companies will compete for business on a level playing field, driving down costs” and “[c]onsumers will have a choice of health plans to fit their needs.”

The proposed rule sets forth eligibility standards for the CO-OP program, establishes terms for the loans, and provides basic standards that organizations must meet to participate in the program and become a CO-OP. A CO-OP will be expected to implement policies and procedures to ensure member control (by a majority) of the organization. The members will select a board of directors in an election that must be contested. Each director must meet ethical, conflict-of-interest and disclosure standards, “protecting against insurance industry involvement and interference.” A CO-OP will have to “operate with a strong consumer focus, including timeliness, responsiveness, and accountability to members.” These entities must “demonstrate financial viability and the ability to meet all other statutory, legal, or other requirements.” An organization that was an insurance issuer on July 16, 2009, is ineligible for this classification.

What You Need To Do

Organizations should follow the progress of the establishment of Exchanges being established in their respective states and determine how this will impact them. Polsinelli Shughart is closely following the establishment of these Exchanges throughout the country and the rules that will govern them.

For More Information

You may contact any of the following attorneys in our Nonprofit Organizations or Health Care practice groups:

• Thomas J. Schenkelberg | 816.360.4124 | tschenkelberg@polsinelli.com
• Douglas K. Anning | 816.360.4188 | danning@polsinelli.com
• Matthew J. Murer | 312.873.3603 | mmurer@polsinelli.com
• Janice A. Anderson | 312.873.3623 | janderson@polsinelli.com

About Polsinelli Shughart PC

With more than 540 attorneys, Polsinelli Shughart is a national law firm that is a recognized leader in the areas of business law, financial services, real estate and business litigation. Serving corporate, institutional and individual clients, Polsinelli Shughart is redefining the business of law by sharing ideas, goals and outcomes with its clients. The firm builds enduring relationships by creating value through legal services – with passion, ingenuity and a sense of urgency. The firm can be found at www.polsinelli.com. Polsinelli Shughart PC. In California, Polsinelli Shughart LLP.