The Centers for Medicare & Medicaid Services announced yesterday proposed standards for the creation of Consumer Operated and Oriented Plans (CO-OPs), new private consumer governed health insurance plans. CMS also announced rules for how CO-OPs can qualify for $3.8 billion in government loans to help start up these insurance plans.
“CO-OPs will provide consumers more choices, greater plan accountability and help ensure a more competitive insurance market,” said Steve Larsen, director of the Center for Consumer Information and Insurance Oversight, in a press release. This "announcement shows how the Affordable Care Act is bringing new choices and giving consumers a voice in insurance markets throughout the nation.”
CO-OPs are designed to increase competition in the insurance market and provide more options for individuals and small businesses looking for affordable health insurance. Their structure is similar to that of credit unions: profits will be used to benefit members of the CO-OP, which can include lowering premiums, improving health benefits, improving quality of care for members, expanding enrollment or taking other actions to contribute to stabilizing coverage for its members.
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The loan program from CMS is intended to encourage private entities to create CO-Ops, in order to have a CO-OP available in every state to be included on each state’s health insurance exchange. Loans made to CO-OPs are re-payable over ten years, during which time the CO-OPs will have strict monitoring, reporting and auditing requirements that will include semi-annual program reports and quarterly financial statements. In addition, CO-OPs must meet specific milestones as outlined in the loan agreement in order to draw on any government funds. CMS will also conduct audits and site visits of new CO-OPs as needed.
The proposed framework announced yesterday from the public advisory committee is only the first step in making the loans available. The framework was developed with input from a number of stakeholder groups, including testimony from consumers, small businesses and healthcare providers. CMS is taking public comment on the proposal and expects to release a Funding Opportunity Announcement regarding the availability of loans to start up CO-OPs soon.
While the CO-OPs are primarily intended to provide competition for health plans with the purpose of keeping premiums in check, they are also seen as providing other advantages as well. Key to this is providing a viable method for a CO-OP to develop adequate cash reserves in order to meet each state’s solvency requirements for health plans.
“The CO-OP program also seeks to promote improved models of care. Existing health insurance cooperatives and other business cooperatives provide possible models for the successful development of CO-OPs around the country,” noted the proposed rule. “One major barrier to continued development of this model has been the difficulty of obtaining adequate capitalization for start- up costs and state reserve requirements. The CO-OP program is designed to help overcome this major barrier to new issuer formation by providing funding for these critical activities."