[Federal Register Volume 76, Number 239 (Tuesday, December 13, 2011)]
[Rules and Regulations]
[Pages 77392-77415]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-31864]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
45 CFR Part 156
[CMS-9983-F]
RIN 0938-AQ98
Patient Protection and Affordable Care Act; Establishment of
Consumer Operated and Oriented Plan (CO-OP) Program
AGENCY: Department of Health and Human Services.
ACTION: Final rule.
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SUMMARY: This final rule implements the Consumer Operated and Oriented
Plan (CO-OP) program, which provides loans to foster the creation of
consumer-governed, private, nonprofit health insurance issuers to offer
qualified health plans in the Affordable Insurance Exchanges
(Exchanges). The goal of this program is to create a new CO-OP in every
State in order to expand the number of health plans available in the
Exchanges with a focus on integrated care and greater plan
accountability.
DATES: These regulations are effective February 13, 2012.
FOR FURTHER INFORMATION CONTACT:
Meghan Elrington, (301) 492-4388 for general issues and issues related
to loan terms and governance standards.
Anne Bollinger, (301) 492-4395 for issues related to definitions and
eligibility.
Ilana Cohen, (301) 492-4371 for issues related to CO-OP standards.
SUPPLEMENTARY INFORMATION: The Patient Protection and Affordable Care
Act, (Pub. L. 111-148), enacted on March 23, 2010, and the Health Care
and Education Reconciliation Act of 2010 (Pub. L. 111-152), enacted on
March 30, 2010, are collectively referred to in this final rule as the
``Affordable Care Act.'' The Department of Defense and Full-Year
Continuing Appropriations Act, 2011 (Pub. L. 112-10), which amended
Section 1322 of the Affordable Care Act, was enacted on April 15, 2011.
Section 1322 of the Affordable Care Act created the Consumer Operated
and Oriented Plan program (CO-OP) to foster the creation of new
consumer-governed, private, nonprofit health insurance issuers. In
addition to improving consumer choice and plan accountability, the CO-
OP program also seeks to promote integrated models of care and enhance
competition in the Affordable Insurance Exchanges (Exchanges)
established under the Affordable Care Act.
The statute authorizes the Secretary to make loans to capitalize
eligible prospective CO-OPs with a goal of having at least one CO-OP in
each State. It also permits the funding of multiple CO-OPs in any
State, provided that there is sufficient funding to capitalize at least
one CO-OP in each State. There is $3.8 billion in appropriations for
the program.
All CO-OP loans must be repaid with interest, and loans will only
be made to private, nonprofit entities that demonstrate a high
probability of becoming financially viable. The CO-OP program contains
extensive provisions to protect against fraud, waste, and abuse. Loan
recipients are subject to strict monitoring, audits, and reporting
requirements for the length of the loan repayment period plus 10 years
and CO-OPs must meet a series of milestones before drawing down
disbursements, as described in their loan agreements.
This final rule--(1) Sets forth the eligibility standards for the
CO-OP program; (2) establishes terms for loans; and (3) provides basic
standards that organizations must meet to participate in this program
and become a CO-OP. This rule is intended to provide flexibility for
eligible organizations to encourage diversity in the organizational
design and approach while ensuring that the statutory goals are met.
Starting in 2014, individuals and small businesses will be able to
purchase private health insurance through State-based competitive
marketplaces called Affordable Insurance Exchanges (Exchanges).
Insurance companies will compete for new business on the basis of price
and value and consumers will have a choice of health plans to fit their
needs. The Departments of Health and Human Services, Labor, and the
Treasury (the Departments) are seeking public input, providing
guidance, and issuing regulations implementing Exchanges in several
phases. A Request for Comment relating to Exchanges was published in
the Federal Register on August 3, 2010. Initial Guidance to States on
Exchanges was published on November 18, 2010. A proposed rule for the
application, review, and reporting process for waivers for State
innovation was published in the Federal Register on March 14, 2011 (76
FR 13553). On July 15, 2011, two proposed regulations were
[[Page 77393]]
published in the Federal Register to implement components of the
Exchange: ``Establishment of Exchanges and Qualified Health Plans'' and
``Standards Related to Reinsurance, Risk Corridors and Risk
Adjustment.'' On August 17, 2011, three proposed regulations were
published in the Federal Register: ``Eligibility Changes Under the
Affordable Care Act of 2010,'' ``Exchange Functions in the Individual
Market: Eligibility Determinations; Exchange Standards for Employers,''
and ``Health Insurance Premium Tax Credit.'' Additional regulations
will be published in the Federal Register to implement Exchange related
components of the Affordable Care Act.
Table of Contents
I. Background
A. Overview of the Consumer Operated and Oriented Plan (CO-OP)
Program
B. Statutory Basis for the Consumer Operated and Oriented Plan
(CO-OP) Program
C. Structure of the Final Rule
II. Summary of the Proposed Provisions and Responses to Comments on
the CO-OP Proposed Rule
A. Basis and Scope (Sec. 156.500)
B. Definitions (Sec. 156.505)
C. Eligibility (Sec. 156.510)
D. CO-OP Standards (Sec. 156.515)
1. General
2. Governance Requirements
3. Requirements To Issue Health Plans and Become a CO-OP
E. Loan Terms (Sec. 156.520)
1. Overview of Loans
2. Repayment Period
3. Interest Rates
4. Failure To Pay
5. Deeming of CO-OP Qualified Health Plans
6. Conversions
F. Comments Beyond the Scope of the Final Rule
III. Collection of Information Requirements
IV. Regulatory Impact Analysis
A. Introduction
B. Summary and Need for Regulatory Action
C. Costs
D. Transfers
E. Benefits
F. Alternatives Considered
G. Accounting Statement
V. Other Requirements for Analysis of Economic Effects
Regulations Text
Acronym List
Because of the many terms to which we refer by acronym in this
final rule, we are listing the acronyms used and their corresponding
meanings in alphabetical order below:
CCIIO Center for Consumer Information & Insurance Oversight
CMS Centers for Medicare & Medicaid Services
CO-OP Consumer Operated and Oriented Plan
ERISA Employee Retirement Income Security Act
FACA Federal Advisory Committee Act
FOA Funding Opportunity Announcement
FQHC Federally Qualified Health Center
HHS U.S. Department of Health and Human Services
MLR Medical Loss Ratio
OIG Office of Inspector General
OMB Office of Management and Budget
PHS Act Public Health Service Act
QHP Qualified Health Plan
RFC Request for Comment
SHOP Small Business Health Options Program
I. Background
A. Overview of the Consumer Operated and Oriented Plan (CO-OP) Program
Section 1322 of the Affordable Care Act directs the Secretary to
establish the CO-OP program to provide loans to foster the creation of
new consumer-governed nonprofit health insurance issuers, referred to
as CO-OPs, in every State. These new consumer-run, private, nonprofit
insurers will be one vehicle for providing higher quality care that is
affordable and uses innovative care models in the Exchanges starting in
2014.
The statute divides the CO-OP loans into two types: loans for
start-up costs, to be repaid in 5 years (``Start-up Loans''), and loans
to enable CO-OPs to meet State insurance solvency and reserve
requirements, to be repaid in 15 years (``Solvency Loans''). Section
1322(b)(2)(A) of the Affordable Care Act directs CMS to ensure that
there is sufficient funding to establish at least one CO-OP in each
State and to give priority to organizations that can offer these CO-OP
qualified health plans on a Statewide basis, provide integrated care,
and have significant private support. Section 1301(a)(2) of the statute
deems CO-OP qualified health plans offered by a qualified nonprofit
health insurance issuer eligible to participate in the Exchanges. By
creating more health plan choices, the CO-OP program can benefit all
consumers.
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. One major barrier to continued development of this model
in the health insurance market has been the difficulty of obtaining
adequate capitalization for start-up costs and State insurance reserve
requirements. The CO-OP program is designed to help overcome this
barrier to new issuer formation by providing loans specifically for
these critical activities.
Pursuant to section 1322(b)(4) of the Affordable Care Act, the
Comptroller General announced the appointment of a 15 member CO-OP
Program Advisory Board on June 23, 2010 to make recommendations to CMS
on awarding loans. Section 1322(b)(2)(A) directs the Secretary to
consider the recommendations of this Advisory Board when awarding loans
under the CO-OP program. After taking testimony from experts and
comments in 3 day-long public hearings from January through March 2011
and examining written comments, the Advisory Board approved its final
recommendations and submitted its public report on April 15, 2011. This
final report is available at: http://cciio.hhs.gov/resources/files/coop_faca_finalreport_04152011.pdf. The Advisory Board generally
advised the Department to develop flexible criteria that recognize the
diversity of market conditions around the country to enable the
development of various CO-OP models and allow different types of
sponsorship. It also encouraged the Department to provide technical
assistance at all stages of the process in order to enhance the
viability of individual CO-OPs and the success of the program.
The Advisory Board recommended four major principles for awarding
loans. CMS concurs with these principles:
(1) Consumer operation, control, and focus must be the salient
features of the CO-OP and must be sustained over time;
(2) Solvency and the financial stability of coverage should be
maintained and promoted;
(3) CO-OPs should encourage care coordination, quality and
efficiency to the extent feasible in local provider and health plan
markets; and
(4) Initial loans should be rolled out as expeditiously as possible
so that CO-OPs can compete in the Exchanges in the critical first open
enrollment period.
This final rule and the Funding Opportunity Announcement (FOA) for
the CO-OP program incorporate these four principles endorsed by the
Advisory Board.
On February 2, 2011, CMS published a Request for Comment (RFC) in
the Federal Register (76 FR 5774) seeking public comment on the rules
that will govern the CO-OP program. The public comments received in
response to the RFC were considered in the development of the proposed
rule published in the Federal Register on July 20, 2011 with a comment
period that ended on September 16, 2011 (76
[[Page 77394]]
FR 43237). In addition, a Funding Opportunity Announcement (FOA) for
the CO-OP program, available at www.grants.gov (CFDA Number 93.545),
was published on July 28, 2011 (and amended on September 16, 2011) and
provides detailed information regarding the application and award
administration process for the CO-OP program.
B. Statutory Basis for the Consumer Operated and Oriented Plan (CO-OP)
Program
Section 1322(a) of the Affordable Care Act directs CMS to establish
the CO-OP program to foster the creation of member-governed qualified
nonprofit health insurance issuers to offer CO-OP qualified health
plans in the individual and small group markets in the States in which
they are licensed.
Section 1322(b)(1) of the Affordable Care Act directs CMS to make
two types of loans available to organizations applying to become
qualified nonprofit health insurance issuers: Start-up Loans and
repayable grants (Solvency Loans). Start-up Loans will provide
assistance with start-up costs and Solvency Loans will provide
assistance in meeting solvency requirements of State regulators in the
States in which the organization is licensed to issue CO-OP qualified
health plans. Although the statute refers to Solvency Loans as
``grants,'' they are loans because they must be repaid.
Section 1322(b)(2) provides that in making awards, CMS must take
into account the recommendations of the Advisory Board further
described in section 1322(b)(4) and give priority to applicants that
offer CO-OP qualified health plans on a Statewide basis, use integrated
care models, and have significant private support.
Section 1322(b)(2) also directs CMS to ensure that there is
sufficient funding to establish at least one qualified nonprofit health
insurance issuer in each State and the District of Columbia. It permits
CMS to fund additional qualified nonprofit health insurance issuers in
any State if the funding is sufficient to do so. If no entities in a
State apply, CMS may use funds to encourage the establishment of a
qualified nonprofit health insurance issuer in the State or the
expansion of another qualified nonprofit health insurance issuer from
another State to that State.
Section 1322(b)(2) also directs any organization receiving a loan
to enter into an agreement to meet the standards to become a qualified
nonprofit health insurance issuer and any other terms and conditions of
the loan awards. Under section 1322(b)(2)(C)(ii), the agreement must
provide that no portion of the loans be used for propaganda purposes,
attempts to influence legislation, or marketing.
Section 1322(b)(2)(C)(iii) provides that, if CMS determines that an
organization has failed to meet any provisions of the loan agreement or
failed to correct such failure within a reasonable period of time, the
organization must repay an amount equal to the sum of:
110 percent of the aggregate amount of loans received;
plus
Interest on the aggregate amount of loans for the period
the loans were outstanding starting from the date of drawdown.
CMS must notify the Department of the Treasury of any determination
of a failure to comply with the CO-OP program standards (including the
provisions of a loan agreement) that may affect an issuer's tax-exempt
status under section 501(c)(29) of the Internal Revenue Code of 1986
(the Code).
Under section 1322(b)(3), Start-up Loans must be repaid within 5
years, and Solvency Loans must be repaid within 15 years. Repayment
terms in the award of loans must take into consideration any
appropriate State reserve requirements, solvency regulations, and
requisite surplus note arrangements that must be constructed by a
qualified health insurance issuer in a State to receive and maintain
licensure. Section 1322(b)(3) provides that, not later than July 1,
2013 and prior to awarding loans, CMS must promulgate these
regulations, ``with respect to the repayment'' of the loans. Legal
obligations regarding repayment as well as other obligations required
for program compliance will be included in loan agreements.
Section 1322(c)(1) defines ``qualified nonprofit health insurance
issuer'' as an organization that:
Is organized under State law as a private, nonprofit,
member corporation;
Conducts activities of which substantially all consist of
the issuance of CO-OP qualified health plans in the individual and
small group markets in each State in which it is licensed to issue such
plans; and
Meets the other requirements in subsection 1322(c).
Section 1322(c)(2) states that an organization is not eligible to
become a qualified nonprofit health insurance issuer if the
organization or a related entity (or any predecessor of either) was a
health insurance issuer on July 16, 2009. In addition, an organization
cannot be treated as eligible to apply for a loan under the CO-OP
program if a State or local government, any political subdivision
thereof, or any instrumentality of such government or political
subdivision sponsors it.
Section 1322(c)(3) establishes governance requirements for a
qualified nonprofit health insurance issuer. To ensure consumer
control, the governance of the organization must be subject to a
majority vote of its members. The organization's governing documents
must incorporate ethics and conflict of interest standards to protect
CO-OP members against insurance industry involvement and interference.
To ensure consumer orientation, the organization is required to operate
with a strong consumer focus, including timeliness, responsiveness, and
accountability to members.
Section 1322(c)(4) directs the organization to use any profits to
lower premiums, improve benefits, or for other programs intended to
improve the quality of health care delivered to its members.
Section 1322(c)(5) states that the organization must meet all the
State standards for licensure that other issuers of qualified health
plans must meet in any State where the issuer offers a CO-OP qualified
health plan, including solvency and licensure requirements and any
other State law described in section 1324(b).
Section 1322(c)(6) prohibits a qualified nonprofit health insurance
issuer from offering a health plan in a State until that State has in
effect (or CMS has implemented for the State) the market reforms
outlined in part A of title XXVII of the Public Health Service Act (as
amended by subtitles A and C of title I of the Affordable Care Act).
Section 1322(d) enables qualified nonprofit health insurance
issuers to establish a private purchasing council to enter into
collective purchasing arrangements for items and services that increase
administrative and other cost efficiencies including claims
administration, administrative services, health information technology,
and actuarial services. The private purchasing council is prohibited
from setting payment rates for health care facilities or providers that
contract with qualified nonprofit health insurance issuers.
Section 1322(e) prohibits representatives of any Federal, State, or
local government (or of any political subdivision or instrumentality
thereof), and representatives of an organization that was an existing
issuer or a related entity (or predecessor of either) on July 16, 2009,
from serving on the board of directors of the qualified nonprofit
health insurance issuer or a private
[[Page 77395]]
purchasing council established under section 1322(d).
Together, these provisions form the statutory basis for the CO-OP
program established under this rule.
C. Structure of the Final Rule
The regulations outlined in this final rule will be codified in 45
CFR part 156 subpart F. The major subjects covered in this final rule
are described below.
Section 156.500 describes the statutory basis of the CO-OP
program and the scope of this proposed rule;
Section 156.505 sets forth definitions for the terms
applied in subpart F;
Section 156.510 specifies the criteria to be eligible for
a loan under the CO-OP program;
Section 156.515 sets forth the standards for a CO-OP; and
Section 156.520 sets forth the terms for loans awarded
under the CO-OP program including repayment terms and interest rates.
II. Summary of the Proposed Provisions and Responses to Comments on the
CO-OP Proposed Regulation
The proposed rule was published in the Federal Register on July 20,
2011 with a comment period that ended on September 16, 2011 (76 FR
43237). In addition, a Funding Opportunity Announcement for the CO-OP
program, available at http://www.grants.gov (CFDA Number 93.545), was
published on July 28, 2011 (and amended on September 16, 2011) and
provides detailed information regarding the application and award
administration process for the CO-OP program. We received approximately
45 public comments that addressed many topics in the proposed rule.
Interested parties that submitted comments included private citizens,
organizations interested in applying to the CO-OP program, State
Departments of Insurance, health insurance issuer trade associations,
medical associations, provider and hospital associations, and advocacy
groups. In this preamble we provide a summary of each proposed
provision, a summary of the public comments received, our responses to
them, and any changes to the CO-OP program that we are implementing in
the final regulation as a result of comments received. At the end of
the comment and response sections of this preamble, we also reference
comments we received that were outside the scope of the provisions set
forth in the proposed rule. Several of these comments pertain to the
provisions of the Funding Opportunity Announcement and will be
addressed in program guidance or in loan agreements. Loan recipients
will be subject to legal obligations outlined in the loan agreements.
Those obligations are not reiterated here.
A. Basis and Scope (Sec. 156.500)
Section 156.500 specifies the general statutory authority for and
scope of standards proposed in subpart F. The CO-OP program awards
loans to foster the creation of qualified nonprofit health insurance
issuers to offer CO-OP qualified health plans in the individual and
small group markets. Subpart F establishes certain eligibility,
governance, and health plan issuance standards for CO-OPs as well as
certain terms for loans awarded under the CO-OP program. Applicants may
apply for loans to help fund start-up costs and meet the solvency
requirements of States in which the applicant seeks to be licensed to
issue a CO-OP qualified health plan.
Comment: One commenter opposed implementation of the CO-OP program
and indicated that no government loan program can bring meaningful
resolution to the lack of consumer choice in the health insurance
market. The commenter stated that the likelihood of failure will be
higher for these start-up organizations than it otherwise would be in
the market because the organizations with the best prospects of being
able to repay loans, pre-existing health insurance issuers, are
excluded from the CO-OP program. The commenter recommended that CMS
delay awarding loans. Another commenter expressed concern that the
funding appropriated for the CO-OP program will be reduced by the
Congress.
Response: We recognize that loan recipients will face challenges
entering highly concentrated health insurance markets. This is true for
any new market entrant. However, the CO-OP program is responsive to
these barriers. The CO-OP program offers resources, in the form of
loans, to responsibly capitalize new, private, consumer-oriented
issuers by increasing the availability of adequate reserve funding and
boosting the ability of CO-OPs to compete in a brand new, broader
insurance marketplace. Insurance markets will change and expand
considerably in 2014 with the implementation of Exchanges. In order to
obtain a loan and be successful, CO-OPs must demonstrate the ability to
gain sufficient enrollment and revenue to sustain their organization.
Therefore, it is important that CMS begin awarding loans consistent
with current law and the Advisory Board's recommendation to give loan
recipients sufficient time to become operational and begin accepting
enrollment during the first Exchange open enrollment period in the Fall
of 2013.
We have considered the comments received regarding the basis and
scope of the CO-OP program and are finalizing the provisions of Sec.
156.500 as proposed.
B. Definitions (Sec. 156.505)
Section 156.505 sets forth definitions for terms that are used
throughout subpart F and are not intended to apply to other subparts of
section 156. Many of the definitions presented in Sec. 156.505 of the
proposed rule were taken directly from the Affordable Care Act, but new
definitions were created when necessary. Some of the definitions
presented in Sec. 156.505 of the proposed rule have since been revised
based on the comments received, including: ``qualified nonprofit health
insurance issuer,'' ``related entity,'' and ``sponsor.'' We originally
proposed that a ``qualified nonprofit health insurance issuer'' be
defined as a loan recipient that satisfies or can reasonably be
expected to satisfy the standards in section 1322(c) of the Affordable
Care Act and Sec. 156.515 within the time frames specified in this
subpart, until such time as CMS determines the loan recipient does not
satisfy or cannot reasonably be expected to satisfy these standards.
Generally, an entity that has received a loan and has met program
requirements for the loan is reasonably expected to satisfy these
standards. This definition was proposed to ensure that loan recipients
can receive the benefits of section 1322(h), addressing the Federal
income tax exemption for qualified nonprofit health insurance issuers,
at the appropriate time as determined by the Internal Revenue Service.
We proposed the definition of ``related entity'' be an organization
that shares common ownership or control with a pre-existing issuer or a
trade association whose members consist of pre-existing issuers, and
satisfies at least one of the following conditions: (1) Retains
responsibilities for the services to be provided by the issuer; (2)
furnishes services to the issuer's enrollees under an oral or written
agreement; or (3) performs some of the issuer's management functions
under contract or delegation. Thus, CMS proposed permitting a nonprofit
organization that is not an issuer or the representative of an issuer
but shares control with an existing issuer to ``sponsor'' or facilitate
the creation of a CO-OP if the applicant (and resulting CO-OP) and the
existing issuer do not share the same chief executive or any of the
board of directors. In the proposed
[[Page 77396]]
rule, ``sponsor'' was defined as an organization or individual that is
involved in the development, creation, or organization of the CO-OP or
provides financial support to a CO-OP. The comments we received on
these proposed definitions and our responses are provided below.
Comment: Several commenters requested that the definition of
``qualified nonprofit health insurance issuer'' be revised so that
qualified nonprofit health insurance issuers may access multiple forms
of investment and philanthropic capital (including debt, equity or
equity-equivalent, grants, bonds, etc.) in a manner that does not
compromise their primary commitment to mission.
Response: Although other legal requirements, including state
nonprofit corporation laws and tax rules applicable to tax-exempt
grantors and CO-OPs seeking tax-exempt status, may limit the
availability to CO-OPs of certain kinds of investments, section 1322 of
the Affordable Care Act and the proposed definition of a ``qualified
nonprofit health insurance issuer'' do not impose limitations on the
capital that may be invested in a ``qualified nonprofit health
insurance issuer.'' However, the organization's surplus funds (that is,
revenue in excess of expenses) must be ``used to lower premiums, to
improve benefits, or for other programs intended to improve the quality
of health care delivered to its members.'' In addition, as stated in
the FOA and recommended by the Advisory Board, CO-OPs may also use
their surplus funds to conduct marketing, repay loans awarded under the
CO-OP program, meet State solvency requirements, and provide for
enrollment growth, financial stability, and stable coverage for its
members. The proposed rule does not prohibit but encourages private
investment that can be demonstrated to meet this standard on the
application of profits. Therefore, it is not necessary to revise the
definition of ``qualified nonprofit health insurance issuer'' to allow
CO-OPs to access investment. Other legal requirements applicable to
investments in CO-OPs are outside the scope of this rulemaking.
However, in the definition of ``qualified nonprofit health
insurance issuer,'' we have replaced the phrase ``loan recipient'' with
the word ``entity.'' Because only a loan recipient can satisfy the
standards in section 1322(c) and Sec. 156.515, we do not view this as
a substantive change from the proposed rule. It is being made to ensure
flexibility in determining when entities qualify for the Federal income
tax exemption.
Comment: Several commenters requested that the definition of
``member'' be revised to include only those covered lives who are at
least 18 years old.
Response: We agree that voting rights should be limited to covered
lives who are at least 18 years old, and we have revised Sec. 156.515
accordingly. However, this change to the proposed rule does not
necessitate a revision to the definition of member, and we are
finalizing the definition as proposed.
Comment: Several commenters requested clarification on whether the
definition of ``member'' includes dependents, and some commenters
requested that the definition of ``member'' be limited to one adult
covered life within each family plan.
Response: The term ``member'' includes all individuals covered
under health insurance policies issued by a loan recipient, including
dependents. As discussed above, we have also limited voting rights to
members over 18 years old. We understand the commenter's concern that
allowing adult dependents in family coverage to vote will create an
imbalance in the representation of different member interests on the
board. However, the statute provides no basis for discriminating among
covered lives on the basis of the source of coverage. The limitation
proposed by the commenter would prevent certain adults receiving health
care coverage under a CO-OP from participating in the organization's
governance. As indicated in the testimony from existing health
insurance cooperatives, all adults in existing health insurance
cooperatives have voting privileges regardless of family or employment
status. Therefore, we have concluded that every adult covered by the
CO-OP must be eligible to vote and serve on the board of directors in
order to ensure that decisions are made in the best interest of all
covered lives consistent with both the statute and the traditional
model of a cooperative.
Comment: Several commenters requested clarification as to what the
term ``representative'' means.
Response: We understand the need for clarification of this term and
have included a definition of ``representative'' in this final rule.
``Representative'' means an individual who stands or acts for an
organization or group of organizations through a formal agreement or
financial compensation such as a contractor, broker, official, or
employee.
Comment: Due to the statutory prohibition on the use of loan
funding for ``marketing,'' several commenters requested guidance as to
what activities are considered ``marketing.'' Several commenters
indicated that the description in the FOA released on July 28, 2011
that described marketing as ``activities that promote the purchase of a
specific health care plan or explain a product's benefit structure,
whether targeted at new or current members'' is overly broad,
prohibiting CO-OPs from using loan funds to educate their members. In
the Request for Comment (RFC), several commenters recommended that CMS
define ``marketing'' narrowly to allow loan recipients to use loan
funds to conduct community outreach and member education.
Response: Marketing was not discussed in the proposed rule and
therefore, is outside the scope of this rule. Please see the amended
FOA, released on September 16, 2011, for additional guidance regarding
the activities included in the term marketing.
Comment: Several commenters supported the proposed definition of
``issuer'' because it prohibits insurance companies that were in
existence prior to July 16, 2009, from participating in the CO-OP
program. One commenter requested that reinsurers be categorized as a
qualified sponsor under the term ``issuer.''
Response: The intent of the proposed definition was to prohibit any
insurance companies that were in existence prior to July 16, 2009, from
participating in the CO-OP program, consistent with the statutory
directive. Reinsurers are typically licensed as issuers under State
law, and therefore are generally captured under the definition of
``issuer.''
Comment: One commenter requested that multiple employee welfare
arrangements (MEWAs) and their affiliates be included within the class
of entities that are excluded from the definition of ``issuer.''
Response: MEWAs and their affiliates are typically not licensed by
States as ``issuers'' and, therefore, would appear to be eligible for
loans if they meet all other eligibility criteria. The definition of
``issuer'' clearly states that an entity is an ``issuer'' if it is
``licensed to engage in the business of insurance in a State and which
is subject to State law which regulates insurance.'' Consistent with
the statute, if a MEWA is not a pre-existing issuer and otherwise meets
the eligibility criteria, it would be eligible to apply for CO-OP
loans.
[[Page 77397]]
Comment: Several commenters concurred with the proposed definition
of ``pre-existing issuer'' but requested clarification on whether it
prevents existing consumer run healthcare organizations from providing
expertise and assistance to prospective CO-OPs. One commenter requested
that a new term be used in place of ``pre-existing issuer'' because it
is easily confused with a health insurance issuer that excludes
coverage for ``pre-existing conditions.''
Response: Section 156.510(b)(2)(i) of this subpart allows a CO-OP
to purchase assets and contract services from a ``pre-existing issuer''
as long as it is an arm's length transaction in which each party acts
independently of the other and has no relationship with the other.
Although we understand and appreciate the commenter's concern, we do
not find it necessary to replace the term ``pre-existing issuer.''
Given differences in context, we do not believe that this term will be
confused with the term ``pre-existing conditions.''
Comment: We received comments expressing concern that holding
companies (companies that exist primarily to own stock in other
companies) that control pre-existing issuers are typically not licensed
as issuers and therefore, would be eligible to participate in the CO-OP
program.
Response: We agree with this concern and have modified the
eligibility criterion in Sec. 156.510(b) to exclude holding companies
that control pre-existing issuers, foundations established by pre-
existing issuers, and trade associations comprised of pre-existing
issuers whose purpose is to represent the interests of the health
insurance industry. Through its inclusion in the eligibility criteria,
this provision will ensure that entities controlled by or serving the
interests of pre-existing issuers are unable to participate in the CO-
OP program or sponsor a CO-OP. Therefore, no changes to the definition
itself of pre-existing issuer are necessary.
Comment: Several commenters supported the proposed definition of
``related entity.'' Some commenters requested that the definition be
expanded in order to ensure that CO-OPs are truly independent of pre-
existing health insurance issuers. Specifically, one commenter
recommended that the term ``related entity'' be expanded so that
neither preexisting issuers nor related entities would be permitted to
become or sponsor a CO-OP. Conversely, several commenters recommended
that a nonprofit organization that is not an issuer but shares control
with a pre-existing issuer should be allowed to sponsor or facilitate
the creation of a CO-OP.
Response: The primary goal of the CO-OP program is to foster new
consumer-governed, private, nonprofit health insurance issuers. The
statute expressly prohibits the participation of issuers, related
entities, or the predecessors of either, in the CO-OP program. We
believe that the intent of this prohibition is to encourage the
participation of sponsors that can create a new competitive presence in
the marketplace. We agree with the commenters' concerns that the
proposed definition did not foreclose avenues of influence that the
statute intended to prohibit. Accordingly, we have revised the
definition of ``related entity'' to reflect that organizations that
share a common governance structure with a pre-existing issuer (for
example, their management team or board of directors) are ineligible
for the CO-OP program if they also provide services or management
functions to the pre-existing issuer.
In addition, we agree that the statute prohibits pre-existing
issuers from sponsoring a CO-OP. However, nonprofit, not-for-profit,
public benefit, or similarly organized entities that do not sell
insurance as their primary purpose or mission but share control with a
pre-existing issuer should be permitted to sponsor a CO-OP. For
example, a religious organization that is not a health insurance
issuer, but is affiliated with one to help its members obtain health
insurance would be able to also sponsor a CO-OP to offer a health plan
in the Exchanges. This is permitted because all pre-existing issuers
are prohibited from sharing control or having undue influence over the
governance of the CO-OP itself. Therefore, we have expanded the
exclusions from eligibility in Sec. 156.510(b)(1)(i) to exclude
organizations sponsored by a pre-existing issuer. Due to this addition,
no further changes to the definition of ``related entity'' are
necessary to reflect that pre-existing issuers are not permitted to
sponsor a CO-OP. A nonprofit, not-for-profit, public benefit, or
similarly organized entity that is not an issuer but shares common
control or governance with a pre-existing issuer would not be
considered a ``related entity'' and hence, excluded from sponsorship of
a CO-OP, unless it--(1) Retains responsibilities for the services to be
provided by the pre-existing issuer, (2) furnishes services to the pre-
existing issuer's enrollee under contract, or (3) performs some of the
pre-existing issuer's management functions under contract or
delegation.
Comment: One commenter stated that the term ``related entity''
unnecessarily limits the types of associations allowed to sponsor a CO-
OP and requested that all nonprofits regardless of board composition be
able to sponsor a CO-OP because to do otherwise would limit the
experience and financial support available to a prospective CO-OP to
create a working, stable insurance entity.
Response: It is important for a CO-OP to have adequate financial
support and an experienced management team and governing board in order
to be viable in the market. However, the statute expressly prohibits
``related entities'' from becoming qualified nonprofit health insurance
issuers and without this prohibition, a CO-OP becomes vulnerable to
undue influence from pre-existing issuers, which would undermine the
statutory goals of this program. As set forth in Sec. 156.515(b) of
this subpart, CO-OPs may contract for services with experienced
entities and include individuals with expertise on their board of
directors to gain the benefit of experience.
Based on the comments received, we are finalizing the definitions
proposed in Sec. 156.505 of the proposed rule, along with the
exception of revisions to the definitions of ``qualified nonprofit
health insurance issuer'' and ``related entity,'' described in our
responses above and revisions to the definitions of ``sponsor'' and
``Start-up Loan'' discussed in the Eligibility and Loan Terms sections
of the preamble, respectively. In addition, we have added a definition
for ``representative'' in response to the comments received. We define
``representative'' as an individual who stands or acts for an
organization or group of organizations through a formal agreement or
financial compensation such as a contractor, broker, official, or
employee.
Because the proposed rule ``Establishment of Exchanges and
Qualified Health Plans'' (76 FR 41866) has not yet been finalized, we
have revised the definitions for the terms ``individual market,''
``small group market,'' ``SHOP,'' ``Exchange,'' and ``CO-OP qualified
health plan'' to remove references to this rule. We also include
definitions of ``group health plans,'' ``health insurance coverage,''
``small employer,'' ``qualified employer,'' and ``qualified health
plan'' as they were proposed in ``Establishment of Exchanges and
Qualified Health Plans'' (76 FR 41866), because those terms are
referred to within other definitions used in this
[[Page 77398]]
subpart. Once the ``Establishment of Exchanges and Qualified Health
Plans'' rule has been finalized, the definitions in this subpart will
be revised in the final ``Establishment of Exchanges and Qualified
Health Plans'' rule to incorporate the definitions adopted in the new
part 155.
C. Eligibility (Sec. 156.510)
Section 156.510 of the proposed rule outlined the minimum standards
that an organization must meet to be eligible to receive a loan from
the CO-OP program in order to create a new private consumer-operated
insurer. We proposed codification of the conditions in section
1322(c)(2) of the Affordable Care Act under which an organization will
not be eligible to participate in the CO-OP program. If an organization
is a pre-existing issuer, a related entity, or any predecessor of
either, it is not eligible for loans under the CO-OP program and
therefore, cannot become a CO-OP. In addition, an organization is not
eligible for the CO-OP program if the organization or a related entity
(or any predecessor of either) is a trade association whose members
consist of pre-existing issuers. We also proposed codification of the
requirement that, if an organization is sponsored by a State or local
government, any political subdivision thereof, or any instrumentality
of such government or political subdivision, it is not eligible to be a
CO-OP and cannot apply for a loan under the CO-OP program.
Under Sec. 156.510(b)(2)(i) of the proposed rule, a nonprofit
organization that is not an issuer but that currently sponsors an
issuer would remain eligible to sponsor an applicant for a CO-OP loan
in certain circumstances. Specifically, we proposed that such an
organization could sponsor an applicant for a CO-OP loan provided that
the pre-existing issuer does not share any of the board or the same
chief executive with the applicant. In Sec. 156.510(b)(2)(ii), we
further proposed that an organization that has purchased assets from a
pre-existing issuer in an arm's-length transaction where each party
acts independently of the other and has no other relationship with the
other is eligible to apply for a CO-OP loan. We also proposed that an
applicant and a pre-existing issuer could have common control by a non-
issuer organization. The applicant and pre-existing issuer would not be
related entities unless the pre-existing issuer also provided the CO-
OP's services or management functions.
The comments we received on the proposed eligibility criteria and
our responses are provided below.
Comment: Several commenters requested that CMS expand the
eligibility criteria to allow the participation of for-profit consumer-
oriented health insurance issuers. Conversely, a few commenters
suggested that CMS bar entities affiliated with pre-existing issuers--
such as organizations that sponsor pre-existing issuers, foundations
established by pre-existing issuers, holding companies that control
pre-existing issuers, or associations that represent pre-existing
issuers--from sponsoring a CO-OP. One commenter suggested that CMS
evaluate whether applicants have previously competed in insurance
markets before awarding any funding.
Response: As stated in section 1322 of the Affordable Care Act, the
goal of the CO-OP program is to ``foster the creation of qualified
nonprofit health insurance issuers.'' Accordingly, eligibility is
limited to nonprofit member organizations as previously defined. In
response to concerns about permitting entities that are controlled by
or serve the interests of pre-existing issuers from participating in
the CO-OP program or sponsoring a CO-OP, we modified the eligibility
criteria in Sec. 156.510(b) to exclude (1) Holding companies that
control pre-existing issuers, foundations established by pre-existing
issuers, and trade associations that are comprised of pre-existing
issuers and whose purpose is to represent the interests of the health
insurance industry (2) organizations sponsored by a pre-existing
issuer, and (3) organizations that receive more than 25% of their total
funding (excluding any loans received from the CO-OP program) from pre-
existing issuers. This modification would allow applicants to receive
limited funding from pre-existing issuers (up to 25% of their total
funding excluding any loans received from the CO-OP program) to help
with application costs and other expenses while ensuring that pre-
existing issuers are not providing a level of funding that would give
them meaningful control of each CO-OP. We believe that these exclusions
from eligibility are consistent with the intent and direction of the
statute as written. These exclusions will help to ensure that CO-OP
loans are provided to new organizations and are not used to further
develop plans offered by current health insurers.
Comment: Two commenters expressed support for our statement that
the prohibition against sponsorship of a CO-OP by a State or local
government would not apply to Indian tribes because a tribe is neither
a State nor local government.
Response: We agree with the commenters that this prohibition would
not apply to Indian tribes.
Comment: Several commenters requested that CMS clarify whether
private non-profit hospitals and physician hospital organizations,
State-affiliated academic medical centers, three-share and multi-share
programs, and other organizations that receive grant funding and other
financial support from a State or local government would be eligible to
participate in the CO-OP program.
Response: Recognizing that the term ``instrumentality'' does not
effectively distinguish among the organizations that could arguably be
classified as related to a State or local government, we are revising
the eligibility criterion in Sec. 156.510(b)(1)(ii) to provide
additional guidance regarding the types of organizations that would be
excluded from eligibility as instrumentalities of a State or local
government. Specifically, an organization would not be considered an
instrumentality of a State or local government and therefore, would be
eligible to sponsor a CO-OP if:
The entity is a not a government organization under State
law;
No employee of a State or local government acting in his
or her official capacity serves as a senior executive (for example,
President, chief executive officer, or chief financial officer) for the
organization; and
Fewer than half of the organization's directors are
employees of a State or local government acting in their official
capacities.
Thus, an organization, such as an academic medical center, that has
received funding from a State or local government but has a governance
structure that satisfies all three of these criteria and otherwise
meets the eligibility criteria in Sec. 156.510 and the FOA would be
eligible to sponsor a CO-OP. A private organization that receives
disproportionate share hospital payments or grants from State-
appropriated funds but has a governance structure that satisfies the
three criteria listed above and is otherwise qualified could sponsor a
CO-OP. In addition, a three-share or multi-share program that accepts
funding from State-appropriated funds in the course of a business
relationship with a State would not be considered an instrumentality of
the State as long as it meets these criteria.
In addition, we are revising the definition of ``sponsor'' in Sec.
156.505 of this subpart and the eligibility criteria in Sec.
156.510(b)(1) to allow organizations that receive funding from pre-
existing
[[Page 77399]]
issuers or State or local governments to participate in the CO-OP
program, provided that the pre-existing issuers or State or local
governments are not involved in the applicant's development, creation,
or organization, and that pre-existing issuers do not contribute more
than 25 percent of the organization's funding (excluding any loans
received from the CO-OP program) and no single State or local
government contributes more than 40 percent of the organization's
funding (excluding any loans received from the CO-OP program). We have
established a lower limit on funding from pre-existing issuers than
grants and other funding provided by State and local governments to
ensure that CO-OPs are free from any undue influence that may result
from receiving substantial funding from pre-existing issuers. We
believe that applicants may receive greater levels of funding from
State and local governments without serving as an actor or
instrumentality of the government.
Comment: Many commenters asked CMS to clarify the entities that are
eligible to receive loan funding. Two commenters suggested that CMS
impose additional prohibitions on the relationship between a CO-OP and
a sponsor. One commenter suggested that any entity that shares common
leadership with a pre-existing issuer be barred from sponsoring a CO-
OP; another suggested that CMS prohibit sponsors and CO-OPs from
sharing any financial interest. Finally, two commenters suggested CMS
further consider eligibility for specific types of applicants, such as
those that have previously participated in the issuance of health
insurance.
Response: We appreciate the concern that permitting entities with
financial or organizational ties to pre-existing issuers to sponsor CO-
OPs could allow de facto conversions of pre-existing issuers and
conflict with the statutory intent to foster the creation of new market
entrants. However, the statute excludes from eligibility only those
organizations that were existing issuers on July 16, 2009, and their
related entities and predecessors. An organization that was not
licensed to issue health insurance policies on July 16, 2009; is not a
foundation established by a pre-existing issuer; is not a holding
company that controls a pre-existing issuer; is not a trade association
that is comprised of pre-existing issuers and whose purpose is to
advocate for the interests of pre-existing issuers; and is not a
related entity or predecessor to a pre-existing issuer would be
eligible to participate in the CO-OP program provided that it meets all
other eligibility criteria. CMS believes that permitting such
organizations to sponsor CO-OPs maintains the appropriate balance
between preventing the flow of program funds to entities that are not
new market entrants and promoting the success of CO-OPs by permitting a
variety of sponsorship and partnership arrangements.
Comment: One commenter asked CMS to clarify how antitrust rules may
affect providers who wish to develop CO-OPs and expressed concern that
antitrust and self-referral laws may limit provider participation in
the development and sponsorship of CO-OPs.
Response: We believe that it is possible for providers to create
viable CO-OPs within the boundaries of existing anti-trust and self-
referral laws. Promoting competition within the health insurance
marketplace is a key goal of the CO-OP program, but the statute does
not give us authority to waive or exempt CO-OPs from anti-trust or
self-referral laws. Therefore, it is the responsibility of each
applicant to assess the relevant laws and regulations and ensure
compliance.
Comment: While several commenters supported CMS' proposal to permit
CO-OPs to purchase assets from or contract with existing issuers, some
commenters were concerned about the potential for issuers to exert
undue influence on CO-OPs. For example, one commenter suggested that
CO-OPs be prohibited from contracting with pre-existing issuers that
represent more than five percent of the local market. Similarly,
another commenter suggested specific requirements around the purchase
of reinsurance; for example that reinsurance be purchased at a fair
market price.
Response: Under the rule, loan recipients and CO-OPs may purchase
assets and services, such as premium billing services, from pre-
existing issuers through arm's length transactions. Based on the
comments received, we are further clarifying ``arm's length
transaction'' to mean a transaction in which the buyer and seller act
independently and have no relationship to one another. We believe that
applying the arm's length standard prevents loan recipients from
entering into agreements or transactions that could jeopardize member
control while maintaining flexibility for recipients to enter into the
business agreements that best meet their needs. In addition, pursuant
to Sec. 156.515(b)(3), each CO-OP must have procedures in place to
protect against insurance industry interference and address any
conflict of interests, such as those between the CO-OP and its
sponsor(s).
We have considered the many comments received regarding eligibility
and are finalizing the provisions in Sec. 156.510 of the proposed rule
with the exception of the revisions described above and the revision to
Sec. 156.510(b)(2)(i) discussed in the Definitions section of the
preamble. Specifically, Sec. 156.510(b) is revised to exclude
foundations established by a pre-existing issuer, holding companies
that control pre-existing issuers, organizations sponsored by pre-
existing issuers, and organizations that receive more than 25% of their
total funding (not including loans under the CO-OP program) from pre-
existing issuers from eligibility for the CO-OP program. Section
156.510(b)(1)(iii) is revised to clarify that organizations that
receive funding from a State or local government but are not government
organizations under State law and are not governed or controlled by a
State or local government may be eligible for the CO-OP program.
Section 156.510(b)(2)(i) is revised to clarify that certain nonprofit,
not-for-profit, public benefit, or similarly organized entities that
are also a sponsor for a pre-existing issuer are permitted to sponsor a
CO-OP provided that the pre-existing issuer does not share any of its
board or the same chief executive with the CO-OP. Section
156.510(b)(2)(ii) is revised to clarify that an ``arm's length
transaction'' consists of a transaction between two parties in which
neither party is in a position to exert undue influence on the other.
D. CO-OP Standards (Sec. 156.515)
1. General
A CO-OP must satisfy the standards set forth in all statutory,
regulatory, or other requirements as applicable. CMS proposed
additional standards that a CO-OP must meet in Sec. 156.515, many of
which are recommendations made by the Advisory Board in the final
report dated April 15, 2011. We requested public comments on these
proposed standards.
2. Governance Requirements
Section 1322(c)(3)(C) of the Affordable Care Act directs the
Secretary to promulgate regulations requiring the organization to
operate with a strong consumer focus, including timeliness,
responsiveness, and accountability to members. Pursuant to this
authority, CMS proposed governance standards in Sec. 156.515(b) of the
proposed rule that reflect the
[[Page 77400]]
recommendations of the Advisory Board. We proposed that the
organization be governed by an operational board with each of its
directors elected by a majority vote of its members. We also proposed
that the first election of the operational board of directors occur no
later than one year after the effective date on which the CO-OP
provides coverage to its first member to protect against delaying the
introduction of consumer governance beyond a point where it can have an
impact on the strategic direction of the CO-OP.
Section 156.515(b)(2)(v) of the proposed rule codified the
limitation in section 1322(e) of the Affordable Care Act that no
representative of any Federal, State or local government (or of any
political subdivision or instrumentality thereof) and no representative
of a pre-existing issuer, a trade association whose members consist of
pre-existing issuers, a related entity, or a predecessor of either may
serve on the board of directors.
The comments we received on these proposed governance standards and
our responses are provided below.
Comment: While several commenters expressed support for the
proposed governance requirements as written, several commenters
suggested that CMS extend the period of transition from the formation
board to the operational board to two years after enrollment begins and
to permit staggered election of the operational board over the two-year
period. Commenters also suggested that CO-OPs be permitted to fill
director positions vacated due to resignation, death, or removal except
removal by the CO-OP members.
Response: We agree that staggered elections over a longer period
will provide additional flexibility for loan recipients and will allow
operational boards to retain important expertise and experience gained
during formation. Allowing CO-OPs to fill vacant director positions in
the specific circumstances outlined above will permit efficient
operation and governance of the CO-OP without compromising the consumer
role.
Therefore, we have revised Sec. 156.515 of the regulations to
provide that a loan recipient may implement a staggered transition from
the formation board to the operational board over a period of two
years. The transition to a member-elected operational board must begin
within one year of a loan recipient first providing coverage to its
first enrollee. The operational board must be in place in its entirety
two years after the loan recipient begins providing coverage to its
first enrollee. Additionally, in the case of resignation, death, or
removal, CO-OPs may fill vacant director positions for the remainder of
the relevant term without conducting a contested election.
Comment: One commenter requested clarification regarding whether a
loan recipient may begin the loan process with an initial management
team that will transition to a permanent management team as dictated by
the organization's board of directors. The commenter indicated that
many potential long-term management candidates are currently employed
and cannot quit their jobs to join a CO-OP until they know it will be
funded.
Response: Under the proposed rule, loan recipients may establish an
initial management team that will transition to a permanent management
team. Loan recipients should clearly outline their process for
identifying and transitioning to a permanent management team in their
applications.
Comment: Several commenters supported CMS' decision to permit
designated seats on the board of directors. However, one commenter
suggested that CMS strike or modify this provision due to the potential
difficulty of classifying directors based on designated seat categories
(for example, provider, employer). Commenters also asked CMS to clarify
the role of non-members on the board of directors and to clarify
whether representatives or officers of certain entities, such as
sponsors or employers, may sit on the board.
Response: It is important to balance meaningful member governance
with experienced management. Some of the skills and expertise necessary
to administer a CO-OP successfully may be unavailable among the
membership. Therefore, we are finalizing the proposal to permit a CO-OP
to designate certain seats on its operational board for individuals
with specified areas of expertise and backgrounds. How each CO-OP
identifies the designations--for example, providers, employers, or
representatives from the CO-OP's sponsoring organization--to best serve
the needs of the members is a business decision for the CO-OP. We note,
however, that seats designated for individuals with specialized
expertise, experience, or affiliation cannot comprise the majority of
the operational board.
Comment: Several commenters asked that CMS clarify the meaning of
``contested'' with respect to elections of the board of directors. One
commenter suggested that CMS permit the establishment of member
classes, each of which would represent a specified share of votes.
Several commenters recommended that CMS permit CO-OPs to elect
directors based on a majority of a quorum of the CO-OP's members.
Finally, one commenter requested that CMS clarify that each member may
vote for each contested seat in an election.
Response: The proposed rule stated that ``there must be more
candidates for open positions on the board than there are positions.''
This requirement applies to all positions open during a particular
election, and not to individual open positions. We have revised Sec.
156.515(b)(1) of the regulation to clarify this requirement.
The establishment of member classes could jeopardize the role of
members in governance by permitting one type of member to exert
disproportionate influence on the direction of the organization. Also,
the establishment of member classes conflicts directly with the
principle of one member, one vote, which we believe is critical to
protecting the voice of consumers and the accountability of a CO-OP to
its membership. Further, as indicated in testimony before the Advisory
Board, existing successful health insurance cooperatives do not
classify their members.
We agree that it may be burdensome or logistically impossible for
all members of a CO-OP to participate in each election for the board of
directors. Therefore, we have revised Sec. 156.515(b)(1) to allow CO-
OPs to conduct elections for the board of directors based on a quorum
of members and to clarify that members may vote for each seat during an
election.
Comment: Several commenters suggested that CMS clarify additional
features of board operations. One commenter suggested that CMS
expressly allow boards to include members-at-large; another suggested
that CMS direct CO-OPs to impose term limits. Another commenter
suggested that CMS strengthen its proposed requirement on disclosure of
financial relationships and require recusal in certain circumstances.
Response: Beyond the minimum requirements to ensure that members of
the CO-OP are a majority of the operational board, CO-OPs have
substantial flexibility in the structure and operation of the board of
directors. At its option, a CO-OP may choose to have designated seats
or non-voting directors, or impose term limits or additional disclosure
requirements on board members. Decisions of this type should be made by
individual CO-OPs based on their expected business needs. In addition,
each CO-OP is responsible for establishing procedures for
[[Page 77401]]
identifying and addressing potential conflicts of interest, including
conflicts arising from financial relationships.
Comment: One commenter recommended that there be an active
structure supported by the CO-OP board to incorporate geographic and
ethnic diversity into their policies and decisions based on the State's
demographics. Another commenter sought additional guidance on the
relationship between sponsors and CO-OP boards and whether issues
between these two parties will be addressed in the contracts between
sponsors and CO-OPs. The commenter indicated that sponsors investing
significant amounts in a prospective CO-OP need assurance that the
board of directors has sufficient expertise to fulfill its fiduciary
responsibilities and will be held accountable so that the sponsor can
meet its own fiduciary responsibilities
Response: CO-OPs must abide by the governance standards set forth
under Sec. 156.515 to ensure that they operate with a strong consumer
focus, including timeliness, responsiveness, and accountability to
members. Decisions on how to ensure that a CO-OP's governing board has
sufficient expertise are best made by the individual CO-OP based on its
market, enrollment, and business plan. CO-OPs have the flexibility to
make additional requirements and/or decisions on their governance
structure beyond these rules, including how they define the ability to
have designated seats on the board or promote diversity among board
members.
Comment: One commenter asked CMS to clarify whether directors may
consider interests other than those of the CO-OP--such as the interests
of the local community or of the organization's employees--when making
decisions.
Response: We agree that considering the interests of a CO-OP's
local geographic community and acting in the interest of the CO-OP are
not mutually exclusive.
Comment: One commenter stated that the governance requirements in
Sec. 156.515 may conflict with State nonprofit governance requirements
and recommended that CMS give deference to State laws and regulations
regarding governance of nonprofit risk bearing entities.
Response: Loan recipients must comply with all applicable State
laws and should apply organizational structures that will minimize the
potential for conflicting governance requirements.
We have reviewed and considered the comments received and are
finalizing the standards set forth in Sec. 156.515(b) of the proposed
rule with the exception of the revisions described above and the
revisions to the governance provisions in Sec. 156.515(b)(1) discussed
in the Definitions section of the preamble. We have modified the
governance provisions in Sec. 156.515(b)(1) to limit voting to members
over the age of 18 and provide loan recipients with greater flexibility
in electing directors and transitioning from a formation board to an
operational board. We have also modified Sec. 156.515(b)(2) and Sec.
156.515(b)(3) to permit a loan recipient's board of directors to
consider the interests of the loan recipient's local community.
3. Requirements To Issue Health Plans and Become a CO-OP
Section 156.515(c)(1) of the proposed rule codified section
1322(c)(1)(B) of the Affordable Care Act that provides that
substantially all of the activities of the CO-OP consist of the
issuance of CO-OP qualified health plans in the individual and small
group markets in each State in which it is licensed to issue such
plans. CMS proposed that a CO-OP will satisfy this standard if at least
two-thirds of the contracts for health insurance coverage issued by a
CO-OP are CO-OP qualified health plans offered in the individual and
small group markets in the States in which the CO-OP operates. An
organization must continually meet this requirement to be considered a
CO-OP. Each insurance policy or contract that an issuer sells
constitutes a single activity. We requested public comments on whether
two-thirds is the appropriate threshold for this standard. This
proposed standard would allow providers wishing to sponsor CO-OPs to
enroll their own employees in the CO-OP and thereby encourage provider
participation and would also permit CO-OPs to participate in Medicaid
and the Children's Health Insurance Program (CHIP). CO-OP participation
in public programs would enable individuals and families to remain with
the same health insurance issuer and providers if family income
fluctuates.
In paragraph (c)(2), CMS proposed that a CO-OP applicant receiving
a Start-up Loan or Solvency Loan offer at least one CO-OP qualified
health plan at both the silver and gold benefit levels, as defined in
section 1302(d) of the Affordable Care Act, in every individual market
Exchange that serves the geographic market in which it is licensed and
intends to provide health care coverage (market area). In addition, if
a CO-OP chooses to offer coverage in the small group market outside the
Exchange, a CO-OP must commit to offering at least one CO-OP qualified
health plan at both the silver and gold benefit levels in the SHOP of
any market area where the CO-OP is licensed.
Within the earlier of 36 months following the initial drawdown of a
Start-up Loan or 6 months following the initial drawdown of the
Solvency Loan, we proposed that a loan recipient must be licensed in a
State and offer at least one CO-OP qualified health plan at the silver
and gold benefit levels (as defined in section 1302(d) of the
Affordable Care Act) in an individual market Exchange and, if offering
a health plan in the small group market, in a SHOP. Thus, the loan
recipient must satisfy the requirements of title XXVII of the Public
Health Service Act applicable to health insurance coverage in the
individual market and small group market, if applicable, and comply
with all standards generally applicable to qualified health plan
issuers. To continue offering CO-OP qualified health plans in the
Exchanges, a CO-OP must continue to meet these standards.
Due to concerns regarding the ability of a CO-OP to establish
sufficient enrollment to make its health plans viable, CMS proposed
that when offering a CO-OP qualified health plan in an Exchange for the
first time, loan recipients may only begin to offer health plans and
accept enrollment during an open enrollment period for the applicable
Exchange when they can attract the largest and most diverse enrollment.
This limitation does not affect when a CO-OP may offer plans in the
market outside the Exchanges.
We proposed that a loan recipient must also satisfy the
requirements of section 1322(c) of the Affordable Care Act and Sec.
156.515 and become a CO-OP within fifty-four months following the first
drawdown of a Start-up Loan or eighteen months following the initial
drawdown of a Solvency Loan. These provisions were intended to ensure
that loan recipients actively work toward becoming a CO-OP that offers
CO-OP qualified health plans in the Exchanges.
The comments we received on these proposed standards and our
responses are provided below.
Comment: A few commenters asked CMS to clarify that CO-OPs must
become licensed before issuing any health insurance policies inside or
outside of any Exchange.
Response: As stated in the proposed rule and Sec. 1322(c)(5) of
the Affordable Care Act, loan recipients under the CO-OP program must
satisfy all requirements and comply with all standards that generally
apply to qualified health plan issuers including State insurance laws
and regulations. Accordingly, loan recipients must be
[[Page 77402]]
licensed by the relevant State agency before issuing any individual or
small group health insurance policies regardless of whether they are
offered inside or outside of the Exchanges.
Comment: One commenter requested clarification regarding licensure
for CO-OPs that operate in multiple States. The commenter recommended
that CMS require licensure in one State and allow operation in
additional States through a multi-state agreement or licensure provided
to a foreign-domiciled issuer.
Response: The statute requires that a CO-OP be licensed in each
State in which it operates and licensure is controlled by State law. No
carrier may conduct business in a State market without appropriate
licensure approved by the applicable State insurance department. CO-OPs
have the same options for licensure as other health insurers that
operate in multiple States. For example, CO-OPs may establish a State
of domicile for licensure and file expansion applications to achieve
licensure in other States.
Comment: Two commenters disagreed with the proposed interpretation
of ``activity'' when applying the substantially all requirement under
section Sec. 156.515(c)(1). These commenters stated that defining
``activities'' in terms of contracts or policies rather than the number
of covered lives diminishes the focus on individual and small group
coverage. However, most other commenters on this issue and the Advisory
Board recommendation supported the interpretation that each insurance
policy or contract that an issuer sells constitutes a single activity.
Commenters in support of this interpretation felt that it provides
flexibility that is essential in the development of successful CO-OP
models. They indicated that this flexibility would lead to better
health care coverage for patients, particularly low-income working
families and individuals in the individual and small group markets.
Response: We considered alternative methods to evaluate the
definition of ``activity'' but concluded that the final rule will
maintain the proposed policy that each insurance policy or contract
that an issuer sells constitutes a single activity, consistent with the
proposed rule. Alternatives would unreasonably burden enrollment
operations for CO-OPs by requiring ongoing counting of covered lives as
family size or number of employees change, could violate guaranteed
issue requirements by placing caps on the number of members that could
be accepted from different groups that do not apply to other issuers,
and may result in disruptions of coverage. Such a requirement may
create a competitive disadvantage for CO-OPs that is not required by
the statute and a significant ongoing administrative burden. Also, the
CMS interpretation of ``activity'' is consistent with the
interpretation generally used by State regulators in measuring issuer
activity, which typically includes the following: Number of plans in
the individual market, number of plans in the small group market, and
number of plans in the large group market. Moreover, in using the term
``activities consisting of the issuance of plans,'' the statute makes
no reference to enrollment or covered lives. This definition will
provide the flexibility needed for CO-OPs to become viable in the
health care market and ensure repayment of loans.
Comment: CMS received several comments in response to Sec.
156.515(c)(1) which states that a CO-OP will satisfy the
``substantially all'' standard at section 1322(c)(1) if at least two-
thirds of the contracts for health insurance coverage issued by a CO-OP
are CO-OP qualified health plans offered in the individual and small
group markets in the States in which the CO-OP operates. The Advisory
Board recommended that CMS apply the most flexible standard possible in
interpreting ``substantially all.'' Most commenters on this issue
stated that measuring two-thirds of the contracts for the substantially
all standard was an appropriate level, was easy to measure, and would
give CO-OPs the needed flexibility to implement successful health
plans. Two commenters felt that the two-thirds standard was too low and
should be raised to 80-90 percent to ensure that CO-OPs operate
primarily in the individual and small group markets. Other commenters
felt that measuring two-thirds of the contracts was too high a standard
and should be lowered to 50 percent. One commenter recommended that CMS
explore ways to allow CO-OPs to participate in other markets, such as
providing coverage for large employers or State employees.
Response: In order for these new health insurers to be viable, CO-
OPs must achieve a minimum level of enrollment as soon as possible.
Therefore, we believe that measuring two-thirds of the contracts when
applying the substantially all requirement is an appropriate threshold.
The two-thirds standard for the issuance of health plans applies to
all of the activities of the CO-OP, including plans issued outside of
the Exchanges. This interpretation allows CO-OPs to have a stable base
of enrollment that will enhance a CO-OP's long-term success in the
individual and small group market and ensure repayment of loans. It
will also encourage providers who may want to offer a CO-OP option to
their employees to participate in CO-OP provider networks and permit
CO-OPs to participate in the Medicaid and CHIP program.
The two-thirds standard used in this rule is consistent with other
regulations in which CMS has interpreted the term ``substantially
all.'' An example is the mental health parity regulations for group
health plans and group health insurance coverage under section 712 of
the Employee Retirement Income Security Act of 1974 (ERISA), section
2726 of the PHS Act, and section 9812 of the Code.
Comment: Several commenters recommended that section Sec.
156.515(c) be modified to permit CO-OPs to market themselves and accept
enrollment before an Exchange open-enrollment period or prior to market
reform rules having been implemented in a State.
Response: Section 1322(c)(6) of the Affordable Care Act explicitly
prohibits a CO-OP from ``offer[ing] a health plan in a State until that
State has in effect (or the Secretary has implemented for the State)
market reforms required by part A of title XXVII of the Public Health
Service Act.'' Therefore, a loan recipient cannot offer health coverage
in a State until market reforms under the Affordable Care Act have been
put into effect in the State. Once reforms have been put into effect in
a State and a CO-OP satisfies State requirements such as licensure, a
CO-OP may offer coverage in that State.
Comment: One commenter requested clarification regarding the
difference between a loan recipient and a CO-OP.
Response: A loan recipient is any organization that has received a
loan under the CO-OP program. As defined in Sec. 156.505, a CO-OP is a
loan recipient that has established a member elected operational board,
is offering CO-OP qualified health plans at the gold and silver benefit
levels in the Exchanges serving the CO-OP's target markets, and meets
the other requirements in Sec. 156.515.
Comment: Several comments addressed the timelines for beginning to
offer CO-OP qualified health plans and for becoming a CO-OP. One
commenter recommended that the deadline for meeting the ``substantially
all'' and other standards to become a CO-OP under Sec. 156.515(c) be
48 months from Start-up loan drawdown rather than 54 months. Other
commenters recommended that this deadline be extended because it will
be difficult for
[[Page 77403]]
CO-OPs as new entities to conform to these requirements within 54
months.
Response: Given the process and requirements for achieving
licensure in each State, we agree that the deadline to meet the
requirements under section Sec. 156.515(c) should be extended.
Therefore, we have revised the final rule. A loan recipient must meet
the standards set forth under Sec. 156.515(c)(3) within 36 months
following the initial drawdown of the Start-up Loan (as indicated in
the proposed rule) or one year following the initial drawdown of the
Solvency Loan as opposed to the initially proposed timeframe of six
months. In addition, since we have extended the timeframe for a loan
recipient to transition from a formation board to an operational board
from one year to two years, we have extended the timeframe for a loan
recipient to become a CO-OP. Specifically, we have changed the
timeframe from within the earlier of 54 months following the initial
drawdown of the Start-up Loan or 18 months following the initial
drawdown of the Solvency Loan to within 5 years and 3 years
respectively. This policy generally gives a loan recipient two years
after it begins providing health care coverage through the Exchanges to
fully implement its member elected operational board and meet all of
the CO-OP minimum standards. We do not anticipate that these changes
will affect when a loan recipient can offer coverage either through the
Exchanges. This change will simply allow loan recipients to receive
Solvency loans earlier, which will provide them with more time to
ensure licensure before offering coverage.
Comment: Two commenters requested modifications to Sec. 156.515(d)
that would exempt health plans sponsored by Indian tribes from State
insurance standards and provide Indian tribes flexibility in setting up
and operating a CO-OP. Commenters also recommended that CO-OP
enrollment eligibility criteria allow for a CO-OP to focus on a defined
subset of the population.
Response: Pursuant to section 1322(c)(5) and (c)(6) of the
Affordable Care Act, a loan recipient must comply with all standards
required under applicable State insurance laws and regulation in the
State in which the CO-OP operates as well as the market reforms
required by part A of the title XXVII of the Public Health Service Act.
These standards include the requirement that qualified health plans
abide by guaranteed issue and other State insurance laws in order to
maintain a level playing field with health insurance issuers.
Therefore, loan recipients cannot offer qualified health plans to only
a defined subset of enrollees in their target area. The statute does
not provide authority to modify these requirements.
We have reviewed and considered the comments received and are
finalizing the standards set forth in Sec. 156.515(c) and Sec.
156.515(d) of the proposed rule with the exception of the revisions
described above. We have modified the standards in Sec. 156.515(c)(3)
and Sec. 156.515(d) to provide additional time for loan recipients to
begin offering CO-OP qualified health plans and become a CO-OP.
E. Loan Terms (Sec. 156.520)
1. Overview of Loans
Organizations that meet the eligibility standards in Sec. 156.510
and the CO-OP program FOA may apply for two types of loans: Start-up
Loans and Solvency Loans. Start-up loans assist with the start-up costs
associated with establishing a CO-OP. Solvency Loans are intended to
help loan recipients meet the reserve requirements, solvency
regulations, and requisite surplus note arrangements in each State in
which the applicant seeks to be licensed. We proposed that all loans
awarded under the CO-OP program must be used in a manner that is
consistent with the FOA, loan agreement, and all other statutory,
regulatory, or other requirements established by CMS.
Solvency and the financial health of insurance issuers is
historically a State-regulated function. As a condition of licensure as
a health insurance issuer, State insurance departments require that an
issuer maintain an amount of capital that is consistent with its size
and risk profile. This measure of reserve is called risk-based capital
(RBC). A loan is considered a liability and typically would not assist
an organization in meeting solvency requirements, since the liability
would have to be subtracted from the calculation of reserves in order
to determine the net protection afforded to enrollees. Since Solvency
Loans must be repaid to the Federal government within 15 years, the
Advisory Board expressed concern that they will be treated by States as
debt rather than capital that satisfies State solvency and reserve
requirements.
Per section 1322(b)(3) of the Affordable Care Act, the standards
for the repayment of loans awarded under the CO-OP program must take
into consideration ``any appropriate State reserve requirements,
solvency regulations, and requisite surplus note arrangements that must
be constructed in a State.'' Therefore, in Sec. 156.520(a)(3) of the
proposed rule, CMS proposed to structure Solvency Loans to each loan
recipient in a manner that meets State reserve and solvency
requirements so that the loan recipient can fund its required capital
reserves. In order to assist CO-OPs in meeting State solvency
requirements, the loans will be structured so that premiums would be
used to meet cash reserve requirements before repayment to CMS. This
ensures that the Solvency Loans are recognized as contributing to State
reserve and solvency requirements in the States in which the applicant
intends to offer CO-OP qualified health plans. We requested public
comment on this provision.
The comments received on the loan terms in Sec. 156.520(a) of the
proposed rule and our responses are provided below.
Comment: One commenter requested clarification regarding whether
the terms of each CO-OP's Solvency Loan will be tailored to the
specific requirements of each State in which the CO-OP intends to offer
health care coverage. Several commenters supported our proposal to
structure Solvency Loans so that they are recognized as contributing to
State reserve and solvency requirements. They acknowledged the concern
discussed in the proposed rule that solvency requirements vary across
States and that loans are typically considered debt rather than capital
for the purposes of State reserve requirements. Generally, commenters
agreed that Solvency Loans should be structured so that each CO-OP's
premium revenue is applied towards paying claims and meeting cash
reserve requirements before loan repayments to CMS. However, some
commenters indicated that such a structure would be insufficient. They
explained that Solvency Loans must be structured as surplus notes as
they are the only types of loans that State insurance regulators will
recognize as assets rather than debt. One commenter advised against
creating a new Federal requirement that States treat Solvency Loans as
``capital.'' It was also recommended that CMS coordinate with NAIC to
establish a means for CO-OPs to meet State solvency and reserve
requirements.
Response: We will work with each loan recipient to structure their
Solvency Loans in a manner that will contribute towards meeting State
reserve and solvency requirements consistent with State insurance
regulation. States are not required to take action that would be
inconsistent with State insurance regulation. Therefore, loan
recipients must work with State insurance regulators to
[[Page 77404]]
identify loan structures that will meet State requirements. Significant
flexibility is afforded to loan applicants in structuring their
Solvency Loans to meet State standards. Applicable loan structures may
include but are not limited to structuring a Solvency Loan as a surplus
note or responsibly structuring a Solvency Loan so that premium revenue
is applied towards paying claims for covered services to enrollees and
meeting cash reserve requirements before loan repayments to CMS.
Comment: One commenter asked what actions can be taken if a State
is unwilling to recognize a loan recipient's Solvency Loan as meeting
State reserve and solvency requirements. The commenter recommended that
CMS exercise flexibility in structuring and, if necessary, re-
structuring Solvency Loans if a State revises its reserve and solvency
requirements.
Response: It is incumbent upon applicants to work with their State
insurance regulators to identify appropriate loan structures that will
meet the requirements of their State insurance department.
Comment: One commenter requested clarification regarding whether
CMS will provide loan recipients with sufficient funding to meet State
solvency requirements in the initial distributions of loan funds. In
addition, commenters including State Departments of Insurance requested
clarification regarding whether additional loan funding will be made
available if a loan recipient requires additional Solvency Loans after
2012 and recommended that loan funding remain available after 2012.
Response: The full amount of Solvency Loans anticipated should be
requested in the loan application. Loan disbursements will be made
available to loan recipients on a timetable based on the business plan
and milestones proposed and approved in their applications after we
review the loan recipient for compliance. The initial solvency
disbursements received by loan recipients should allow a loan recipient
to meet their applicable State solvency and reserve requirements.
Applicants should consider the potential needs for funding due to
unforeseen market changes or changes in State regulatory requirements
as well as unforeseen enrollment and benefit cost growth. These will be
considered in the size of the initial award. A loan recipient may draw
down on the Start-up Loans and Solvency loans to the extent such
conditions exist, consistent with the terms of the loan agreement.
Comment: One commenter recommended that CMS prohibit loan
recipients from using their loan funding to pay claims or subsidize
reimbursements to providers in any way that would give them an
advantage over existing health insurance issuers.
Response: Under the Affordable Care Act, loan recipients are
permitted to use their loan funds to assist with their start-up costs
and State solvency requirements, provided that the funds are not used
to conduct propaganda, or otherwise attempt to influence legislation,
or for marketing. The purpose of State reserve requirements is to
preserve the financial viability of carriers and enable the payment of
claims when provider costs exceed premium revenue. A CO-OP that fails
to maintain appropriate reserves or surplus may be subject to
regulatory action, seizure, or liquidation. Such a prohibition would
therefore not only defeat the purpose of the loans but would be
contrary to the framework of State regulation. Furthermore, the statute
does not prohibit these costs. Given that these loans must be repaid to
us in full and that CO-OPs should structure their premiums, claims, and
administrative costs to ensure sustainability, we do not believe that
the use of loan funds to pay claims would give CO-OPs an advantage over
existing health insurance issuers. Existing health insurance issuers
may use their reserves to pay claims under equivalent circumstances.
We have considered the comments received and are finalizing the
provisions set forth in Sec. 156.520(a) of the proposed rule.
2. Repayment Period
Section Sec. 156.520(b) of the proposed rule codified the standard
in section 1322(b)(3) of the Affordable Care Act that Start-up Loans
and Solvency Loans awarded must be repaid within 5 years and 15 years
respectively, taking into consideration any appropriate State reserve
requirements, solvency regulations, and requisite surplus note
arrangements that must be constructed in a State. Loan recipients must
make loan payments consistent with the repayment schedule approved by
CMS and agreed to by the loan recipient in the loan agreement until the
loans have been paid in full. CMS proposed to permit individualized
repayment schedules to promote the growth of CO-OPs, ensure compliance
with the laws of different States, serve the interests of the CO-OP
members and the public, and enhance the likelihood of full repayment.
Flexibility in the repayment schedule helps address the diversity in
each CO-OP's local market conditions, projected member risk profiles,
business strategy, and projected enrollment size. The repayment
schedule is submitted with the application and may include features
such as a grace period, graduated repayments, or balloon payments at
the end of the repayment period.
The Advisory Board recommended an enhanced oversight process for
cases where a loan recipient is not meeting the terms and conditions of
its loan but where CMS has concluded that discontinuing funding is not
in the best interest of the CO-OP's members, the public, or the
government. Consistent with the Advisory Board's recommendation, a loan
modification or workout may be executed when a loan recipient is having
difficulty making loan repayments. If a loan recipient is unable to (1)
Make repayments or meet other conditions of the loan without adversely
affecting coverage stability, member control, quality of care, or the
public interest generally or (2) meet State reserve and solvency
requirements, CMS would have the discretion to execute a loan
modification or workout if appropriate, or terminate the agreement and
recoup the loans in accordance with the loan agreement.
The comments received on the repayment periods described in Sec.
156.520(b) of the proposed rule and our responses are provided below.
Comment: Most commenters expressed support for our flexibility in
allowing applicants to propose individualized repayment schedules
consistent with their business plans. They indicated that loan
recipients will likely need time to build enrollment and revenue before
beginning their loan repayments. Some commenters recommended that CMS
not permit CO-OPs to wait until the end of their repayment period to
make a balloon payment. They stated that instead CO-OPs should be
required to make payments at regular intervals in order to reduce the
cost of the program and ensure that CO-OPs are factoring loan
repayments into their premium pricing.
Response: Flexible repayment schedules promote the growth of each
CO-OP and improve each CO-OP's ability to fully repay its loans. We
agree that CO-OPs must factor loan repayments into their premium
pricing; however, we do not believe that it is necessary to require
repayment at uniform intervals among all CO-OPs. As described in the
FOA, all loan applicants must demonstrate their ability to repay their
loans and describe
[[Page 77405]]
their process for determining accurate and appropriate premium pricing.
Comment: One commenter requested guidance regarding whether a
repayment schedule can be established on a per member per month basis.
Response: Applicants have flexibility in proposing a responsible
repayment schedule. A loan may have a repayment schedule on a per
member per month basis, provided that each loan is fully paid within
the repayment period and the proposed repayment schedule is supported
by the CO-OP's business plan. CMS will consider the applicant's
proposed schedule and has discretion in determining a responsible
repayment schedule that will be approved and established in the loan
agreement.
Comment: One commenter recommended that we add ``market
competition'' to the list of considerations for modifying loan terms.
The commenter stated that terminating a functioning CO-OP due to loan
repayment issues could significantly reduce competition and harm the
enrollees in areas with few active health plans.
Response: We have added ``market stability'' as a consideration for
executing a loan workout or modification.
We have considered the comments received and are finalizing the
provisions set forth in Sec. 156.520(b) of the proposed rule with the
exception of the revisions described above. Specifically, we have
revised Sec. 156.520(b)(3) to reflect that a loan modification or
workout may be executed if we determine that a loan recipient is unable
to repay its loans under its original loan agreement without
destabilizing the loan recipient's target market.
3. Interest Rates
In Sec. 156.520(c), we proposed that loan recipients pay an
interest rate benchmarked to the average interest rate on marketable
Treasury securities of similar maturity. In the FOA, we specified that
the interest rate for Start-up loans is the average interest rate on
marketable Treasury securities of similar maturity minus one percentage
point and the interest rate cannot be less than zero percent. In
addition, we specified that the interest rate for Solvency loans is the
average interest rate on marketable Treasury securities of similar
maturity minus two percentage points and the interest rate cannot be
less than zero percent. These interest rates are tied to prevailing
market conditions while providing low cost loans that are consistent
with the statute's direction to foster the development of viable CO-
OPs.
The comments we received on the interest rates described in Sec.
156.520(c) of the proposed rule and our responses are provided below.
Comment: Commenters supported establishing low interest rates for
loan recipients to give CO-OPs the best chance of success, to protect
the Federal investment, and to encourage new market entrants to provide
coverage to medically underserved communities. Lastly, one commenter
stated that the interest rates for Start-up Loans and Solvency Loans
could determine, in large measure, the ability of CO-OPs to
successfully compete with other health insurers.
Response: We agree with the commenters and therefore, are codifying
the interest rates announced in the FOA in Sec. 156.520(c) of this
final rule. These interest rates will encourage and promote the success
of CO-OPs.
Comment: One commenter requested guidance regarding whether loan
recipients may be charged a lower interest rate during their initial
years of operation.
Response: The interest rates for Start-up Loans and Solvency Loans
will be determined based on the date of award and will be fixed for the
life of the loan. If an applicant anticipates difficulty making
repayments during the initial years of operation, it may request a
repayment schedule where repayments begin later in the loan repayment
period.
Comment: Pursuant to section 1322(b)(2)(C)(iii) of the Affordable
Care Act, if an organization fails to meet any provisions of the loan
agreement or has not corrected such a failure within a reasonable
period of time established by CMS, the organization must repay an
amount equal to 110 percent of the total loans received plus interest.
One commenter recommended that we codify this provision in the final
rule in addition to the FOA in order to give this penalty more weight
and ensure greater compliance.
Response: We agree with the commenter and therefore, are codifying
this provision of the Affordable Care Act as described in the FOA in
Sec. 156.520(c) of this final rule.
Comment: One commenter expressed support for the proposed interest
rates and asked if CMS could take any additional steps to reduce the
financial barriers that CO-OPs face when entering a concentrated health
insurance market. Another commenter indicated that CMS should encourage
States to offer CO-OPs the lowest possible premium rates or a tax-free
status because State taxation requirements may create significant
barriers for CO-OPs. Commenters also recommended that CMS develop
national purchasing pools or mechanisms to assist CO-OPs in adequately
spreading their risk (for example, with a national CO-OP risk pool,
Federally-funded stop-loss insurance, or Federally-funded reinsurance),
particularly in the first few years of operation.
Response: In addition to providing low-interest loans with tailored
repayment schedules to assist with start-up cost and State reserve
requirements, the Affordable Care Act reduces the financial barriers
for CO-OPs by creating a new Federal income tax exemption under
501(c)(29) of the Internal Revenue Code for qualified nonprofit health
insurance issuers that have received loans under the CO-OP program.
These measures provide CO-OPs with significant assistance in overcoming
financial barriers to entering a health care market while maintaining a
level playing field with other issuers. We do not have the authority to
require States to offer CO-OPs tax-exempt status or the lowest possible
premium tax rates. CO-OPs, like other health insurers that participate
in the Exchanges, will benefit from premium and risk stabilization
programs, risk adjustment, risk corridors, and reinsurance programs
operating under sections 1341, 1342, and 1343 of the Affordable Care
Act. In addition, CO-OPs may purchase reinsurance and other
administrative services individually or through a private purchasing
council.
Comment: One commenter recommended that CMS give deference to State
statutory interest rate caps on Solvency Loans.
Response: The interest rates for Solvency Loans are below market
rates. We do not anticipate that they will exceed any interest rate
caps established by a State regulation. However, loan recipients must
comply with all applicable State insurance laws.
We have considered the comments received and are finalizing the
provisions set forth in Sec. 156.520(c) of the proposed rule. We have
also added provisions (1) To reflect that the interest rate for Start-
up Loans equals the greater of the average interest rate on marketable
Treasury securities of similar maturity minus 1 percentage point or 0
percent; (2) to reflect that the interest rate for Solvency loans
equals the greater of the average interest rate on marketable Treasury
securities of similar maturity minus 2 percentage points or 0 percent;
and (3) to codify the penalty described in 1322(b)(2)(C)(iii) of
[[Page 77406]]
the Affordable Care Act. If a loan recipient fails to meet any
provisions of the CO-OP program or their loan agreement and has not
corrected such failure within a reasonable period of time established
by CMS, the organization must repay an amount equal to 110 percent of
the total loans received plus interest.
4. Failure To Pay
In Sec. 156.520(d), CMS proposed to use any and all remedies
available to it under law to collect loan payments or penalty payments
if a loan recipient fails to make payments consistent with the
repayment schedule in its loan agreement or in a loan modification or
workout.
The comments we received on the failure to pay provisions described
in Sec. 156.520(d) of the proposed rule and our responses are provided
below.
Comment: One commenter stated that the terms of a loan recipient's
obligations in the event of a loan default or failure to meet loan
requirements seems overly punitive.
Response: A loan recipient's obligations in the event of a loan
default or failure to meet loan requirements are consistent with the
provisions in section 1322(b)(2)(C)(iii) of the Affordable Care Act and
are appropriate to protect Federal investment in the CO-OP program. We
will work with loan recipients experiencing difficulty making timely
repayments and will provide the option to request a loan workout.
Furthermore, organizations that fail to meet program requirements,
depending on the nature of the failure, may be given sufficient
opportunity (as determined by CMS) to take corrective action.
Comment: One commenter recommended that CMS not hold a loan
recipient's incorporators and formation board liable for loan repayment
unless they engaged in fraud or any other prohibited conduct. The
commenter indicated that such an assurance would encourage additional
participation in the CO-OP program.
Response: Under the rule, loan applicants are incorporated or
organized entities under State law. Therefore, the liability of the
loan recipient's incorporators and formation board will, in part, be
determined by the organizational vehicles, including corporations or
other limited-liability organizations, the applicants use under State
law.
We have considered the comments received and are finalizing the
provisions set forth in Sec. 156.520(d) of the proposed rule.
5. Deeming of CO-OP Qualified Health Plans
Section 156.520(e) of the proposed rule codified the ``deeming''
provisions of section 1301(a)(2) of the Affordable Care Act. A loan
recipient that is deemed certified to participate in the Exchanges
would be exempt from the certification procedures for each applicable
Exchange. To be deemed certified to participate in an Exchange, we
proposed that a loan recipient must be in compliance with the terms of
the CO-OP program, the Federal standards for CO-OP qualified health
plans set forth pursuant to section 1311(c) of the Affordable Care Act,
and State standards that are applicable to all insurers. CMS or an
entity designated by CMS will make a determination regarding whether or
not a loan recipient meets these standards based on evidence provided
by the loan recipient. CMS or its designee will notify the Exchange in
which the loan recipient proposes to operate that the loan recipient is
deemed certified to participate. Similarly, if a loan recipient loses
its deemed status for any reason, CMS or its designee will provide
notice to the applicable Exchanges.
The comments we received on the ``deeming'' provisions described in
Sec. 156.520(e) of the proposed rule and our responses are provided
below.
Comment: Several commenters recommended that CMS subject CO-OPs to
the same standards, operational requirements, and certification
processes as other health insurance issuers participating in the
Exchanges including any competitive bidding process or selective
contracting process in order to maintain a level playing field. State
regulators requested that CMS defer to the relevant Exchange for
certification. Commenters indicated that States are in the best
position to assess whether a CO-OP meets the standards of an Exchange.
Two commenters welcomed a prominent Federal role in the ``deeming'' of
health plans offered by CO-OPs and indicated that such a role would
remove a potential barrier to the sponsorship of CO-OPs by Indian
tribes and ensure that Indian tribes are not subjected to State-
specific attempts to regulate their CO-OP plans.
Response: CO-OPs must comply with all of the same requirements as
other qualified health plans. CO-OPs will be subject to the same State
and Federal standards as other health insurance issuers to ensure a
level playing field. However, to ensure CO-OPs are not held to
standards that it is not possible for them to meet as CO-OPs, we have
revised the final rule to clarify that to be deemed as certified, loan
recipients must meet all State-specific standards established by an
Exchange except for those State-specific standards that operate to
exclude loan recipients due to being new issuers or based on other
characteristics that are inherent in the design of a CO-OP. Enforcing
such standards would defeat the statutory purpose of the CO-OP program.
CMS (or an entity designated by CMS) will work with each CO-OP to
ensure that they are meeting the applicable standards, including
program standards.
The goal of the CO-OP program is to provide additional options for
consumers in the Exchanges that are consumer governed and consumer
focused. The ``deeming'' provision of section 1301(a)(2) of the
Affordable Care Act is pursuant to this goal and ensures that qualified
health plans offered by CO-OPs are made available to consumers in the
Exchanges.
Comment: One commenter requested confirmation that CO-OPs will
participate in the reinsurance, risk corridors, and risk adjustment
programs envisioned by the Affordable Care Act and thus are subject to
the same taxes, assessments, and costs as other qualified health plans.
Response: CO-OPs will participate in the reinsurance, risk
corridor, and risk adjustment programs implemented under sections 1341,
1342, and 1343 of the Affordable Care Act as issuers in the individual
and small group markets. They are responsible for the same costs as
other qualified health plans.
Comment: Commenters expressed concern that deeming CO-OPs for up to
10 years following the life of their loans would remove incentives for
CO-OPs to perform at the market standard, harm meaningful competition
in the Exchanges, and potentially put consumers at risk. Two commenters
recommended that CMS clarify when the 10-year period would begin and
that CMS exempt CO-OPs sponsored by an Indian tribe, tribal
organization, or an Indian-controlled Managed Care Entity from this
time limit so that they could be deemed as certified to participate in
the Exchanges indefinitely. Commenters also requested additional
information regarding the deeming process.
Response: Based on comments received, we are revising the final
rule to implement a recertification process for all loan recipients
including CO-OPs sponsored by an Indian tribe, tribal organization, or
an Indian-controlled Managed Care Entity. Loan recipients will be
deemed as certified to participate in the Exchanges for two years and
may apply to CMS for ``deeming'' recertification every two
[[Page 77407]]
years for up to a total of 10 years following the date their loans have
been fully repaid. To be deemed as certified or recertified to
participate in the Exchanges, a loan recipient must provide evidence to
CMS (or an entity designated by CMS) that it complies with the
applicable Federal and State standards for qualified health plans. If a
loan recipient fails to provide sufficient evidence that it is in
compliance with Federal and State standards, the organization will no
longer be deemed as certified to participate in the Exchanges.
Additional information regarding the deeming process will be provided
in program guidance.
Comment: One commenter requested clarification regarding whether
CMS intends to designate an entity to deem qualified health plans
offered by CO-OPs as certified to participate in the Exchanges. In
addition, the commenter requested the specific criteria for selecting a
designated entity.
Response: Additional information regarding the deeming process will
be provided in program guidance.
Comment: One commenter requested confirmation that loan recipients
must be accredited as required under section 1311(c)(1)(D)(i) of the
Affordable Care Act and recommended giving loan recipients a maximum of
18 months to complete accreditation. The commenter also recommended
granting provisional accreditation status, for fulfilling some, but not
all, accreditation requirements.
Response: Consistent with section 1322(c)(5) of the Affordable Care
Act, loan recipients must meet the same requirements as other similarly
situated issuers including rules regarding network adequacy, solvency,
and guaranteed issue. Therefore, loan recipients will be subject to the
same standards as other health insurers in the Exchanges and must meet
the same applicable accreditation requirement.
We have considered the comments received and are finalizing the
deeming provisions set forth in Sec. 156.520(e) of the proposed rule
with the exceptions described above. Specifically, we have revised the
provisions in Sec. 156.520(e) to clarify that loan recipients are
deemed as certified to participate in the Exchanges for 2 years and may
be recertified every 2 years for up to 10 years following the life of
their loans. We have also revised the provisions in Sec. 156.520(e) to
clarify that loan recipients will be subject to all State-specific
standards established by an Exchange except for those State-specific
standards that operate to exclude loan recipients due to being new
issuers or based on other characteristics that are inherent in the
design of a CO-OP.
6. Conversions
Due to concerns that successful CO-OPs may become targets for
conversion to for-profit, non-consumer operated entities, we proposed
to prohibit such conversions. Conversions would likely reduce consumer
control, limit choice, and weaken competition in the insurance
marketplace and would be contrary to the goals of the CO-OP program. We
also proposed to prohibit any transaction by a CO-OP that would result
in a change to a governance structure that does not meet the standards
in Sec. 156.515 or any other program standards. These prohibitions
would ensure that loans awarded under this program are used to sustain
program goals over time.
The comments we received on the conversion prohibitions described
in Sec. 156.520(e) of the proposed rule and our responses are provided
below.
Comment: Several commenters expressed strong support for the
proposed prohibition on conversions to for-profit or non-consumer
operated entities. They indicated that such a conversion would be
contrary to the legislative intent and that organizations receiving
Federal funding to develop a CO-OP should not be permitted to abandon
the mission of the CO-OP program. Commenters requested additional
guidance regarding this prohibition and any exceptions to the
prohibition. Some commenters recommended allowing CO-OPs to convert to
a different organizational structure under certain circumstances, such
as to preserve plan coverage, avert plan insolvency, or respond to
subsequent changes in the Affordable Care Act. One commenter
recommended establishing penalties for CO-OPs that convert to a for-
profit or non-consumer governed entity.
Response: We believe that successful CO-OPs may be targets for
conversions and agree with commenters that such conversions would be
inconsistent with the legislative intent. As a result, we are not
implementing any exceptions to this policy. CO-OPs are not permitted to
convert to a for-profit or non-consumer operated entity at any time or
to partake in any activities that have the effect of such a conversion
(for example, selling a substantial portion of its enrollment to a for-
profit entity), even after they have fully repaid their Start-up Loans
and Solvency Loans. In the potential case of insurer financial
distress, a CO-OP follows the same process as traditional issuers and
must comply with all applicable State laws and regulations.
We have considered the comments received and are finalizing the
provisions set forth in Sec. 156.520(f) of the proposed rule.
F. Comments Beyond the Scope of the Final Rule
In response to the proposed rule, many commenters chose to raise
issues that are beyond the scope of the proposed rule. Several of these
comments pertain to the provisions of the Funding Opportunity
Announcement (FOA) and will be addressed in subsequent program
guidance. These comments are summarized below.
Comment: One commenter requested that this final rule prohibit
discrimination in the operation of the CO-OP program. In addition, the
commenter requested that State law prevail over the minimum protections
codified in the CO-OP rules if a State provides additional protections
to consumers.
Response: Loan recipients must comply with applicable Federal law
regarding discrimination. In addition, we intend to include provisions
in the loan agreement with each loan recipient that will prohibit
discrimination. Under section 1322(c) of the Affordable Care Act, a CO-
OP must meet all State standards for licensure under the market reforms
outlined in the Affordable Care Act. Per Sec. 156.520(e) of this
subpart, CO-OPs must also comply with the standards for CO-OP qualified
health plans set forth pursuant to section 1311(c) of the Affordable
Care Act, all State-specific standards established by an Exchange that
apply to all qualified health plans, and the standards of the CO-OP
program.
Comment: One commenter expressed concern that the Governance and
Licensure criteria in the FOA do not sufficiently emphasize the
importance of the licensure requirements. The commenter recommended
that licensure requirements account for up to five points in the
application reviews.
Response: The review criteria for CO-OP loan applications are
addressed in the Funding Opportunity Announcement. We recognize that
establishing a reasonable strategy for achieving licensure is critical
for the success of every prospective CO-OP.
Comment: One commenter suggested that this final rule explicitly
require Federally Qualified Health Centers (FQHCs), or at least
``safety net providers,'' to be included in the provider networks of
all CO-OPs since FQHCs already demonstrate and will ensure that the CO-
OP program succeeds in its purpose of providing care coordination,
quality, and efficiency.
[[Page 77408]]
Response: Section 1311(c)(1)(C) of the Affordable Care Act governs
the inclusion of safety net providers for issuers that participate in
the Affordable Insurance Exchanges.
Comment: Commenters requested clarification regarding whether CO-
OPs are required to operate statewide. Two commenters recommended that
CMS permit CO-OPs to limit their service areas to regions primarily
comprised of Indian reservations and other tribally controlled land.
One commenter recommended that an applicant's feasibility study dictate
how quickly a CO-OP expands its service area. Another commenter
requested clarification regarding whether an applicant can receive
preference in the application reviews if they plan to offer coverage
initially in a local service area and then expand to statewide.
Response: Loan recipients are not required to offer coverage
statewide. For CO-OPs that intend to provide coverage across an entire
State, we recognize that depending on local market conditions, it may
be more prudent for a CO-OP to offer coverage in a locally defined
service area first and then expand coverage to the entire State.
However, applicants should define a potential service area in
conjunction with the State insurance department, as they must comply
with all applicable State laws. Accordingly, as indicated in the FOA,
applicants will be awarded points toward their application review based
on their ability to operate statewide over time. Applicants may also
receive points towards their application review by providing evidence
of private support or submitting a reasonable plan to provide
integrated or coordinated care.
Comment: One commenter recommended that CMS encourage all
applicants to build expenses related to networking and information
sharing into their financial projections and business plans.
Response: Networking and information sharing between CO-OPs will be
beneficial for CO-OPs. Reasonable expenses related to information
sharing may be eligible costs funded through Start-up Loans.
Comment: One commenter recommended that CMS re-invest funds that
have been paid back by loan recipients to capitalize future CO-OP
applicants.
Response: We are not authorized under the statute to award
additional loans using repaid loan amounts.
Comment: One commenter recommended that we increase the $100,000
limit on the retroactive reimbursement of costs associated with
preparing a feasibility study and business plan for the CO-OP loan
application.
Response: See section IV.E. of the FOA for more information
regarding the start-up costs eligible for retroactive reimbursement. We
recognize that there are other costs that applicants may incur in
developing their applications. Therefore, applicants are encouraged to
solicit private support (for example, grants and in-kind services) to
assist with these costs.
Comment: We received a comment regarding whether we envision CO-OPs
competing with one another if their service areas overlap.
Response: The statute permits us to award loans to multiple
applicants in a State if there is sufficient funding. Loans will be
awarded, in part, based on the feasibility of an applicant developing a
viable CO-OP given existing and expected market conditions. We will
examine the service areas in evaluating CO-OP applications and
implementation to ensure actuarial viability of the CO-OPs.
Comment: One commenter requested additional information regarding
the technical assistance that CMS will offer to applicants and loan
recipients. Another commenter recommended that CMS identify other
organizations to provide technical assistance, if CMS does not intend
to perform this function.
Response: As stated in the FOA, technical assistance and support
will be provided to applicants and loan recipients as available and
when deemed appropriate. Information regarding available technical
assistance will be provided in subsequent program guidance.
Comment: One commenter requested that CMS permit CO-OPs to
outsource administrative functions to organizations such as private
purchasing councils.
Response: Under section 1322(d)(1) of the statute, CO-OPs may
establish private purchasing councils to enter into collective
purchasing arrangements for administrative services to increase
administrative and cost efficiencies. As described in the FOA, the
costs associated with establishing a private purchasing council are
eligible costs for Start-up Loans.
Comment: One commenter requested guidance regarding whether CO-OPs
must provide additional reporting demonstrating compliance with Federal
law. Another commenter recommended that CMS establish an autonomous
body, with the power to issue sanctions, to monitor CO-OPs and ensure
that the goals of the CO-OP program are met.
Response: As described in the FOA, CMS will closely monitor and
assess the performance of each loan recipient in complying with Federal
law, the requirements of the CO-OP program including its reporting
requirements, and the specific terms of its loan agreement.
Comment: One commenter stated that CO-OPs offer a unique
opportunity for providers to foster emerging models of integrated
delivery systems, improve quality and health outcomes, and reduce
costs. When reviewing CO-OP loan applications, the commenter
recommended that CMS consider an applicant's plan to collect
quantifiable health outcomes data, their willingness to adjust clinical
behavior based on the informatics collected, and the likelihood that
they will minimize costs and achieve improvements in patient outcomes
through reliance on quantifiable data metrics. The commenter provided
specific examples of questions that should be asked of CO-OPs in order
to ensure the most efficient patient outcomes.
Response: We share the commenter's goals of improved patient care
and improved health outcomes. The extent to which an applicant intends
to monitor quality of care and use information technology to evaluate
and improve care outcomes are components of the operational criteria
used in the evaluation of CO-OP loan applications as described in the
FOA.
Comment: Several commenters suggested that CMS allow CO-OPs to use
or implement new care models, systems, and products over time such as
value-based insurance design (VBID) products.
Response: CO-OPs have the flexibility to implement care models,
systems, and products that best serve the needs of their members as
long as the CO-OP abides by the standards and requirements set forth in
this final rule, the FOA, the loan agreement, and other program
guidance. In accordance with the statute, care models that improve the
integration or coordination and value of care will receive points
contributing to the overall score of their application in the award of
loans.
III. Collection of Information Requirements
Under the Paperwork Reduction Act of 1995, we are required to
provide 60-day notice in the Federal Register and solicit public
comment before a collection of information requirement is submitted to
the Office of Management and Budget (OMB) for review and approval. In
order to fairly evaluate whether an information collection
[[Page 77409]]
should be approved by OMB, section 3506(c)(2)(A) of the Paperwork
Reduction Act of 1995 requires that we solicit comment on the following
issues:
The need for the information collection and its usefulness
in carrying out the proper functions of our agency;
The accuracy of our estimate of the information collection
burden;
The quality, utility, and clarity of the information to be
collected; and
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
We solicited comments on the extension of the information
collection requests associated with the implementation of the CO-OP
program (for example, application, reporting) currently approved under
0938-1139 in a 60-day notice that was published in the Federal Register
on August 5, 2011 (76 FR 47591). OMB previously reviewed and approved
the Information Collection Request under emergency processing according
to 5 CFR 1320.13. We did not receive any public comments regarding this
extension and therefore, are finalizing the information collection.
IV. Regulatory Impact Analysis (RIA)
A. Introduction
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). An RIA
must be prepared for rules with economically significant effects ($100
million or more in any 1 year). This final rule is economically
significant. Accordingly, the Office of Management and Budget has
reviewed this final rule.
B. Summary and Need for Regulatory Action
The Affordable Care Act established the CO-OP program and requires
CMS to promulgate regulations to implement this program. The purpose of
this program is to create a new CO-OP in every State to expand the
number of qualified health plans available in the Exchanges with a
focus on integrated care and greater plan accountability.
Only a handful of insurance choices are available that are
sponsored and managed by entities primarily focused on meeting the
health insurance needs and preferences of consumers, as determined
directly by consumers or their elected representatives. There are four
issuers in the country that meet this standard, located in the States
of Minnesota, Washington, Idaho, and Wisconsin. The combined membership
for these four health insurance cooperatives is approximately 2.1
million, meaning that the current CO-OP market share is a little over
one percent of the total enrollment in the private insurance market.\1\
---------------------------------------------------------------------------
\1\ The membership counts for Health Partners, Group Health
Cooperative, and Group Health Cooperative of Eau Claire are based on
their testimony to the CO-OP program Advisory Board available at
http://cciio.cms.gov/resources/co_op/index.html. The membership
count for Group Health Cooperative of South Central Wisconsin is
based on its annual report available at https://ghcscw.com/Media/Annual_Report_2010/annual_report_2010_web.pdf.
---------------------------------------------------------------------------
There are $3.8 billion in appropriations for loan subsidy and
program administration costs to assist sponsoring organizations in
creating such plans and to do so with enough capital and reserves to
become licensed and ultimately effective competitors in State insurance
markets. These funds will enable CO-OPs to use Federal government loans
(``Solvency Loans'') to meet the requirements for risk-based capital
that State insurance departments require of health plans to ensure that
they will be able to meet future obligations they have contractually
promised their enrollees.
The Affordable Care Act, as implemented through this regulation,
prohibits issuers that existed on July 16, 2009 from participating in
the CO-OP program but allows CO-OPs to use experienced managers and
health care organizations to manage the functions they have to perform
in providing health insurance. Further, as indicated throughout the
preamble to this final rule, the CO-OP Advisory Board in its advice to
the Secretary and the Department has consistently favored provisions
that would give CO-OPs flexibility, within the statutory boundaries, in
setting up and operating these plans. At least two-thirds of a CO-OP's
activities must consist of the issuance of policies in the individual
and small group market.
C. Costs
There will be costs involved in administration of the program, and
we currently estimate that these could be approximately $10 million a
year on an annualized present value basis, as shown in the Accounting
Statement. Actual administrative costs may be higher or lower, and are
expected to vary over time.
D. Transfers
As previously explained, the Congress has provided $3.8 billion to
assist sponsoring organizations in creating CO-OPs with enough capital
and reserves to become licensed and ultimately effective competitors in
State insurance markets.\2\ The capital requirements for CO-OPs would
be financed, in part, by member premiums and in part by the $3.8
billion appropriation.
---------------------------------------------------------------------------
\2\ We note that these capital requirements are not ``costs''
for the purpose of calculating the benefits and costs of this
Federal program. Costs, in the context of this program, are the
resources spent on applying for and complying with the terms of the
loans.
---------------------------------------------------------------------------
The net Federal subsidies provided through CO-OP Start-up and
Solvency Loans are referred to as ``transfers.'' These transfers result
from (1) Assessing below-Treasury interest rates over the relevant 5-
year (Start-up Loan) and 15-year (Solvency Loan) periods assuming full
and timely repayment and (2) losses due to delayed repayment in
accordance with the loan terms designed to comply with State insurance
regulations, failure to repay in accordance with the loan contract
(losses due to default net of loan recoveries), and other factors that
affect the cash flows to and from the Federal government resulting from
these loans. Actual subsidy costs for these loans will be determined
per the requirements of the Federal Credit Reform Act of 1990, as
amended (FCRA). The cost to the Federal government of these subsidies
is the net present value of all cash flows to and from the Federal
government resulting from the loans, excluding administrative costs,
and will be recorded at the time they are incurred. These costs and
associated transfers will reflect the terms and conditions of the loans
as well as the performance of the loans. The business plan,
disbursement schedule, and repayment terms will vary for each loan
recipient. As such, these transfers are uncertain, and will vary from
loan to loan. In the Accounting Statement in Table 1 below, the
analysis reflects annualized estimated transfers associated with below-
Treasury interest rates over the anticipated repayment period for a
notional borrower with $115 million in CO-OP loans ($15 million for
start-up funding and $100 million for solvency funding). This analysis
assumes full and timely repayment. Consistent with the final rule, we
use one percent below the current yields for 5-year U.S. Treasury bonds
as the repayment interest rate on Start-up Loans and two percent below
the current yields for U.S. Treasury
[[Page 77410]]
Bonds with a similar maturity to the repayment terms for the Solvency
Loans. There will be additional transfers due to delayed repayment in
accordance with the loan terms designed to comply with State insurance
regulations, failure to repay in accordance with the loan contract
(losses due to default net of loan recoveries), and other factors that
affect the cash flows to and from the Federal government resulting from
these loans. These transfers may vary significantly between different
loans and borrowers. The actual credit subsidy costs will recognize
these costs at the time they are incurred, pursuant to FCRA.
E. Benefits
CO-OPs also offer a unique opportunity to foster and spread
emerging models of integrated delivery systems, both to improve health
outcomes and to lower health costs (see, for example, testimony of Sara
Collins before the Advisory Committee, The Consumer Operated and
Oriented Plan (CO-OP) Program Under the Affordable Care Act: Potential
and Options for Spreading Mission-Driven Integrated Delivery Systems,
at http://www.commonwealthfund.org/~/media/Files/Publications/
Testimony/2011/Jan/Collins--CoOp%20testimony--11311.pdf). CO-OPs can
adopt new models and new arrangements that are more patient-centered
than the current fragmented delivery system. Improved delivery systems
may provide better health outcomes due to coordinated care, better
chronic disease management, and improved quality of care.
In addition, by adding competition to State markets, CO-OPs have
the potential to promote efficiency, reduce premiums and/or premium
growth, and improve service and benefits to enrollees. By their nature,
traditional cooperatives, on which the CO-OP program is modeled, focus
on responsiveness to their members and accountability to member needs,
which may create flexibility to reduce administrative costs. Direct
savings could be substantial after the initial start-up period.
Resulting attempts to maintain or regain market share by traditional
insurance issuers competing with CO-OPs could lead to system-wide
savings across millions of enrollees.
F. Alternatives Considered
Throughout this final rule, we have presented and analyzed
alternatives, including not only those originally proposed, but also
useful options presented in the public comments. In this final rule, we
have sought to choose implementation options that would best enable
newly formed CO-OPs to offer CO-OP qualified health plans, as this is
the primary goal of the program.
The most important alternatives to our originally proposed
standards would be to impose either a higher or lower interest
repayment on loans. Among the Federal programs providing financial
assistance to this sector, many make grants that are not required to be
repaid. The Federal government also provides financial assistance
through loan programs. Borrower interest rates, in some cases, are
higher than Treasury rates, while in other cases rates are subsidized
by the Federal government (see the estimates in the Federal Credit
Supplement volume of the Budget of the United States Government for FY
2012, at http://www.gpoaccess.gov/usbudget/fy12/cr_supp.html). As
discussed elsewhere in the preamble, generally commenters agreed with
our proposed interest rates and this final rule codifies the proposed
interest rates.
We received no comments directed specifically at the Regulatory
Impact Analysis. Several commenters did, however, raise the question of
potential insolvencies. Specific issues related to reducing the risk of
insolvency or managing insolvency are discussed elsewhere in the
preamble, as are many issues related to strengthening the ability of
CO-OPs to survive in the market for health insurance. We believe that
the changes we have made to the proposed rule improve the potential
viability of CO-OPs. Most of those who have expressed interest in the
program are provider organizations and small business organizations
that are likely to be viable because of their private support,
healthcare experience, and business expertise.
G. Accounting Statement
As required by OMB Circular A-4, we have prepared an accounting
statement. We have provided a quantitative estimate for one
hypothetical CO-OP receiving both a Start-up loan of $15 million and a
Solvency loan of $100 million, assuming repayment of both in full. The
transfers shown are notional estimated costs resulting from below
Treasury interest rates over the relevant 5-year (Start-up Loan) and
15-year (Solvency Loan) periods. As previously explained, the notional
estimates in Table 1 are not subsidy cost estimates under FCRA and do
not include transfers due to delayed payment, defaults net of
recoveries, or other losses. Transfers will vary from borrower to
borrower and each type is not included in the notional estimate because
of uncertainty. Pursuant to FCRA, the lifetime estimated cost will be
recorded up front as they are incurred.
Table 1 also reflects estimates of $200 million total for program
administration over the first 20 years of the program. Consistent with
the final rule, we use 1 percent below the current yields for 5-year
U.S. Treasury bonds as the repayment interest rate on Start-up loans
and 2 percent below the current yields for the average of 10-year and
20-year U.S. Treasury Bonds as the repayment rate for the Solvency
Loans (see http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield). The figures shown are
the annualized estimated Federal administrative costs for the entire
program and estimated means of financing transactions for one notional
loan, as described above.
Table 1--Accounting Statement: Classification of Estimated Costs and Savings
[$ in millions]
----------------------------------------------------------------------------------------------------------------
Units
Primary -----------------------------------------------
Category estimate Period
Year dollars Discount rate covered*
----------------------------------------------------------------------------------------------------------------
Benefits
----------------------------------------------------------------------------------------------------------------
Qualitative: New CO-OP enrollees served may experience better care. There are also potential cost savings system-
wide from competitive effects on other health care plans. Net benefits will depend on the extent to which CO-OP
plans augment or substitute for other health care insurance and services.
----------------------------------------------------------------------------------------------------------------
[[Page 77411]]
Costs
----------------------------------------------------------------------------------------------------------------
Qualitative: Costs include administrative burdens associated with applying for and complying with the terms of
the loans and program oversight.
----------------------------------------------------------------------------------------------------------------
Quantified, Annualized Program Oversight and $10 2012 7% 2011-31
Administration for all loans...................
$10 2012 3% 2011-31
----------------------------------------------------------------------------------------------------------------
Transfers
----------------------------------------------------------------------------------------------------------------
Qualitative: Amounts below reflect means of financing transfer related only to charging below-Treasury rate
interest on CO-OP loans to one notional borrower. There are expected transfers in addition to those quantified
below that may result from variations in size of loan, delayed repayment, defaults net of loan recoveries, and
other potential losses. These transfers vary between loans and borrowers. The full, estimated effects of all
such transfers will be recorded up front as costs are incurred, pursuant to FCRA.
----------------------------------------------------------------------------------------------------------------
Quantified, Annualized Federal Government Loan $5* 2012 7% 2012-31
Interest Subsidies for 1 notional joint Start-
up Loan and Solvency Loan......................
$1* 2012 3% 2012-31
----------------------------------------------------------------------------------------------------------------
* Reflects notional estimate of transfers related to interest subsidies for one performing loan.
Actual costs to the Government will vary loan by loan.
V. Other Requirements for Analysis of Economic Effects
The Regulatory Flexibility Act (RFA) requires agencies to determine
whether final rules would have a ``significant economic impact on a
substantial number of small entities'' and, if so, to prepare a
Regulatory Flexibility Analysis to identify options that could mitigate
the impact of the proposed regulation on small businesses.
All CO-OPs established under the program will be private nonprofit
organizations and qualify as small entities under the RFA. CMS
interprets the requirement as applying only to regulations with
negative impacts but routinely prepares a voluntary Regulatory
Flexibility Analysis for regulations with significant positive impacts.
The positive economic impacts of the program on CO-OPs will clearly
be ``significant,'' particularly in the effects on thousands of small
businesses that are likely to purchase insurance through the Exchanges
and would benefit from the lower premium costs that CO-OPs will likely
create. Moreover, small businesses will have the opportunity to create
consortia to help sponsor CO-OPs and may actively pursue these savings.
In light of the benefits to these small entities, the Department has
prepared a voluntary Regulatory Flexibility Analysis. The preceding
economic analysis, together with the remainder of this preamble,
constitutes that analysis.
Section 202 of the Unfunded Mandates Reform Act of 1995 requires
that agencies assess anticipated costs and benefits before issuing any
rule whose mandates on State, local, or tribal governments in the
aggregate, or on the private sector, require spending in any 1 year of
$100 million in 1995 dollars, updated annually for inflation. This
final rule would impose no such mandates. Accordingly, no analysis
under UMRA is required.
Executive Order 13132 on Federalism establishes requirements that
an agency must meet when a proposed rule imposes substantial costs on
State and local governments, preempts State law, or otherwise has
Federalism implications. This final rule does not trigger these
requirements.
List of Subjects in 45 CFR Part 156
Administrative practice and procedure, Advertising, Advisory
committees, Brokers, Conflict of interest, Consumer protection, Grant
programs--health, Grants administration, Health care, Health insurance,
Health maintenance organization (HMO), Loan programs--health,
Organization and functions (Government agencies), Medicaid, Reporting
and recordkeeping requirements, State and local governments, Sunshine
Act, and Technical Assistance.
For the reasons set forth in the preamble, the Department of Health
and Human Services amends 45 CFR subtitle A, subchapter B by adding
part 156 to read as follows:
PART 156--HEALTH PLAN REQUIREMENTS UNDER THE PATIENT PROTECTION AND
AFFORDABLE CARE ACT, INCLUDING REQUIREMENTS RELATED TO EXCHANGES
Subparts A-E--[Reserved]
Subpart F--Consumer Operated and Oriented Plan Program
Sec.
156.500 Basis and scope.
156.505 Definitions.
156.510 Eligibility.
156.515 CO-OP Standards.
156.520 Loan terms.
Authority: Secs. 1301-1304, 1311-1312, 1321, 1322, 1324, 1334,
1342-1343, and 1401-1402, Pub. L. 111-148, 124 Stat. 119 (42 U.S.C.
18042).
Subparts A-E--[Reserved]
Subpart F--Consumer Operated and Oriented Plan Program
Sec. 156.500 Basis and scope.
This subpart implements section 1322 of the Affordable Care Act by
establishing the Consumer Operated and Oriented Plan (CO-OP) program to
foster the creation of new consumer-governed, private, nonprofit health
insurance issuers, known as ``CO-OPs.'' Under this program, loans are
awarded to encourage the development of CO-OPs. Applicants that meet
the eligibility standards of the CO-OP program may apply to receive
loans to help fund start-up costs and meet the solvency requirements of
States in which the applicant seeks to be licensed to issue CO-OP
qualified health plans. This
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subpart sets forth the eligibility and governance requirements for the
CO-OP program, CO-OP standards, and the terms for loans awarded under
the CO-OP program.
Sec. 156.505 Definitions.
The following definitions apply to this subpart:
Applicant means an entity eligible to apply for a loan described in
Sec. 156.520 of this subpart.
Consumer operated and oriented plan (CO-OP) means a loan recipient
that satisfies the standards in section 1322(c) of the Affordable Care
Act and Sec. 156.515 of this subpart within the timeframes specified
in this subpart.
CO-OP qualified health plan means a health plan that has in effect
a certification that it meets the standards established by CMS pursuant
to section 1311(c) of the Affordable Care Act, except that the plan can
be deemed certified by CMS or an entity designated by CMS as described
in Sec. 156.520(e).
Exchange means a governmental agency or non-profit entity that
meets the applicable requirements established by CMS, pursuant to
sections 1311 and 1321 of the Affordable Care Act, and makes qualified
health plans available to qualified individuals and qualified
employers. Unless otherwise identified, this term refers to State
Exchanges, regional Exchanges, subsidiary Exchanges, and a Federally-
facilitated Exchange.
Formation board means the initial board of directors of the
applicant or loan recipient before it has begun accepting enrollment
and had an election by the members of the organization to the board of
directors.
Group health plan has the meaning given to the term in Sec.
144.103 of this subchapter.
Health insurance coverage has the meaning given to the term in
Sec. 144.103 of this subchapter.
Individual market means the market for health insurance coverage
offered to individuals other than in connection with a group health
plan.
Issuer means an insurance company, insurance service, or insurance
organization (including a health maintenance organization) which is
licensed to engage in the business of insurance in a State and which is
subject to State law which regulates insurance.
Member means an individual covered under health insurance policies
issued by a loan recipient.
Nonprofit member organization or nonprofit member corporation means
a nonprofit, not-for-profit, public benefit, or similar membership
entity organized as appropriate under State law.
Operational board means the board of directors elected by the
members of the loan recipient after it has begun accepting enrollment.
Predecessor, with respect to a new entity, means any entity that
participates in a merger, consolidation, purchase or acquisition of
property or stock, corporate separation, or other similar business
transaction that results in the formation of the new entity.
Pre-existing issuer means a health insurance issuer that was in
existence on July 16, 2009.
Qualified employer means a small employer that elects to make, at a
minimum, all full-time employees of the employer eligible for one or
more qualified health plan (QHPs) in the small group market offered
through a small business health options program (SHOP). Beginning in
2017, if a State allows large employers to purchase coverage through
the SHOP, the term ``qualified employer'' shall include a large
employer that elects to make all full-time employees of such employer
eligible for one or more QHPs in the large group market offered through
the SHOP.
Qualified health plan or QHP means a health plan that has in effect
a certification that it meets the standards established by CMS pursuant
to section 1311(c) of the Affordable Care Act issued or recognized by
each Exchange through which such plan is offered pursuant to the
process established by CMS pursuant to sections 1311(d) and 1311(e) of
the Affordable Care Act.
Qualified nonprofit health insurance issuer means an entity that
satisfies or can reasonably be expected to satisfy the standards in
section 1322(c) of the Affordable Care Act and Sec. 156.515 of this
subpart within the time frames specified in this subpart, until such
time as CMS determines the entity does not satisfy or cannot reasonably
be expected to satisfy these standards.
Related entity means an entity that shares common ownership,
control, or governance structure (including management team or Board
members) with a pre-existing issuer, and satisfies at least one of the
following conditions:
(1) Retains responsibilities for the services to be provided by the
issuer.
(2) Furnishes services to the issuer's enrollees under an oral or
written agreement.
(3) Performs some of the issuer's management functions under
contract or delegation.
Representative means an individual who stands or acts for an
organization or group of organizations through a formal agreement or
financial compensation such as a contractor, broker, official, or
employee.
Small employer means, in connection with a group health plan with
respect to a calendar year and a plan year, an employer who employed an
average of at least 1 but not more than 100 employees on business days
during the preceding calendar year and who employs at least 1 employee
on the first day of the plan year. In the case of plan years beginning
before January 1, 2016, a State may elect to define small employer by
substituting ``50 employees'' for ``100 employees.''
SHOP means a Small Business Health Options Program operated by an
Exchange through which a qualified employer can provide its employees
and their dependents with access to one or more qualified health plans.
Small group market means the health insurance market under which
individuals obtain health insurance coverage (directly or through any
arrangement) on behalf of themselves (and their dependents) through a
group health plan maintained by a small employer.
Solvency Loan means a loan provided by CMS to a loan recipient in
order to meet State solvency and reserve requirements.
Sponsor means an organization or individual that is involved in the
development, creation, or organization of the CO-OP or provides 40
percent or more in total funding to a CO-OP (excluding any loans
received from the CO-OP Program).
Start-up Loan means a loan provided by CMS to a loan recipient for
costs associated with establishing a CO-OP.
State means each of the 50 States and the District of Columbia.
Sec. 156.510 Eligibility.
(a) General. In addition to the eligibility standards set forth in
the CO-OP program Funding Opportunity Announcement (FOA), to be
eligible to apply for and receive a loan under the CO-OP program, an
organization must intend to become a CO-OP and be a nonprofit member
organization.
(b) Exclusions from eligibility. (1) Subject to paragraph (b)(2) of
this section, an organization is not eligible to apply for a loan if:
(i) The organization or a sponsor of the organization is a pre-
existing issuer, a holding company (an organization that exists
primarily to hold stock in other companies) that controls a pre-
existing issuer, a trade association comprised of pre-existing issuers
and whose purpose is to represent the interests of the health insurance
industry, a foundation
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established by a pre-existing issuer, a related entity, or a
predecessor of either a pre-existing issuer or related entity;
(ii) The organization receives 25 percent or more of its total
funding (excluding any loans received from the CO-OP Program) from pre-
existing issuers, holding companies (organizations that exists
primarily to hold stock in other companies) that control pre-existing
issuers, trade associations comprised of pre-existing issuers and whose
purpose is to represent the interests of the health insurance industry,
foundations established by a pre-existing issuer, a related entity, or
a predecessor of either a pre-existing issuer or related entity; or
(iii) A State or local government, any political subdivision
thereof, or any instrumentality of such government or political
subdivision is a sponsor of the organization. The organization receives
40 percent or more of its total funding (excluding any loans received
from the CO-OP Program) from a State or local government, any political
subdivision thereof, or any instrumentality of such a government or
political subdivision.
(2) The exclusions in paragraphs (b)(1)(i) and (b)(1)(ii) of this
section do not exclude from eligibility an applicant that:
(i) Has as a sponsor a nonprofit, not-for-profit, public benefit,
or similarly organized entity that is also a sponsor for a pre-existing
issuer but is not an issuer, a foundation established by a pre-existing
issuer, a holding company that controls a pre-existing issuer, or a
trade association comprised of pre-existing issuers and whose purpose
is to represent the interests of the health insurance industry,
provided that the pre-existing issuer sponsored by the nonprofit
organization does not share any of its board or the same chief
executive with the applicant; or
(ii) Has purchased assets from a preexisting issuer provided that
it is an arm's-length transaction where each party acts independently
and has no other relationship with the other party.
(3) The exclusion of any instrumentality of a State or local
government in paragraph (b)(1)(iii) of this section does not exclude
from eligibility or sponsorship an organization that:
(i) Is not a government organization under State law;
(ii) Has no employee of a State or local government serving in his
or her official capacity as a senior executive (for example, President,
Chief Executive Officer, or Chief Financial Officer) for the
organization; and
(iii) Has a board of directors on which fewer than half of its
directors are employees of a State or local government serving in their
official capacities.
Sec. 156.515 CO-OP standards.
(a) General. A CO-OP must satisfy the standards in this section in
addition to all other statutory, regulatory, or other requirements.
(b) Governance requirements. A CO-OP must meet the following
governance requirements:
(1) Member control. A CO-OP must implement policies and procedures
to foster and ensure member control of the organization. Accordingly, a
CO-OP must meet the following requirements:
(i) The CO-OP must be governed by an operational board with all of
its directors elected by a majority vote of a quorum of the CO-OP's
members that are age 18 or older;
(ii) All members age 18 or older must be eligible to vote for each
director on the organization's operational board;
(iii) Each member age 18 or older of the organization must have one
vote in the election of each director of the organization's operational
board;
(iv) The first elected directors of the organization's operational
board must be elected no later than one year after the effective date
on which the organization provides coverage to its first member; the
entire operational board must be elected no later than two years after
the same date;
(v) Elections of the directors on the organization's operational
board must be contested so that the total number of candidates for
vacant positions on the operational board exceeds the number of vacant
positions, except in cases where a seat is vacated mid-term due to
death, resignation, or removal; and
(vi) The majority of the voting directors on the operational board
must be members of the organization.
(2) Standards for board of directors. The operational board for a
CO-OP must meet the following standards:
(i) Each director must meet ethical, conflict-of-interest, and
disclosure standards including that each director act in the sole
interest of the CO-OP and, as appropriate, the health and wellbeing of
its local geographic community;
(ii) Each director has one vote unless he or she is a non-voting
director;
(iii) Positions on the board of directors may be designated for
individuals with specialized expertise, experience, or affiliation (for
example, providers, employers, and unions);
(iv) Positions on the operational board that are designated for
individuals with specialized expertise, experience, or affiliation
cannot constitute a majority of the operational board even if the
individuals in those positions are members of the CO-OP. This provision
does not prevent any individual from seeking election to the
operational board based on being a member of the CO-OP; and
(v) Limitation on government and issuer participation. No
representative of any Federal, State or local government (or of any
political subdivision or instrumentality thereof) and no representative
of any organization described in Sec. 156.510(b)(1)(i) may serve on
the CO-OP's formation board or operational board.
(3) Ethics and conflict of interest protections. The CO-OP must
have governing documents that incorporate ethics, conflict of interest,
and disclosure standards. The standards must protect against insurance
industry involvement and interference. In addition, the standards must
ensure that each director acts in the sole interest of the CO-OP, its
members, and its local geographic community as appropriate, avoids self
dealing, and acts prudently and consistently with the terms of the CO-
OP's governance documents and applicable State and Federal law. At a
minimum, these standards must include:
(i) A mechanism to identify potential ethical or other conflicts of
interest;
(ii) A duty on the CO-OP's executive officers and directors to
disclose all potential conflicts of interest;
(iii) A process to determine the extent to which a conflict exists;
(iv) A process to address any conflict of interest; and
(v) A process to be followed in the event a director or executive
officer of the CO-OP violates these standards.
(4) Consumer focus. The CO-OP must operate with a strong consumer
focus, including timeliness, responsiveness, and accountability to
members.
(c) Standards for health plan issuance. A CO-OP must meet several
standards for the issuance of health plans in the individual and small
group market.
(1) At least two-thirds of the policies or contracts for health
insurance coverage issued by a CO-OP in each State in which it is
licensed must be CO-OP qualified health plans offered in the individual
and small group markets.
(2) Loan recipients must offer a CO-OP qualified health plan at the
silver and gold benefit levels, defined in section 1302(d) of the
Affordable Care Act, in every individual market Exchange that serves
the geographic regions in which the organization is licensed and
intends to provide health
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care coverage. If offering at least one plan in the small group market,
loan recipients must offer a CO-OP qualified health plan at both the
silver and gold benefit levels, defined in section 1302(d) of the
Affordable Care Act, in each SHOP that serves the geographic regions in
which the organization offers coverage in the small group market.
(3) Within the earlier of thirty-six months following the initial
drawdown of the Start-up Loan or one year following the initial
drawdown of the Solvency Loan, loan recipients must be licensed in a
State and offer at least one CO-OP qualified health plan at the silver
and gold benefit levels, defined in section 1302(d) of the Affordable
Care Act, in the individual market Exchanges and if the loan recipient
offers coverage in the small group market, at the silver and gold
benefit levels, defined in section 1302(d) of the Affordable Care Act,
in the SHOPs. Loan recipients may only begin offering plans and
accepting enrollment in the Exchanges for new CO-OP qualified health
plans during the open enrollment period for each applicable Exchange.
(d) Requirement to become a CO-OP. Loan recipients must meet the
standards of Sec. 156.515 no later than five years following initial
drawdown of the Start-up Loan or three years following the initial
drawdown of a Solvency Loan.
Sec. 156.520 Loan terms.
(a) Overview of Loans. Applicants may apply for the following loans
under this section: Start-up Loans and Solvency Loans.
(1) Use of loans. All loans awarded under this subpart must be used
in a manner that is consistent with the FOA, the loan agreement, and
all other statutory, regulatory, or other requirements.
(2) Solvency loans. Solvency Loans awarded under this section will
be structured in a manner that ensures that the loan amount is
recognized by State insurance regulators as contributing to the State-
determined reserve requirements or other solvency requirements (rather
than debt) consistent with the insurance regulations for the States in
which the loan recipient will offer a CO-OP qualified health plan.
(b) Repayment period. The loan recipient must make loan payments
consistent with the approved repayment schedule in the loan agreement
until the loan is paid in full consistent with State reserve
requirements, solvency regulations, and requisite surplus note
arrangements. Subject to their ability to meet State reserve
requirements, solvency regulations, or requisite surplus note
arrangements, the loan recipient must repay its loans and, if
applicable, penalties within the repayment periods in paragraphs
(b)(1), (b)(2), or (b)(3) of this section.
(1) The contractual repayment period for Start-up Loans and any
applicable penalty pursuant to paragraph (c)(3) of this section is 5
years following each drawdown of loan funds consistent with the terms
of the loan agreement.
(2) The contractual repayment period for Solvency Loans and any
applicable penalty pursuant to paragraph (c)(3) of this section is 15
years following each drawdown of loan funds consistent with the terms
of the loan agreement.
(3) Changes to the loan terms, including the repayment periods, may
be executed if CMS determines that the loan recipient is unable to
repay the loans as a result of State reserve requirements, solvency
regulations, or requisite surplus note arrangements or without
compromising coverage stability, member control, quality of care, or
market stability. In the case of a loan modification or workout, the
repayment period for loans awarded under this subpart is the repayment
period established in the loan modification or workout. The revised
terms must meet all other regulatory, statutory, and other
requirements.
(c) Interest rates. Loan recipients will be charged interest for
the loans awarded under this subpart. Interest will be accrued starting
from the date of drawdown on the loan amounts that have been drawn down
and not yet repaid by the loan recipient. The interest rate will be
determined based on the date of award.
(1) Start-up Loans. Consistent with the terms of the loan
agreement, the interest rate for Start-up Loans is equal to the greater
of the average interest rate on marketable Treasury securities of
similar maturity minus one percentage point or zero percent. If the
loan recipient's loan agreement is terminated by CMS, the loan
recipient will be charged the interest and penalty described in
paragraph (c)(3) of this section.
(2) Solvency Loans. Consistent with the terms of the loan
agreement, the interest rate for Solvency Loans is equal to the greater
of the average interest rate on marketable Treasury securities of
similar maturity minus two percentage points or zero percent. If a loan
recipient's loan agreement is terminated by CMS, the loan recipient
will be charged the interest and penalty described in paragraph (c)(3)
of this section.
(3) Penalty payment. If CMS terminates a loan recipient's loan
agreement because the loan recipient is not in compliance with program
rules or the terms of its loan agreement, or CMS has reason to believe
that the organization engages in, or has engaged in, criminal or
fraudulent activities or activities that cause material harm to the
organization's members or the government, the loan recipient must repay
110 percent of the aggregate amount of loans received under this
subpart. In addition, the loan recipient must pay interest on the
aggregate amount of loans received for the period the loans were
outstanding equal to the average interest rate on marketable Treasury
securities of similar maturity.
(d) Failure to pay. Loan recipients that fail to make loan payments
consistent with the repayment schedule or loan modification or workout
approved by CMS will be subject to any and all remedies available to
CMS under law to collect the debt.
(e) Deeming of CO-OP qualified health plans. Health plans offered
by a loan recipient may be deemed certified as a CO-OP qualified health
plan to participate in the Exchanges for two years and may be
recertified every two years for up to ten years following the life of
any loan awarded to the loan recipient under this subpart, consistent
with section 1301(a)(2) of the Affordable Care Act.
(1) An Exchange must recognize a health plan offered by a loan
recipient as an eligible participant of the Exchange if it is deemed
certified by CMS or an entity designated by CMS.
(2) To be deemed as certified to participate in the Exchanges, the
plan must comply with the standards for CO-OP qualified health plans
set forth pursuant to section 1311(c) of the Affordable Care Act, all
State-specific standards established by an Exchange for qualified
health plans operating in that Exchange, except for those State-
specific standards that operate to exclude loan recipients due to being
new issuers or based on other characteristics that are inherent in the
design of a CO-OP, and the standards of the CO-OP program as set forth
in this subpart.
(3) A loan recipient seeking to have a plan deemed as certified to
participate in the Exchanges must provide evidence to CMS or an entity
designated by CMS that the plan complies with the standards for CO-OP
qualified health plans set forth pursuant to section 1311(c) of the
Affordable Care Act, all State-specific standards established by an
Exchange for qualified health plans operating in that Exchange, except
for those State-specific standards that operate to exclude loan
recipients due
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to being new issuers or based on other characteristics that are
inherent in the design of a CO-OP, and the standards of the CO-OP
program as set forth in this subpart.
(4) If a plan offered by a loan recipient is deemed to be certified
to participate in the Exchanges or loses its deemed status and is no
longer certified to participate in the Exchanges, CMS or an entity
designated by CMS will provide notice to the Exchanges in which the
loan recipient offers CO-OP qualified health plans.
(f) Conversions. The loan recipient shall not convert or sell to a
for-profit or non-consumer operated entity at any time after receiving
a loan under this subpart. The loan recipient shall not undertake any
transaction that would result in the CO-OP implementing a governance
structure that does not meet the standards in this subpart.
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)
Dated: October 25, 2011.
Donald Berwick,
Administrator, Centers for Medicare & Medicaid Services.
Approved: November 29, 2011.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2011-31864 Filed 12-8-11; 4:15 pm]
BILLING CODE 4120-01-P