New Federal Loan Program Helps Nonprofits Create Customer-Driven Health Insurers

The Affordable Care Act creates a program to help create new, private nonprofit health insurers, called Consumer Oriented and Operated Plans, or “CO-OPs.”  The CO-OP program offers low-interest loans to eligible private, nonprofit groups to help set up and maintain health plans.  CO-OPs are directed by their customers and designed to offer individuals and small businesses additional affordable, consumer-friendly and high-quality health insurance options.  Starting January 1, 2014, CO-OPs will be able to offer health plans through the new, competitive health care marketplaces in each State, called the Affordable Insurance Exchanges.  In addition to offering health plans through an Exchange, CO-OPs may also offer health plans outside of an Exchange.

The first round of applications was due on October 17, 2011, and we anticipate making awards in January 2012. There will be subsequent quarterly application deadlines through December 31, 2012.  We are pleased with the large number of CO-OP loan applications and encouraged by the strong response. We anticipate receiving more applications in the subsequent rounds of applications.

What is a CO-OP?

A CO-OP is a new type of nonprofit health insurer that is directed by its customers, uses profits for customers’ benefit, and is designed to offer individuals and small businesses affordable, customer-friendly, and high-quality health insurance options.  CO-OPs may operate locally, State-wide, or in multiple States.  CO-OPs must be licensed as issuers in each State in which they operate and are subject to State laws and regulations that apply to all similarly-situated issuers.

What Federal Loans are Available for CO-OPs?

The CO-OP loan program has a one-time $3.8 billion appropriation to support loans.  

Nonprofit organizations may apply for two types of low-interest loans:

•  Start-up Loans: Funding to assist with the start-up activities associated with developing a CO-OP.
• Solvency Loans: Funding to assist with State reserve requirements.

Start-up Loans must be repaid in five years and Solvency Loans must be repaid, with interest, in 15 years from the date of disbursement.

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. Recipients will submit semi-annual program reports and quarterly financial statements. Additionally, CMS will conduct audits including site visits, as appropriate. CO-OPs must meet a series of milestones as laid out in their loan agreements before drawing down any money from the program.

Who Can Apply for a CO-OP loan?

Applicants represent a broad array of stakeholders in States across the country. They include small business coalitions, physician and hospital providers and associations, agricultural organizations, unions, and community-based sponsors.  To apply for a loan under the CO-OP program, a group must first form a nonprofit, not-for-profit, or public benefit member organization that is organized under State law and intends to become a CO-OP.  Interested groups are not required to organize as a cooperative under State law.

An organization cannot apply for a CO-OP loan if:

• The  organization, a related entity, or a predecessor of either, was licensed as an insurance issuer under State law on July 16, 2009 (referred to as a “pre-existing issuer”), or
• The organization is sponsored by a State or local government.

What Are the Licensing Requirements for CO-OPs?

CO-OPs must meet the same State requirements as all other similarly-situated health insurance issuers.  CO-OPs are responsible for working with the relevant State Departments of Insurance or licensing agencies to achieve licensure.  CO-OPs like all other health insurers will also have to comply with Exchange rules.
How Does the Final Rule Differ from the Proposed Rule?

The CO-OP Program Final Rule released on December 8, 2011 clarifies the types of organizations eligible to apply for CO-OP loans.  Specifically, the final rule explains that:

• Organizations sponsored by pre-existing issuers, holding companies that control pre-existing issuers, and foundations established by pre-existing issuers are not eligible for loans under the CO-OP program;
• An organization is ineligible for the CO-OP program if it receives 25 percent or more of its total funding (excluding any loans received from the CO-OP Program) from pre-existing issuers and their agents.
• A CO-OP sponsor or applicant may receive grants and other funding from a State or local government as long as the CO-OP or its sponsor is not controlled by a governmental entity and the CO-OP does not receive more than 40% of its total funding from a State or local government.
• CO-OPs that will operate in multiple States may establish a State of domicile for licensure and file expansion applications to achieve licensure in other States.

Where Can I Find Additional Information?

The U.S. Department of Health and Human Services has published two key documents establishing the CO-OP program:

• A Final Rule detailing standards for CO-OPs, available at: www.regulations.gov and /cciio/Resources/Regulations-and-Guidance/index.
• A Funding Opportunity Announcement, explaining the details of the loan program and how to apply, available at www.grants.gov (CFDA # 93.545).
• Applicants are encouraged to read all of the information, including all of the FAQs, posted at Consumer Operated and Oriented Plan Program

If you have any questions about the CO-OP program or would like to request additional information, please contact CO-OPProgramQuestions@cms.hhs.gov.