On Monday, HHS issued its set of proposed rules for the Consumer Operated and Oriented Plan Program. I wrote about it earlier here and that article provides the context for the cryptic notes that follow. These same proposals appear in this morning’s Federal Register. Although I am still going through the rule, some initial notes:
- no loans are available until the CO-OP has organized and completed its feasibility study, business plan and budget: This differs from what we asked for and what the Advisory Board recommended. I believe "fronted" services for the Start Up loan application can be included in the CO-OP's application under the category of significant private support for the venture, but I do not know whether they can also be included in the budget and repaid. I plan to include this question in my comments to the rule.
- all funds are intended as loans and they will structure the loan "so that premiums would go to pay claims and meet cash reserves before repayment to CMS." When we met, you were not sure whether such a structure would be acceptable. Do you allow insurers to use surplus notes?
- CO-OPs can comply with the requirement that they conduct "substantially all" of their business in the individual and small group markets if two thirds of the insurance contracts they sell are qualified plans (in the individual or small group market).
- CO-OPs can sell to small groups outside of the exchange, but the rules require that they also offer small group products in the exchange in those same areas.
- the interest rate will probably be a reduced percentage of the average interest rate on marketable Treasury securities.
- allows applicants for loans to structure repayment to meet their projected needs and requires including a repayment schedule in the loan application;
- If the CO-OP fails to meet its contractual obligations, including converting to some non compliant form such as a for-profit or a non member-oriented not-for-profit, it must repay 110% of loans received plus the average rate on marketable Treasury securities, without discount.
- creates a loan modification or workout option for CO-OPs having trouble meeting loan obligations. Interestingly, the loan must be repaid by the "loan recipient" - an undefined term, so although it most likely means the CO-OP, I cannot absolutely say that a sponsoring organization would have no liability. The regulation states that "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."
- The rules as drafted, prohibit any change to the ownership, structure or operation of the organization that causes the entity to fail to meet the requirements for a CO-OP. HHS has specifically asked for comments on this prohibition.
Based on what the Advisory Board recommended, these proposed rules provide a "mixed bag" of favorable good and bad features. Stay tuned!
The Federal Register Notice of the Proposed Rule can be found HERE.
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