CMS clarifies CO-OP regulations

February 2, 2016 | By Leslie Small

Facing increasing pressure from lawmakers over the slew of failed consumer operated and oriented plans (CO-OPs), the federal government recently clarified some regulations that govern the startup insurers.

At a congressional hearing about oversight of the CO-OPs, senators criticized how the Centers for Medicare & Medicaid Services (CMS) has handled the $2.5 billion in federal grant money given to the CO-OPs. More than half of the original 23 have shut down as they struggled with financial and enrollment issues.

CMS Acting Administrator Andy Slavitt has assured Congress that the agency is working to improve its oversight of the CO-OPs, FierceHealthPayer has reported. And to address potential misconceptions about federal rules regarding them, CMS also issued a "frequently asked questions" memo, which states that:

Federal regulations require two-thirds of CO-OPs' policies in any given state to be qualified health plans in order to ensure the program "retains its focus on providing competitive, high-quality health plan choices to American consumers in the individual and small group markets." But the rest can be dental or vision plans, Medicare Advantage plans, large-group policies or Medicaid Managed Care products, CMS says.
CO-OPs' two types of federal loans--start-up loans and solvency loans--are treated differently in terms of repayment. Solvency loans are treated as surplus notes, meaning a CO-OP does not have to repay CMS until a state insurance department determines repayment won't lead to distress or default. While start-up loans were intended as "general obligations to be repaid at a specific time," CMS agreed in 2015 to allow CO-OPs to convert these loans into surplus notes on a case-by-case basis to ensure financial flexibility for the CO-OPS.
CMS will evaluate on a case-by-case basis when a CO-OP's risk-based capital level falls below 500 percent, determining whether it should be placed on a corrective action plan or if it is considered to be in default. This policy allows CO-OPs to more easily manage changes in their business operations, according to CMS, which in turn helps consumers.
Currently, CO-OP board members can't be a representative of a pre-existing insurer or of a state government, but CMS is exploring ways to help diversify board membership without losing the member-run nature of the CO-OP program.

To learn more:
- here's the memo