Health Insurance CO-OPsConsumer Operated and Oriented

Health Plans (“CO-OPs”)

James Dietz

DBL Law

CO-OP Program Background• Health cooperatives – nothing new. • Original ones date back to Depression era and “New Deal”

legislation.• While most of the original cooperatives are gone, several created

in 1940s – 1950s are still operating.• Distinction from other nonprofit health insurers – consumer

governance. Membership elects board or has presence on board.• New cooperative movement started with recent health reform

efforts. They were a compromise to a call for a public health insurance option.

• Cooperative proposal first put forward by Sen. Kent Conrad (D-ND).

• Legislation was included as part of The Patient Protection and Affordable Care Act (PPACA) of 2010.

CO-OP Program Background• Congress’s original

intention was to drive the creation of member-run cooperative health insurers in all 50 states.

• Budget cuts have detoured (or possibly eliminated) this goal.

CO-OP Program Background• These nonprofit, consumer-driven

organizations were to offer health coverage, through the Exchanges, under the same regulatory requirements imposed on private insurers at the State and Federal levels.

• Section 1322 of PPACA requires Congress to provide start-up funding for non-profit health insurance issuers (i.e., CO-OPs).

CO-OP Program Background

• Goals for CO-OPs: – provide more consumer choice– greater control– greater plan accountability– promote better models of care, similar to ACOs

CO-OP Program Background• PPACA set aside $6

billion for start-up costs and state solvency requirements.

• Reduced to $3.4 billion by law in 2011. Further reduced in January 2013.

CO-OP Program Background• Congress is to expend all

co-op funds by July 1, 2013.

• Funds are loaned for start-up and solvency costs.

• Start-up loans must be repaid within 5 years; solvency within 15 years.

CO-OP Program Background

• Loan applicants had to submit detailed plans: feasibility study, business plan, budget, enrollment strategy, budget projections, and more.

• Successful applicants could recoup up to $100,000 for costs incurred to develop the application.

Health InsuranceCO-OPsLegal Issues

Legal Issues

• To qualify for the CO-OP program, an entity must:– be a non-profit corporation – be governed by a majority vote of its members – operate with “a strong consumer focus”– all profits used to lower premiums, improve

benefits, or improve quality of care

Legal Issues

• A CO-OP may not be:– an existing health insurer– an entity that shares ownership with existing

health insurers– sponsored by state or local government– owned or controlled by a for-profit entity

Legal Issues

• A CO-OP must conduct “substantially all” of its activities in the individual and small group markets.

• "Substantially all" means two-thirds of its activities.

• It must offer qualified health plans on the newly-created State Health Benefit Exchanges.

Legal Issues

• Permanent board of Directors must be comprised of at least 51% members.

• A minority of board positions can be reserved for experts in finance, quality of care, marketing, research, law, etc.

Legal Framework• Temporary formation

board guides the CO-OP through the application process.

• Must be replaced by the Member-controlled board within 1 year of launch of business.

Legal Issues• Centers for Medicare &

Medicaid Services (CMS) will closely monitor loan recipients.

• Ensure CO-OPS are meeting program goals and will have the ability to repay their loans.

Legal Issues• CO-OPs must submit quarterly

financials, including cash flow, enrollment data.

• Will receive site visits and annual external audits.

• This monitoring is in addition to oversight by state insurance regulators.

Health InsuranceCO-OPs

The Program Today

James Dietz

DBL Law

The Program Today

• To date, a total of 24 non-profits offering coverage in 24 states have been awarded $1,980,728,696 ($1.98 Billion).

The Program Today

• States with approved CO-OPs.

The Program Today• Arizona, Colorado,

Connecticut, Illinois, Iowa, Nebraska, Kentucky, Louisiana, Maine Maryland, Massachusetts, Michigan, Montana, Nevada, New Jersey, New Mexico, New York, Ohio, Oregon, South Carolina, Tennessee, Utah, Vermont, Wisconsin

The Program Today

• There is a national CO-OP advocacy organization: National Alliance of State Health Cooperatives (NASHCO).

The Program Today

• In January 2013, Congress eliminated any new start-up loans for CO-OPs as part of the "Fiscal Cliff" package. New law rescinded all but 10% of funds that had not been committed at that point, so that $200 million is available to assist and oversee the 24 CO-OPs.

• No additional CO-OPs beyond the 24 will be funded.• More than two dozen others had applications

pending when funds were rescinded.

Health InsuranceCO-OPs

The Kentucky Health Cooperative, Inc.

James Dietz

DBL Law

Kentucky CO-OP• Kentucky Health

Cooperative, Inc. (KYHC) is Kentucky's CO-OP program.

• Headquartered in Louisville

• Awarded a total $58.8 million loan in June 2012

• Start-up loan disbursed in increments based upon compliance with various milestones

Kentucky CO-OP• Formation board hired Janie

Miller as CEO• Former Secretary of the

Kentucky Cabinet for Health and Family Services (2008-2012)

• Former Commissioner for the Kentucky Department of Insurance

Kentucky CO-OP• KYHC Formation Board is led by Chairman Joseph E.

Smith, Executive Director of the Kentucky Primary Care Association.

• Other Formation Board members: – Chris Goddard: CEO of HealthPoint Family Care, a

nonprofit medical and dental practice.

Kentucky CO-OP• Other Formation Board members:

– David Worthy, M.D. - Medical Director of Baptist Regional Memorial Hospital and the former CEO of Grace Community Health Center.

– Jim Dietz - Partner with the law firm of Dressman Benzinger Lavelle.

Kentucky CO-OP

• Ms. Miller worked with the formation board in hiring an executive team, with positions, job descriptions, and compensation reviewed and approved by CMS

• Received many well-qualified applicants, and thus was able to assemble an executive team with experienced personnel.

Kentucky CO-OP

• KYHC is required to start issuing policies on October 1, 2013, and providing coverage as of January 1, 2014. KYHC is on-target to meet this.

• Currently has almost $10 million in start-up loans and $15 million in solvency loans.

• Remainder of loans will be solvency loans and will be disbursed in the future.

Kentucky CO-OP• Mission Statement: • “The Kentucky Health Cooperative exists to

promote community health and well-being by engaging the members and providers it serves in the valued delivery of quality coverage of integrated health care services.”

Kentucky CO-OP• Has been constructing a state-wide network

through contracts with provider, coalitions, IPAs, and other provider networks.

• Plans to develop a state-wide network from beginning in order to market to all individual Kentuckians and small employers.

• Goal is to have state-wide direct network by second year of operations.

Kentucky CO-OP• Licensed as an HMO in Kentucky as of March

2013.• Executive team have worked with Board in

securing necessary services contracts with professionals and vendors – HR, IT, pharmacy benefit, claims processing, marketing, actuary, audit, etc.

Kentucky CO-OP• Was third of 24 CO-OPs to be granted state

operational license; first in its batch of CO-OPs (which was the third overall batch approved by CMS.

• Feedback from CMS is that Kentucky CO-OP is leading the pack toward being operational by January 1, 2014.

Kentucky CO-OP

• KYHC plans to hire 50+ employees by the end of 2013.

• For more information, visit the KYHC website: www.mykyhc.org