The Internal Revenue Service (IRS) has released on its website details on how people who want to set up a new type of nonprofit, member-owned health insurer a CO-OP plan can dot it. The means is through a 501(c)(29) entity.
The IRS this week released the instructions about how to do so.
The IRS describes the procedures organizers of qualified nonprofit health insurance issuers (QNHIIs) in IRS Revenue Procedure 2012-11. The IRS developed the revenue procedure to help with implementation of the Consumer Operated and Oriented Plan (CO-OP) program described in Section 1322 of the Patient Protection and Affordable Care Act of 2010 (PPACA).
Members of Congress added the CO-OP section to the PPACA in an effort to increase and differentiate the competition in the health insurance market after the public plan option was nixed.
Under the Consumer Operated and Oriented Plan (CO-OP) program, the ACA authorized $6 billion in grants and loans to support non-profit organizations in developing, marketing, and maintaining health insurance plans in the private marketplace. Given the failings of the rural private health insurance market where access is often limited to one or two plans, some have envisioned the CO-OP program as an opportunity for expanding access to affordable coverage in rural areas.
CO-OP Structure Details
To be treated as a qualified nonprofit health insurance issuer under the CO-OP program, the governance of the organization must be subject to a majority vote of members, and plans are required to maintain a strong consumer focus by ensuring accountability to plan participants.
CO-OP plans must be governed in ways that protect against insurance industry involvement, including the establishment of a code of ethics that precludes individuals with ties to the industry from serving on CO-OP boards. Any profit made by the organization must be used to lower premiums, improve benefits, or sustain programs intended to enhance the quality of health care delivered to members.
To increase cost efficiencies for qualified nonprofit health insurance issuers participating in the CO-OP program, the ACA allows for the establishment of private purchasing councils through which plans may enter into collective purchasing arrangements to procure items and services at a lower cost, such as health information technology, claims administration, and actuarial services. However, private purchasing councils are not permitted to engage in contract negotiations or rate setting with health care facilities or providers.
Price Advantage
In theory, if new CO-OP plans were able to constitute themselves so as to serve rural areas, they could help to alleviate problems endemic to rural health insurance coverage and health care delivery. To begin with, CO-OP plans might introduce greater competition in highly concentrated rural health insurance markets by offering better value. For example, some argue that because these plans would pay no brokers‟ fees and would face comparatively low overhead, they could enjoy premium pricing advantages of 8 to 10 percent over insurers offering similar coverage
The QNHIIs that participate in the CO-OP program must make "substantially all" of their sales to individuals and small groups taking advantage of the PPACA's individual mandate. The QNHIIs in the CO-OP program are hoping to split $3.8 billion in federal PPACA CO-OP startup loans.
Revenue Procedure 2012-11 explains how the IRS will go about issuing determination letters and ruling on whether QNHIIs can become 501(c)(29) organizations.
A would-be QNHII should send a letter application and a Form 8718 determination letter request form to an IRS office in Cincinnati, officials say.
The application should include a copy of the QNHII's by-laws, a balance sheet and other financial reports, and a narrative statement describing the QNHII's past and proposed activities, officials say.
Organizers must promise that they abide by CO-OP program rules, such as rules that forbid QNHII's from lobbying or participating in political campaigns.
Forecasting the impact of CO-OPs on the greater health insurance market is difficult at this point but given their advantages on price and non-profit status they could make big rural inroads to improved health care access.
