Department of Health and Human Services 
OFFICE OF 
 
INSPECTOR GENERAL 
 
 
 
 
 
 
E I
ARLY  MPLEMENTATION OF 
 
 
C O
THE  ONSUMER  PERATED 
 
 
O P  
AND  RIENTED  LAN 
 
  L P  
OAN  ROGRAM 
 
 
Daniel R. Levinson   
Inspector General  
 
July 2013 
OEI-01-12-00290   
   
EXECUTIVE SUMMARY:  EARLY IMPLEMENTATION OF THE CONSUMER 
OPERATED AND ORIENTED PLAN LOAN PROGRAM, OEI-01-12-00290  
 
WHY WE DID THIS STUDY 
 
The Patient Protection and Affordable Care Act established a loan program to foster the 
creation of nonprofit, consumer-governed health insurance issuers called CO-OPs that 
will offer qualified health plans in the individual and small group markets. Goals of the 
CO-OP program include promoting integrated care, quality, and efficiency.  As of 
January 2, 2013, the Centers for Medicare & Medicaid Services (CMS) had awarded 
loans totaling $1.98 billion to 24 CO-OPs. The applicants that receive this funding are 
new entities that may face financial and operational challenges in a competitive insurance 
market.  CMS manages the CO-OP program and must implement it in a short time so that 
CO-OPs will be ready to enter the market of Affordable Insurance Exchangesi.e., 
competitive marketplaces for health insurance.   
 
HOW WE DID THIS STUDY  
 
We reviewed applications from the first 18 CO-OPs that were awarded funding.  We  
interviewed senior staff from these CO-OPs to describe how CO-OPs plan to meet 
program requirements and goals, such as consumer governance, integrated care, and 
increased quality. We also interviewed CMS staff and reviewed CMSs documentation 
related to oversight of the 18 CO-OPs to assess their progress during the startup phase 
and assess CMSs oversight of the CO-OP program.   
 
WHAT WE FOUND 
 
In their applications, CO-OPs broadly described various ways to meet program  
requirements related to consumer governance.  CO-OP applications identified primary 
care, electronic health data, and outsourcing as the main mechanisms for achieving 
integrated care at lower costs while improving quality.  Despite challenges, CO-OPs have 
made progress toward achieving licensure and met 90 percent of their milestones during 
the period of our review. CMSs oversight strategy includes frequent monitoring and 
early intervention to ensure that CO-OPs adhere to program requirements and goals. 
 
WHAT WE CONCLUDE   
 
Although CO-OPs appear to be making progress, at the time of our review they were still 
hiring staff, obtaining licensure, and building necessary infrastructure.  In addition, the 
extent to which any particular CO-OP can achieve program goals depends on a number of 
unpredictable factors, such as each States Exchange operations, market competition, and 
enrollment.   
 
 
   
   
   
TABLE OF CONTENTS 
 
Objectives ....................................................................................................1 

Background..................................................................................................1 

Methodology................................................................................................4 

Findings........................................................................................................7 

CO-OP applications broadly described various methods for 

meeting program requirements related to consumer governance ....7 

CO-OP applications identified primary care, electronic health  

data, and outsourcing as main mechanisms for meeting program 
 
goals .................................................................................................7 

CO-OPs met 90 percent of their milestones on or ahead of 
schedule..........................................................................................10 

CO-OPs face tight timeframes, market uncertainty, and other 

challenges.......................................................................................11
  
CMSs oversight system involves frequent monitoring and early 

intervention ....................................................................................12 

Conclusion .................................................................................................14 

Appendixes ................................................................................................15 

A: List of CO-OP Program Loan Recipients as of June 2012 ......15 

B: List of Additional CO-OPs Funded After June 2012 ...............17 

Acknowledgments......................................................................................18 

 
   
   
   
OBJECTIVES 
1. 	  To describe how Consumer Operated and Oriented Plans (CO-OPs)  
plan to comply with program requirements and achieve their goals. 
2. 	  To provide an early assessment of CO-OPs progress during the startup 
phase. 
3. 	  To assess the Centers for Medicare & Medicaid Services (CMS) 
strategy for overseeing CO-OPs both during the startup phase and after 
the launch of the Affordable Insurance Exchanges (Exchanges). 
BACKGROUND 
The CO-OP Program  
The Patient Protection and Affordable Care Act (ACA)1 established a loan 
program to foster the creation of nonprofit, consumer-governed health 
insurance issuers called CO-OPs that will offer qualified health plans in 
the individual and small group markets.2  
The ACA originally appropriated $6 billion for this program, which was 
subsequently reduced to $2 billion.3,  4  Although the ACA aimed to 
establish 1 CO-OP in each State, reduced funding limited the program to 
24 CO-OPs in 24 States. 5  (See Appendixes A and B for a list of funded 
CO-OPs). CMSs Center for Consumer Information and Insurance 
Oversight (CCIIO) manages this program.  
In addition to having the goal of improving consumer choice and plan 
accountability, the CO-OP program seeks to promote integrated models of 
care and enhance competition in the Exchanges established under the 
ACA.6,  7  Existing health insurers and other business cooperatives offer 
models for this approach. But one major barrier to further development of 
consumer-driven models in the health insurance market has been the 
 
1  P.L. 111-148 and the Health Care Reconciliation  Act of 2010, P.L. 111-152, 
collectively known as the ACA.  
  
2 ACA,   1322(a)(2).  At least two-thirds  of the policies issued  by a CO-OP must be in 
 
the individual and small group markets.  45  CFR   156.515(c)(1).  

3 Appropriated amounts were reduced from $6 billion to $3.4 billion by the  Department 

of  Defense and Full-Year Continuing Appropriations Act, P.L. 112-10,  1857, and  the 

Consolidated Appropriations Act, 2012, P.L. 112-74,  524. 

4 The American Tax Payer Relief Act of 2012, P.L. 112-240,   644, rescinded  90 percent 

of unobligated  funds from the CO-OP program  totaling  $2.3 billion.  

5  ACA,  1322(b).  76  Fed.  Reg. 77392  (December 13, 2011). 

6 ACA,   1311, established the Exchanges administered by  a governmental agency  or
  
nonprofit organization, through which individuals and small businesses with up to 100 
 
employees can  purchase qualified health plans. 
 
7 The ACA uses the term Exchanges to refer to competitive marketplaces for insurance.  

CMS now uses the term Marketplaces.  
 
Early Implementation of the Consumer Operated and Oriented Plan Loan Program (OEI-01-12-00290)   1 
   
   
difficulty of obtaining adequate capital for startup costs and meeting State 
insurance reserve requirements.  The CO-OP program is designed to 
overcome this barrier by providing loans specifically for these activities.8  
The ACA authorized both loans and grants under the CO-OP program.9    
CMS has interpreted both funding mechanisms authorized by the ACA as 
loans because they must be repaid.10,  11   The CO-OP program created two 
types of loans: startup loans and solvency loans.12 Startup loans assist 
with the costs associated with establishing CO-OPs, such as office space, 
computer networks, and staffing.  Solvency loans help CO-OPs meet State 
insurance solvency and reserve requirements.13  
Applicants for and Recipients of CO-OP Funding 
The ACA set requirements for applicants that sought CO-OP funding.   
CMS further interpreted these requirements and issued regulations to set 
eligibility standards for CO-OP loan applicants.14  To apply for loans under 
the CO-OP program, an applicant must: 
 	  be organized as a nonprofit member organization and intend to 
become a CO-OP; 
 	  not have been a health insurer or a related entity (or any 

predecessor of either) on July 16, 2009; and 

 	  not be sponsored by a State or local government.15  
In addition, an applicant had to fully describe in the application its 
proposed organizational structure and governance, health insurance plans, 
and business functions.16 Key portions of the application included a 
project narrative, a feasibility study, a business plan, and bylaws. 
Applicants that received CO-OP loans include small business coalitions; 
physicians, hospitals, and other providers; agricultural organizations; 
unions; and community-based sponsors.17  CMS awarded funding to 
applicants that demonstrated a likelihood of market viability and ability to 
 
8 76 Fed. Reg. 77392 and 77393 (December 13, 2011). 

9 ACA,   1322(b)(1)(a) and (b). 
 
10 76 Fed. Reg. 77392 and 77394 (December 13, 2011). 

11  ACA,  1322(b)(3). 

12 45 CFR   156.505.  

13 76 Fed. Reg. 77392 and 77394 (December 13, 2011). 

14 45 CFR   156.510.  The ACA  1322(b)(4) established a 15-member CO-OP Advisory 
 
Board to make recommendations to CCIIO  on the design and implementation of the 

CO-OP program, including eligibility and  operational standards. 

15  ACA,  1322(c)(1)-(2); 45  CFR  156.510(a)-(b).  

16 CO-OP Program Amended  Announcement.  Loan Funding  Opportunity Number  

00-COO-11-001, December 9, 2011. 

17 CCIIO Fact Sheet.  Accessed at www.cciio.cms.gov  on February 21, 2013. 
Early Implementation of the Consumer Operated and Oriented Plan Loan Program (OEI-01-12-00290)   2 
   
   
repay loans.18   As of December 2012, CMS had awarded loans to less than 
one-third of CO-OP applicants.19     
CO-OP Program Requirements and Goals 
To fulfill the basic requirements of the program, CO-OPs must offer 
consumer-governed, qualified nonprofit health plans.  In addition, CMS  
identified goals that CO-OPs should achieve to fulfill the intent of the 
program, such as providing integrated care, quality, and efficiency.20,  21      
To become a qualified health insurer, the CO-OP must meet all the same  
requirements as other health insurers in the State.22    When applying for 
CO-OP funding, an applicant was not required to be incorporated or 
licensed as an insurance entity, but was required to have a plan for 
achieving licensure and to be ready to offer qualified health plans in the 
Exchanges within 3 years of receiving startup loan funds or within 1 year 
of receiving solvency loan funds.23  
To become and remain a qualified issuer of health insurance, a CO-OP  
must continue to meet the program requirements related to consumer 
governance, the use of its profits, and the types of insurance that it sells.  
In particular, a CO-OP must have governance that is subject to a majority 
vote of its members; must have governing documents that incorporate 
ethics and conflict-of-interest standards; and must operate with a strong 
consumer focus, including timeliness, responsiveness, and accountability 
to members.24,  25,  26  
Loan Disbursement and Repayment 
After CMS approved each application, it negotiated a loan agreement that 
included a disbursement schedule.  The disbursement schedule outlines 
key milestones and available solvency loans consistent with the CO-OPs 
business plan and program requirements.  A CO-OP must notify CMS 
1 month in advance if it believes that it will be unable to reach any of its 
 
18 CO-OP Program Amended  Announcement.  Loan Funding  Opportunity Number  
00-COO-11-001, December 9, 2011. 

19 Because of funding reductions, CMS did not review applications submitted for the 
 
December 31, 2012, deadline. 

20 76 Fed. Reg. 77393 and 77410 (December 13, 2011). 

21 The ACA gives priority to CO-OP applicants that encourage provider coordination,  

such as medical homes or other models that  encourage provider collaboration.  ACA, 
      
 1322(b)(2)(A)(ii). 

22  ACA,  1322(c)(5). 
 
23  45  CFR  156.515(c)(3). 
  
24 Both the statute and regulations use the terms consumer and member.  For 

consistency, we will refer to  CO-OP members as consumers.  ACA,   1322(c)(3). 

25  ACA,  1322(c)(1)(B). 
 
26 76 Fed. Reg. 77392 and 77401 (December 13, 2011). 

Early Implementation of the Consumer Operated and Oriented Plan Loan Program (OEI-01-12-00290)   3 
   
   
milestones.  A CO-OP may work with CMS to modify the disbursement 
schedule and adjust milestones as needed.  This enables CMS to ensure 
that loan money is not disbursed until the CO-OP completes specific 
tasks.27  CO-OPs must repay startup loans within 5 years of each 
disbursement and solvency loans within 15 years.28     
CMS Oversight and Monitoring 
CMSs reporting requirements for startup and solvency loans begin as 
soon as a CO-OP signs a loan agreement and end 10 years after the final 
repayment.29  After a CO-OP signs a loan agreement and has operated for 
one full quarter, it must submit reports (quarterly and semiannual reports 
and quarterly disbursement requests) that describe its progress on financial 
and operational goals. Each CO-OP  also provides CMS with updates on 
its progress toward milestones through other formal reporting processes.  
As a CO-OP meets milestones in the loan agreement and submits 
disbursement requests, CMS disburses successive installments of the 
startup loan on a quarterly basis. 
CMS can restrict loan funds if a CO-OP has not met its agreed-upon 
milestones.  In addition, if a CO-OP has not complied with the loan 
agreement or program requirements, CMS may place it under enhanced 
oversight and require it to submit and implement a corrective action plan.30  
METHODOLOGY 
Scope 
This study reviews how CO-OPs plan to meet program requirements and 
goals, such as consumer governance, integrated care, and improved 
quality.  It also assesses CO-OPs  progress during the startup phase and 
CMSs oversight of the CO-OP program.  The findings are based on 
analysis of the first 18 CO-OPs that were awarded funding under the 
program between February and July 2012. 
Data Collection and Analysis 
We used four main data sources to address our study objectives:  CO-OP  
applications, CO-OP funding disbursement forms, CMSs documentation 
related to the oversight of the 18 CO-OPs, and interviews with both 
CO-OP and CMS staff.  
 
27 CO-OP Program Amended  Announcement.  Loan Funding  Opportunity Number  

00-COO-11-001, December 9, 2011. 

28 ACA  1322(b)(3);  45 CFR   156.520(b).  45 CFR,   156.520(c).   

29 CCIIO,  CO-OP Program Amended Announcement.  Loan Funding Opportunity 
 
Number 00-COO-11-001, December 9, 2011. 

30 Ibid. 
Early Implementation of the Consumer Operated and Oriented Plan Loan Program (OEI-01-12-00290)   4 
   
   
CO-OP Applications. To describe how the first 18 CO-OPs plan to meet 
program goals, we reviewed their applications for loan funding.  We noted 
plans for offering integrated care, quality improvement, and cost controls.   
We also gathered information about CO-OPs governance; 
conflict-of-interest policies; and business operations (claims processing, 
customer service, IT support, marketing, and legal services).   
CO-OP Disbursement Approval Forms. We reviewed disbursement 
approval forms for each CO-OP to determine the extent to which CO-OPs 
are meeting milestones.  For each CO-OP, we reviewed forms starting 
with the first quarter after it received its first funding through the third 
quarter of 2012. We also gathered information about any delayed 
milestones and CMSs response.   
CMS Oversight Documents. We reviewed documentation that CMS uses 
to track CO-OPs progress and CMSs day-to-day oversight.  For example, 
we reviewed notes from CMSs telephone meetings with CO-OPs, issue 
logs that documented unforeseen challenges, and emails between 
CO-OPs and CMS. These documents covered the period from when a 
CO-OP received its first funding through the third quarter of 2012. 
Interviews With CO-OPs  
We interviewed senior staff from the 18 CO-OPs to describe each CO-
OPs background and its status.  We also asked about each CO-OPs 
financial or operational challenges and its interactions with CMS staff.  
Interviews With CCIIO staff  
To assess CMSs process and expectations for overseeing the CO-OP  
program, we interviewed six CMS staff members within CCIIO.  We  
asked staff to discuss CMSs long-term strategy for monitoring CO-OPs, 
their assessment of CO-OPs progress, and any challenges that CMS staff 
had faced during the startup phase of the program. 
Limitations 
Because CMS funded CO-OPs on a rolling basis throughout 2012, this 
review included only the first 18 CO-OPs funded through the program.  
We did not assess CMSs review of the CO-OP applications or their 
funding decisions. In addition, we did not assess financial viability of the 
CO-OPs that received funding.  An additional OIG report that addresses 
CMSs review of applications for CO-OP funding will be forthcoming. 
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspection and Evaluation issued by the Council of the Inspectors General 
on Integrity and Efficiency.   
Early Implementation of the Consumer Operated and Oriented Plan Loan Program (OEI-01-12-00290)   5 
   
   
FINDINGS 
CO-OP applications broadly described various 
methods for meeting program requirements related to 
consumer governance 
As required by the ACA, CO-OP consumers will make up a majority of all 
CO-OP governing boards.  According to the bylaws of CO-OPs in our 
review, CO-OP governing boards will have between 3 and 21 directors.  
The percentage of consumer positions on these CO-OP boards will range 
from 51 percent to 100 percent.  CO-OP boards may also reserve board 
positions for persons with special expertise in areas such as insurance or  
health care. The boards may have advisory or nonvoting positions as well.  
Finally, all of the 18 CO-OPs we reviewed had conflict-of-interest and 
ethics provisions in their bylaws. 
In addition to having consumer-controlled governing boards, eight 
CO-OPs proposed other ways to involve consumers in developing 
products, policies, and procedures. Although they did not spell out the 
plans in detail, four of these CO-OPs envisioned advisory boards that 
would represent consumers in various aspects of CO-OP management and 
health care delivery.  For example, three of the four advisory boards would 
work to identify candidates for the governing board or assist with 
communication strategies. One CO-OP  application generally described an 
advisory board that would seek input from advocacy groups on care for 
chronic conditions (e.g., diabetes) or care for the medically underserved 
population. The other four CO-OPs stated that they plan to empower 
consumers to participate in their respective management, but they did not 
offer specifics on those plans.   
In general, all CO-OP applications described customer service and 
outreach strategies to ensure consumer responsiveness.  Examples of these 
strategies include tracking interactions with consumers and analyzing 
outcomes, offering both online and in-person customer service, or text 
messaging.  CO-OPs also described standards for responding to 
consumers complaints timely and using surveys and other data sources to 
analyze the quality of their services.   
CO-OP applications identified primary care, electronic 
health data, and outsourcing as main mechanisms for 
meeting program goals 
The CO-OP program goals emphasize integrated care, improved quality, 
and reduced costs. In their loan applications, CO-OPs identified primary 
care and electronic health data as the main mechanisms for achieving 
Early Implementation of the Consumer Operated and Oriented Plan Loan Program (OEI-01-12-00290)   6 
   
   
these goals. In interviews, CO-OPs acknowledged that it will be 
challenging to differentiate their plans from others offered on the 
Exchanges, given that other insurers use these mechanisms as well.  
CO-OPs plan to use primary care models to integrate care, 
lower costs, and improve quality 
Primary care models typically include a primary care physician or group 
practice as the first point of contact for patients.  The physician or group 
determines a plan of care for patients and coordinates services such as 
laboratory tests, specialty care, and followup.  One primary care model, 
called a medical home, integrates care for patients to improve quality 
and may include specialized programs for patients with chronic 
conditions, such as hypertension.31  Our review of CO-OP applications 
revealed four main features of their planned integrated care:  care 
coordination, disease management, patient behavior modification, and 
financial incentives for providers. Table 1 shows features of integrated 
care that CO-OPs proposed in their loan applications.  Because CO-OPs 
are still evolving, their applications did not always include details on their 
proposed models of integrated care. 
Table 1: Features of Integrated Care Described in CO-OP Applications  
Care Coordination     Disease Management   
   
   Contractually  requiring physicians to     Management programs for chronic 
communicate with one another   conditions and maternal health  
   Telehealth and video systems that enable rural     Intensive primary care management 
physicians to interface with providers at urban   for patients  with multiple complex  
medical centers  conditions  
   Management of  care transitions across health     Exclusive provider or medical home 
care settings (i.e., hospital, home, physicians  models that require patients to adhere 
office)  to a treatment plan  
   Provider data sharing from claims, clinical notes, 
and peer data to develop best practices in care 
coordination  
 
Patient Behavior Modification   Financial Incentives for Providers 
   
   Health coaching (e.g., teaching healthy lifestyle     Bonus payments or shared savings for 
habits)   improving outcomes 
   Wellness programs     Provider incentives based on 
   Tracking emergency room use   achieving measurable outcomes  
   IT systems that track patient behavior     Bundled payments  
 
 
Source: Office of Inspector General (OIG) analysis of CO-OP applications, 2012.  
 
 
31 American Academy of Family Physicians, American Academy of Pediatrics, American 
College of Physicians, and American Osteopathic Association.  Joint Principles of the 
Patient-Centered Medical Home, 2007.  Accessed  at www.aafp.org on February 25, 
2013. 
Early Implementation of the Consumer Operated and Oriented Plan Loan Program (OEI-01-12-00290)   7 
   
   
CO-OPs also envision that primary care models will reduce costs by using 
less specialty care, preventing disease, and reducing unnecessary services.  
For example, all of the CO-OPs in our review plan to offer financial 
incentives, such as shared savings or bundled payments, to primary care 
providers to keep consumers healthy.32  Five CO-OP applications 
described programs to monitor consumers with chronic conditions and 
prevent hospitalization, and nine CO-OPs plan to offer wellness programs. 
However, because CO-OPs are new entities, they generally do not have 
existing networks of health care providers.  Fifteen CO-OPs in our review 
will contract with existing provider networks rather than assemble new 
networks. Such outsourcing may create additional challenges for CO-OPs 
that want to engage directly with providers and coordinate provider care.  
CO-OPs reported that they will need to find networks with providers who  
are aligned with the CO-OPs mission to ensure consumer-focused care at 
competitive reimbursement rates.  
CO-OPs plan to use electronic health data to control costs and 
improve quality 
CO-OP applications described how electronic health data and other 
information technologies will help control the costs of care by providing 
data that help physicians choose appropriate treatments and reduce 
potential medical errors.  For example, one CO-OP described a Web-based 
program that analyzes medical data that physicians can use to create 
treatment plans for patients with chronic or acute diseases.  This program 
would also help to ensure continuity of care as a patient moves among 
different care settings and physicians.  Another CO-OP described a 
software program that helps identify providers whose outcomes and 
cost-effectiveness of care are better than average.    
CO-OPs also envision that electronic health data will improve health care  
quality.  For example, two CO-OPs plan to analyze medical data to review 
providers interactions with patients and referral patterns to ensure that  
patients needs are being met.  Other CO-OPs will use data to supervise 
medical care and wellness services.  Other CO-OPs described using data 
to develop best practices for health care providers and track patient 
satisfaction. Because CO-OPs currently do not have patient or physician 
data to analyze, they will need to build it over time. 
 
32 American Hospital Association.  A bundled payment is a type of reimbursement  
methodology whereby the fees for multiple providers and services are bundled into a 
single comprehensive payment that covers all of the services involved in the patients 
care. Bundled Payment:  AHA Research Synthesis Report. May 2010.  Accessed at 
www.aha.org on February 25, 2013. 
Early Implementation of the Consumer Operated and Oriented Plan Loan Program (OEI-01-12-00290)   8 
   
   
CO-OPs plan to outsource operational functions to reduce 
costs 
Almost all CO-OPs described outsourcing as an important cost control 
strategy.  Outsourcing will allow CO-OPs to save money on staffing, 
training, and technology systems.  For example, CO-OPs may contract 
with vendors that offer the latest technology in billing and claims systems.  
The cost of building and maintaining such systems would be prohibitive 
for CO-OPs. Six CO-OPs in our review also plan to use a purchasing 
council to achieve savings.33  
CO-OPs met 90 percent of their milestones on or 
ahead of schedule 
We evaluated CO-OPs progress toward their milestones from February 
2012 to September 2012.  These milestones covered tasks such as 
achieving licensure, hiring key staff, and contracting with vendors.  
Milestones are tied to funding disbursement but also represent important 
steps in the startup process.  
CO-OPs are achieving licensure 
CO-OPs reported that they are on track for, or have obtained, insurance 
licensure. As of June 2013, 19 of the 24 CO-OPs in the program have 
been issued insurance licenses by their States.  However, on May 22, 
2013, one State denied licensure to a CO-OP.34  CO-OPs told us that the 
application and approval process for licensure can take 2 to 6 months and 
requires detailed actuarial and business analyses to ensure that the CO-
OPs have adequate financial reserves to pay medical claims.  In addition, 
States may require CO-OPs to revise their bylaws to fit existing insurance 
designations (e.g., health maintenance organizations, preferred provider 
organizations) and prove that they have broad networks of providers.  
CO-OPs have hired key staff 
CO-OPs have hired personnel to manage operations and established 
transitional boards of governance. Examples of such personnel include 
chief executive or chief operating officers as well as administrative staff.  
Chief executives may serve as members of the transitional governance 
board until CO-OPs have enough members to hold elections for a 
 
33 Purchasing councils allow CO-OPs to enter into collective purchasing arrangements for 
items and services that increase administrative and other cost efficiencies, including 
claims administration, administrative services, health information technology, and 
actuarial services. 76 Fed. Reg. 77392 and 77394 (December 13, 2011). 
34 Vermont Department of Financial Regulation,  Vermont Health  CO-OP Fails  State 
Insurance Standards. May 22, 2013.  Accessed at www.dfr.vermont.gov on 
May 29, 2013. 
Early Implementation of the Consumer Operated and Oriented Plan Loan Program (OEI-01-12-00290)   9 
   
   
permanent board of directors.  Executives and other staff are responsible 
for recruiting and training additional staff, writing operational policies and 
procedures, and contracting with outside vendors. 
CO-OPs have contracted with vendors for essential operations 
All CO-OPs in our review plan to rely on outside contractors to perform  
certain business functions, such as customer service, IT support, legal 
functions, or claims processing.  Fourteen of the CO-OPs in our review 
plan to outsource their customer service functions, and 16 CO-OPs plan to 
use a contractor for claims processing.  CO-OPs also reported that they 
cannot hire and train sufficient staff quickly enough to perform all 
business functions. 
CO-OPs face tight timeframes, market uncertainty, and 
other challenges  
To compete on the Exchanges, CO-OPs should be ready to enroll members 
by the expected launch date of October 1, 2013.35   Therefore, CO-OPs 
must hire staff, obtain licensure, market their plans, and enroll consumers 
within 18 to 24 months from when they received loan funding.  All 
CO-OPs reported these as major challenges. 
CO-OPs also reported that they face uncertainties in the new insurance 
marketplace.  For example, CO-OPs told us that existing or new insurers 
could create significant competition on the Exchanges.  In addition, 
CO-OPs expressed concern about identifying and contracting with the 
right health care providers and vendors for key services.   
Furthermore, CO-OPs reported that uncertainty surrounding the 
implementation of the ACA posed challenges during the startup period.  
For example, some States had not decided whether to operate an 
Exchange. CO-OPs located in these States were uncertain about how to 
plan for new Exchange requirements, such as benefit design, reporting, 
and premium collection.  Other CO-OPs reported that the Supreme Courts 
review of the ACA delayed hiring because potential employees worried 
that the CO-OP program would be discontinued.   
After CO-OPs complete their first year of operations, they will face 
long-term challenges.  For example, CO-OPs reported that designing 
integrated care systems and reducing costs are important long-term  
challenges, along with continued quality improvement, outreach, and 
enrollment.   
 
35 CMS anticipates that Exchanges will be  ready to enroll members into  plans beginning  
in October 2013, with insurance coverage beginning January 1, 2014.  
Early Implementation of the Consumer Operated and Oriented Plan Loan Program (OEI-01-12-00290)   10 
   
   
CMSs oversight system involves frequent monitoring 
and early intervention 
CMS established a prospective oversight system to safeguard CO-OP  
funding and ensure timely implementation of the program.  CMS 
described its oversight as an early warning system that identifies and 
addresses problems before they undermine a CO-OPs progress.  
CMS account managers meet with CO-OPs two to four times 
per month to monitor progress 
CMS account managers are CO-OPs primary liaisons with the agency and 
hold weekly or biweekly telephone meetings with CO-OPs to track their 
progress.36  During these meetings, account managers and CO-OPs also 
discuss challenges, delays, or other issues. Account managers document 
the discussions and the CO-OPs progress toward their milestones.  If a 
CO-OP cannot reach a milestone on time, the account manager documents 
this and determines whether the delay poses a minor, moderate, or major 
risk to the CO-OPs progress.  Depending on the nature of the delay, CMS 
will work with the CO-OP to reach the milestone, reschedule the 
milestone to a later date, or delay the loan disbursement associated with 
the milestone until the CO-OP reaches it.37    
CMS delayed loan disbursements and issued one 
noncompliance warning 
CMS delayed portions of startup loans for five CO-OPs when they did not 
reach important milestones on time.  For example, CMS stepped in to 
work with one CO-OP when the CO-OP could not resolve concerns from 
its State department of insurance regarding the CO-OPs timeline for 
receiving State licensure. In three cases, CMS delayed funding for 
CO-OPs that signed core contracts without CMS approval.  CMS also 
issued a noncompliance warning to a CO-OP because it did not submit 
reporting information on time or in the required format.  The CO-OP took 
remedial action shortly thereafter.     
CMS reviewed CO-OPs major contracts to ensure fair pricing  
and prevent conflicts of interest 
CMS approves major contracts that CO-OPs sign, including employment  
contracts for executive officers and services such as claims processing.  
CMS reported that this review process ensures that a CO-OP retains 
outside services at costs that are consistent with its financial projections 
 
36 CO-OPs also communicate with account managers as needed between these meetings. 
37 CMS may take any of these actions in combination.  Decisions related to milestones 
may also involve senior CMS staff. 
Early Implementation of the Consumer Operated and Oriented Plan Loan Program (OEI-01-12-00290)   11 
   
   
and do not present financial conflicts of interest.  For example, one CO-
OP planned to contract with its sponsor to perform its main administrative 
functions. Because the contract covered business operations, CMS closely 
reviewed the contract to ensure that it was consistent with program  
requirements and avoided conflicts of interest and to ensure that the CO-
OPs budget accounted for the contracts costs.     
Early Implementation of the Consumer Operated and Oriented Plan Loan Program (OEI-01-12-00290)   12 
   
   
CONCLUSION 
Our review of the early implementation of the CO-OP program found that 
CO-OPs have made progress and met 90 percent of their milestones 
during the period of our review.  All 18 CO-OPs that we reviewed planned 
to have consumer-controlled governing boards, and 8 CO-OPs described 
additional ways they plan to involve consumers.  In addition, CO-OPs are 
working toward program goals related to integrated care, improved health 
care quality, and reduced costs.  Also, CMS has monitored CO-OPs to 
ensure they adhere to program requirements and meet their milestones.   
Although CO-OPs appear to be making progress, at the time of our review 
they were still hiring staff, obtaining licensure, and building necessary 
infrastructure such as provider network arrangements and technology 
systems.  In addition, the extent to which any particular CO-OP can 
achieve program goals and remain financially viable depends on a number 
of unpredictable factors. These factors include the CO-OPs  States 
Exchange operations, the number of people who enroll in the CO-OP and 
their medical costs, and the way in which competing plans will affect the 
CO-OPs market share.  
   
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APPENDIX A 
List of CO-OP Program Loan Recipients as of  
June 201238  
Loan Recipient Name  Service Area  Award Amount 
Compass Cooperative Health Network  Arizona  $93,313,233  
HealthyCT   Connecticut  $75,801,000  
Colorado Health Insurance 
Colorado  $69,396,000  
Cooperative, Inc. 
CoOpportunity Health   Iowa and Nebraska   $112,612,100  
Kentucky Health Care Cooperative  Kentucky  $58,831,500  
Maine Community Health Options   Maine  $62,100,000  
Consumers  Mutual Insurance of 
Michigan  $71,534,300  
Michigan CO-OP  
Montana Health Cooperative  Montana   $58,138,300  
Nevada Health CO-OP   Nevada  $65,925,396  
Freelancers CO-OP of New Jersey   New Jersey  $107,213,300  
New Mexico Health Connections   New Mexico   $70,364,500  
Freelancers Health Service 
New York  $174,445,000  
Corporation  
Freelancers CO-OP of Oregon   Oregon  $59,487,500  
Oregons Health CO-OP   Oregon  $56,656,900  
Consumers Choice Health  Insurance 
South Carolina  $87,578,208  
Company  
 
38 Centers for Medicare & Medicaid Services (CMS), New Loan Program Helps Create 
Customer-Driven Non-Profit Health Insurers. Accessed at www.healthcare.gov on 
April 30, 2013. 
Early Implementation of the Consumer Operated and Oriented Plan Loan Program (OEI-01-12-00290)   14 
   
   
Loan Recipient Name   Service Area   Award Amount  
Arches Community Health Care   Utah   $85,400,303  
The Vermont Health CO-OP  Vermont   $33,837,800  
Common Ground Healthcare 
Wisconsin  $56,416,600  
Cooperative  
Note: CMS began accepting loan applications in October 2011 and announced loan awards in February, March, May,  
June, and July 2012.   
 
   
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APPENDIX B 
List of Additional CO-OPs Funded After June 2012 
Loan Recipient Name  Service Area  Award Amount 
Land of Lincoln Health (incorporated 
as Metropolitan Chicago Healthcare  Illinois  $160,154,812  
Council CO-OP)  
Louisiana Health Cooperative, Inc.   Louisiana  $65,040,660  
Evergreen Health Cooperative, Inc.   Maryland  $65,450,900  
Minutemen Health, Inc.   Massachusetts  $88,498,080  
Coordinated Health Plans of Ohio, 
Ohio  $129,225,604  
Inc.  
Community Health Alliance Mutual 
Tennessee  $73,306,700  
Insurance Company  
Note: The six CO-OPs in this table are funded by CMS but were not included in this evaluation.  
 
   
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ACKNOWLEDGMENTS 
This report was prepared under the direction of Joyce Greenleaf, Regional 
Inspector General for Evaluation and Inspections in the Boston regional 
office, and Russell Hereford and Kenneth Price, Deputy Regional 
Inspectors General.  
Melissa Hafner served as the team  leader for this study, and Amy Glynn 
served as the analyst.  Central office staff who provided support include 
Heather Barton, Meghan Kearns, and Christine Moritz.  
Early Implementation of the Consumer Operated and Oriented Plan Loan Program (OEI-01-12-00290)   17 
   
Office of Inspector General
http://oig.hhs.gov  
 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as  
amended, is  to protect the integrity of the Department of  Health and Human Services  
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programs.  This statutory mission  is  carried  out through  a nationwide network  of  audits, 
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