Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

ARLY MPLEMENTATION OF 

THE CONSUMER OPERATED 

AND ORIENTED PLAN 

LOAN PROGRAM 

Daniel R. Levinson 

Inspector General 

July 2013 

OEI-01-12-00290 

E I
 

 

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 Exchanges—i.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 CMS’s documentation 

related to oversight of the 18 CO-OPs to assess their progress during the startup phase 

and assess CMS’s 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. CMS’s 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 State’s 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
 

CMS’s 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). CMS’s 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-OP’s 

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 

CMS’s 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 

CMS’s 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, CMS’s 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 CMS’s response. 

CMS Oversight Documents. We reviewed documentation that CMS uses 

to track CO-OPs’ progress and CMS’s day-to-day oversight. For example, 

we reviewed notes from CMS’s 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 COOP’s background and its status. We also asked about each CO-OP’s 

financial or operational challenges and its interactions with CMS staff. 

Interviews With CCIIO staff 

To assess CMS’s process and expectations for overseeing the CO-OP 

program, we interviewed six CMS staff members within CCIIO. We 

asked staff to discuss CMS’s 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 CMS’s 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 

CMS’s 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 

communicate with one another 

“Telehealth” and video systems that enable rural 

physicians to interface with providers at urban 

medical centers 

Management of care transitions across health 

care settings (i.e., hospital, home, physician’s 

office) 

Provider data sharing from claims, clinical notes, 

and peer data to develop best practices in care 

coordination 







Management programs for chronic 

conditions and maternal health 

Intensive primary care management 

for patients with multiple complex 

conditions 

Exclusive provider or medical home 

models that require patients to adhere 

to a treatment plan 

Patient Behavior Modification Financial Incentives for Providers 









Health coaching (e.g., teaching healthy lifestyle 

habits) 

Wellness programs 

Tracking emergency room use 

IT systems that track patient behavior 







Bonus payments or shared savings for 

improving outcomes 

Provider incentives based on 

achieving measurable outcomes 

 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 patient’s 

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 COOPs 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 
 

 

Early Implementation of the Consumer Operated and Oriented Plan Loan Program (OEI-01-12-00290) 10 

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 Court’s 

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. 
 

 

 

CMS’s 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-OP’s 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-OP’s 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-OP’s 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 COOP 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 COOP’s budget accounted for the contract’s 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-OP’s State’s 

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-OP’s market share. 

Early Implementation of the Consumer Operated and Oriented Plan Loan Program (OEI-01-12-00290) 13 
 

Early Implementation of the Consumer Operated and Oriented Plan Loan Program (OEI-01-12-00290) 14 

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 

Cooperative, Inc. Colorado $69,396,000 

CoOpportunity Health Iowa and Nebraska $112,612,100 

Kentucky Health Care Cooperative Kentucky $58,831,500 

Maine Community Health Options Maine $62,100,000 

Consumer’s Mutual Insurance of 

Michigan CO-OP Michigan $71,534,300 

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 

Corporation New York $174,445,000 

Freelancers CO-OP of Oregon Oregon $59,487,500 

Oregon’s Health CO-OP Oregon $56,656,900 

Consumers’ Choice Health Insurance 

Company South Carolina $87,578,208 

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. 
 

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 

Cooperative Wisconsin $56,416,600 

Note: CMS began accepting loan applications in October 2011 and announced loan awards in February, March, May, 

June, and July 2012. 

Early Implementation of the Consumer Operated and Oriented Plan Loan Program (OEI-01-12-00290) 15 
 

 

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 

Council CO-OP) 

Illinois $160,154,812 

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, 

Inc. 

Ohio $129,225,604 

Community Health Alliance Mutual 

Insurance Company Tennessee $73,306,700 

Note: The six CO-OPs in this table are funded by CMS but were not included in this evaluation. 

Early Implementation of the Consumer Operated and Oriented Plan Loan Program (OEI-01-12-00290) 16 
 

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 

(HHS) programs, as well as the health and welfare of beneficiaries served by those 

programs. This statutory mission is carried out through a nationwide network of audits, 

investigations, and inspections conducted by the following operating components: 

Office of Audit Services 

The Office of Audit Services (OAS) provides auditing services for HHS, either by conducting 

audits with its own audit resources or by overseeing audit work done by others. Audits 

examine the performance of HHS programs and/or its grantees and contractors in carrying 

out their respective responsibilities and are intended to provide independent assessments of 

HHS programs and operations. These assessments help reduce waste, abuse, and 

mismanagement and promote economy and efficiency throughout HHS. 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 

HHS, Congress, and the public with timely, useful, and reliable information on significant 

issues. These evaluations focus on preventing fraud, waste, or abuse and promoting 

economy, efficiency, and effectiveness of departmental programs. To promote impact, OEI 

reports also present practical recommendations for improving program operations. 

Office of Investigations 

The Office of Investigations (OI) conducts criminal, civil, and administrative investigations 

of fraud and misconduct related to HHS programs, operations, and beneficiaries. With 

investigators working in all 50 States and the District of Columbia, OI utilizes its resources 

by actively coordinating with the Department of Justice and other Federal, State, and local 

law enforcement authorities. The investigative efforts of OI often lead to criminal 

convictions, administrative sanctions, and/or civil monetary penalties. 

Office of Counsel to the Inspector General 

The Office of Counsel to the Inspector General (OCIG) provides general legal services to 

OIG, rendering advice and opinions on HHS programs and operations and providing all 

legal support for OIG’s internal operations. OCIG represents OIG in all civil and 

administrative fraud and abuse cases involving HHS programs, including False Claims Act, 

program exclusion, and civil monetary penalty cases. In connection with these cases, OCIG 

also negotiates and monitors corporate integrity agreements. OCIG renders advisory 

opinions, issues compliance program guidance, publishes fraud alerts, and provides other 

guidance to the health care industry concerning the anti-kickback statute and other OIG 

enforcement authorities.