Source: https://www.federalregister.gov/articles/2011/07/20/2011-18342/patient-protection-and-affordable-care-act-establishment-of-consumer-operated-and-oriented-plan
Timestamp: 2016-08-25 08:06:13
Document Index: 69063645

Matched Legal Cases: ['§ 156', 'arts 155', '§ 155', '§ 156', '§ 156', '§ 156', '§ 156', '§ 156', '§ 156', '§ 156', '§ 156', '§ 156', 'art 156']

-43250 (14 pages)
Document Number: 2011-18342
Shorter URL: https://federalregister.gov/a/2011-18342 Related Topics
Submission of comments on paperwork requirements. You may submit comments on this document's paperwork requirements by following the instructions at the end of the “Collection of Information Requirements” section in this document. Comments erroneously mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and received after the comment period.
A. Introduction B. Statement of Need, Health Insurance Markets, and CO-OP Plans
Section 1322(e) of the Affordable Care Act prohibits representatives of any Federal, State, or local government (or of any political subdivision or instrumentality thereof), and representatives of an organization that was an existing issuer or a related entity (or predecessor of either) on July 16, 2009, from serving on the board of directors of the qualified nonprofit health insurance issuer or a private purchasing council established under section 1322(d) of the Affordable Care Act. Together, these provisions form the statutory basis for the CO-OP program established under this rule.
Section 156.505 sets forth definitions for terms that are used throughout subpart F. Many of the definitions presented in § 156.505 are taken directly from the Affordable Care Act, but new definitions were created when necessary. All definitions proposed are intended to apply only to subpart F.
Several of the terms used in subpart F are defined elsewhere in Parts 155 and 156, which have been proposed previously (76 FR 41866). The terms “individual market,” “small group market,” “SHOP,” and “Exchange” are defined in § 155.20. “Individual market” is defined as the market for health insurance coverage offered to individuals other than in connection with a group health plan. “Small group market” is defined as the health insurance market under which individuals obtain health insurance coverage (directly or through any arrangement) on behalf of themselves (and their dependents) through a group health plan maintained by a small employer. “SHOP” is defined as a Small Business Health Options Program operated by an Exchange through which a qualified employer can provide its employees and their dependents with access to one or more QHPs. “Exchange” is defined as a governmental agency or non-profit entity that meets the applicable requirements of this part and makes QHPs available to qualified individuals and qualified employers. Unless otherwise identified, this term refers to State Exchanges, regional Exchanges, subsidiary Exchanges, and a Federally-facilitated Exchange.
Consistent with the recommendation of the Advisory Board, CMS proposes the applicant have formed a nonprofit member organization under State law prior to applying for a loan. This means that the new nonprofit member corporation, and not an organization that is sponsoring the creation of a CO-OP, would be the applicant for and recipient of a loan.
A CO-OP must satisfy the standards set forth in all statutory, regulatory, or other requirements as applicable. CMS proposes additional standards that a CO-OP must meet in § 156.515, many of which are recommendations made by the Advisory Board in the final report dated April 15, 2011. We invite comment on these proposed standards, which are set forth below.
Paragraph (b)(1)(iv) proposes that the first election of the operational board of directors occur no later than one year after the effective date on which the CO-OP provides coverage to its first member. The Advisory Board recommended that this election should take place within the first year after enrollment begins or when a certain designated membership level is reached, but should occur no later than two years after the organization enrolls its first member, recognizing that a certain level of membership is necessary for meaningful elections. CMS is concerned that the Advisory Board's recommendation of an election date of the start-up period plus two years after enrollment will delay the introduction of consumer governance beyond a point where it can have an impact on the strategic direction of the CO-OP. We do not believe that holding an election one year after coverage begins will burden the formation board or CO-OP operations since the formation board will have the full start-up period plus one year to plan for this transition. We solicit comments on the proposed timeline.
In paragraph (c)(2), CMS proposes that a CO-OP applicant receiving a Start-up Loan or Solvency Loan offer at least one CO-OP qualified health plan at both the silver and gold benefit levels, as defined in section 1302(d) of the Affordable Care Act, in every individual market Exchange that serves the geographic market in which it is licensed and intends to provide health care coverage (market area). In addition, CMS proposes that if a CO-OP chooses to offer coverage in the small group market outside the Exchange, a CO-OP must commit to offering at least one CO-OP qualified health plan at both the silver and gold benefit levels in the SHOP of any market area where the CO-OP is licensed. Note that it is a choice for a CO-OP to offer coverage in the small group market, but if it does so, it must also offer coverage through SHOP to prevent adverse selection against SHOP. These standards are consistent with section 1301 of the Affordable Care Act providing that health insurance issuers that participate in the Exchanges offer qualified health plans at both the silver and gold benefit levels.
Paragraph (a)(1), proposes that organizations that meet eligibility standards according to § 156.510 can apply for Start-up Loans and Solvency Loans (pursuant to a separate CO-OP program Funding Opportunity Announcement (FOA)). Organizations may apply for Start-up Loans to assist with start-up costs associated with establishing a CO-OP. In addition, CMS proposes that organizations that meet the eligibility standards may apply for Solvency Loans to assist in meeting the solvency requirements of States in which the applicant seeks to be licensed to issue CO-OP qualified health plans.
CMS proposes in § 156.520(a)(3) to structure Solvency Loans to each loan recipient in a manner that meets State reserve and solvency requirements so that the loan recipient can fund its required capital reserves. This ensures that they are recognized as contributing to State reserve and solvency requirements in the States in which the applicant intends to offer CO-OP qualified health plans. We request comment on this provision.
Section 1322(b)(3) of the Affordable Care Act states that loans awarded must be repaid within 5 years and 15 years respectively, taking into consideration any appropriate State reserve requirements, solvency regulations, and requisite surplus note arrangements that must be constructed in a State. This standard is codified in § 156.520(b). Loan recipients must make loan payments consistent with the repayment schedule approved by CMS and agreed to by the loan recipient until the loans have been paid in full. Recognizing that it would be difficult for a loan recipient to begin repaying the loans before it has enrolled members and received premiums, the Advisory Board recommended that loan repayment begin after the loan recipient has begun receiving enrollment. Commenters to the RFC generally recommended repayment schedules for loans that are flexible. Most commenters indicated that preventing the failure of a CO-OP should take priority over repayment because insolvency of a CO-OP would harm its members and create disruption in insurance markets.
In § 156.520(c), CMS proposes that loan recipients pay an interest rate benchmarked to the average interest rate on marketable Treasury securities of similar maturity. These interest rates are tied to prevailing market conditions while providing low cost loans that are consistent with the statute's direction to foster the development of viable private nonprofit CO-OPs. CMS is considering reductions to the benchmarked rate for Start-Up Loans and Solvency Loans to make it easier for new CO-OPs to repay their loans.
Section 1322(b)(2)(C)(iii) of the Affordable Care Act states that if CMS determines that a loan recipient has failed to meet any of its contractual obligations, or has used Federal funds in a prohibited or improper manner, the loan recipient must repay to CMS 110 percent of the aggregate amount of loans received under this section, plus interest. This provision is codified in § 156.520(c) so that if a loan recipient's loan agreement is terminated by CMS, the loan recipient would be charged the statutory penalty and an interest rate equal to the average interest rate on marketable Treasury securities of similar maturity. We request public comment on the proposed interest rates and the structure of the debt instrument.
In § 156.520(d), CMS proposes to use any and all remedies available to it under law to collect loan payments or penalty payments if a loan recipient fails to make payments consistent with the repayment schedule in its loan agreement or in a loan modification or workout.
In § 156.520(e) we codify the “deeming” provisions of section 1301(a)(2) of the Affordable Care Act. To be deemed certified to participate in an Exchange, we propose that a loan recipient must be in compliance with the terms of the CO-OP program, the Federal standards for CO-OP qualified health plans set forth pursuant to section 1311(c) of the Affordable Care Act and State standards. CMS or an entity designated by CMS will make a determination regarding whether or not a loan recipient meets these standards based on evidence provided by the loan recipient. CMS or its designee will notify the Exchange in which the loan recipient proposes to operate that the loan recipient is deemed certified to participate. Similarly, if a loan recipient loses its deemed status for any reason, CMS or its designee will provide notice to the applicable Exchanges.
CMS recognizes the potential for changes in CO-OP governance in circumstances other than conversions and sales to for-profit or non-consumer-operated entities. Since the goals of the CO-OP program are to make available new consumer-governed private nonprofit health plans and expand competition in the Exchanges, CMS proposes to prohibit any transaction by a CO-OP that would result in a change to a governance structure that does not meet the standards in § 156.515 or any other program standards. We request comment on these prohibitions.
V. Regulatory Impact Analysis (RIA) Back to Top
Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). An RIA must be prepared for rules with economically significant effects ($100 million or more in any 1 year). This proposed rule is economically significant. Accordingly, the Office of Management and Budget has reviewed this proposed rule.
As previously explained, Congress has provided $3.8 billion to assist sponsoring organizations in creating such plans and to do so with enough capital and reserves to become licensed and ultimately effective competitors in State insurance markets.
The capital requirements for CO-OPs would be financed, in part, by member premiums and in part by the $3.8 billion dollars available for loans over the next five years. The net Federal costs of these loans to CO-OPs are “transfers.” The net transfer costs resulting from default and loss of interest over the relevant 5 year (Start-up Loan) and 15 year (Solvency Loan) periods are estimated later in this analysis, in Table 1. We estimate that 65 percent of the Solvency Loans and 60 percent of the Start-up Loans will be repaid. Our estimates use one percent below the current yields for 5-year U.S. Treasury bonds as the repayment interest rate on Start-up Loans and two percent below the current yields for longer term U.S. Treasury Bonds as the repayment rate for the Solvency Loans.
There is also a tradeoff between the amount of a loan subsidy and the likely default rate. For example, if a 1 percent increase in the interest rate were to increase the likelihood of total default by 1 percent or more, the net effect would be to increase Federal costs. In the CO-OP program, substantially higher interest rates could threaten required solvency reserves. We cannot predict quantitatively the effects of interest charges on the willingness of organizations to sponsor CO-OPs, but substantially higher interest charges would clearly reduce the likelihood of CO-OPs being created in as many States. Higher interest charges could also reduce the ability of CO-OPs to expand and correspondingly reduce the benefits of the program.
As required by OMB Circular A-4, we have prepared an accounting statement. The transfer costs shown are the net costs resulting from default and loss of interest over the relevant 5 year (Start-up Loan) and 15 year (Solvency Loan) periods. We have estimated that $600 million would be used for Start-up Loans and $3,200 million would be used for Solvency Loans. As previously presented, for purposes of this calculation our primary estimate is that 65 percent of the Solvency Loans and 60 percent of the Start-up Loans are repaid. We have used a low-cost estimate that assumes 80 percent repayment of all loans and a high-cost estimate that assumes 50 percent repayment of all loans. Our estimates use one percent below the current yields for 5-year U.S. Treasury bonds as the repayment interest rate on Start-up loans and two percent below the current yields for the average of 10-year and 20-year U.S. Treasury Bonds as the repayment rate for the Solvency Loans (see http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield).
Qualitative: New CO-OP enrollees served may experience better health outcomes. There are also potential cost savings system-wide from competitive effects on other health care plans. Net benefits will depend on the extent to which CO-OP plans augment or substitute for other health care insurance and services.
Qualitative: Costs include administrative burdens associated with applying for and complying with the terms of the loans.
VI. Other Requirements for Analysis of Economic Effects Back to Top
For the reasons set forth in the preamble, the Department of Health and Human Services proposes to further amend 45 CFR part 156, as proposed to be added at 76 FR 41866, July 15, 2011, as set forth below:
Title I of the Affordable Care Act, Sections 1301-1304, 1311-1312, 1321, 1322, 1324, 1334, 1342-1343, and 1401-1402.
156.515 CO-OP minimum standards.
(1) Member control. A CO-OP must implement policies and procedures to foster and ensure member control of the organization. Accordingly, a CO-OP must meet the following the requirements:
1. We note that these capital requirements are not “cost” for the purpose of calculating the benefits and costs of this Federal program. Costs, in the context of this program, are the resources spent on applying for and complying with the terms of the loans. As noted above, we will solicit comments on the information collection requests associated with the implementation of the CO-OP program (for example, application, reporting) in one or more future 60-day notices.