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Healthcare Alert: U.S. Announces Process for $3.8B in CO-OP Funds

According to a recently released Federal Opportunity Announcement (FOA), The Center for Medicare and Medicaid Services (CMS) will begin accepting applications for Consumer Oriented and Operated Plan (CO-OP) Start-Up Loans and Solvency Loans on Oct. 17, 2011. Section 1322 of the Patient Protection and Affordable Care Act (PPACA) establishes the CO-OP program to foster the creation of nonprofit health insurance issuers. The CO-OP program will dispense $3.8 billion in Start-Up Loans and Solvency Loans to providers and buyers who sponsor new insurers regionally.

The FOA is subject to change pending the CO-OP final rule. Comments on the proposed CO-OP rule are due on Sept. 16, 2011.

The CO-OP program is designed to foster the creation of new consumer-governed, private, nonprofit health insurance issuers, known as CO-OPs. CO-OPs will offer plans under the Affordable Insurance Exchanges (Exchanges) by Jan. 1, 2014. Generally, CMS will provide Start-Up Loans for all costs associated with developing the CO-OP, and Solvency Loans for all state registered reserves (Loans) to CO-OP applicants in each state. The loans are awarded for the purpose of CO OP development and meeting state solvency requirements. The FOA provides general detail regarding the basis upon which loans are awarded.

FOA Application Timeline

Under the FOA, CO-OP applicants must immediately submit a Letter of Intent indicating intent to apply for joint Start-Up Loans and/or Solvency Loans. The CMS underscores the time urgency of application because the agency expects to provide notice of loan awards by Jan. 12, 2012 so that CO OP applicants can be prepared to accept contracts in late 2013. Because of this deadline, the first round of applications are due by Oct. 17, 2011.

Successful CO-OP applications receive a Notice of Award and a Loan Agreement. CO-OP applicants may request reconsideration of loan application to CMS within 30 days of receiving determination notice. CMS notes that redetermination results in a final decision that is not subject to further administrative review or appeal.

FOA CO-OP Loan Application Criteria

Generally, CMS will look for efficiencies and evaluate whether the business plan and budget is sufficient, reasonable, and cost effective to support activities proposed in the CO-OP application. CMS will review applications on a base total of 100 points weighted from five general criteria including: (1) statutory preferences (16 points); (2) project narrative (4 points); (3) business plan (62 points); (4) government and licensure (10 points); and (5) feasibility study (8 points). The feasibility study must be supported by an actuarial analysis.

FOA Loan Details

Both Loans are non-recourse and provided at a low interest rates. Start-Up Loans will be prepaid five years from startup and charged an interest rate equal to the average interest rate on marketable Treasury securities of similar maturity minus one (1%) percentage point (provided that interest shall not be less than 0 percent) on the amount of the drawdown. Solvency Loans will be repaid in 15 years and charged an interest rate equal to the average interest rate on marketable Treasury securities of similar maturity minus two (2%) percentage points (provided that the interest shall not be less than 0 percent) on the amount of the drawdown.

© 2022 BARNES & THORNBURG LLPNational Law Review, Volume I, Number 216
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About this Author

Mark E. Rust Barnes Thornburg Law firm Chicago Corporate Finance and Healthcare Law Attorney
Partner

Mark Rust is Managing Partner of the Chicago office of Barnes & Thornburg, LLP, and Chair of the firm’s national Healthcare Department. Mr. Rust concentrates his practice in transactional, regulatory and medical-legal issues affecting healthcare entities and provider organizations. For nearly 30 years he has written about or practiced in healthcare law, writing in a wide variety of publications from theJournal of the American Bar Association to USA Today. He is listed as a notable healthcare lawyer in Chambers USA, Top Healthcare Lawyers of Illinois,Superlawyers...

312-214-8309
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