Implementing Health Care Reform: Coops, MEWAs and Medicare Data

Timothy Jost

Posted 12/12/11 on The Health Affairs Blog

Copyright ©2011 Health Affairs by Project HOPE – The People-to-People Health Foundation, Inc. 

The week of December 5 was a particularly busy week in health care reform implementation.  After a lull over the Thanksgiving holiday, new regulations, proposed regulations, guidance, and grant announcements have poured out of the agencies.  This post will briefly summarize three of these issuances: the final rule on the Establishment of Consumer Operated and Oriented (CO-OP) program; the final rule on the Availability of Medicare Data for Performance Measurement to qualified entities; and a series of proposed rules and forms issued by the Department of Labor to implement new provisions of the ACA intended to address Multiple Employer Welfare Association (MEWA) fraud and abusive practices.

The regulations and proposed regulations released by HHS and DOL are quite technical and of specialized interest.  They will only be summarized very briefly here, therefore.

The CO-OP Regulations

The CO-OP program is intended to introduce new non-profit, consumer-owned and -oriented competitors into insurance markets to increase the competitiveness of those markets.  Health insurance cooperatives have a long history in the United States.  The New Deal Farm Security Administration sponsored co-ops throughout rural American in the 1930s and 1940s.  Today, however, cooperatives survive only in four states, covering about 2.1 million Americans.

The idea of expanding co-ops through federal loans and regulatory protection was proposed in the course of the health reform debate as an alternative to the controversial public option. Although it was greeted with skepticism at the time, there has been a great deal of interest in the CO-OP program so far and CO-OPs are likely to be formed in most of the states.  The goal of the program is in fact to establish at least one CO-OP in each state.

The ACA encourages CO-OPs by authorizing loans to cover start-up costs and state solvency requirements and by deeming CO-OPs that meet federal and state regulatory requirements to be qualified to participate in the state health insurance exchanges.  In accordance with statutory requirements, HHS appointed a 15-member advisory board that held hearings and issued a report in Spring, 2011, making recommendations to HHS regarding the program.  The regulation addresses the issues of eligibility to offer a CO-OP, governance, requirements that must be met to offer CO-OP plans, and the terms of loans.

Eligiblity. In determining which entities can sponsor a CO-OP, the rule attempts to strike a balance between, on the one hand, the goal of introducing new competitors into the insurance market, and, on the other, ensuring that new CO-OPs have the resources and specialized expertise to be successful.  The statute prohibits organizations that were health insurance issuers on July 16, 2009 or related entities (as well as state or local governments) from sponsoring CO-OPs.  The regulation interprets this provision to mean that pre-existing insurers, holding companies that own them, foundations that they control, and trade associations that represent them are ineligible to sponsor CO-OPs, along with organizations that share a common governance structure with pre-existing insurers if they provide services or management structures to the insurer.  CO-OPs may also not receive more than 25 percent of their funding from pre-existing insurers.

Non-profit entities that share a common governance structure with an existing insurer, however, might nonetheless qualify to sponsor a CO-OP if they do not provide services or management to an existing insurer.  For example a religious organization that is not an insurer but is affiliated with one to provide coverage for its members may qualify.  CO-OPs may also be sponsored by entities that are in some way affiliated with a state or local government (like a medical school or hospital) if the entity is not a government organization under state law, does not have a state employee serving as a senior executive, and does not have a board more than half of whose members represent state government.

Governance. CO-OPs are to be governed by boards elected by their “members”.  The regulation defines “members” to include all individuals covered by the CO-OP above 18 years of age.  Thus a family covered under one policy could have several voting members. CO-OPs will initially be governed by non-elected “formation boards,” since they cannot have members until they begin operation, but must elect their first “operational board” members within a year after first offering coverage, and must have an elected operational board fully in place within 2 years. A minority of board member seats can be designated for individuals with specialized expertise, experience, or affiliation (such as providers, employers, or unions).  CO-OPs must have in place ethics, conflict of interest, and disclosure standards.

At least 2/3 of the policies or contracts (including group contracts) issued by a CO-OP must be for qualified health plans issued in the individual or small-group market.  This allows CO-OPs to insure the members of their sponsor organizations or to enter into Medicaid managed care contracts, as well as offering coverage through the exchanges.  CO-OPs must issue both “gold” and “silver” plans, and must do so within 3 years of the initial drawdown of a start-up loan or one year of the initial drawdown of a solvency loan.  CO-OPs must be in full compliance with all eligibility standards within five years of the initial drawdown of a start-up loan or thee years of the initial drawdown of a solvency loan.

Loan terms. Solvency loans will be structured so as to meet state solvency requirements.  Start-up loans must normally be repaid within 5 years and solvency loans within 15 years.  Interest on start-up and solvency loans will be tied to the average interest rate on marketable Treasury rates of similar maturity, with start-up loans one percentage point below the average and solvency loans 2 percentage points below (but never less than 0 percent).  If CMS terminates a CO-OP’s loan agreement for noncompliance or the CO-OP engages in illegal activity, the CO-OP may be required to pay back 110 percent of the loan plus interest.  CO-OPs may not convert to for-profit or non-consumer-owned entities.

CO-OPs that comply with federal regulatory standards, and with all state-specific standards (other than those that operate to exclude CO-OPs due to characteristics specific to CO-OPs), must be deemed to be qualified to participate in an exchange.  Deeming will last for 2 years but can be extended for successive two year periods.

Provision Of Medicare Data To Qualified Entities

A final rule issued December 7 lays down the ground rules for sharing standardized extracts of Medicare Part A, B, and D claims data with qualified entities, to be used to evaluate the performance of Medicare providers and suppliers.  This rule implements a new requirement of the ACA, intended to increase the transparency of provider and supplier performance and to increase quality and reduce costs.

The rule addresses eligibility criteria for qualified entities; operating and governance requirements; the application and approval process; ensuring the privacy and security of data; the selection and use of performance measures; procedures for correcting errors as requested by providers and suppliers; and monitoring, sanctioning, and terminating qualified entities.  Particularly important changes found in the final rule include provisions:
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• allowing qualified organizations that do not possess the expertise or experience to meet all eligibility criteria in a single organization to contract with other entities to fill gaps;
• requiring applicants to disclose any violations of privacy or security laws for the length of time the organization has been in existence up to ten years prior to application;
• allowing organizations to copyright the content of publicly available reports;
• adding an additional process for seeking approval of the use of alternative measures other than the standard measures approved by CMS;
• reducing the cost and increasing the timeliness of data; and
• extending from 30 to 60 days the time between when the organization must provide confidentially to a provider or supplier reports that it intends to make public regarding the provider or supplier, and when the reports are actually released.  This allows the provider or supplier the opportunity to request the underlying data and to request correction of errors.

In its regulatory impact analysis, CMS estimated that approximately 35 organizations would apply to become qualified entities, of which about 25 would be approved.  The majority of these would be community quality collaboratives.  Entities would on average provide reports on about 4750 doctors and 250 hospitals.  CMS would provide data to the organizations at cost, which would be about $40,000 a year.  CMS estimates that initially about 25 percent of providers would appeal their performance calculations.

Proposed MEWA Fraud And Abuse Rules

Finally, on December 5, 2011, the Employee Benefits Security Administration of the Department of Labor released two proposed rules affecting multiple-employer welfare arrangements (MEWAs).  MEWAs are often marketed to small employers as a cheap alternative to traditional insurance.  Although some are legitimate, there is a long history of fraudulent and abusive MEWA marking practices and of financial instability.

MEWAs are subject to federal regulation under ERISA, and many are subject to some level of state regulation as well, yet MEWAs have proved remarkably adept at dodging regulatory requirements.  Not infrequently, small businesses and their employees have been left to pay their own medical bills after MEWAs have disappeared, their funds drained by excessive payments to their owners and operators or through simple embezzlement.

The proposed regulations, which are quite technical, implement provisions of the ACA requiring MEWAs to register with the DOL before operating in a state, or face substantial penalties. The DOL has published both a new registration form and a reporting form, which MEWAs must file annually to allow DOL to monitor their financial stability and practices.  The proposed rules also will implement ACA provisions allowing the DOL to issue cease and desist orders when it appears that a MEWA “is fraudulent, creates an immediate danger to the public safety or welfare, or is causing or can be reasonably expected to cause significant, imminent, and irreparable public injury.”  Finally, the proposed rules allow DOL to seize MEWA assents when there is probable cause to believe that a MEWA is in a financially hazardous condition.