Health Care Law

Obamacare & Health Insurance CO-OPs

Did you know that Obamacare has Health Insurance CO-OPs?  Yes, the Patient Protection and Affordable Care Act authorized $6 billion in grants and loans to support “Consumer Operated and Oriented Plans,” what the IRS is calling “CO-OP Plans,” and what the media is calling “Health Insurance CO-OPs.”  In fact, Compass Cooperative Health Network     received $93 million dollars in loans to start Arizona’s first Obamacare “CO-OP Plan.”  Policies will be made public by October 1, 2013, and be available for purchase by January 1, 2014.

So, are “Consumer Operated and Oriented Plans,” aka “CO-OP Plans” cooperatives?  Meaning, are they non-profits?  Can their members participate in business decisions, such as coverage issues and the cost of premiums?  And, are they member-owned?  I’m still waiting to find out the answer to some of these questions, but here is what I’ve learned so far…

Yes, the “CO-OP Plans” under Obamacare are non-profits.  However, Obamacare created a new IRC Section especially for these “CO-OP Plans” called 501(c)(29).  Many current non-profit health insurance companies, like BlueCross and BlueShield of Arizona, are 501(m) non-profits.  The difference between 501(c)(29) non-profits and 501(m) non-profits is considerable.

First of all, 501(m) non-profits, are subject to some federal taxation, while 501(c)(29) non-profits are tax exempt.  In 1986, Congress created 501(m) for “commercial-type” non-profit insurance, probably because of facts like these:  Blue Cross and Blue Shield of Arizona, a 501(m) non-profit, reported $1.4 Billion in Revenues and $75 Million in Net Income for 2012.

Secondly, 501(c)(29) “CO-OP Plans” have many additional requirements over 501(m)s.  These include, ensuring accountability to plan participants, being governed in way that protect against insurance industry involvement, and being subject to a majority vote of its members.

So, does being subject to a majority vote of its members mean that those members can participate in business decisions?

Maybe.  Obamacare requires “CO-OP Plans” members to elect an “Operational Board” within one year of the “CO-OP Plan” offering health insurance coverage.  However, this appears to be participation through representation only.  The extent to which the membership can vote directly on issues of governance, like the cost of premiums, remains to be seen.  Once the “CO-OP Plans” policies are made public, we will know more.

Finally, will these “CO-OP Plans” will be member-owned?  I would say probably not, because neither Obamacare nor IRC Section 501(c)(29) requires member-ownership.  Again, “CO-OP Plans” stands for “Consumer Operated and Oriented Plans” and not cooperatives , which personally, I find misleading.  It is as if the health insurance industry is trying to narrow the definition of “CO-OP” to mean just “Consumer Operated.”

However, it is interesting to note that there are no health insurance cooperatives in Arizona.  In fact, health insurance cooperatives seem to be pretty rare in general.  When I went to Wikipedia to look up the two most commonly cited ones, Group Health of Washington, and HealthPartners of Minnesota, I discovered that neither of them is still a cooperative.  They are, however, both “consumer governed” just like the “Consumer Operated” plans under Obamacare.

Unfortunately, it is still too early to tell whether or not these Obamacare “CO-OP Plans” will provide individuals and small businesses with more affordable and reliable health insurance.  But, as a small business owner, I am interested to see what Arizona’s Compass Cooperative Health Network has to offer.  Stay tuned…