The Issue
Consumer Operated and Oriented Plans (CO-OPs) are nonprofit insurers created under the Patient Protection and Affordable Care Act. The entities are intended to fulfill the need of quickly creating large insurers that are nonprofit in order to serve those who lack health insurance.

The Act created CO-OPs as a limited category of organizations that are subject to the following rules: they can receive federal loans; they cannot engage in lobbying; they must form as a (mutual benefit) nonprofit; they must avoid private inurement; and they can accept private investments with a cap on the returns to the investors. Under active consideration are rules that would guide the creation of 501(c)(29) CO-OPs including the appropriate treatment of the new entities and whether any new law or regulation is needed to implement them.

UPDATE
On January 2, 2013, Congress passed legislation called the American Taxpayer Relief Act of 2012 to address the impending tax increases and automatic spending cuts scheduled to begin in January 2013, commonly referred to as the "fiscal cliff." The legislation eliminated new start-up loans for nonprofit cooperatives, including for states whose CO-OPs were in the planning stages or pending approval of their applications. The legislation did not eliminate loans for the 24 nonprofit cooperatives already approved to receive Department of Health and Human Services loans.

IS Position
At their September 22, 2011 meeting, the Independent Sector board adopted the following position with respect to Consumer Operated and Oriented Plans:

As we review the Patient Protection Act, there is no apparent need to create a new hybrid corporate form to accommodate Consumer Operated and Oriented Plans in the federal tax code.

As regulations are developed, the following issues should be considered and appropriately handled in light of the nonprofit status of Consumer Operated and Oriented Plans:

• Member Control
• Private Inurement and Conflicts of Interest
• Treatment of Profits
• Capital Structure
• Monitoring and Transparency
• Treatment of Assets Upon Dissolution or Conversion

Background
On February 7, 2012, the Federal Register published temporary regulations authorizing the IRS to prescribe the procedures by which qualified nonprofit health insurance issuers participating in the CO-OP program may apply for recognition as a tax-exempt organization under the Internal Revenue Code. Read the IS comment to the IRS.  The IRS issued new guidance on August 4, 2012.