The Internal Revenue Service (IRS) has developed regulations that could help groups start nonprofit, member-owned health plans.
The IRS drafted the regulations to implement part of the Consumer Operated and Oriented Plan (CO-OP) program described in Section 1322 of the Patient Protection and Affordable Care Act of 2010 (PPACA).
A temporary regulation, which takes effect immediately, lets organizers of a "qualified nonprofit health insurance issuer"(QNHII) claim tax-exempt status even before the U.S. Department of Health and Human Services (HHS) gives the QNHII permission to participate in the CO-OP program.
The IRS also has announced that it wants to develop a permanent rule based on the text of the temporary regulation. Comments on the rulemaking notice are due April 9.
Members of Congress added the CO-OP section to PPACA in an effort to increase the level of competition in the health insurance market.
To participate in the program, a carrier, or QNHII, must be a member-owned organiation that makes "substantially all" of its sales to individuals and small groups. The QNHII will become a new type of tax-eempt entity -- a 501(c)(29) organization.
The QNHIIs in the CO-OP program are supposed to split $3.8 billion in PPACA CO-OP startup loans.
The IRS developed the new temporary regulation because QNHII organizers have run into a procedural problem: Up until now, it has not been clear whether a QNHII seeking 501(c)(29) tax-exempt status is exempt from federal income taxes.
To get tax-exempt status before becoming a 501(c)(29) organization, a QNHII must have "prior purposes and activities" that are "consistent with the requirements for exempt status under section 501(c)(29)," officials say in a preamble to the temporary regulation.
The IRS also is preparing a revenue procedure that will give more details about how a QNHII can apply for 501(c)(29) status, officials say.
The revenue procedure will state that a 501(c)(29) status applicant must provide a CO-OP loan agreement with the Centers for Medicare & Medicaid Services, the HHS arm overseeing the CO-OP program, officials say.