Exchange Wants Ancillary Partners

BY  | APRIL 3, 2014

(AP photo/Peter M. Fredin)
Managers of the state-based public exchange in Colorado are hoping to diversify. The Connect for Health Colorado board is looking into setting up an affiliate that could form strategic marketing alliances for companies that sell products such as vision insurance, accidental insurance, critical illness insurance and hospital indemnity insurance.The exchange is also considering alliances with payroll companies, human resources services companies, and companies that provide health care quality and cost estimation tools, such as Castlight, Best Doctors and SparkPeople.

“The management team requests the board approve the creation of a separate legal structure to allow for the consideration of several strategic opportunities,” Patty Fontneau, the exchange chief executive officer, writes in a memo posted on the board website.

Fontneau says in a draft set of guiding principles for non-QHP product options that the exchange is looking into that possibility both to generate the revenue needed to make the exchange self-sustaining and to increase access, affordability and choice for its customers.

The Patient Protection and Affordable Care Act lets PPACA public exchanges sell commercial “qualified health plan” coverage and commercial dental insurance. PPACA also lets the public exchanges help consumers enroll in government health programs, such as Medicaid and the Children’s Health Insurance Program.

Public exchanges cannot sell other types of commercial products, but the Centers for Medicare & Medicaid Services has developed rules that let exchanges sell advertising on their enrollment sites. HHS also lets exchanges provide links to outside sites that sell products other than major medical coverage and dental insurance.

The Colorado exchange managers have analyzed options such as setting up a division within Connect for Health Colorado, setting up a nonprofit subsidiary, setting up a for-profit subsidiary, or setting up a public benefit corporation.

Simply setting up a strategic alliance division would probably not comply with the current CMS rules, Fontneau writes.

If the exchange tried to set up a nonprofit subsidiary, the subsidiary probably would not be a tax-exempt organization, and it could not help offset ongoing exchange costs, Fontneau writes.

If the exchange sets up a for-profit limited liability company, the LLC would have to be a separate entity with its own name, and setting it up could threaten the ability of Connect for Health Colorado to operate as a tax-exempt entity, Fontneau writes.

Another concern is that, if the LLC performed poorly and shut down, the exchange might have to use its assets to pay the LLC’s debts, Fontneau writes.

Setting up a for-profit C corporation or a public benefit corporation could work better, and avoid threatening the ability of the exchange to operate as a tax-exempt entity, but the exchange would have to report some of the payments from the C corporation as taxable business income, Fontneau writes.

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