SECTION 3. QUALIFIED NONPROFIT

HEALTH INSURANCE ISSUERS

Section 1322(c)(1) of the Affordable Care Act defines a qualified nonprofit health insurance issuer (“Qualified Issuer”) as an organization (a) that is organized as a nonprofit, member corporation under State law; (b) substantially all of the activities of which consist of the issuance of qualified health plans in the individual and small group markets in each State in which it is licensed to issue such plans; and (c) that meets additional requirements set forth in subsections (c)(2) through (6).

Section 1322(c)(2) of the Affordable Care Act provides that an organization shall not be treated as a Qualified Issuer if (a) the organization, a related entity, or a predecessor of either was a health insurance issuer as of July 16, 2009; or (b) the organization is sponsored by a State or local government, any political subdivision thereof, or any instrumentality of such government or political subdivision. Section 1322(c)(3) requires a Qualified Issuer to satisfy certain governance requirements. Section 1322(c)(4) requires a Qualified Issuer to use any profits that it makes to lower premiums, to improve benefits, or for other programs intended to improve the quality of health care delivered to its members. Section 1322(c)(5) requires a Qualified Issuer to meet all state law requirements that other issuers of qualified health plans are required to meet in any state where the issuer offers a qualified health plan. Section 1322(c)(6) provides that a Qualified Issuer may not offer a health plan in a state until that state has in effect (or the Secretary of HHS has implemented for the state) the market reforms required by part A of title XXVII of the Public Health Service Act, as amended by the Affordable Care Act.

Section 1322(b)(2)(C) of the Affordable Care Act requires a Qualified Issuer receiving a grant or loan under the CO-OP

program to enter into an agreement with HHS, which requires it to meet (and continue to meet) both the requirements under § 1322 to be treated as a Qualified Issuer, and all requirements of the loan or grant agreement. Such an agreement must include a requirement that no portion of the funds made available by any loan or grant under the CO-OP program may be used for carrying on propaganda, or otherwise attempting, to influence legislation, or for marketing.

A Qualified Issuer that has received a loan or grant under the CO-OP program may apply to the IRS to be recognized as an organization described in § 501(c)(29) of the Code and exempt from taxation under § 501(a) of the Code. The Qualified Issuer will qualify for exempt status under § 501(c)(29) only for periods that it is in compliance with the requirements of § 1322 of the Affordable Care Act and any loan or grant agreement with HHS. Under § 1322(b)(2)(C)(iii) of the Affordable Care Act, HHS must notify the Secretary of the Treasury of any determination under § 1322 of a failure that results in the termination of a Qualified Issuer’s tax-exempt status under § 501(c)(29) of the Code.

If a Qualified Issuer that has received a loan or grant under the CO-OP program does not apply for recognition of exempt status as an organization described in § 501(c)(29) or loses exempt status, it may be subject to Federal income taxation under appropriate provisions of the Code. If a taxable Qualified Issuer qualifies as an insurance company for Federal income tax purposes, it will be subject to the special tax rules of Subchapter L of the Code.