[Federal Register Volume 77, Number 236 (Friday, December 7, 2012)]
[Proposed Rules]
[Pages 73118-73218]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-29184]
[[Page 73117]]
Vol. 77
Friday,
No. 236
December 7, 2012
Part II
Department of Health and Human Services
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45 CFR Part 153, 155, 156, et al.
Patient Protection and Affordable Care Act; HHS Notice of Benefit and
Payment Parameters for 2014; Proposed Rule
Federal Register / Vol. 77 , No. 236 / Friday, December 7, 2012 /
Proposed Rules
[[Page 73118]]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
45 CFR Parts 153, 155, 156, 157 and 158
[CMS-9964-P]
RIN 0938-AR51
Patient Protection and Affordable Care Act; HHS Notice of Benefit
and Payment Parameters for 2014
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Proposed rule.
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SUMMARY: This proposed rule provides further detail and parameters
related to: the risk adjustment, reinsurance, and risk corridors
programs; cost-sharing reductions; user fees for a Federally-
facilitated Exchange; advance payments of the premium tax credit; a
Federally-facilitated Small Business Health Option Program; and the
medical loss ratio program. The cost-sharing reductions and advanced
payments of the premium tax credit, combined with new insurance market
reforms, will significantly increase the number of individuals with
health insurance coverage, particularly in the individual market. The
premium stabilization programs--risk adjustment, reinsurance, and risk
corridors--will protect against adverse selection in the newly enrolled
population. These programs, in combination with the medical loss ratio
program and market reforms extending guaranteed availability (also
known as guaranteed issue) protections and prohibiting the use of
factors such as health status, medical history, gender, and industry of
employment to set premium rates, will help to ensure that every
American has access to high-quality, affordable health insurance.
DATES: To be assured consideration, comments must be received at one of
the addresses provided below, no later than 5 p.m. on December 31,
2012.
ADDRESSES: In commenting, please refer to file code CMS-9964-P. Because
of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of four ways (please choose only one
of the ways listed):
1. Electronically. You may submit electronic comments on this
regulation to http://www.regulations.gov. Follow the ``Submit a
comment'' instructions.
2. By regular mail. You may mail written comments to the following
address ONLY:
Centers for Medicare & Medicaid Services, Department of Health and
Human Services, Attention: CMS-9964-P, P.O. Box 8016, Baltimore, MD
21244-8016.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments to
the following address ONLY:
Centers for Medicare & Medicaid Services, Department of Health and
Human Services, Attention: CMS-9964-P, Mail Stop C4-26-05, 7500
Security Boulevard, Baltimore, MD 21244-1850.
4. By hand or courier. Alternatively, you may deliver (by hand or
courier) your written comments ONLY to the following addresses prior to
the close of the comment period:
a. For delivery in Washington, DC--
Centers for Medicare & Medicaid Services, Department of Health and
Human Services, Room 445-G, Hubert H. Humphrey Building, 200
Independence Avenue SW., Washington, DC 20201.
(Because access to the interior of the Hubert H. Humphrey Building
is not readily available to persons without Federal government
identification, commenters are encouraged to leave their comments in
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing
by stamping in and retaining an extra copy of the comments being
filed.)
b. For delivery in Baltimore, MD--
Centers for Medicare & Medicaid Services, Department of Health and
Human Services, 7500 Security Boulevard, Baltimore, MD 21244-1850.
If you intend to deliver your comments to the Baltimore address,
call telephone number (410) 786-7195 in advance to schedule your
arrival with one of our staff members.
Comments erroneously mailed to the addresses indicated as
appropriate for hand or courier delivery may be delayed and received
after the comment period.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.
FOR FURTHER INFORMATION CONTACT: Sharon Arnold at (301) 492-4286,
Laurie McWright at (301) 492-4311, or Jeff Wu at (301) 492-4305 for
general information.
Adrianne Glasgow at (410) 786-0686 for matters related to
reinsurance.
Michael Cohen at (301) 492-4277 for matters related to the
methodology for determining the reinsurance contribution rate and
payment parameters.
Grace Arnold at (301) 492-4272 for matters related to risk
adjustment, the HHS risk adjustment methodology, or the distributed
data collection approach for the HHS-operated risk adjustment and
reinsurance programs.
Adam Shaw at (410) 786-1091 for matters related to risk corridors.
Johanna Lauer at (301) 492-4397 for matters related to cost-sharing
reductions, advance payments of the premium tax credits, or user fees.
Rex Cowdry at (301) 492-4387 for matters related to the Small
Business Health Options Program.
Carol Jimenez at (301) 492-4457 for matters related to the medical
loss ratio program.
SUPPLEMENTARY INFORMATION:
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. We post all comments
received before the close of the comment period on the following Web
site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that Web site to
view public comments.
Comments received timely will also be available for public
inspection as they are received, generally beginning approximately 3
weeks after publication of a document, at the headquarters of the
Centers for Medicare & Medicaid Services, 7500 Security Boulevard,
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30
a.m. to 4 p.m. To schedule an appointment to view public comments,
phone 1-800-743-3951.
Table of Contents
I. Executive Summary
II. Background
III. Provisions of the Proposed HHS Notice of Benefit and Payment
Parameters for 2014
A. Provisions for the State Notice of Benefit and Payment
Parameters
B. Provisions and Parameters for the Permanent Risk Adjustment
Program
1. Approval of State-Operated Risk Adjustment
2. Risk Adjustment User Fees
3. Overview of the Risk Adjustment Methodology HHS Would
Implement When Operating Risk Adjustment on Behalf of a State
4. State Alternate Methodology
5. Risk Adjustment Data Validation
C. Provisions and Parameters for the Transitional Reinsurance
Program
1. State Standards Related to the Reinsurance Program
[[Page 73119]]
2. Contributing Entities and Excluded Entities
3. National Contribution Rate
4. Calculation and Collection of Reinsurance Contributions
5. Eligibility for Reinsurance Payments Under Health Insurance
Market Rules
6. Reinsurance Payment Parameters
7. Uniform Adjustment to Reinsurance Payments
8. Supplemental State Reinsurance Parameters
9. Allocation and Distribution of Reinsurance Contributions
10. Data Collection Standards for Reinsurance Payments
D. Provisions for the Temporary Risk Corridors Program
1. Definitions
2. Risk Corridors Establishment and Payment Methodology
3. Risk Corridors Data Requirements
4. Manner of Risk Corridor Data Collection
E. Provisions for the Advance Payment of the Premium Tax Credit
and Cost-Sharing Reduction Programs
1. Exchange Responsibilities With Respect to Advance Payments of
the Premium Tax Credit and Cost-Sharing Reductions
2. Exchange Functions: Certification of Qualified Health Plans
3. QHP Minimum Certification Standards Relating to Advance
Payments of the Premium Tax Credit and Cost-Sharing Reductions
4. Health Insurance Issuer Responsibilities With Respect to
Advance Payments of the Premium Tax Credit and Cost-Sharing
Reductions
F. Provisions on User Fees for a Federally-Facilitated Exchange
(FFE)
G. Distributed Data Collection for the HHS-Operated Risk
Adjustment and Reinsurance Programs
1. Background
2. Issuer Data Collection and Submission Requirements
3. Risk Adjustment Data Requirements
4. Reinsurance Data Requirements
H. Small Business Health Options Program
I. Medical Loss Ratio Requirements Under the Patient Protection
and Affordable Care Act
1. Treatment of Premium Stabilization Payments, and Timing of
Annual MLR Reports and Distribution of Rebates
2. Deduction of Community Benefit Expenditures
3. Summary of Errors in the MLR Regulation
IV. Collection of Information Requirements
V. Response to Comments
VI. Regulatory Impact Analysis
A. Statement of Need
B. Overall Impact
C. Impact Estimates of the Payment Notice Provisions
D. Regulatory Flexibility Act
E. Unfunded Mandates
F. Federalism
G. Congressional Review Act Regulations Text
Acronyms
Affordable Care Act The Affordable Care Act of 2010 (which is the
collective term for the Patient Protection and Affordable Care Act
(Pub. L. 111-148) and the Health Care and Education Reconciliation
Act (Pub. L. 111-152))
APTC Advance payment of the premium tax credit
AV Actuarial Value
CFR Code of Federal Regulations
CHIP Children's Health Insurance Program
CMS Centers for Medicare & Medicaid Services
EHB Essential Health Benefits
ERISA Employee Retirement Income Security Act
ESI Employer sponsored insurance
FFE Federally-facilitated Exchange
FPL Federal Poverty Level
GAAP Generally accepted accounting principles
HCC Hierarchical condition category
HHS United States Department of Health and Human Services
HIPAA Health Insurance Portability and Accountability Act of 1996
(Pub. L. 104-191)
IHS Indian Health Service
IRS Internal Revenue Service
MLR Medical Loss Ratio
NAIC National Association of Insurance Commissioners
OMB Office of Management and Budget
OPM United States Office of Personnel Management
PHS Act Public Health Service Act
PRA Paperwork Reduction Act of 1985
QHP Qualified Health Plan
SHOP Small Business Health Options Program
The Code Internal Revenue Code of 1986
I. Executive Summary
A. Purpose
Beginning in 2014, individuals and small businesses will be able to
purchase private health insurance through competitive marketplaces,
called Affordable Insurance Exchanges, or ``Exchanges.'' Individuals
who enroll in health plans through Exchanges may receive premium tax
credits to make health insurance more affordable, and financial
assistance to cover cost sharing for health care services. The premium
tax credits, combined with the new insurance reforms, will
significantly increase the number of individuals with health insurance
coverage, particularly in the individual market. Premium stabilization
programs--risk adjustment, reinsurance, and risk corridors--protect
against adverse selection in the newly enrolled population. These
programs, in combination with the medical loss ratio program and market
reforms extending guaranteed availability (also known as guaranteed
issue) protections, prohibiting the use of factors such as health
status, medical history, gender, and industry of employment to set
premium rates, will help to ensure that every American has access to
high-quality, affordable health insurance.
Premium stabilization programs: The Affordable Care Act establishes
transitional reinsurance and temporary risk corridors programs, and a
permanent risk adjustment program to provide payments to health
insurance issuers that cover higher-risk populations and to more evenly
spread the financial risk borne by issuers.
The transitional reinsurance program and the temporary risk
corridors program, which begin in 2014, are designed to provide issuers
with greater payment stability as insurance market reforms are
implemented. The reinsurance program will reduce the uncertainty of
insurance risk in the individual market by partially offsetting risk of
high-cost enrollees. The risk corridors program, which is a Federally
administered program, will protect against uncertainty in rates for
qualified health plans by limiting the extent of issuer losses and
gains. On an ongoing basis, the risk adjustment program is intended to
provide increased payments to health insurance issuers that attract
higher-risk populations, such as those with chronic conditions, and
reduce the incentives for issuers to avoid higher-risk enrollees. Under
this program, funds are transferred from issuers with lower-risk
enrollees to issuers with higher-risk enrollees.
In the Premium Stabilization Rule (77 FR 17220), we laid out a
regulatory framework for these three programs. In that rule, we stated
that the specific payment parameters for those programs would be
published in this proposed rule. In this proposed rule, we expand upon
these standards, and propose payment parameters for these programs.
Advanced payments of the premium tax credit and cost-sharing
reductions: This proposed rule proposes standards for advanced payments
of the premium tax credit and for cost-sharing reductions. These
programs assist low- and moderate-income Americans in affording health
insurance on an Exchange. Section 1401 of the Affordable Care Act
amended the Internal Revenue Code (26 U.S.C.) to add section 36B,
allowing an advance, refundable premium tax credit to help individuals
and families afford health insurance coverage. Section 36B of the Code
was subsequently amended by the Medicare and Medicaid Extenders Act of
2010 (Pub. L. 111-309) (124 Stat. 3285 (2010)); the Comprehensive 1099
Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act
of 2011 (Pub. L. 112-9) (125 Stat. 36 (2011)); and the Department of
Defense and Full-Year Continuing Appropriations Act, 2011 (Pub. L. 112-
10) (125 Stat. 38 (2011)). The section
[[Page 73120]]
36B credit is designed to make a qualified health plan affordable by
reducing a taxpayer's out-of-pocket premium cost.
Under section 1411 of the Affordable Care Act, an Exchange makes an
advance determination of tax credit eligibility for individuals
enrolling in coverage through the Exchange and seeking financial
assistance. Using information available at the time of enrollment, the
Exchange determines: (1) whether the individual meets the income and
other requirements for advance payments, and (2) the amount of the
advance payments. Advance payments are made monthly under section 1412
of the Affordable Care Act to the issuer of the qualified health plan
(QHP) in which the individual enrolls.
Section 1402 of the Affordable Care Act provides for the reduction
of cost sharing for certain individuals enrolled in QHPs offered
through the Exchanges and section 1412 of the Affordable Care Act
provides for the advance payment of these reductions to issuers. This
assistance will help low- and moderate-income qualified individuals and
families afford the out-of-pocket spending associated with health care
services provided through QHP coverage. The law directs issuers to
reduce cost sharing for essential health benefits for individuals with
household incomes between 100 and 400 percent of the Federal Poverty
Level (FPL) who are enrolled in a silver level QHP through an
individual market Exchange and are eligible for advance payment of
premium tax credits. The statute also directs issuers to eliminate cost
sharing for Indians (as defined in section 4(d) of the Indian Self-
Determination and Education Assistance Act) with a household income at
or below 300 percent of the FPL who are enrolled in a QHP of any
``metal'' level (that is, bronze, silver, gold, or platinum) through
the individual market in the Exchange, and prohibits issuers of QHPs
from requiring cost sharing for Indians, regardless of household
income, for items or services furnished directly by the Indian Health
Service, an Indian Tribe, a Tribal Organization, or an Urban Indian
Organization, or through referral under contracted health services.
HHS published a bulletin \1\ outlining an intended regulatory
approach to calculations of actuarial value and implementation of cost-
sharing reductions on February 24, 2012 (the ``AV/CSR Bulletin'').
Specifically, HHS outlined an intended regulatory approach for the
calculation of AV, de minimis variation standards, silver plan
variations for individuals eligible for cost-sharing reductions, and
advance payments of cost-sharing reductions to issuers, among other
topics. In the Exchange Establishment Rule, we established eligibility
standards for these cost-sharing reductions. In this proposed rule, we
establish standards governing the administration of cost-sharing
reductions and provide specific payment parameters for the program.
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\1\ Available at: http://cciio.cms.gov/resources/files/Files2/02242012/Av-csr-bulletin.pdf.
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Federally-facilitated Exchange user fees: Section 1311(d)(5)(A) of
the Affordable Care Act contemplates an Exchange charging assessments
or user fees to participating issuers to generate funding to support
its operations. As the operator of a Federally-facilitated Exchange,
HHS has the authority, under this section of the statute, to collect
and spend such user fees. In addition, 31 U.S.C. 9701 provides for an
agency to establish a charge for a service provided by the agency.
Office of Management and Budget Circular A-25 Revised (``Circular A-
25R'') establishes Federal policy regarding user fees and specifies
that a user charge will be assessed against each identifiable recipient
for special benefits derived from Federal activities beyond those
received by the general public. In this proposed rule, we establish a
user fee for issuers participating in a Federally-facilitated Exchange.
Small Business Health Options Program: Section 1311(b)(1)(B) of the
Affordable Care Act directs each State that chooses to operate an
Exchange to establish a Small Business Health Options Program (SHOP)
that provides health insurance options for small businesses. The
Exchange Establishment Rule sets forth standards for the administration
of SHOP Exchanges. In this proposed rule, we clarify and expand upon
the standards established in that final rule.
Medical loss ratio program: Public Health Service (PHS) Act section
2718 generally requires health insurance issuers to submit an annual
MLR report to HHS and provide rebates to consumers if they do not
achieve specified MLRs. On December 1, 2010, we published an interim
final rule, entitled ``Health Insurance Issuers Implementing Medical
Loss Ratio (MLR) Requirements under the Patient Protection and
Affordable Care Act,'' (75 FR 74864) that established standards for the
MLR program. Since then, we have made several revisions and technical
corrections to those rules. We propose in this proposed rule to amend
the regulations to specify how issuers are to account for payments or
receipts for risk adjustment, reinsurance, and risk corridors, and to
change the timing of the annual MLR report and distribution of rebates
required of issuers to allow for accounting of the premium
stabilization programs. This proposed rule also proposes to amend the
regulations to revise the treatment of community benefit expenditures
in the MLR calculation for issuers exempt from Federal income tax.
B. Summary of the Major Provisions
This proposed rule fills in the framework established by the
Premium Stabilization Rule by proposing provisions and parameters for
the three premium stabilization programs--the permanent risk adjustment
program, the transitional reinsurance program, and the temporary risk
corridors program. It also proposes key provisions governing advance
payments of the premium tax credit, cost-sharing reductions, and user
fees for Federally-facilitated Exchanges. Finally, it proposes a number
of amendments relating to the SHOP and the medical loss ratio program.
Risk Adjustment: The goal of the Affordable Care Act risk
adjustment program is to mitigate the impacts of possible adverse
selection and stabilize the premiums in the individual and small group
markets as and after insurance market reforms are implemented. In this
proposed rule, we propose a number of standards and parameters for
implementing the risk adjustment program, including:
Provisions governing a State operating a risk adjustment
program;
The risk adjustment methodology HHS will use when
operating risk adjustment on behalf of a State, including the risk
adjustment model, the payments and charges methodology, and the data
collection approach; and
An outline of the data validation process we propose to
use when operating risk adjustment on behalf of a State.
Reinsurance: The Affordable Care Act directs that a transitional
reinsurance program be established in each State to help stabilize
premiums for coverage in the individual market from 2014 through 2016.
In this proposed rule, we propose a number of standards and parameters
for implementing the reinsurance program, including:
Provisions excluding certain types of health coverage from
reinsurance contributions;
The national per capita contribution rate to be paid by
health insurance issuers and self-insured group health plans along with
the methodology to be used for calculating the contributions
[[Page 73121]]
due from a health insurance issuer or self-insured group health plan;
Provisions establishing eligibility for reinsurance
payments;
The national reinsurance payment parameters and the
approach we propose to use to calculate and administer the reinsurance
program; and
The distributed data collection approach we propose to use
to implement the reinsurance program.
Risk Corridors: The temporary risk corridors program permits the
Federal government and QHPs to share in profits or losses resulting
from inaccurate rate setting from 2014 to 2016. In this proposed rule,
we propose to permit a QHP to include profits and taxes within its risk
corridors calculations. We also propose an annual schedule for the
program and standards for data submissions.
Advance Payments of the Premium Tax Credit: Sections 1401 and 1411
of the Affordable Care Act provide for advance payments of the premium
tax credit for low- and moderate-income enrollees in QHPs on Exchanges.
In this proposed rule, we propose a number of standards governing the
administration of this program, including:
Provisions governing the reduction of premiums by the
amount of any advance payments of the premium tax credit; and
Provisions governing the allocation of premiums to
essential health benefits.
Cost-Sharing Reductions: Sections 1402 and 1412 of the Affordable
Care Act provide for reductions in cost sharing on essential health
benefits for low- and moderate-income enrollees in qualified silver
level health plans in individual market Exchanges. It also provides for
reductions in cost sharing for Indians enrolled in QHPs at any metal
level. In this proposed rule, we propose a number of standards
governing the cost-sharing reduction program, including:
Provisions governing the design of variations of QHPs with
cost-sharing structures for enrollees of various income levels and for
Indians;
The maximum out-of-pocket limits applicable to the various
plan variations;
Provisions governing the assignment and reassignment of
enrollees to plan variations;
Provisions governing issuer submissions of estimates of
cost-sharing reductions, which are paid in advance to issuers by the
Federal government; and
Provisions governing reconciliation of these advance
estimates against actual cost-sharing reductions provided.
User Fees: This proposed rule proposes a per billable member user
fee applicable to issuers participating in a Federally-facilitated
Exchange. This proposed rule also outlines HHS's approach to
calculating the fee.
SHOP: Beginning in 2014, SHOP Exchanges will allow small employers
to offer employees a variety of QHPs. In this proposed rule, we propose
several standards and processes for implementing SHOP Exchanges,
including:
Standards governing the definitions and counting methods
used to determine whether an employer is a small or large employer;
A safe harbor method of employer contribution in a
Federally-facilitated SHOP (FF-SHOP);
The default minimum participation rate;
QHP standards linking Exchange and FF-SHOP participation
and ensuring broker commissions in FF-SHOP that are the same as those
in the outside market; and
Allowing Exchanges and SHOPs to selectively list only
brokers registered with the Exchange or SHOP (and adopting that policy
for FFEs and FF-SHOPs).
MLR: The MLR program requires issuers to rebate a portion of
premiums if their MLRs fall short of the applicable MLR standard for
the reporting year. MLR is calculated as a ratio of claims plus quality
improvement activities to premium revenue, with adjustments for taxes,
regulatory fees, and the premium stabilization programs. In this
proposed rule, we propose a number of standards governing the MLR
program, including:
Provisions accounting for risk adjustment, reinsurance,
and risk corridors in the MLR calculation;
A revised timeline for MLR reporting and rebates; and
Provisions modifying the treatment of community benefit
expenditures.
C. Costs and Benefits
The provisions of this proposed rule, combined with other
provisions in the Affordable Care Act, will improve the individual
insurance market by making insurance more affordable and accessible to
millions of Americans who currently do not have affordable options
available to them. The shortcomings of the individual market today have
been widely documented.\2\
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\2\ Michelle M. Doty et al., Failure to Protect: Why the
Individual Insurance Market Is Not a Viable Option for Most U.S.
Families: Findings from the Commonwealth Fund Biennial Health
Insurance Survey, 2007, The Commonwealth Fund, July 2009; Sara R.
Collins, Invited Testimony: Premium Tax Credits Under The Affordable
Care Act: How They Will Help Millions Of Uninsured And Underinsured
Americans Gain Affordable, Comprehensive Health Insurance, The
Commonwealth Fund, October 27, 2011.
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These limitations of the individual market are made evident by how
few people actually purchase coverage in the individual market. In
2011, approximately 48.6 million people were uninsured in the United
States,\3\ while only around 10.8 million were enrolled in the
individual market.\4\ The relatively small fraction of the target
market that actually purchases coverage in the individual market in
part reflects people's resources, how expensive the product is relative
to its value, and how difficult it is for many people to access
coverage.
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\3\ Source: U.S. Census Bureau, Current Population Survey, 2012
Annual Social and Economic Supplement, Table HI01. Health Insurance
Coverage Status and Type of Coverage by Selected Characteristics:
2011.
\4\ Source: CMS analysis of June 2012 Medical Loss Ratio Annual
Reporting data for 2011 MLR reporting year, available at http://cciio.cms.gov/resources/data/mlr.html.
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The provisions of this proposed rule, combined with other
provisions in the Affordable Care Act, will improve the functioning of
both the individual and the small group markets while stabilizing
premiums. The transitional reinsurance program will serve to stabilize
premiums in the individual market. Reinsurance will attenuate
individual market rate increases that might otherwise occur because of
the immediate enrollment of higher risk individuals, potentially
including those currently in State high-risk pools. In 2014, it is
anticipated that reinsurance payments will result in premium decreases
in the individual market of between 10 and 15 percent relative to
expected premiums without reinsurance.
The risk corridors program will protect QHP issuers in the
individual and small group market against inaccurate rate setting and
will permit issuers to lower rates by not adding a risk premium to
account for perceived uncertainties in the 2014 through 2016 markets.
The risk adjustment program protects against adverse selection by
allowing issuers to set premiums according to the average actuarial
risk in the individual and small group market without respect to the
type of risk selection the issuer would otherwise expect to experience
with a specific product offering in the market. This should lower the
risk premium issuers would otherwise price into premiums in the
expectation of enrolling individuals with unknown health status. In
addition, it mitigates the incentive for health plans to avoid
[[Page 73122]]
unhealthy members. The risk adjustment program also serves to level the
playing field inside and outside of the Exchange, as payments and
charges are applied to all non-grandfathered individual and small group
plans.
Provisions addressing the advance payments of the premium tax
credit and cost-sharing reductions will help provide for premium tax
credits and the reduction or elimination of cost sharing for certain
individuals enrolled in QHPs offered through the Exchanges. This
assistance will help many low-and moderate-income individuals and
families obtain health insurance. For many people, cost sharing is a
barrier to obtaining needed health care.\5\ The availability of premium
tax credits through Exchanges starting in 2014 will result in lower net
premium rates for many people currently purchasing coverage in the
individual market, and will encourage younger and healthier enrollees
to enter the market, improving the risk pool and leading to reductions
in premium rates for current policyholders.\6\
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\5\ Brook, Robert H., John E. Ware, William H. Rogers, Emmett B.
Keeler, Allyson Ross Davies, Cathy D. Sherbourne, George A.
Goldberg, Kathleen N. Lohr, Patricia Camp and Joseph P. Newhouse.
The Effect of Coinsurance on the Health of Adults: Results from the
RAND Health Insurance Experiment. Santa Monica, CA: RAND
Corporation, 1984. Available at: http://www.rand.org/pubs/reports/R3055.
\6\ Congressional Budget Office, Letter to Honorable Evan Bayh,
providing an Analysis of Health Insurance Premiums Under the Patient
Protection and Affordable Care Act, November 30, 2009; Sara R.
Collins, Invited Testimony: Premium Tax Credits Under The Affordable
Care Act: How They Will Help Millions Of Uninsured And Underinsured
Americans Gain Affordable, Comprehensive Health Insurance, The
Commonwealth Fund, October 27, 2011; Fredric Blavin et al., The
Coverage and Cost Effects of Implementation of the Affordable Care
Act in New York State, Urban Institute, March 2012.
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The provisions addressing SHOP Exchanges will reduce the burden and
costs of enrolling employees in small group plans, and give small
businesses many of the cost advantages and choices that large
businesses already have. Additionally, SHOP Exchanges will allow for
employers to preserve control over health plan choices while saving
employers money by spreading insurers' administrative costs across more
employers.
The provisions addressing the MLR program will result in a more
accurate calculation of MLR and rebate amounts, since it will reflect
issuers' claims-related expenditures, after adjusting for the premium
stabilization programs.
We solicit comments on additional strategies consistent with the
Affordable Care Act that HHS or States might deploy to help make rates
affordable in the current market and encourage timely enrollment in
coverage in 2014. Ensuring that premiums are affordable is a priority
for HHS as well as States, consumers, and insurers, so we welcome
suggestions for the proposed rule on ways to achieve this goal while
implementing these essential consumer protections.
Issuers may incur some one-time fixed costs to comply with the
provisions of the final rule, including administrative and hardware
costs. However, issuer revenues and expenditures are also expected to
increase substantially as a result of the expected increase in the
number of people purchasing individual market coverage. That enrollment
is projected to exceed current enrollment by 50 percent.\7\ We are
soliciting comments on the nature and magnitude of these costs and
benefits to issuers, and the potential effect of the provisions of this
rule on premium rates and financial performance.
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\7\ Congressional Budget Office, http://www.cbo.gov/sites/default/files/cbofiles/attachments/03-13-Coverage%20Estimates.pdf
(Table 3).
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In addition, States may incur administrative and operating costs if
they choose to establish their own programs. We are also requesting
information on such costs. In accordance with Executive Orders 12866
and 13563, we believe that the benefits of this regulatory action would
justify the costs.
II. Background
Starting in 2014, individuals and small businesses will be able to
purchase private health insurance through State-based competitive
marketplaces called Affordable Insurance Exchanges (Exchanges). The
Department of Health and Human Services (HHS), the Department of Labor,
and the Department of the Treasury are working in close coordination to
release guidance related to Exchanges in several phases. The Patient
Protection and Affordable Care Act (Pub. L. 111-148) was enacted on
March 23, 2010. The Health Care and Education Reconciliation Act (Pub.
L. 111-152) was enacted on March 30, 2010. We refer to the two statutes
collectively as the Affordable Care Act in this proposed rule.
A. Premium Stabilization
A proposed regulation was published in the Federal Register on July
15, 2011 (76 FR 41930) to implement health insurance premium
stabilization policies in the Affordable Care Act. A final rule
implementing the health insurance premium stabilization programs (that
is, risk adjustment, reinsurance, and risk corridors) (Premium
Stabilization Rule) (77 FR 17220) was published in the Federal Register
on March 23, 2012. We published a white paper on risk adjustment
concepts on September 12, 2011 (Risk Adjustment White Paper). We
published a bulletin on May 1, 2012, outlining our intended approach to
implementing risk adjustment when we are operating risk adjustment on
behalf of a State (Risk Adjustment Bulletin). On May 7-8, 2012, we
hosted a public meeting in which we discussed that approach (Risk
Adjustment Spring Meeting).
We published a bulletin on May 31, 2012, outlining our intended
approach to making reinsurance payments to issuers when we are
operating the reinsurance program on behalf of a State (Reinsurance
Bulletin). The Department solicited comment on proposed operations for
both reinsurance and risk adjustment when we are operating the program
on behalf of a State.
B. Cost-Sharing Reductions
We published a bulletin outlining an intended regulatory approach
to calculating actuarial value and implementing cost-sharing reductions
on February 24, 2012 (AV/CSR Bulletin). In that bulletin, we outlined
an intended regulatory approach for the design of plan variations for
individuals eligible for cost-sharing reductions, and advance payments
and reimbursement of cost-sharing reductions to issuers, among other
topics. We reviewed and considered comments to the AV/CSR Bulletin in
developing section III.E. of this proposed rule.
C. Advance Payments of the Premium Tax Credit
A proposed regulation relating to the health insurance premium tax
credit was published by the Department of the Treasury in the Federal
Register on August 17, 2011 (76 FR 50931). A final rule relating to the
health insurance premium tax credit was published by the Department of
the Treasury in the Federal Register on May 23, 2012 (26 CFR parts 1
and 602).
D. Exchanges
A Request for Comment relating to Exchanges was published in the
Federal Register on August 3, 2010 (75 FR 45584). An Initial Guidance
to States on Exchanges was issued on November 18, 2010. A proposed
regulation was published in the Federal Register on July 15, 2011 (76
FR 41866) to implement components of the
[[Page 73123]]
Exchange. A proposed regulation regarding Exchange functions in the
individual market, eligibility determinations, and Exchange standards
for employers was published in the Federal Register on August 17, 2011
(76 FR 51202). A final rule implementing components of the Exchanges
and setting forth standards for eligibility for Exchanges (Exchange
Establishment Rule) was published in the Federal Register on March 27,
2012 (77 FR 18310).
E. Market Reform Rules
A notice of proposed rulemaking relating to market reforms and
effective rate review was published in the Federal Register on November
26, 2012 (77 FR 70584) (proposed Market Reform Rule).
F. Essential Health Benefits and Actuarial Value
A notice of proposed rulemaking relating to essential health
benefits and actuarial value was published in the Federal Register on
November 26, 2012 (77 FR 70644) (proposed EHB/AV Rule).
G. Medical Loss Ratio
HHS published a request for comment on PHS Act section 2718 in the
Federal Register on April 14, 2010 (75 FR 19297), and published an
interim final rule with 60 day comment period relating to the medical
loss ratio (MLR) program on December 1, 2010 (75 FR 74864). A final
rule with 30 day comment period (MLR Final Rule) was published in the
Federal Register on December 7, 2011 (76 FR 76574).
H. Tribal Consultations
This proposed rule may be of interest to, and affect, American
Indians/Alaska Natives. Therefore, we plan to consult with Tribes
during the comment period and prior to publishing a final rule.
III. Provisions of the Proposed HHS Notice of Benefit and Payment
Parameters for 2014
A. Provisions for the State Notice of Benefit and Payment Parameters
In Sec. 153.100(c), we established a deadline of March 1 of the
calendar year prior to the applicable benefit year for States to
publish a State notice of benefit and payment parameters if the State
wishes to modify the parameters for the reinsurance program or the risk
adjustment methodology set forth in the applicable HHS notice of
benefit and payment parameters. We recognize that, for this initial
benefit year (that is, for benefit year 2014), it may be difficult for
States to publish such a notice by the required deadline. We therefore
propose to modify Sec. 153.100(c) to require that, for benefit year
2014 only, a State must publish a State notice by March 1, 2013, or by
the 30th day following publication of the final HHS notice of benefit
and payment parameters, whichever is later. If a State that chooses to
operate reinsurance or risk adjustment does not publish the State
notice within that timeframe, the State would: (1) Adhere to the data
requirements for health insurance issuers to receive reinsurance
payments that are specified in the annual HHS notice of benefit and
payment parameters for the applicable benefit year; (2) forgo the
collection of additional reinsurance contributions under Sec.
153.220(d) and the use of additional funds for reinsurance payments
under Sec. 153.220(d)(3); (3) forgo the use of more than one
applicable reinsurance entity; and (4) adhere to the risk adjustment
methodology and data validation standards published in the annual HHS
notice of benefit and payment parameters.
B. Provisions and Parameters for the Permanent Risk Adjustment Program
The risk adjustment program is a permanent program created by the
Affordable Care Act that transfers funds from lower risk, non-
grandfathered plans to higher risk, non-grandfathered plans in the
individual and small group markets, inside and outside the Exchanges.
In subparts D and G of the Premium Stabilization Rule, we established
standards for the administration of the risk adjustment program. A
State approved or conditionally approved by the Secretary to operate an
Exchange may establish a risk adjustment program, or have HHS do so on
its behalf.
In the Premium Stabilization Rule, we established that a risk
adjustment program is operated using a risk adjustment methodology.
States operating their own risk adjustment program may use a risk
adjustment methodology developed by HHS, or may elect to submit an
alternate methodology to HHS for approval. In the Premium Stabilization
Rule, we also laid out standards for States and issuers with respect to
the collection and validation of risk adjustment data.
In section III.B.1. of this proposed rule, we propose standards for
HHS approval of a State-operated risk adjustment program (regardless of
whether a State elects to use the HHS-developed methodology or an
alternate, Federally certified risk adjustment methodology). This
approval process would be distinct from the approval process for State-
based Exchanges. In section III.B.2. of this proposed rule, we propose
a fee to support HHS operation of the risk adjustment program. This fee
is a per-capita fee applied to issuers of risk adjustment covered plans
in States where HHS is operating the risk adjustment program.
In section III.B.3. of this proposed rule, we describe the
methodology that HHS would use when operating a risk adjustment program
on behalf of a State. This methodology would be used to assign a plan
average risk score based upon the relative average risk of a plan's
enrollees, and to apply a payment transfer formula to determine risk
adjustment payments and charges. We also describe the HHS-operated data
collection approach, and the schedule for operating the HHS-operated
risk adjustment program. States operating a risk adjustment program can
use this methodology, or submit an alternate methodology, as described
in section III.B.4. of this proposed rule.
Finally, in section III.B.5. of this proposed rule, we describe the
data validation process we propose to use when operating a risk
adjustment program on behalf of a State. We propose that issuers
contract with independent auditors to conduct an initial validation
audit of risk adjustment data, and that we conduct a second validation
audit of a sample of risk adjustment data validated in the initial
validation audit to verify the findings of the initial validation
audit. We propose that this process be implemented over time, such that
payment adjustments based on data validation findings would not be made
in the initial years. We also describe a proposed framework for appeals
of data validation findings.
1. Approval of State-Operated Risk Adjustment
a. Risk Adjustment Approval Process
In the Premium Stabilization Rule, we laid out minimum standards
for States that choose to operate risk adjustment. In Sec. 153.310(a),
we specified that a State that elects to operate an Exchange is
eligible to establish a risk adjustment program. In Sec. 153.310(a)(2)
and (a)(3), we specified that HHS would carry out risk adjustment
functions on behalf of the State if the State was not eligible to
operate risk adjustment, or if the State deferred operation of risk
adjustment to HHS. Under our authority in section 1321(a) of the
Affordable Care Act on standards for operation of risk adjustment
programs and section 1343(b) of the Affordable Care act on criteria and
methods to be used in carrying out risk adjustment activities,
[[Page 73124]]
we now propose to add Sec. 153.310(a)(4) such that, beginning in 2015,
HHS would carry out the risk adjustment functions on behalf of a State
if the State is not approved by HHS (that is, does not meet the
standards proposed in Sec. 153.310(c)) to operate a risk adjustment
program prior to State publication of its notice of benefit and payment
parameters. We believe an approval process for State-operated risk
adjustment programs will promote confidence in these programs so that
they can effectively protect against the effects of adverse selection.
We propose that a new paragraph (c), entitled ``State
responsibilities for risk adjustment,'' set forth a State's
responsibilities with regard to risk adjustment program operations.
With this change, we also propose to redesignate paragraphs (c) and (d)
to paragraphs (e) and (f) of Sec. 153.310. We note that the State must
ensure that the entity it selects to operate risk adjustment complies
with the standards established in Sec. 153.310(b).
In paragraph Sec. 153.310(c)(1), we propose that if a State is
operating a risk adjustment program for a benefit year, the State
administer the program through an entity that meets certain standards.
These standards would ensure the entity has the capacity to operate the
risk adjustment program throughout the benefit year, and is able to
administer the risk adjustment methodology. We will work with States to
ensure that entities are ready to operate a risk adjustment program by
the beginning of the applicable benefit year.
As proposed in Sec. 153.310(c)(1)(i), the entity must be
operationally ready to administer the applicable Federally certified
risk adjustment methodology and process the resulting payments and
charges. We believe that it is important for a State to demonstrate
that its risk adjustment entity has the capacity to implement the
applicable Federally certified risk adjustment methodology so that
issuers may have confidence in the program, and so that the program can
effectively mitigate the effects of potential adverse selection. To
meet this standard, a State would demonstrate that the risk adjustment
entity: (1) Has systems in place to implement the data collection
approach, to calculate individual risk scores, and calculate issuers'
payments and charges in accordance with the applicable Federally
certified risk adjustment methodology; and (2) has tested, or has plans
to test, the functionality of the system that would be used for risk
adjustment operations prior to the start of the applicable benefit
year. States would also demonstrate that the entity has legal authority
to carry out risk adjustment program operations, and has the resources
to administer the applicable risk adjustment methodology in its
entirety, including the ability to make risk adjustment payments and
collect risk adjustment charges.
We propose in paragraph Sec. 153.310(c)(1)(ii) that the entity
have relevant experience to operate a risk adjustment program. To meet
this standard, a State would demonstrate that the entity has on staff,
or has contracted with, individuals or firms with experience relevant
to the implementation of a risk adjustment methodology. This standard
is intended to ensure that the entity has the resources and staffing
necessary to successfully operate the risk adjustment program.
We propose in paragraph Sec. 153.310(c)(2) that a State seeking to
operate its own risk adjustment program ensure that the risk adjustment
entity complies with all applicable provisions of subpart D of 45 CFR
part 153 in the administration of the applicable Federally certified
risk adjustment methodology. In particular, the State would ensure that
the entity complies with the privacy and security standards set forth
in Sec. 153.340.
We propose in Sec. 153.310(c)(3) that the State conduct oversight
and monitoring of risk adjustment activities in order for HHS to
approve the State's risk adjustment program. Because the integrity of
the risk adjustment program has important implications for issuers and
enrollees, we propose to consider the State's plan to monitor the
conduct of the entity. HHS would examine the State's requirements for
data integrity and the maintenance of records, and the State's
standards for issuers' use of risk adjustment payments. We will provide
more detail about oversight in future rulemaking.
Finally, we propose in Sec. 153.310(d) that a State submit to HHS
information that establishes that it and its risk adjustment entity
meet the criteria set forth in Sec. 153.310(c). Under the proposed
Sec. 153.310(a)(4), HHS would operate risk adjustment in the State,
under the HHS-developed methodology, if the State does not receive
approval prior to the March deadline for publication of the State
notice of benefit and payment parameters. Thus, if a State wishes to
operate risk adjustment for benefit year 2015, it would have to be
approved prior to publication of the State notice of benefit and
payment parameters for benefit year 2015 (publication of which must
occur by March 1, 2014). We will issue future guidance on application
dates, procedures, and standards.
We welcome comments on these proposed provisions.
b. Risk Adjustment Approval Process for Benefit Year 2014
For benefit year 2014, we recognize there are unique timing issues
for approving a State-operated risk adjustment program. States would
not know whether they are eligible to operate a risk adjustment program
until they are approved or conditionally approved to operate an
Exchange for the 2014 benefit year. In addition, the set of Federally
certified risk adjustment methodologies and the State-operated risk
adjustment program approval process will not be finalized until the
final Payment Notice is effective.
Given these timing constraints, we are proposing a transitional
policy for benefit year 2014. We would not require that a State-
operated risk adjustment program receive approval for benefit year
2014. Instead, we propose a transitional process shortly after the
provisions of Sec. 153.310(a)(4), (c), and (d) become effective. We
are requesting that States planning to operate risk adjustment in
benefit year 2014 consult with HHS to determine the capacity of the
State to operate risk adjustment. In these consultations, HHS would ask
States to identify the entity they select to operate risk adjustment,
and to describe its plans for risk adjustment operations in the State.
This consultative process would apply for benefit year 2014; however,
we intend that States obtain formal approval under the proposed process
for benefit year 2015 and subsequent years.
For benefit year 2015 and subsequent benefit years, the proposed
approval process would continue to involve ongoing consultations with
States and their selected risk adjustment entities. In the course of
these consultations, we would provide States and proposed entities with
our ongoing views on whether they are adequately demonstrating the
capacity of the entity to operate all risk adjustment functions. If the
State does not produce the requested evidence or make the requested
changes in the specified timeframe, HHS may determine that the relevant
criteria were not met, and may decline to approve that State's risk
adjustment program. We welcome comments on this proposal.
2. Risk Adjustment User Fees
If a State is not approved to operate or chooses to forgo operating
its own risk adjustment program, HHS would operate risk adjustment on
the State's
[[Page 73125]]
behalf. We intend to collect a user fee to support the administration
of HHS-operated risk adjustment. This fee would apply to issuers of
risk adjustment covered plans in States in which HHS is operating the
risk adjustment program.
Circular No. A-25R establishes Federal policy regarding user fees,
and specifies that a user charge will be assessed against each
identifiable recipient for special benefits derived from Federal
activities beyond those received by the general public. The risk
adjustment program will provide special benefits as defined in section
6(a)(1)(b) of Circular No. A-25R to an issuer of a risk adjustment
covered plan because it will mitigate the financial instability
associated with risk selection as other market reforms go into effect.
The risk adjustment program will also contribute to consumer confidence
in the insurance industry by helping to stabilize premiums across the
individual and small group health insurance markets.
We propose to determine HHS' total costs for administering risk
adjustment programs on behalf of States by examining HHS's contract
costs of operating the risk adjustment program. These contracts cover
development of the model and methodology, collections, payments,
account management, data collection, program integrity and audit
functions, operational and fraud analytics, stakeholder training, and
operational support. We do not propose to set the user fee to cover
Federal personnel.
We would set the user fee rate as a national per capita rate, which
would spread the cost of the program across issuers of risk adjustment
covered plans based on enrollment. We would divide HHS's projected
total costs for administering the risk adjustment programs on behalf of
States by the expected number of enrollees in risk adjustment covered
plans in HHS-operated risk adjustment programs.
An issuer of a risk adjustment covered plan in a State where HHS is
operating risk adjustment would pay a risk adjustment user fee equal to
the product of its annual enrollment in the risk adjustment covered
plan multiplied by the annual per capita risk adjustment user fee rate
specified in the annual notice of benefit and payment parameters for
the applicable benefit year. We would calculate the total user fee that
would be charged to each issuer based on the issuer's monthly
enrollment, as provided to HHS using the data collection approach for
the risk adjustment program. This approach would ensure that user fees
are appropriately tied to enrollment and spread across issuers. We
expect that the use of existing data collection and submission methods
would minimize burden on issuers, while promoting accuracy.
We anticipate that the total cost for HHS to operate the risk
adjustment program on behalf of States for 2014 would be less than $20
million, and that the per capita risk adjustment user fee would be no
more than $1.00 per enrollee per year.
HHS would collect risk adjustment user fees from issuers of risk
adjustment covered plans in June of the year after the applicable
benefit year to align with payments and charges processing, to provide
issuers the time to fully comply with the data collection and
submission standards, and to permit HHS to perform the user fee
calculations based on actual monthly enrollment counts from the benefit
year.
We seek comment on this proposed assessment of user fees to support
HHS-operated risk adjustment programs.
3. Overview of the risk adjustment methodology HHS would implement when
operating risk adjustment on behalf of a State
The goal of the risk adjustment program is to stabilize the
premiums in the individual and small group markets as and after
insurance market reforms are implemented. The risk adjustment
methodology proposed here, which HHS would use when operating risk
adjustment on behalf of a State, is based on the premise that premiums
should reflect the differences in plan benefits and plan efficiency,
not the health status of the enrolled population.
Under Sec. 153.20, a risk adjustment methodology is made up of
five elements:
The risk adjustment model uses an individual's recorded
diagnoses, demographic characteristics, and other variables to
determine a risk score, which is a relative measure of how costly that
individual is anticipated to be.
The calculation of plan average actuarial risk and the
calculation of payments and charges average all individual risk scores
in a risk adjustment covered plan, make certain adjustments, and
calculate the funds transferred between plans. In this proposed rule,
these two elements of the methodology are presented together as the
payment transfer formula.
The data collection approach describes HHS' approach to
obtaining data, using the distributed model described in section III.G.
of this proposed rule that is required for the risk adjustment model
and the payment transfer formula.
The schedule for the risk adjustment program describes the
timeframe for risk adjustment operations.
States approved to operate risk adjustment may utilize this risk
adjustment methodology, or they may submit an alternate methodology as
described in section III.B.4. of this proposed rule.
The risk adjustment methodology addresses three considerations: (1)
The newly insured population; (2) plan metal levels and permissible
rating variation; and (3) the need for inter-plan transfers that net to
zero. Risk adjustment payments or charges would be calculated from the
payment transfer formula described in section III.B.3.c. of this
proposed rule. The key feature of the HHS risk adjustment methodology
is that the risk score alone does not determine whether a plan is
assessed charges or receives payments. Transfers depend not only on a
plan's average risk score, but also on its plan-specific cost factors
relative to the average of these factors within a risk pool within a
State.
As discussed in greater detail below, the risk adjustment
methodology developed by HHS:
Is developed on commercial claims data for a population
similar to the expected population to be risk adjusted;
Uses the hierarchical condition categories (``HCC'')
grouping logic used in the Medicare population, with HCCs refined and
selected to reflect the expected risk adjustment population;
Calculates risk scores with a concurrent model (current
year diagnoses predict current year costs);
Establishes 15 risk adjustment models, one for each
combination of metal level (platinum, gold, silver, bronze,
catastrophic) and age group (adults, children, infants);
Results in ``balanced'' payment transfers within a risk
pool within a market within a State;
Adjusts payment transfers for plan metal level, geographic
rating area, induced demand, and age rating, so that transfers reflect
health risk and not other cost differences; and
Transfers funds between plans within a market within a
State.
a. Risk Adjustment Applied to Plans in the Individual and Small Group
Markets
Section 1343(c) of the Affordable Care Act stipulates that risk
adjustment is to apply to non-grandfathered health insurance coverage
offered in the individual and small group markets. We previously
defined a ``risk adjustment covered plan'' in Sec. 153.20 as health
[[Page 73126]]
insurance coverage offered in the individual or small group markets,
excluding plans offering excepted benefits and certain other plans,
including ``any other plan determined not to be a risk adjustment
covered plan in the annual HHS notice of benefit and payment
parameters.'' We propose to amend this definition by replacing ``and
any plan determined not to be a risk adjustment covered plan in the
annual HHS notice of benefit and payment parameters'' with ``and any
plan determined not to be a risk adjustment covered plan in the
applicable Federally certified risk adjustment methodology.'' We note
that, under this revised definition, we would describe any plans not
determined to be risk adjustment covered plans under the HHS risk
adjustment methodology in the annual notice of benefit and payment
parameters, which is subject to notice and comment.
We describe below our proposed treatment of certain types of plans
(specifically, plans not subject to market reforms, student health
plans, and catastrophic plans), and our proposed approach to risk
pooling for risk adjustment purposes when a State merges markets for
the purposes of the single risk pool provision described in section
1312(c) of the Affordable Care Act. States may propose different
approaches to these plans and to risk pooling in State alternate
methodologies, subject to the requirements established at Sec.
153.330(b) in this proposed rule.
Plans not subject to market reforms: Certain types of plans
offering non-grandfathered health insurance coverage in the individual
and small group markets would not be subject to the insurance market
reforms proposed in the Market Reform Rule and the EHB/AV proposed
rule. In addition, plans providing benefits through policies that begin
in 2013, with renewal dates in 2014, would not be subject to these
requirements until renewal in 2014. The law specifies that the risk
adjustment program is to assess charges on non-grandfathered health
insurance coverage in the individual and small group markets with less
than average actuarial risk and to make payments to non-grandfathered
health insurance coverage in these markets with higher than average
actuarial risk. We interpret actuarial risk to mean predictable risk
that the issuer has not been able to compensate for through exclusion
or pricing. In the current market, plans are generally not subject to
the insurance market reforms that begin in 2014 described at Sec.
147.102 (fair health insurance premiums), Sec. 147.104 (guaranteed
availability of coverage, subject to the student health insurance
provisions at Sec. 147.145), Sec. 147.106 (guaranteed renewability of
coverage, subject to the student health insurance provisions at Sec.
147.145), Sec. 156.80 (single risk pool), and Subpart B 156 (essential
health benefits package), and so are generally able to minimize
actuarial risk by excluding certain conditions (for example, maternity
coverage for women of child-bearing age), denying coverage to those
with certain high-risk conditions, and by pricing individual premiums
to cover the costs of providing coverage to an individual with those
conditions.
We propose to use the authority in section 1343(b) of the
Affordable Care Act to ``establish criteria and methods to be used in
carrying out * * * risk adjustment activities'' to treat plans not
subject to insurance market reforms at Sec. 147.102 (fair health
insurance premiums), Sec. 147.104 (guaranteed availability of
coverage, subject to the student health insurance provisions at Sec.
147.145), Sec. 147.106 (guaranteed renewability of coverage, subject
to the student health insurance provisions at Sec. 147.145), Sec.
156.80 (single risk pool), and Subpart B 156 (essential health benefits
package), as follows. Because we believe that plans not subject to
these market reform rules are able to effectively minimize actuarial
risk, we believe these plans would have uniform and virtually zero
actuarial risk. We therefore propose to treat these plans separately,
such that these plans would not be subject to risk adjustment charges
and would not receive risk adjustment payments. Also, these plans would
not be subject to the issuer requirements described in subparts G and H
of part 153. We note that plans issued in 2013 and subject to these
requirements upon renewal would become subject to risk adjustment upon
renewal, and would comply with the requirements established in subparts
G and H of part 153 at that time.
Student health plans: Only individuals attending a particular
college or university are eligible to enroll in a student health plan
(as described in Sec. 147.145) offered by that college or university.
We believe that student health plans, because of their unique
characteristics, will have relatively uniform actuarial risk. We
therefore propose to use the authority in section 1343(b) of the
Affordable Care Act to ``establish criteria and methods to be used in
carrying out * * * risk adjustment activities'' to treat these plans as
a separate group that would not be subject to risk adjustment charges
and would not receive risk adjustment payments. Therefore, these plans
would not be subject to the issuer requirements described in subparts G
and H of part 153.
Catastrophic plans: Unlike metal level coverage, only individuals
age 30 and under, or individuals for whom insurance is deemed to be
unaffordable as specified in section 1302(e) of the Affordable Care
Act, are eligible to enroll in catastrophic plans. Because of the
unique characteristics of this population, we propose to use our
authority to establish ``criteria and methods'' to risk adjust
catastrophic plans in a separate risk pool from the general (metal
level) risk pool. Catastrophic plans with less than average actuarial
risk compared with other catastrophic plans would be assessed charges,
while catastrophic plans with higher than average actuarial risk
compared with other catastrophic plans would receive payments. The
specific mechanisms for assessing risk, and calculating payments and
charges, are described below. We are not, however, proposing to exempt
these plans from the requirements in subparts G and H of part 153.
Merger of markets: Section 1312(c) of the Affordable Care Act
directs issuers to use a single risk pool for a market--the individual
or small group market--when developing rates and premiums. Section
1312(c)(3) gives States the option to merge the individual and small
group market into a single risk pool. To align risk pools for the risk
adjustment program and rate development, we would merge markets when
operating risk adjustment on behalf of a State if the State elects to
do the same for single risk pool purposes. In such a case, rather than
transferring funds between individual market plans only and between
small group market plans only, we would transfer funds between all
individual and small group market plans, considered as one market. When
the individual and small group markets are merged, the State average
premium, described in section III.B.3.c. below, would be the average
premium of all applicable individual and small group market plans in
the applicable risk pool, and normalization described in section
III.B.3.c. below would occur across all plans in the applicable risk
pool in the individual and small group market.
Risk adjustment in State of licensure: Risk adjustment is a State-
based program in which funds are transferred within a State within a
market, as described above. In general, a risk adjustment methodology
will be linked to the rate and benefit requirements applicable under
State and Federal law
[[Page 73127]]
in a particular State. Such requirements may differ from State to
State, and apply to policies filed and approved by the department of
insurance in a State.\8\ However, a plan licensed in a State (and
therefore subject to that State's rate and benefit requirements) may
enroll individuals in multiple States. To help ensure that policies in
the small group market are subject to risk adjustment programs linked
to the State rate and benefit requirements applicable to that policy,
we propose in Sec. 153.360 that a risk adjustment covered plan be
subject to risk adjustment in the State in which the policy is filed
and approved. We welcome comments on these proposals.
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\8\ State Jurisdictional and Extraterritorial Issues White
Paper: States' Treatment of Regulatory Jurisdiction Over Single
Employer Group Health Insurance (unpublished white paper--available
from NAIC Research Library or in NAIC Proceedings I, 2009) NAIC,3/
17/09.
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b. Overview of the HHS Risk Adjustment Model
We developed the HHS risk adjustment model in consultation with
States, providers, issuers, and consumers on methodological choices by
soliciting comment on the choices in preamble to the proposed Premium
Stabilization Rule and in the Risk Adjustment White Paper.\9\ We also
engaged in discussions with these stakeholders at the Risk Adjustment
Spring Meeting and in user group calls with States.
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\9\ http://cciio.cms.gov/resources/files/riskadjustment_whitepaper_web.pdf.
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Each HHS risk adjustment model predicts plan liability for an
enrollee based on that person's age, sex, and diagnoses (risk factors),
producing a risk score. We propose separate models for adults,
children, and infants to account for cost differences in each of these
age groups. The adult and child models are additive; that is, the
relative costs assigned to an individual's age, sex, and diagnoses are
added together to produce a risk score. Infant risk scores are
determined by inclusion in one of 25 mutually exclusive groups based on
the infant's maturity and the severity of its diagnoses. If applicable,
the risk score is multiplied by a cost-sharing reduction adjustment.
The enrollment-weighted average risk score of all enrollees in a
particular risk adjustment covered plan within a geographic rating area
are then input into the payment transfer formula, as described in
section III.B.3.c. of this proposed rule, to determine an issuer's
payment or charge for a particular plan.
Each HHS risk adjustment model predicts individual-level risk
scores, but is designed to predict average group costs to account for
risk across plans.\10\ This method accords with the Actuarial Standard
Board's Actuarial Standard of Practice for risk classification.\11\
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\10\ American Academy of Actuaries: Risk Assessment and Risk
Adjustment, Issue Brief. May 2010.
\11\ Actuarial Standard of Practice No. 12: Risk Classification
(for All Practice Areas). Actuarial Standards Board, Doc. No. 101.
December 2005.
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(1) Data Used To Develop the HHS Risk Adjustment Model
Each HHS risk adjustment model was calibrated using de-identified
data from the Truven Health Analytics 2010 MarketScan[supreg]
Commercial Claims and Encounters database (MarketScan) for individuals
living in all States, aged 0-64, enrolled in commercial health
insurance plans. The database contains enrollee-specific clinical
utilization, expenditures, and enrollment across inpatient, outpatient,
and prescription drug services from a selection of large employers and
health plans. The database includes de-identified data from
approximately 100 payers, and has more than 500 million claims from
insured employees, their spouses, and dependents. Active employees,
early retirees, individuals on COBRA continuation coverage, and their
dependents are included in the database. The enrollment data files
contain information for any person enrolled in one of the employer or
individual health plans at any point during a year. Enrollees were
classified as enrolled in fee-for-service (``FFS'') plans or encounter-
type plans, with most FFS plans being preferred provider organization
(``PPO'') plans, and the majority of encounter-type plans being health
maintenance organization (``HMO'') plans. An individual could have been
enrolled for as few as one and as many as 365 days in a year, and could
have been enrolled in one or more years. In operation, the same rules
will be applied with respect to enrollment.
Diagnoses for model calibration were extracted from facility and
professional claims. Facility claims were extracted only from bill
types that were hospital inpatient, hospital outpatient, rural health
clinic, federally qualified health center, or community mental health
center. For professional and outpatient facility claims, diagnoses were
generally extracted from claims where the procedure (CPT code)
indicated a face-to-face visit with a qualified clinician. Diagnoses
from procedures that did not meet these criteria (for example, durable
medical equipment, pathology/laboratory, and diagnostic radiology) were
not included. The concurrent modeling sample (approximately 20 million
individuals) was generated using the following criteria: (1) The
enrollee had to be enrolled in a FFS plan; \12\ (2) the enrollee must
not have incurred any claims paid on a capitated basis;\13\ and (3) the
enrollee must have been enrolled in a plan with drug benefits and
mental health and substance abuse coverage. The final database reflects
our best approximation of the essential health benefits package under
the Affordable Care Act, which also includes prescription drug and
mental health and substance abuse coverage.
---------------------------------------------------------------------------
\12\ We limited the modeling sample to enrollees in FFS plans
because costs on non-FFS claims may not represent the full cost of
care associated with a disease.
\13\ In 2010 the MarketScan database, even FFS plan types can
have carve-out services paid on a capitated basis, which are less
reliable for predicted expenditure calculations.
---------------------------------------------------------------------------
MarketScan expenditure data includes gross covered charges, which
were defined as:
Gross covered charges = submitted charges-non-covered charges-pricing
reductions
Inpatient, outpatient, and prescription drug expenditures for each
enrollee were calculated by summing gross covered charges in,
respectively, the inpatient, outpatient, and prescription drug services
files. Total expenditures were defined as the sum of inpatient,
outpatient, and prescription drug expenditures. Plan liability
expenditures for a given plan type (platinum, gold, silver, bronze,
catastrophic) were defined by applying the applicable standardized
benefit design, as discussed in section III.B.3.b.10., to total
expenditures. To more accurately reflect expected expenditures for
2014, the 2010 total expenditures were increased for projected cost
growth.\14\ Average monthly expenditures were defined as the enrollee's
expenditures for the enrollment period divided by the number of
enrollment months. Annualized expenditures (total or plan liability)
were defined as average monthly expenditures multiplied by 12. Data for
each individual was weighted by months of enrollment divided by 12.
---------------------------------------------------------------------------
\14\ We used the same projected cost growth as was used in the
development of the AV calculator.
---------------------------------------------------------------------------
(2) Concurrent Model
The HHS risk adjustment model is a concurrent model. A concurrent
model takes diagnoses from a given period to predict cost in that same
period. This is in contrast to a prospective model, which would use
data from a prior period to predict costs in a future period. We are
proposing to use a
[[Page 73128]]
concurrent model because 2013 diagnostic data will not be available for
use in the model in 2014. In addition, we anticipate that enrollees may
move between plans, or between programs. A concurrent model would be
better able to handle changes in enrollment than a prospective model
because individuals newly enrolling in health plans may not have prior
data available that can be used in risk adjustment.
(3) Prescription Drugs
At this time, we have elected not to include prescription drug use
as a predictor in each HHS risk adjustment model. While use of
particular prescription drugs may be useful for predicting
expenditures, we believe that inclusion of prescription drug
information could create adverse incentives to modify discretionary
prescribing. We seek comments on possible approaches for future
versions of the model to include prescription drug information while
avoiding adverse incentives.
(4) Principles of Risk Adjustment and the Hierarchical Condition
Category (HCC) Classification System
A diagnostic classification system determines which diagnosis codes
should be included, how the diagnosis codes should be grouped, and how
the diagnostic groupings should interact for risk adjustment purposes.
The ten principles that were used to develop the hierarchical condition
category (HCC) classification system for the Medicare risk adjustment
model guided the creation of the HHS risk adjustment model we propose
to use when HHS operates risk adjustment on behalf of a State. Those
principles are:
Principle 1--Diagnostic categories should be clinically meaningful.
Each diagnostic category is a set of International Classification of
Diseases, Ninth Revision, Clinical Modification (``ICD-9-CM'')
codes.\15\ These codes should all relate to a reasonably well-specified
disease or medical condition that defines the category.
---------------------------------------------------------------------------
\15\ Please note that in future years we will update the
calibration of the HHS risk adjustment model to account for the
transition from ICD-9-CM codes to ICD-10-CM codes.
---------------------------------------------------------------------------
Principle 2--Diagnostic categories should predict medical
(including drug) expenditures. Diagnoses in the same HCC should be
reasonably homogeneous with respect to their effect on both current
(this year's) costs (concurrent risk adjustment) or future (next
year's) costs (prospective risk adjustment).
Principle 3--Diagnostic categories that will affect payments should
have adequate sample sizes to permit accurate and stable estimates of
expenditures. Diagnostic categories used in establishing payments
should have adequate sample sizes in available data sets.
Principle 4--In creating an individual's clinical profile,
hierarchies should be used to characterize the person's illness level
within each disease process, while the effects of unrelated disease
processes accumulate. Related conditions should be treated
hierarchically, with more severe manifestations of a condition
dominating (and zeroing out the effect of) less serious ones.
Principle 5--The diagnostic classification should encourage
specific coding. Vague diagnostic codes should be grouped with less
severe and lower-paying diagnostic categories to provide incentives for
more specific diagnostic coding.
Principle 6--The diagnostic classification should not reward coding
proliferation. The classification should not measure greater disease
burden simply because more ICD-9-CM codes are present.
Principle 7--Providers should not be penalized for recording
additional diagnoses (monotonicity). This principle has two
consequences for modeling: (1) no HCC should carry a negative payment
weight; and (2) a condition that is higher-ranked in a disease
hierarchy (causing lower-rank diagnoses to be ignored) should have at
least as large a payment weight as lower-ranked conditions in the same
hierarchy. (There may be exceptions, as when a coded condition
represents a radical change of treatment of a disease process.)
Principle 8--The classification system should be internally
consistent (transitive). If diagnostic category A is higher-ranked than
category B in a disease hierarchy, and category B is higher-ranked than
category C, then category A should be higher-ranked than category C.
Transitivity improves the internal consistency of the classification
system and ensures that the assignment of diagnostic categories is
independent of the order in which hierarchical exclusion rules are
applied.
Principle 9--The diagnostic classification should assign all ICD-9-
CM codes (exhaustive classification). Because each diagnostic code
potentially contains relevant clinical information, the classification
should categorize all ICD-9-CM codes.
Principle 10--Discretionary diagnostic categories should be
excluded from payment models. Diagnoses that are particularly subject
to intentional or unintentional discretionary coding variation or
inappropriate coding by health plans/providers, or that are not
clinically or empirically credible as cost predictors, should not
increase cost predictions. Excluding these diagnoses reduces the
sensitivity of the model to coding variation, coding proliferation,
gaming, and upcoding.
(5) CMS HCC Diagnostic Classification System
The HCCs in the Medicare risk adjustment model are referred to as
CMS HCCs. The HCCs in the HHS risk adjustment model are referred to as
HHS HCCs. The CMS HCC diagnostic classification provides the diagnostic
framework for the classification and selection of HCCs for the HHS risk
adjustment model. The CMS HCC risk adjustment model uses patient
diagnoses and demographic information to prospectively predict medical
spending for beneficiaries in Medicare Part C managed care plans. The
CMS HCC classification system was reviewed and adapted to account for
the different population to create the HHS HCC classification.
The CMS HCC diagnostic classification system begins by classifying
over 14,000 ICD-9-CM diagnosis codes into diagnostic groups, or DXGs.
Each ICD-9-CM code maps to exactly one DXG, which represents a well-
specified medical condition or set of conditions. DXGs are further
aggregated into Condition Categories, or CCs. CCs describe a broader
set of similar diseases. Although they are not as homogeneous as DXGs,
diseases within a CC are related clinically and with respect to cost.
Hierarchies are imposed among related CCs, so that a person is coded
for only the most severe manifestation among related diseases.
After imposing hierarchies, CCs become Hierarchical Condition
Categories, or HCCs. Although HCCs reflect hierarchies among related
disease categories, for unrelated diseases, HCCs accumulate. For
example, a female with rheumatoid arthritis and breast cancer has (at
least) two separate HCCs coded, and her predicted cost would reflect
increments for both conditions. The model's structure thus provides,
and predicts from, a detailed comprehensive clinical profile for each
individual.
Three major characteristics of the CMS HCC classification system
required modification for use with the HHS risk adjustment model: (1)
Population; (2) type of spending; and (3) prediction year. The CMS HCCs
were developed using data from the aged and/or disabled Medicare
population. Although every ICD-9-CM diagnosis code is
[[Page 73129]]
mapped and categorized into a diagnostic grouping, for some conditions
(such as pregnancy) the sample size in the Medicare population is quite
low. With larger sample sizes in the commercial population, HCCs were
re-examined for infant, child, and adult subpopulations. Additionally,
the CMS HCCs are configured to predict medical spending, while HHS HCCs
predict both medical and drug spending. Finally, the CMS HCC
classification is primarily designed for use with a prospective risk
adjustment model, using base year diagnoses and demographic information
to predict the next year's spending. Each HHS risk adjustment model is
concurrent, using current year diagnoses and demographics to predict
the current year's spending. Medical conditions may predict current
year costs that differ from future costs; HCC and DXG groupings should
reflect those differences.
As such, HCCs and DXGs may not be the same between the Medicare and
HHS risk adjustment models. For example, the newborn hierarchy was
reconfigured in the HHS risk adjustment model to include new HCCs and
DXGs to account for major cost differences in the youngest premature
newborns and in neonatal disorders. Adjustments such as these resulted
in 264 classification HCCs in the HHS risk adjustment model.
In designing the diagnostic classification for the HHS risk
adjustment model, principles 7 (monotonicity), 8 (transitivity), and 9
(exhaustive classification) were prioritized. For example, if the
expenditure weights for the models did not originally satisfy
monotonicity, constraints were imposed to create models that did.
However, tradeoffs were often required among other principles. For
example, clinical meaningfulness is often best served by creating a
very large number of detailed clinical groupings. However, a large
number of groupings may not allow for adequate sample sizes for each
category.
(6) Principles for HCC Selection
We selected 127 of the full classification of 264 HHS HCCs for
inclusion in the HHS risk adjustment model. In determining which HCCs
to include in the HHS risk adjustment model, HCCs that were more
appropriate for a concurrent model or for the expected risk adjustment
population (for example, low birth weight babies were included in the
HHS risk adjustment model). We considered the basic criteria below to
determine which HCCs should be included in the HHS risk adjustment
model:
Whether the HCC represents clinically significant medical
conditions with significant costs for the target population;
Whether there will be a sufficient sample size to ensure
stable results for the HCC;
Whether excluding the HCC would exclude (or limit the
impact of) diagnoses particularly subject to discretionary coding;
Whether the HCC identifies chronic or systematic
conditions that represent insurance risk selection or risk
segmentation, rather than random acute events;
Do not represent poor quality of care; and
Whether the HCC is applicable to the model age group.
Consistent with the risk adjustment principles described
previously, each HHS risk adjustment model excludes HHS HCCs containing
diagnoses that are vague or nonspecific (for example, symptoms),
discretionary in medical treatment or coding (for example,
osteoarthritis), or not medically significant (for example, muscle
strain). Each HHS risk adjustment model also excludes HHS HCCs that do
not add to costs.
(7) Grouping of HCCs
To balance the competing goals of improving predictive power and
limiting coding variability to create a relatively simple risk
adjustment model, a number of HHS HCCs were grouped into sets
equivalent to a single HCC. HHS HCCs were grouped (1) To reduce model
complexity; (2) to avoid including HHS HCCs with small sample size; (3)
to limit upcoding by severity within an HCC hierarchy; and (4) to
reduce additivity within disease groups (but not across disease groups)
to decrease the sensitivity of the model to coding proliferation. After
grouping, the number of HHS HCCs included in the proposed HHS risk
adjustment model was effectively reduced from 127 to 100.\16\
---------------------------------------------------------------------------
\16\ In addition, we imposed several additional constraints -HCC
coefficient values were made equal if a lower-ranked HCC in a
disease hierarchy had a higher coefficient than a higher-ranked HCC;
the 10 principles of risk adjustment models described in section
III.B.3.b.4. were generally followed.
---------------------------------------------------------------------------
(8) Demographics
In addition to the HHS HCCs included in the HHS risk adjustment
model, enrollee risk scores are calculated from demographic factors.
There are 18 age/sex categories for adults, and 8 age/sex categories
for children. As described below, age/sex categories for infants are
not used. Adults are defined as ages 21+, children are ages 2-20, and
infants are ages 0-1. The age categories for adult male and female are
ages 21-24, 25-29, 30-34, 35-39, 40-44, 45-49, 50-54, 55-59, and 60+.
The age categories for children male and female are ages 2-4, 5-9, 10-
14, and 15-20. This is consistent with the CMS HCC model, which also
uses five year increments for age groups. In operation, age will be
defined as age as of the enrollee's last day of enrollment in risk
adjustment covered plans within an issuer in the applicable benefit
year. For individuals who do not have any of the HHS HCCs included in
the proposed HHS risk adjustment model, predicted expenditures are
based solely on their demographic risk factors. In the calibration data
set, 19 percent of adults, nine percent of children, and 45 percent of
infants have HCCs included in the risk adjustment models.
(9) Separate Adult, Child and Infant Models
Due to the inherent clinical and cost differences in the adult (age
21+), child (age 2-20), and infant (age 0-1) populations, HHS developed
separate risk adjustment models for each age group. The models for
adults and children generally have similar specifications, including
demographic age/sex categories and HHS HCCs, but differ slightly due to
clinical and cost differences. However, infants have certain costs
related to hospitalization at birth and can have severe and expensive
conditions that do not apply to adults or children, while having
relatively low frequencies for most HHS HCCs included in the model
compared to adults and children. Therefore, HHS proposes to use a
separate infant model.
The infant model utilizes a mutually exclusive groups approach in
which infants are assigned a maturity category (by gestation and birth
weight) and a severity category. There are 5 maturity categories:
Extremely Immature; Immature; Premature/Multiples; Term; and Age 1. For
the maturity category, age 0 infants would be assigned to one of the
first four categories and age 1 infants would be assigned to the Age 1
category. There are 5 severity categories based on the clinical
severity and associated costs of the non-maturity HCCs: Severity Level
1 (Lowest Severity) to Severity Level 5 (Highest Severity). All infants
(age 0 or 1) are assigned to a severity category based on the highest
severity of their non-maturity HCCs. The 5 maturity categories and 5
severity categories would be used to create 25 mutually-exclusive
interaction terms to which
[[Page 73130]]
each infant is assigned. An infant who has HCCs in more than one
severity category would be assigned to the highest of those severity
categories. An infant who has no HCCs or only a newborn maturity HCC
would be assigned to Severity Level 1 (Lowest). Finally, evidence
suggests that male infants have higher costs than female infants due to
increased morbidity and neonatal mortality.\17\ To account for these
differences by sex, there are 2 male-age indicator variables: Age 0
Male and Age 1 Male. The male-age variable would be added to the
interaction term to which the infant is assigned.
---------------------------------------------------------------------------
\17\ Mathews, T.J., M.S. & Marian F. MacDormon, Ph.D., Division
of Vital Statistics. Infant Mortality Statistics From the 2007
Period Linked Birth/Infant Death Data Set. National Vital Statistic
Reports. Vol. 59. No. 6. (June 29, 2011). Available at: www.cdc.gov/nchs/data/nvsr/nvsr59/nvsr59_06.pdf.
---------------------------------------------------------------------------
We understand that there may be cases in which there is no separate
infant birth claim from which to gather diagnoses. For example, at an
operational level mother and infant claims may be bundled such that
infant diagnoses appear on the mother's record. Where newborn diagnoses
appear on the mother's claims, HHS is exploring the feasibility of
associating those codes with the appropriate infant. This assumes that
the mother and infant enrollment records exist and can be matched,
which may also pose operational problems in some cases. Alternatively,
we are considering requiring issuers to provide separate mother and
infant claims when they have received a combined claim. We seek comment
on the operational feasibility of both of these approaches.
Tables 5 and 6 contain descriptions of how the severity and
maturity are defined.
(10) Selection of Plan Liability Model
We propose separate risk adjustment models for each metal level
because plans at different metal levels would have different liability
for enrollees with the same expenditure patterns.
We considered using a total expenditure approach to estimating the
HHS risk adjustment model. A total expenditure risk adjustment model
would use the demographic age/sex categories, HHS HCCs included in the
model, and any other independent variables to predict all of the costs
associated with an enrollee, whether those costs are incurred by the
enrollee or the issuer. In a total expenditure model, two individuals
of the same age with the same set of HCCs would have the same risk
score regardless of the metal level plan type in which the individuals
were enrolled. However, we do not believe that this approach would
accurately capture plan liability levels due to the non-linear nature
of liability for plans at different metal levels. In particular,
deductibles are anticipated to be highest in bronze plans and lowest in
platinum plans. Plan liabilities for plan types (platinum, gold,
silver, bronze, and catastrophic) were defined by applying standardized
benefit design parameters for each given metal level to total
expenditures. We estimated average plan liability for each of the plan
types, and created an adult, child, and infant model for each plan
type.
(11) Disease Interactions
We propose that the HHS risk adjustment models for adults include
interaction factors. Including interactions improves model performance
for low- and high-cost individuals and better reflects plan liability
across metal levels.
Disease interactions were created using the silver model by first
creating a single severity illness indicator. We elected to use the
silver model to create interaction terms because we expect enrollment
to be highest in silver plans due to the availability of premium tax
credits and cost-sharing reductions in those plans. The severity
illness indicator variable was interacted with individual HCCs or HCC
groups, and the predicted costs of the interaction variables were then
grouped into three cost categories: low, medium and high. Interaction
groups in the medium and high cost categories were included in the HHS
risk adjustment model as shown at the bottom of Table 1 below. An
individual is determined to have the severity indicator if they have
one or more of the HCCs listed in Table 2.
An individual with at least one of the HCCs that comprises the
severity illness indicator variable and at least one of the HCCs
interacted with the severity illness indicator variable would be
assigned a single interaction factor. A hierarchy is imposed on these
interaction groups such that an individual with a high cost interaction
is excluded from having a medium cost interaction. The high or the
medium interaction factor would be added to demographic and diagnosis
factors of the individual.
(12) List of Factors To Be Employed in the Model
The proposed HHS risk adjustment models predict annualized plan
liability expenditures using age and sex categories and the HHS HCCs
included in the HHS risk adjustment model. Dollar coefficients were
estimated for these categories and HCCs using weighted least squares
regression, where the weight was the fraction of the year enrolled.
For each model, the factors were the statistical regression dollar
values for each category or HCC in the model divided by a weighted
average plan liability for the full modeling sample. The factors
represent the predicted relative incremental expenditures for each
category or HCC. For a given enrollee, the sums of the factors for the
enrollee's category and HCCs are the total relative predicted
expenditures for that enrollee. Table 1 contains factors for each adult
model, including the interactions. Table 3 contains the factors for
each child model. Table 5 contains the factors for each infant model.
Table 1--Adult Risk Adjustment Model Factors
----------------------------------------------------------------------------------------------------------------
Factor Platinum Gold Silver Bronze Catastrophic
----------------------------------------------------------------------------------------------------------------
Demographic Factors
----------------------------------------------------------------------------------------------------------------
Age 21-24, Male............................. 0.258 0.208 0.141 0.078 0.062
Age 25-29, Male............................. 0.278 0.223 0.150 0.081 0.064
Age 30-34, Male............................. 0.338 0.274 0.187 0.101 0.079
Age 35-39, Male............................. 0.413 0.339 0.240 0.140 0.113
Age 40-44, Male............................. 0.487 0.404 0.293 0.176 0.145
Age 45-49, Male............................. 0.581 0.487 0.365 0.231 0.195
Age 50-54, Male............................. 0.737 0.626 0.484 0.316 0.269
Age 55-59, Male............................. 0.863 0.736 0.580 0.393 0.339
Age 60-64, Male............................. 1.028 0.880 0.704 0.487 0.424
[[Page 73131]]
Age 21-24, Female........................... 0.433 0.350 0.221 0.101 0.072
Age 25-29, Female........................... 0.548 0.448 0.301 0.156 0.120
Age 30-34, Female........................... 0.656 0.546 0.396 0.243 0.203
Age 35-39, Female........................... 0.760 0.641 0.490 0.334 0.293
Age 40-44, Female........................... 0.839 0.713 0.554 0.384 0.338
Age 45-49, Female........................... 0.878 0.747 0.583 0.402 0.352
Age 50-54, Female........................... 1.013 0.869 0.695 0.486 0.427
Age 55-59, Female........................... 1.054 0.905 0.726 0.507 0.443
Age 60-64, Female........................... 1.156 0.990 0.798 0.559 0.489
----------------------------------------------------------------------------------------------------------------
Diagnosis Factors
----------------------------------------------------------------------------------------------------------------
HIV/AIDS.................................... 5.485 4.972 4.740 4.740 4.749
Septicemia, Sepsis, Systemic Inflammatory 13.696 13.506 13.429 13.503 13.529
Response Syndrome/Shock....................
Central Nervous System Infections, Except 7.277 7.140 7.083 7.117 7.129
Viral Meningitis...........................
Viral or Unspecified Meningitis............. 4.996 4.730 4.621 4.562 4.550
Opportunistic Infections.................... 9.672 9.549 9.501 9.508 9.511
Metastatic Cancer........................... 25.175 24.627 24.376 24.491 24.526
Lung, Brain, and Other Severe Cancers, 11.791 11.377 11.191 11.224 11.235
Including Pediatric Acute Lymphoid Leukemia
Non-Hodgkin`s Lymphomas and Other Cancers 6.432 6.150 6.018 5.983 5.970
and Tumors.................................
Colorectal, Breast (Age < 50), Kidney, and 5.961 5.679 5.544 5.500 5.483
Other Cancers..............................
Breast (Age 50+) and Prostate Cancer, Benign/ 3.509 3.294 3.194 3.141 3.121
Uncertain Brain Tumors, and Other Cancers
and Tumors.................................
Thyroid Cancer, Melanoma, Neurofibromatosis, 1.727 1.559 1.466 1.353 1.315
and Other Cancers and Tumors...............
Pancreas Transplant Status/Complications.... 9.593 9.477 9.411 9.434 9.439
Diabetes with Acute Complications........... 1.331 1.199 1.120 1.000 0.957
Diabetes with Chronic Complications......... 1.331 1.199 1.120 1.000 0.957
Diabetes without Complication............... 1.331 1.199 1.120 1.000 0.957
Protein-Calorie Malnutrition................ 14.790 14.790 14.786 14.862 14.883
Mucopoly-saccharidosis...................... 2.335 2.198 2.130 2.071 2.052
Lipidoses and Glycogenosis.................. 2.335 2.198 2.130 2.071 2.052
Amyloidosis, Porphyria, and Other Metabolic 2.335 2.198 2.130 2.071 2.052
Disorders..................................
Adrenal, Pituitary, and Other Significant 2.335 2.198 2.130 2.071 2.052
Endocrine Disorders........................
Liver Transplant Status/Complications....... 18.445 18.197 18.105 18.165 18.188
End-Stage Liver Disease..................... 6.412 6.102 5.974 6.001 6.012
Cirrhosis of Liver.......................... 2.443 2.255 2.177 2.137 2.125
Chronic Hepatitis........................... 1.372 1.228 1.152 1.071 1.046
Acute Liver Failure/Disease, Including 4.824 4.634 4.548 4.547 4.550
Neonatal Hepatitis.........................
Intestine Transplant Status/Complications... 77.945 78.110 78.175 78.189 78.195
Peritonitis/Gastrointestinal Perforation/ 13.144 12.823 12.681 12.743 12.764
Necrotizing Enterocolitis..................
Intestinal Obstruction...................... 7.257 6.922 6.789 6.842 6.864
Chronic Pancreatitis........................ 6.682 6.385 6.269 6.309 6.329
Acute Pancreatitis/Other Pancreatic 3.614 3.380 3.281 3.245 3.234
Disorders and Intestinal Malabsorption.....
Inflammatory Bowel Disease.................. 2.894 2.640 2.517 2.398 2.355
Necrotizing Fasciitis....................... 7.878 7.622 7.508 7.545 7.559
Bone/Joint/Muscle Infections/Necrosis....... 7.878 7.622 7.508 7.545 7.559
Rheumatoid Arthritis and Specified 3.414 3.135 3.009 2.987 2.982
Autoimmune Disorders.......................
Systemic Lupus Erythematosus and Other 1.263 1.124 1.051 0.954 0.921
Autoimmune Disorders.......................
Osteogenesis Imperfecta and Other 3.524 3.300 3.184 3.126 3.107
Osteodystrophies...........................
Congenital/Developmental Skeletal and 3.524 3.300 3.184 3.126 3.107
Connective Tissue Disorders................
Cleft Lip/Cleft Palate...................... 2.168 1.978 1.891 1.815 1.793
Hemophilia.................................. 49.823 49.496 49.321 49.330 49.329
Myelodysplastic Syndromes and Myelofibrosis. 15.404 15.253 15.182 15.214 15.224
Aplastic Anemia............................. 15.404 15.253 15.182 15.214 15.224
Acquired Hemolytic Anemia, Including 7.405 7.198 7.099 7.090 7.089
Hemolytic Disease of Newborn...............
Sickle Cell Anemia (Hb-SS).................. 7.405 7.198 7.099 7.090 7.089
Thalassemia Major........................... 7.405 7.198 7.099 7.090 7.089
Combined and Other Severe Immunodeficiencies 5.688 5.489 5.402 5.419 5.423
Disorders of the Immune Mechanism........... 5.688 5.489 5.402 5.419 5.423
Coagulation Defects and Other Specified 3.080 2.959 2.899 2.880 2.872
Hematological Disorders....................
Drug Psychosis.............................. 3.776 3.517 3.389 3.302 3.274
Drug Dependence............................. 3.776 3.517 3.389 3.302 3.274
Schizophrenia............................... 3.122 2.854 2.732 2.647 2.624
Major Depressive and Bipolar Disorders...... 1.870 1.698 1.601 1.476 1.436
Reactive and Unspecified Psychosis, 1.870 1.698 1.601 1.476 1.436
Delusional Disorders.......................
Personality Disorders....................... 1.187 1.065 0.974 0.836 0.790
[[Page 73132]]
Anorexia/Bulimia Nervosa.................... 3.010 2.829 2.732 2.657 2.631
Prader-Willi, Patau, Edwards, and Autosomal 5.387 5.219 5.141 5.101 5.091
Deletion Syndromes.........................
Down Syndrome, Fragile X, Other Chromosomal 1.264 1.171 1.099 1.015 0.985
Anomalies, and Congenital Malformation
Syndromes..................................
Autistic Disorder........................... 1.187 1.065 0.974 0.836 0.790
Pervasive Developmental Disorders, Except 1.187 1.065 0.974 0.836 0.790
Autistic Disorder..........................
Traumatic Complete Lesion Cervical Spinal 11.728 11.537 11.444 11.448 11.449
Cord.......................................
Quadriplegia................................ 11.728 11.537 11.444 11.448 11.449
Traumatic Complete Lesion Dorsal Spinal Cord 10.412 10.205 10.108 10.111 10.111
Paraplegia.................................. 10.412 10.205 10.108 10.111 10.111
Spinal Cord Disorders/Injuries.............. 6.213 5.969 5.861 5.843 5.836
Amyotrophic Lateral Sclerosis and Other 3.379 3.094 2.967 2.927 2.919
Anterior Horn Cell Disease.................
Quadriplegic Cerebral Palsy................. 2.057 1.810 1.681 1.610 1.589
Cerebral Palsy, Except Quadriplegic......... 0.729 0.596 0.521 0.437 0.408
Spina Bifida and Other Brain/Spinal/Nervous 0.727 0.590 0.522 0.467 0.449
System Congenital Anomalies................
Myasthenia Gravis/Myoneural Disorders and 5.174 4.999 4.921 4.900 4.891
Guillain-Barre Syndrome/Inflammatory and
Toxic Neuropathy...........................
Muscular Dystrophy.......................... 2.118 1.928 1.848 1.771 1.745
Multiple Sclerosis.......................... 7.441 6.971 6.764 6.830 6.850
Parkinson`s, Huntington`s, and 2.118 1.928 1.848 1.771 1.745
Spinocerebellar Disease, and Other
Neurodegenerative Disorders................
Seizure Disorders and Convulsions........... 1.578 1.411 1.321 1.229 1.199
Hydrocephalus............................... 7.688 7.552 7.486 7.492 7.493
Non-Traumatic Coma, and Brain Compression/ 9.265 9.102 9.022 9.026 9.025
Anoxic Damage..............................
Respirator Dependence/Tracheostomy Status... 40.054 40.035 40.022 40.105 40.131
Respiratory Arrest.......................... 12.913 12.707 12.612 12.699 12.728
Cardio-Respiratory Failure and Shock, 12.913 12.707 12.612 12.699 12.728
Including Respiratory Distress Syndromes...
Heart Assistive Device/Artificial Heart..... 33.372 33.025 32.877 32.978 33.014
Heart Transplant............................ 33.372 33.025 32.877 32.978 33.014
Congestive Heart Failure.................... 3.790 3.648 3.587 3.591 3.594
Acute Myocardial Infarction................. 11.904 11.451 11.258 11.423 11.478
Unstable Angina and Other Acute Ischemic 6.369 6.001 5.861 5.912 5.935
Heart Disease..............................
Heart Infection/Inflammation, Except 6.770 6.611 6.537 6.530 6.528
Rheumatic..................................
Specified Heart Arrhythmias................. 3.363 3.193 3.112 3.063 3.046
Intracranial Hemorrhage..................... 10.420 10.062 9.907 9.943 9.959
Ischemic or Unspecified Stroke.............. 4.548 4.304 4.215 4.242 4.256
Cerebral Aneurysm and Arteriovenous 5.263 5.000 4.890 4.867 4.859
Malformation...............................
Hemiplegia/Hemiparesis...................... 5.979 5.846 5.794 5.858 5.881
Monoplegia, Other Paralytic Syndromes....... 4.176 4.024 3.959 3.938 3.931
Atherosclerosis of the Extremities with 11.941 11.801 11.745 11.844 11.876
Ulceration or Gangrene.....................
Vascular Disease with Complications......... 8.228 7.996 7.896 7.922 7.932
Pulmonary Embolism and Deep Vein Thrombosis. 4.853 4.642 4.549 4.539 4.537
Lung Transplant Status/Complications........ 31.457 31.161 31.030 31.131 31.161
Cystic Fibrosis............................. 10.510 10.142 9.957 9.960 9.962
Chronic Obstructive Pulmonary Disease, 1.098 0.978 0.904 0.810 0.780
Including Bronchiectasis...................
Asthma...................................... 1.098 0.978 0.904 0.810 0.780
Fibrosis of Lung and Other Lung Disorders... 2.799 2.657 2.596 2.565 2.556
Aspiration and Specified Bacterial 9.052 8.934 8.883 8.913 8.924
Pneumonias and Other Severe Lung Infections
Kidney Transplant Status.................... 10.944 10.576 10.432 10.463 10.482
End Stage Renal Disease..................... 37.714 37.356 37.193 37.352 37.403
Chronic Kidney Disease, Stage 5............. 2.189 2.048 1.995 1.990 1.992
Chronic Kidney Disease, Severe (Stage 4).... 2.189 2.048 1.995 1.990 1.992
Ectopic and Molar Pregnancy, Except with 1.377 1.219 1.120 0.912 0.828
Renal Failure, Shock, or Embolism..........
Miscarriage with Complications.............. 1.377 1.219 1.120 0.912 0.828
Miscarriage with No or Minor Complications.. 1.377 1.219 1.120 0.912 0.828
Completed Pregnancy With Major Complications 3.778 3.285 3.134 2.931 2.906
Completed Pregnancy With Complications...... 3.778 3.285 3.134 2.931 2.906
Completed Pregnancy with No or Minor 3.778 3.285 3.134 2.931 2.906
Complications..............................
Chronic Ulcer of Skin, Except Pressure...... 2.515 2.371 2.313 2.304 2.304
Hip Fractures and Pathological Vertebral or 9.788 9.570 9.480 9.521 9.536
Humerus Fractures..........................
Pathological Fractures, Except of Vertebrae, 1.927 1.805 1.735 1.648 1.620
Hip, or Humerus............................
Stem Cell, Including Bone Marrow, Transplant 30.944 30.908 30.893 30.917 30.928
Status/Complications.......................
Artificial Openings for Feeding or 11.093 10.939 10.872 10.943 10.965
Elimination................................
Amputation Status, Lower Limb/Amputation 7.277 7.087 7.009 7.056 7.073
Complications..............................
----------------------------------------------------------------------------------------------------------------
Interaction Factors
----------------------------------------------------------------------------------------------------------------
Severe illness x Opportunistic Infections... 12.094 12.327 12.427 12.527 12.555
[[Page 73133]]
Severe illness x Metastatic Cancer.......... 12.094 12.327 12.427 12.527 12.555
Severe illness x Lung, Brain, and Other 12.094 12.327 12.427 12.527 12.555
Severe Cancers, Including Pediatric Acute
Lymphoid Leukemia..........................
Severe illness x Non-Hodgkin`s Lymphomas and 12.094 12.327 12.427 12.527 12.555
Other Cancers and Tumors...................
Severe illness x Myasthenia Gravis/Myoneural 12.094 12.327 12.427 12.527 12.555
Disorders and Guillain-Barre Syndrome/
Inflammatory and Toxic Neuropathy..........
Severe illness x Heart Infection/ 12.094 12.327 12.427 12.527 12.555
Inflammation, Except Rheumatic.............
Severe illness x Intracranial Hemorrhage.... 12.094 12.327 12.427 12.527 12.555
Severe illness x HCC group G06 (HCC Group 6 12.094 12.327 12.427 12.527 12.555
includes Myelodysplastic Syndromes and
Myelofibrosis, and Aplastic Anemia)........
Severe illness x HCC group G08 (HCC Group 8 12.094 12.327 12.427 12.527 12.555
includes Combined and Other Severe
Immunodeficiencies, and Disorders of the
Immune Mechanism)..........................
Severe illness x End-Stage Liver Disease.... 2.498 2.648 2.714 2.813 2.841
Severe illness x Acute Liver Failure/ 2.498 2.648 2.714 2.813 2.841
Disease, Including Neonatal Hepatitis......
Severe illness x Atherosclerosis of the 2.498 2.648 2.714 2.813 2.841
Extremities with Ulceration or Gangrene....
Severe illness x Vascular Disease with 2.498 2.648 2.714 2.813 2.841
Complications..............................
Severe illness x Aspiration and Specified 2.498 2.648 2.714 2.813 2.841
Bacterial Pneumonias and Other Severe Lung
Infections.................................
Severe illness x Artificial Openings for 2.498 2.648 2.714 2.813 2.841
Feeding or Elimination.....................
Severe illness x HCC group G03 (HCC Group 3 2.498 2.648 2.714 2.813 2.841
includes Necrotizing Fasciitis and Bone/
Joint/Muscle Infections/Necrosis)..........
----------------------------------------------------------------------------------------------------------------
Table 2--HHS HCCs in the Severity Illness Indicator Variable
------------------------------------------------------------------------
Description
-------------------------------------------------------------------------
Septicemia, Sepsis, Systemic Inflammatory Response Syndrome/Shock.
Peritonitis/Gastrointestinal Perforation/Necrotizing Enter colitis.
Seizure Disorders and Convulsions.
Non-Traumatic Coma, Brain Compression/Anoxic Damage.
Respirator Dependence/Tracheostomy Status.
Respiratory Arrest.
Cardio-Respiratory Failure and Shock, Including Respiratory Distress
Syndromes.
Pulmonary Embolism and Deep Vein Thrombosis.
------------------------------------------------------------------------
Table 3--Child Risk Adjustment Model Factors
----------------------------------------------------------------------------------------------------------------
Factor Platinum Gold Silver Bronze Catastrophic
----------------------------------------------------------------------------------------------------------------
Demographic Factors
----------------------------------------------------------------------------------------------------------------
Age 2-4, Male............................... 0.283 0.209 0.106 0.019 0.000
Age 5-9, Male............................... 0.196 0.140 0.064 0.005 0.000
Age 10-14, Male............................. 0.246 0.189 0.110 0.047 0.033
Age 15-20, Male............................. 0.336 0.273 0.191 0.114 0.095
Age 2-4, Female............................. 0.233 0.165 0.071 0.019 0.000
Age 5-9, Female............................. 0.165 0.113 0.048 0.005 0.000
Age 10-14, Female........................... 0.223 0.168 0.095 0.042 0.031
Age 15-20, Female........................... 0.379 0.304 0.198 0.101 0.077
----------------------------------------------------------------------------------------------------------------
Diagnosis Factors
----------------------------------------------------------------------------------------------------------------
HIV/AIDS.................................... 2.956 2.613 2.421 2.228 2.166
Septicemia, Sepsis, Systemic Inflammatory 17.309 17.142 17.061 17.081 17.088
Response Syndrome/Shock....................
Central Nervous System Infections, Except 12.636 12.409 12.296 12.313 12.319
Viral Meningitis...........................
Viral or Unspecified Meningitis............. 3.202 3.004 2.896 2.750 2.702
Opportunistic Infections.................... 20.358 20.262 20.222 20.201 20.189
Metastatic Cancer........................... 34.791 34.477 34.307 34.306 34.300
Lung, Brain, and Other Severe Cancers, 11.939 11.618 11.436 11.358 11.334
Including Pediatric Acute Lymphoid Leukemia
Non-Hodgkin's Lymphomas and Other Cancers 9.354 9.071 8.908 8.806 8.774
and Tumors.................................
Colorectal, Breast (Age <50), Kidney, and 3.689 3.480 3.337 3.188 3.143
Other Cancers..............................
Benign/Uncertain Brain Tumors, and Other 3.308 3.084 2.954 2.814 2.769
Cancers and Tumors \18\....................
[[Page 73134]]
Thyroid Cancer, Melanoma, Neurofibromatosis, 1.530 1.368 1.254 1.114 1.066
and Other Cancers and Tumors...............
Pancreas Transplant Status/Complications.... 18.933 18.476 18.264 18.279 18.289
Diabetes with Acute Complications........... 2.629 2.354 2.198 1.904 1.799
Diabetes with Chronic Complications......... 2.629 2.354 2.198 1.904 1.799
Diabetes without Complication............... 2.629 2.354 2.198 1.904 1.799
Protein-Calorie Malnutrition................ 13.930 13.794 13.726 13.751 13.759
Mucopolysaccharidosis....................... 6.177 5.867 5.696 5.642 5.625
Lipidoses and Glycogenosis.................. 6.177 5.867 5.696 5.642 5.625
Congenital Metabolic Disorders, Not 6.177 5.867 5.696 5.642 5.625
Elsewhere Classified.......................
Amyloidosis, Porphyria, and Other Metabolic 6.177 5.867 5.696 5.642 5.625
Disorders..................................
Adrenal, Pituitary, and Other Significant 6.177 5.867 5.696 5.642 5.625
Endocrine Disorders........................
Liver Transplant Status/Complications....... 18.322 18.048 17.922 17.898 17.888
End-Stage Liver Disease..................... 12.960 12.754 12.650 12.622 12.614
Cirrhosis of Liver.......................... 1.177 1.027 0.920 0.871 0.833
Chronic Hepatitis........................... 1.177 1.027 0.920 0.807 0.775
Acute Liver Failure/Disease, Including 6.255 6.092 6.003 5.972 5.966
Neonatal Hepatitis.........................
Intestine Transplant Status/Complications... 106.169 106.704 106.991 107.180 107.222
Peritonitis/Gastrointestinal Perforation/ 16.784 16.360 16.156 16.171 16.179
Necrotizing Enterocolitis..................
Intestinal Obstruction...................... 5.715 5.451 5.307 5.210 5.178
Chronic Pancreatitis........................ 16.692 16.315 16.148 16.163 16.166
Acute Pancreatitis/Other Pancreatic 3.843 3.685 3.584 3.471 3.434
Disorders and Intestinal Malabsorption.....
Inflammatory Bowel Disease.................. 5.049 4.673 4.471 4.320 4.271
Necrotizing Fasciitis....................... 5.829 5.551 5.398 5.318 5.292
Bone/Joint/Muscle Infections/Necrosis....... 5.829 5.551 5.398 5.318 5.292
Rheumatoid Arthritis and Specified 2.689 2.473 2.327 2.171 2.122
Autoimmune Disorders.......................
Systemic Lupus Erythematosus and Other 1.397 1.249 1.139 0.996 0.951
Autoimmune Disorders.......................
Osteogenesis Imperfecta and Other 1.536 1.410 1.311 1.211 1.183
Osteodystrophies...........................
Congenital/Developmental Skeletal and 1.536 1.410 1.311 1.211 1.183
Connective Tissue Disorders................
Cleft Lip/Cleft Palate...................... 1.785 1.573 1.441 1.281 1.228
Hemophilia.................................. 46.388 45.839 45.551 45.541 45.535
Myelodysplastic Syndromes and Myelofibrosis. 29.387 29.168 29.063 29.075 29.078
Aplastic Anemia............................. 29.387 29.168 29.063 29.075 29.078
Acquired Hemolytic Anemia, Including 7.791 7.476 7.308 7.229 7.203
Hemolytic Disease of Newborn...............
Sickle Cell Anemia (Hb-SS).................. 7.791 7.476 7.308 7.229 7.203
Thalassemia Major........................... 7.791 7.476 7.308 7.229 7.203
Combined and Other Severe Immunodeficiencies 5.690 5.455 5.339 5.270 5.247
Disorders of the Immune Mechanism........... 5.690 5.455 5.339 5.270 5.247
Coagulation Defects and Other Specified 4.909 4.754 4.650 4.543 4.511
Hematological Disorders....................
Drug Psychosis.............................. 4.067 3.816 3.693 3.596 3.566
Drug Dependence............................. 4.067 3.816 3.693 3.596 3.566
Schizophrenia............................... 5.536 5.127 4.916 4.775 4.730
Major Depressive and Bipolar Disorders...... 1.779 1.591 1.453 1.252 1.188
Reactive and Unspecified Psychosis, 1.779 1.591 1.453 1.252 1.188
Delusional Disorders.......................
Personality Disorders....................... 0.935 0.832 0.723 0.511 0.441
Anorexia/Bulimia Nervosa.................... 2.565 2.372 2.252 2.146 2.111
Prader-Willi, Patau, Edwards, and Autosomal 3.606 3.347 3.239 3.201 3.189
Deletion Syndromes.........................
Down Syndrome, Fragile X, Other Chromosomal 2.403 2.203 2.093 1.982 1.943
Anomalies, and Congenital Malformation
Syndromes..................................
Autistic Disorder........................... 1.673 1.500 1.372 1.177 1.112
Pervasive Developmental Disorders, Except 0.963 0.850 0.723 0.511 0.441
Autistic Disorder..........................
Traumatic Complete Lesion Cervical Spinal 18.394 18.224 18.156 18.210 18.228
Cord.......................................
Quadriplegia................................ 18.394 18.224 18.156 18.210 18.228
Traumatic Complete Lesion Dorsal Spinal Cord 18.394 18.224 18.156 18.210 18.228
Paraplegia.................................. 18.394 18.224 18.156 18.210 18.228
Spinal Cord Disorders/Injuries.............. 4.668 4.416 4.287 4.181 4.150
Amyotrophic Lateral Sclerosis and Other 14.484 14.155 13.995 13.958 13.954
Anterior Horn Cell Disease.................
Quadriplegic Cerebral Palsy................. 5.717 5.367 5.223 5.251 5.262
Cerebral Palsy, Except Quadriplegic......... 1.899 1.672 1.557 1.447 1.412
Spina Bifida and Other Brain/Spinal/Nervous 0.943 0.785 0.686 0.592 0.562
System Congenital Anomalies................
Myasthenia Gravis/Myoneural Disorders and 5.301 5.071 4.950 4.861 4.832
Guillain-Barre Syndrome/Inflammatory and
Toxic Neuropathy...........................
Muscular Dystrophy.......................... 3.122 2.915 2.800 2.698 2.669
Multiple Sclerosis.......................... 5.370 4.996 4.806 4.769 4.752
Parkinson's, Huntington's, and 3.122 2.915 2.800 2.698 2.669
Spinocerebellar Disease, and Other
Neurodegenerative Disorders................
Seizure Disorders and Convulsions........... 2.188 2.012 1.882 1.702 1.644
Hydrocephalus............................... 6.791 6.630 6.550 6.521 6.513
[[Page 73135]]
Non-Traumatic Coma, and Brain Compression/ 9.073 8.882 8.788 8.753 8.735
Anoxic Damage..............................
Respirator Dependence/Tracheostomy Status... 34.717 34.532 34.471 34.623 34.668
Respiratory Arrest.......................... 14.998 14.772 14.669 14.691 14.696
Cardio-Respiratory Failure and Shock, 14.998 14.772 14.669 14.691 14.696
Including Respiratory Distress Syndromes...
Heart Assistive Device/Artificial Heart..... 25.734 25.262 25.057 25.189 25.225
Heart Transplant............................ 25.734 25.262 25.057 25.189 25.225
Congestive Heart Failure.................... 6.292 6.159 6.073 6.013 5.992
Acute Myocardial Infarction................. 4.568 4.453 4.410 4.433 4.448
Unstable Angina and Other Acute Ischemic 4.568 4.453 4.410 4.433 4.448
Heart Disease..............................
Heart Infection/Inflammation, Except 12.842 12.655 12.573 12.590 12.597
Rheumatic..................................
Hypoplastic Left Heart Syndrome and Other 7.019 6.823 6.668 6.528 6.480
Severe Congenital Heart Disorders..........
Major Congenital Heart/Circulatory Disorders 2.257 2.143 2.018 1.870 1.828
Atrial and Ventricular Septal Defects, 1.411 1.319 1.206 1.078 1.047
Patent Ductus Arteriosus, and Other
Congenital Heart/Circulatory Disorders.....
Specified Heart Arrhythmias................. 4.483 4.276 4.141 4.052 4.026
Intracranial Hemorrhage..................... 21.057 20.757 20.616 20.617 20.618
Ischemic or Unspecified Stroke.............. 8.498 8.373 8.324 8.360 8.363
Cerebral Aneurysm and Arteriovenous 4.704 4.464 4.344 4.280 4.250
Malformation...............................
Hemiplegia/Hemiparesis...................... 5.561 5.404 5.334 5.315 5.310
Monoplegia, Other Paralytic Syndromes....... 5.561 5.404 5.334 5.315 5.310
Atherosclerosis of the Extremities with 10.174 9.937 9.799 9.688 9.641
Ulceration or Gangrene.....................
Vascular Disease with Complications......... 11.571 11.355 11.257 11.260 11.272
Pulmonary Embolism and Deep Vein Thrombosis. 13.894 13.661 13.557 13.591 13.604
Lung Transplant Status/Complications........ 100.413 100.393 100.412 100.660 100.749
Cystic Fibrosis............................. 13.530 13.006 12.743 12.739 12.742
Chronic Obstructive Pulmonary Disease, 0.521 0.458 0.354 0.215 0.175
Including Bronchiectasis...................
Asthma...................................... 0.521 0.458 0.354 0.215 0.175
Fibrosis of Lung and Other Lung Disorders... 5.812 5.657 5.555 5.472 5.450
Aspiration and Specified Bacterial 10.730 10.615 10.549 10.566 10.571
Pneumonias and Other Severe Lung Infections
Kidney Transplant Status.................... 18.933 18.476 18.264 18.279 18.289
End Stage Renal Disease..................... 43.158 42.816 42.659 42.775 42.808
Chronic Kidney Disease, Stage 5............. 11.754 11.581 11.472 11.374 11.340
Chronic Kidney Disease, Severe (Stage 4).... 11.754 11.581 11.472 11.374 11.340
Ectopic and Molar Pregnancy, Except with 1.191 1.042 0.917 0.674 0.590
Renal Failure, Shock, or Embolism..........
Miscarriage with Complications.............. 1.191 1.042 0.917 0.674 0.590
Miscarriage with No or Minor Complications.. 1.191 1.042 0.917 0.674 0.590
Completed Pregnancy With Major Complications 3.419 2.956 2.778 2.498 2.437
Completed Pregnancy With Complications...... 3.419 2.956 2.778 2.498 2.437
Completed Pregnancy with No or Minor 3.419 2.956 2.778 2.498 2.437
Complications..............................
Chronic Ulcer of Skin, Except Pressure...... 1.570 1.479 1.394 1.314 1.289
Hip Fractures and Pathological Vertebral or 7.389 7.174 7.022 6.882 6.842
Humerus Fractures..........................
Pathological Fractures, Except of Vertebrae, 2.353 2.244 2.128 1.965 1.912
Hip, or Humerus............................
Stem Cell, Including Bone Marrow, Transplant 30.558 30.485 30.466 30.522 30.538
Status/Complications.......................
Artificial Openings for Feeding or 14.410 14.247 14.197 14.340 14.383
Elimination................................
Amputation Status, Lower Limb/Amputation 10.174 9.937 9.799 9.688 9.641
Complications..............................
----------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------
\18\ This HCC also includes Breast (Age 50+) and Prostate
Cancer.
Table 4--Infant Risk Adjustment Models Factors
----------------------------------------------------------------------------------------------------------------
Group Platinum Gold Silver Bronze Catastrophic
----------------------------------------------------------------------------------------------------------------
Extremely Immature x Severity Level 5 393.816 392.281 391.387 391.399 391.407
(Highest)..................................
Extremely Immature x Severity Level 4....... 225.037 223.380 222.424 222.371 222.365
Extremely Immature x Severity Level 3....... 60.363 59.232 58.532 58.247 58.181
Extremely Immature x Severity Level 2....... 60.363 59.232 58.532 58.247 58.181
Extremely Immature x Severity Level 1 60.363 59.232 58.532 58.247 58.181
(Lowest)...................................
Immature x Severity Level 5 (Highest)....... 207.274 205.589 204.615 204.629 204.644
Immature x Severity Level 4................. 89.694 88.105 87.188 87.169 87.178
Immature x Severity Level 3................. 45.715 44.305 43.503 43.394 43.379
Immature x Severity Level 2................. 33.585 32.247 31.449 31.221 31.163
Immature x Severity Level 1 (Lowest)........ 33.585 32.247 31.449 31.221 31.163
Premature/Multiples x Severity Level 5 173.696 172.095 171.169 171.111 171.108
(Highest)..................................
[[Page 73136]]
Premature/Multiples x Severity Level 4...... 34.417 32.981 32.155 31.960 31.925
Premature/Multiples x Severity Level 3...... 18.502 17.382 16.694 16.311 16.200
Premature/Multiples x Severity Level 2...... 9.362 8.533 7.967 7.411 7.241
Premature/Multiples x Severity Level 1 6.763 6.144 5.599 4.961 4.771
(Lowest)...................................
Term x Severity Level 5 (Highest)........... 132.588 131.294 130.511 130.346 130.292
Term x Severity Level 4..................... 20.283 19.222 18.560 18.082 17.951
Term x Severity Level 3..................... 6.915 6.286 5.765 5.092 4.866
Term x Severity Level 2..................... 3.825 3.393 2.925 2.189 1.951
Term x Severity Level 1 (Lowest)............ 1.661 1.449 0.998 0.339 0.188
Age1 x Severity Level 5 (Highest)........... 62.385 61.657 61.217 61.130 61.108
Age1 x Severity Level 4..................... 10.855 10.334 9.988 9.747 9.686
Age1 x Severity Level 3..................... 3.633 3.299 3.007 2.692 2.608
Age1 x Severity Level 2..................... 2.177 1.930 1.665 1.320 1.223
Age1 x Severity Level 1 (Lowest)............ 0.631 0.531 0.333 0.171 0.137
Age 0 Male.................................. 0.629 0.587 0.574 0.533 0.504
Age 1 Male.................................. 0.117 0.102 0.094 0.065 0.054
----------------------------------------------------------------------------------------------------------------
Table 5--HHS HCCS Included in Infant Model Maturity Categories
--------------------------------------------------------------------------------------------------------------------------------------------------------
Maturity category HCC/Description
--------------------------------------------------------------------------------------------------------------------------------------------------------
Extremely Immature........................ Extremely Immature Newborns, Birthweight < 500 Grams.
Extremely Immature........................ Extremely Immature Newborns, Including Birthweight 500-749 Grams.
Extremely Immature........................ Extremely Immature Newborns, Including Birthweight 750-999 Grams.
Immature.................................. Premature Newborns, Including Birthweight 1000-1499 Grams.
Immature.................................. Premature Newborns, Including Birthweight 1500-1999 Grams.
Premature/Multiples....................... Premature Newborns, Including Birthweight 2000-2499 Grams.
Premature/Multiples....................... Other Premature, Low Birthweight, Malnourished, or Multiple Birth Newborns.
Term...................................... Term or Post-Term Singleton Newborn, Normal or High Birthweight.
Age 1..................................... All age 1 infants.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table 6--HHS HCCS Included in Infant Model Severity Categories
--------------------------------------------------------------------------------------------------------------------------------------------------------
Severity category HCC
--------------------------------------------------------------------------------------------------------------------------------------------------------
Severity Level 5 (Highest)......... Metastatic Cancer.
Severity Level 5................... Pancreas Transplant Status/Complications.
Severity Level 5................... Liver Transplant Status/Complications.
Severity Level 5................... End-Stage Liver Disease.
Severity Level 5................... Intestine Transplant Status/Complications.
Severity Level 5................... Peritonitis/Gastrointestinal Perforation/Necrotizing Enterocolitis.
Severity Level 5................... Respirator Dependence/Tracheostomy Status.
Severity Level 5................... Heart Assistive Device/Artificial Heart.
Severity Level 5................... Heart Transplant.
Severity Level 5................... Congestive Heart Failure.
Severity Level 5................... Hypoplastic Left Heart Syndrome and Other Severe Congenital Heart Disorders.
Severity Level 5................... Lung Transplant Status/Complications.
Severity Level 5................... Kidney Transplant Status.
Severity Level 5................... End Stage Renal Disease.
Severity Level 5................... Stem Cell, Including Bone Marrow, Transplant Status/Complications.
Severity Level 4................... Septicemia, Sepsis, Systemic Inflammatory Response Syndrome/Shock.
Severity Level 4................... Lung, Brain, and Other Severe Cancers, Including Pediatric Acute Lymphoid Leukemia.
Severity Level 4................... Mucopolysaccharidosis.
Severity Level 4................... Major Congenital Anomalies of Diaphragm, Abdominal Wall, and Esophagus, Age < 2.
Severity Level 4................... Myelodysplastic Syndromes and Myelofibrosis.
Severity Level 4................... Aplastic Anemia.
Severity Level 4................... Combined and Other Severe Immunodeficiencies.
Severity Level 4................... Traumatic Complete Lesion Cervical Spinal Cord.
Severity Level 4................... Quadriplegia.
Severity Level 4................... Amyotrophic Lateral Sclerosis and Other Anterior Horn Cell Disease.
Severity Level 4................... Quadriplegic Cerebral Palsy.
Severity Level 4................... Myasthenia Gravis/Myoneural Disorders and Guillain-Barre Syndrome/Inflammatory and Toxic Neuropathy.
Severity Level 4................... Non-Traumatic Coma, Brain Compression/Anoxic Damage.
Severity Level 4................... Respiratory Arrest.
Severity Level 4................... Cardio-Respiratory Failure and Shock, Including Respiratory Distress Syndromes.
Severity Level 4................... Acute Myocardial Infarction.
Severity Level 4................... Heart Infection/Inflammation, Except Rheumatic.
Severity Level 4................... Major Congenital Heart/Circulatory Disorders.
Severity Level 4................... Intracranial Hemorrhage.
[[Page 73137]]
Severity Level 4................... Ischemic or Unspecified Stroke.
Severity Level 4................... Vascular Disease with Complications.
Severity Level 4................... Pulmonary Embolism and Deep Vein Thrombosis.
Severity Level 4................... Aspiration and Specified Bacterial Pneumonias and Other Severe Lung Infections.
Severity Level 4................... Chronic Kidney Disease, Stage 5.
Severity Level 4................... Hip Fractures and Pathological Vertebral or Humerus Fractures.
Severity Level 4................... Artificial Openings for Feeding or Elimination.
Severity Level 3................... HIV/AIDS.
Severity Level 3................... Central Nervous System Infections, Except Viral Meningitis.
Severity Level 3................... Opportunistic Infections.
Severity Level 3................... Non-Hodgkin`s Lymphomas and Other Cancers and Tumors.
Severity Level 3................... Colorectal, Breast (Age < 50), Kidney and Other Cancers.
Severity Level 3................... Benign/Uncertain Brain Tumors, and Other Cancers and Tumors.\19\
Severity Level 3................... Lipidoses and Glycogenosis.
Severity Level 3................... Adrenal, Pituitary, and Other Significant Endocrine Disorders.
Severity Level 3................... Acute Liver Failure/Disease, Including Neonatal Hepatitis.
Severity Level 3................... Intestinal Obstruction.
Severity Level 3................... Necrotizing Fasciitis.
Severity Level 3................... Bone/Joint/Muscle Infections/Necrosis.
Severity Level 3................... Osteogenesis Imperfecta and Other Osteodystrophies.
Severity Level 3................... Cleft Lip/Cleft Palate.
Severity Level 3................... Hemophilia.
Severity Level 3................... Disorders of the Immune Mechanism.
Severity Level 3................... Coagulation Defects and Other Specified Hematological Disorders.
Severity Level 3................... Prader-Willi, Patau, Edwards, and Autosomal Deletion Syndromes.
Severity Level 3................... Traumatic Complete Lesion Dorsal Spinal Cord.
Severity Level 3................... Paraplegia.
Severity Level 3................... Spinal Cord Disorders/Injuries.
Severity Level 3................... Cerebral Palsy, Except Quadriplegic.
Severity Level 3................... Muscular Dystrophy.
Severity Level 3................... Parkinson's, Huntington's, and Spinocerebellar Disease, and Other Neurodegenerative Disorders.
Severity Level 3................... Hydrocephalus.
Severity Level 3................... Unstable Angina and Other Acute Ischemic Heart Disease.
Severity Level 3................... Atrial and Ventricular Septal Defects, Patent Ductus Arteriosus, and Other Congenital Heart/Circulatory Disorders.
Severity Level 3................... Specified Heart Arrhythmias.
Severity Level 3................... Cerebral Aneurysm and Arteriovenous Malformation.
Severity Level 3................... Hemiplegia/Hemiparesis.
Severity Level 3................... Cystic Fibrosis.
Severity Level 3................... Fibrosis of Lung and Other Lung Disorders.
Severity Level 3................... Pathological Fractures, Except of Vertebrae, Hip, or Humerus.
Severity Level 2................... Viral or Unspecified Meningitis.
Severity Level 2................... Thyroid, Melanoma, Neurofibromatosis, and Other Cancers and Tumors.
Severity Level 2................... Diabetes with Acute Complications.
Severity Level 2................... Diabetes with Chronic Complications.
Severity Level 2................... Diabetes without Complication.
Severity Level 2................... Protein-Calorie Malnutrition.
Severity Level 2................... Congenital Metabolic Disorders, Not Elsewhere Classified.
Severity Level 2................... Amyloidosis, Porphyria, and Other Metabolic Disorders.
Severity Level 2................... Cirrhosis of Liver.
Severity Level 2................... Chronic Pancreatitis.
Severity Level 2................... Inflammatory Bowel Disease.
Severity Level 2................... Rheumatoid Arthritis and Specified Autoimmune Disorders.
Severity Level 2................... Systemic Lupus Erythematosus and Other Autoimmune Disorders.
Severity Level 2................... Congenital/Developmental Skeletal and Connective Tissue Disorders.
Severity Level 2................... Acquired Hemolytic Anemia, Including Hemolytic Disease of Newborn.
Severity Level 2................... Sickle Cell Anemia (Hb-SS).
Severity Level 2................... Drug Psychosis.
Severity Level 2................... Drug Dependence.
Severity Level 2................... Down Syndrome, Fragile X, Other Chromosomal Anomalies, and Congenital Malformation Syndromes.
Severity Level 2................... Spina Bifida and Other Brain/Spinal/Nervous System Congenital Anomalies.
Severity Level 2................... Seizure Disorders and Convulsions.
Severity Level 2................... Monoplegia, Other Paralytic Syndromes.
Severity Level 2................... Atherosclerosis of the Extremities with Ulceration or Gangrene.
Severity Level 2................... Chronic Obstructive Pulmonary Disease, Including Bronchiectasis.
Severity Level 2................... Chronic Ulcer of Skin, Except Pressure.
Severity Level 1 (Lowest).......... Chronic Hepatitis.
Severity Level 1................... Acute Pancreatitis/Other Pancreatic Disorders and Intestinal Malabsorption.
Severity Level 1................... Thalassemia Major.
Severity Level 1................... Autistic Disorder.
[[Page 73138]]
Severity Level 1................... Pervasive Developmental Disorders, Except Autistic Disorder.
Severity Level 1................... Multiple Sclerosis.
Severity Level 1................... Asthma.
Severity Level 1................... Chronic Kidney Disease, Severe (Stage 4).
Severity Level 1................... Amputation Status, Lower Limb/Amputation Complications.
Severity Level 1................... No Severity HCCs.
--------------------------------------------------------------------------------------------------------------------------------------------------------
(13) Adjustments to Model Discussed in the Risk Adjustment White Paper
---------------------------------------------------------------------------
\19\ This HCC also includes Breast (Age 50+) and Prostate
Cancer.
---------------------------------------------------------------------------
We discussed the possibility of including adjustments to the HHS
risk adjustment model to account for cost-sharing reductions and
reinsurance payments in the Risk Adjustment White Paper, and sought
comment. We propose to include an adjustment for the receipt of cost-
sharing reductions in the model, but not to adjust for receipt of
reinsurance payments in the model.
(i) Cost-sharing Reductions Adjustments
We propose an adjustment to the HHS risk adjustment models for
individuals who receive cost-sharing reductions. The Affordable Care
Act establishes cost-sharing reductions for enrollees in individual
market plans in Exchanges based on their income and/or Indian status.
Individuals who qualify for cost-sharing reductions may utilize health
care services at a higher rate than would be the case in the absence of
cost-sharing reductions. This higher utilization (to the extent not
covered by required cost sharing by the enrollees or cost-sharing
reductions reimbursed by the Federal government) would neither be paid
by cost sharing reductions nor built into premiums. This adjustment to
the HHS risk adjustment models would be based on the adjustment for
induced demand for advanced payment of cost-sharing reductions
described in section III.E. of this proposed rule. The proposed
adjustment factors are set forth in Table 7. These adjustments would be
multiplicative, and applied after demographic, diagnosis, and
interaction factors are summed.
We plan to evaluate this adjustment in the future, once data from
the first few years of risk adjustment are available. We seek comment
on this approach.
Table 7--Cost-Sharing Reduction Adjustment
------------------------------------------------------------------------
Induced
Household income Plan AV utilization
factor
------------------------------------------------------------------------
Non-Indian CSR Recipients
------------------------------------------------------------------------
100-150% of FPL................. Plan Variation 94%...... 1.12
150-200% of FPL................. Plan Variation 87%...... 1.12
200-250% of FPL................. Plan Variation 73%...... 1.00
>250% of FPL.................... Standard Plan 70%....... 1.00
------------------------------------------------------------------------
Indian CSR Recipients
------------------------------------------------------------------------
<300% of FPL.................... Platinum (90%).......... 1.15
<300% of FPL.................... Gold (80%).............. 1.12
<300% of FPL.................... Silver (70%)............ 1.07
<300% of FPL.................... Bronze (60%)............ 1.00
>300% of FPL.................... ........................ 1.00
------------------------------------------------------------------------
(ii) Reinsurance Adjustments
Section 1341 of the Affordable Care Act establishes a three-year
transitional reinsurance program in the individual market, raising the
question of whether to account for these reinsurance payments when
developing the HHS risk adjustment models. Some reinsurance payments
would be made for low-risk individuals with unexpected high-cost
expenditures (for example, due to an accident) that may not be
accounted for in the risk adjustment models. However, plans that
receive risk adjustment payments for their higher-than-average risk
enrollees may also be eligible to receive reinsurance payments for the
same high-risk enrollees. Adjusting for reinsurance payments in the HHS
risk adjustment model would address the concerns that reinsurance and
risk adjustment could compensate twice for the same high-risk
individuals.
Despite this potential, we propose not to adjust for reinsurance in
the HHS risk adjustment model for a number for reasons. First, removing
reinsurance payments from risk adjustment would reduce protections for
issuers of reinsurance-eligible plans that enroll high-cost
individuals. Second, it would be difficult to determine what portion of
reinsurance payments were made for conditions included in each HHS risk
adjustment model, and the appropriate model adjustment for these
payments. Finally, because the size of the reinsurance pool declines
over its three-year duration, the methodology to account for
reinsurance payments would need to be modified each year for the HHS
risk adjustment model.
(14) Model Performance Statistics
To evaluate model performance, we examined their R-squared and
predictive ratios. The R-squared statistic, which calculates the
percentage of individual variation
[[Page 73139]]
explained by a model, measures the predictive accuracy of the model
overall. The predictive ratios measure the predictive accuracy of a
model for different validation groups or subpopulations. The predictive
ratio for each of the HHS risk adjustment models is the ratio of the
weighted mean predicted plan liability for the model sample population
to the weighted mean actual plan liability for the model sample
population. The predictive ratio represents how well the model does on
average at predicting plan liability for that subpopulation. A
subpopulation that is predicted perfectly would have a predictive ratio
of 1.0. For each of the HHS risk adjustment models, the R-squared
statistic and the predictive ratio are in the range of published
estimates for concurrent risk adjustment models.\20\ The R-squared
statistic for each model is shown in Table 8.
---------------------------------------------------------------------------
\20\ Winkleman, Ross and Syed Mehmud. ``A Comparative Analysis
of Claims-Based Tools for Health Risk Assessment.'' Society of
Actuaries. April 2007.
---------------------------------------------------------------------------
We welcome comment on these proposed risk adjustment models.
Table 8--R-Squared Statistic for HHS Risk Adjustment Models
------------------------------------------------------------------------
R-squared
Risk adjustment model statistic
------------------------------------------------------------------------
Platinum Adult............................................. 0.360
Platinum Child............................................. 0.307
Platinum Infant............................................ 0.292
Gold Adult................................................. 0.355
Gold Child................................................. 0.302
Gold Infant................................................ 0.289
Silver Adult............................................... 0.352
Silver Child............................................... 0.299
Silver Infant.............................................. 0.288
Bronze Adult............................................... 0.351
Bronze Child............................................... 0.296
Bronze Infant.............................................. 0.289
Catastrophic Adult......................................... 0.350
Catastrophic Child......................................... 0.295
Catastrophic Infant........................................ 0.289
------------------------------------------------------------------------
c. Overview of the Payment Transfer Formula
Plan average risk scores are calculated as the member month-
weighted average of individual enrollee risk scores, as shown in
section III.B.3.b. of this proposed rule. We defined the calculation of
plan average actuarial risk and the calculation of payments and charges
in the Premium Stabilization Rule. Here, we combine these concepts into
a risk adjustment payment transfer formula. In this section, we refer
to payments and charges generically as transfers. Under Sec.
153.310(e), as proposed to renumbered, HHS would invoice issuers of
risk adjustment covered plans for transfers by June 30 of the year
following the applicable benefit year.
We propose to calculate risk adjustment transfers after the close
of the applicable benefit year, following the completion of issuer risk
adjustment data reporting. As discussed in detail below, the payment
transfer formula includes a set of cost adjustment terms that require
transfers to be calculated at the geographic rating area level for each
plan (thus, HHS would calculate two separate transfer amounts for a
plan that operates in two rating areas). Payment transfer amounts would
be aggregated at the issuer level (that is, at the level of the entity
licensed by the State) such that each issuer would receive an invoice
and a report detailing the basis for the net payment that would be made
or the charge that would be owed. The invoice would also include plan-
level risk adjustment information that may be used in the issuer's risk
corridors calculations.
The proposed payment transfer formula is designed to provide a per
member per month (PMPM) transfer amount. The PMPM transfer amount
derived from the payment transfer formula would be multiplied by each
plan's total member months for the benefit year to determine the total
payment due or charge owed by the issuer for that plan in a rating
area.
(1) Rationales for a Transfer Methodology Based on State Average
Premiums
Risk adjustment transfers are intended to reduce the impact of risk
selection on premiums while preserving premium differences related to
other cost factors, such as the actuarial value, local patterns of
utilization and care delivery, local differences in the cost of doing
business, and, within limits established by the Affordable Care Act,
the age of the enrollee. Risk adjustment payments would be fully funded
by the charges that are collected from plans with lower risk enrollees
(that is, transfers within a State would net to zero).
In the Risk Adjustment White Paper, we presented several approaches
for calculating risk adjustment transfers using the State average
premium and plans' own premiums. The approaches that used plans' own
premiums resulted in unbalanced payment transfers, requiring a
balancing adjustment to yield transfers that net to zero. These
examples also demonstrated that the balancing adjustments could
introduce differences in premiums across plans that were not consistent
with features of the plan (for example, AV or differences in costs and
utilization patterns across rating areas). A balancing adjustment would
likely vary from year to year, and could add uncertainty to the rate
development process (that is, plan actuaries would need to factor the
uncertainty of the balancing adjustment into their transfer estimates).
Therefore, we propose a payment transfer formula that is based on
the State average premium for the applicable market, as described in
section III.B.3.a. of this proposed rule. The State average premium
provides a straightforward and predictable benchmark for estimating
transfers. As shown in the examples in the Risk Adjustment White Paper,
transfers net to zero when the State average premium is used as the
basis for calculating transfers.
Plan premiums differ from the State average premium due to a
variety of factors, such as differences in cost-sharing structure or
regional differences in utilization and unit costs. The proposed
payment transfer formula applies a set of cost factor adjustments to
the State average premium so that it will better reflect plan
liability. These adjustments to the State average premium result in
transfers that compensate plans for liability differences associated
with risk selection, while preserving premium differences related to
the other cost factors described above.
(2) Conceptual Overview of the Payment Transfer Formula
In this section, we provide a broad overview of the payment
transfer formula that we propose to use when operating risk adjustment
on behalf of a State. We discuss at a conceptual level our proposal to
use the State average premium as the basis of the formula and the
components of the formula.
(i) Calculating Transfers Using the State Average Premium
The payment transfer formula proposed for 2014 is based on the
difference between two plan premium estimates: (1) A premium based on
plan-specific risk selection; and (2) a premium without risk selection.
Transfers are intended to bridge the gap between these two premium
estimates:
[[Page 73140]]
[GRAPHIC] [TIFF OMITTED] TP07DE12.000
Conceptually, the goal of payment transfers is to provide plans
with payments to help cover their actual risk exposure beyond the
premiums the plans would charge reflecting allowable rating and their
applicable cost factors. In other words, payments would help cover
excess actuarial risk due to risk selection.
Both of these premium estimates would be based on the State average
premium. The State average premium is the average premium requirement
for providing insurance to the applicable market population. The
proposed payment transfer formula develops plan premium estimates by
adjusting the State average premium to account for plan-specific
characteristics such as benefit differences. This approach also assumes
that all plans have premiums that can be decomposed into the State
average premium and a set of adjustment factors, and that all plans
would have the same premium if the adjustment factors were held
constant across plans. Finally, the derivation of the payment transfers
also assumes that plans ``price to cost,'' that is, that competition
among plans for enrollees drives plans' premiums to their premium
requirements. Therefore, we may consider ``premiums'' to be ``costs''
or ``premium requirements.'' The payment transfer formula includes the
following premium adjustment terms:
Plan average risk score: multiplying the plan average risk
score by the State average premium shows how a plan's premium would
differ from the State average premium based on the risk selection
experienced by the plan.
Actuarial value: a particular plan's premium may differ
from the State average premium based on the plan's cost sharing
structure, or actuarial value. An AV adjustment is applied to the State
average premium to account for relative differences between a plan's AV
and the market average AV.
Permissible rating variation: plan rates may differ based
on allowable age rating factors. The rating adjustment accounts for the
impact of allowable rating factors on the premium that would be
realized by the plan.
Geographic cost differences: differences in unit costs and
utilization may lead to differences in the average premium between
intra-State rating areas, holding other cost factors (for example,
benefit design) constant. The geographic cost adjustment accounts for
cost differences across rating areas.
Induced demand: enrollee spending patterns may vary based
on the generosity of cost-sharing. The induced demand adjustment
accounts for greater utilization of health care services induced by
lower enrollee cost sharing in higher metal level plans.
The State average premium is multiplied by these factors to develop
the plan premium estimates used in the payment transfer formula. The
factors are relative measures that compare how plans differ from the
market average with respect to the cost factors (that is to say, the
product of the adjustments is normalized to the market average product
of the cost factors).
In the absence of these adjustments, transfers would reflect
liability differences attributed to cost factors other than risk
selection. For example, in the absence of the AV adjustment, a low AV
plan with lower-risk enrollees would be overcharged because the State
average premium would not be scaled down to reflect the fact that the
plan's AV is lower than the average AV of plans operating in the market
in the State.
The figure below shows how the State average premium, the plan
average risk score, and other plan-specific cost factors are used to
develop the two plan premium estimates that are used to calculate
payment transfers:
[GRAPHIC] [TIFF OMITTED] TP07DE12.001
(ii) Estimating the Plan Premium With Risk Selection
The first premium term in the proposed payment transfer formula,
the plan premium estimate reflecting risk selection, is calculated as
the product of the State average premium and the normalized product of
the plan average risk score, the plan geographic cost factor, and the
plan induced demand factor.
The formula below shows how the plan premium estimate reflecting
risk selection would be calculated:
[GRAPHIC] [TIFF OMITTED] TP07DE12.002
Where,
Ps = State average premium,
PLRSi = plan i's plan liability risk score,
IDFi = plan i`s induced demand factor,
GCFi = plan i's geographic cost factor,
si = plan i's share of State enrollment;
and the denominator is summed across all plans in the risk pool in
the market in the State.
The key factor in the premium reflecting risk selection is the plan
average risk score, which would be calculated from the HHS risk
adjustment models. The plan average risk score is a relative measure of
plan liability based on the health status of a plan's enrollees. The
State average premium is multiplied by the plan average risk score to
estimate plan liability based on the risk selection present in its
enrollee population. However, because the HHS risk adjustment models do
not account for plan liability differences attributable to induced
demand or geographic cost differences, those cost factors must be
included in the estimate of the premium with risk selection.
The denominator of the adjustment term normalizes the product of
the plan cost factors to the State average product of the cost factors.
The normalized product of the plan cost factors provides an estimate of
how a plan's liability differs from the market average due to
underlying differences in its cost factors, including risk selection,
induced demand and geographic cost differences.
[[Page 73141]]
The premium reflecting risk selection does not include an AV
adjustment because the risk score reflects the plan's AV. Additionally,
the premium estimate reflecting risk selection does not include the
allowable rating factor adjustment. Thus, the difference between the
premium estimates (that is, the premium with and the premium without
risk selection) provides an estimate of plan liability attributed to
risk selection that is not compensated for through allowable premium
rating--our measure of actuarial risk.
(iii) Estimating the Plan Premium Without Risk Selection
The second premium term in the proposed payment transfer formula,
the plan premium estimate not reflecting risk selection, would be
calculated as the product of the State average premium and the
normalized product of the plan AV, plan allowable rating factor, the
induced demand factor, and a geographic cost factor. The formula below
shows how this term would be calculated:
[GRAPHIC] [TIFF OMITTED] TP07DE12.003
Where,
Ps = State average premium,
AVi = plan i's metal level AV,
ARFi = allowable rating factor
IDFi = plan i's induced demand factor,
GCFi = plan i's geographic cost factor,
si = plan i's share of State enrollment;
and the denominator is summed across all plans in the risk pool in
the market in the State.
The normalized adjustment terms would account for how a plan's AV,
allowed rating variation, induced demand, and geographic cost factors
jointly vary from the State average product of these terms. The
normalized product of the adjustment terms would be multiplied by the
State average premium to estimate the extent to which the plan's
premium requirement would differ from the premium requirement for the
State average plan due to cost factors unrelated to risk selection.
(iv) Risk Adjustment Payment Transfer Formula
Transfers would be calculated as the difference between the plan
premium estimate reflecting risk selection and the plan premium
estimate not reflecting risk selection--the two premium estimates
described above. Therefore, the proposed 2014 HHS risk adjustment
payment transfer formula is:
[GRAPHIC] [TIFF OMITTED] TP07DE12.004
Where,
Ps = State average premium,
PLRSi = plan i's plan liability risk score,
AVi = plan i's metal level AV,
ARFi = allowable rating factor
IDFi = plan i's allowable rating factor,
GCFi = plan i's geographic cost factor,
si = plan i's share of State enrollment;
and the denominator is summed across all plans in the risk pool in
the market in the State.
The difference between the two premium estimates in the payment
transfer formula would determine whether a plan would pay a risk
transfer charge or receive a risk transfer payment. Note that the value
of the plan average risk score by itself does not determine whether a
plan would be assessed a charge or receive a payment--even if the risk
score is greater than 1.0, it is possible that the plan would be
assessed a charge if the premium compensation that the plan may receive
through its rating practices (as measured through the allowable rating
factor) exceeds the plan's predicted liability associated with risk
selection.
Plans with higher AV would, other things being equal, also have
higher risk scores. This is due to the fact that the metal level-
specific risk adjustment models that are used to predict plan liability
assume different cost sharing and levels of plan liability. Thus, the
risk score for two identical sets of enrollees would differ depending
on the metal level model used. Thus, a bronze plan with an average risk
score of 1.1 would likely have more adverse selection than a gold plan
with an average risk score of 1.1 (because the bronze plan risk
adjustment model assumes a lower level of plan liability than the gold
plan model).
Risk adjustment transfers are calculated at the risk pool level.
Each State will have a risk pool for all of its metal-level plans.
Catastrophic plans will be treated as a separate risk pool for purposes
of risk adjustment. Individual and small group market plans will either
be pooled together or treated as separate risk pools, as described in
section III.B.3.a. of this proposed rule.
(v) Normalization and Budget Neutral Transfers
As discussed above, each of the two premium terms in the payment
transfer formula would be divided by its average. This means that each
``normalized'' term would average to 1.0. Thus, the average of the
difference between these terms would be zero. This is the fundamental
property of the payment transfer formula that ensures that transfers
across a risk pool would net to zero.
Note that the individual factors in the proposed payment transfer
formula do not need to independently average to 1.0. For example, the
average risk score for a State may not equal 1.0 due to the underlying
differences in the health status of the State's population and the
national sample used to calibrate the model. It is not necessary to
separately renormalize plan average risk scores to the State average
risk score because the payment transfer formula normalizes the product
of the risk score, the induced demand factor and the geographic cost
factor. The individual scales for PLRS, IDF, GCF, and ARF are not
specified because the payment transfer formula applies to the plan-
specific value relative to the State average.
(vi) Calculation of Transfer Formula Inputs
In this section, we describe each component of the proposed payment
transfer formula, and explain how it is computed and how it affects
transfers.
(A) Plan Average Risk Score
The plan average risk score represents the plan's overall risk
exposure. The proposed plan average risk score calculation includes an
adjustment to account for the family rating rules proposed in the
Market Reform Rule, which caps the number of children that can count
toward the build-up of family rates at three. If risk scores were
calculated as the member month-weighted average of all enrollee risk
scores, plan average risk scores would tend to misrepresent the risk
issuers take on for family policies that include children that do not
count toward family rates. In general, children tend to have lower risk
scores than adults, and without an adjustment the average risk score
for family policies including more than three children would tend to be
lower than the average risk score of
[[Page 73142]]
family policies with three or fewer children, despite the fact that
family policies with more than three children face more uncompensated
risk.
The formula below shows the proposed plan average risk score
calculation including the risk of all members on the policy, including
those children not included in the premium.
[GRAPHIC] [TIFF OMITTED] TP07DE12.005
Where,
PLRSi is plan i's average plan liability risk score, the subscript e
denotes each enrollee within the plan,
PLRSe is each enrollee's individual plan liability risk score,
Me is the number of months during the risk adjustment period the
enrollee e is enrolled in the plan, and
Mb is the number of months during the risk adjust period the
billable member b is enrolled in the plan (billable members exclude
children who do not count towards family rates).
The proposed payment transfer formula uses the plan average risk
score to calculate transfers. The plan average risk scores would be
calculated using the applicable risk adjustment model described in
section III.B.3.b. of this proposed rule. The plan liability models
would produce risk scores that reflect the health status of the plan's
enrollees and the AV of the plan. The AV adjustment in the proposed
payment transfer formula would help ensure that transfers do not
compensate plans for differences in AV (for which the plans may charge
an appropriate premium).
(B) Billable Members
With the exception of the plan average risk score calculation
discussed above, all of the other calculations used in the proposed
payment transfer formula are based on billable members (that is,
children who do not count toward family policy premiums are excluded).
Member months, the State average premium, the allowable rating factor,
and the geographic cost factor are all calculated based on billable
members.
(C) State Average Premium
As noted above, we propose to use the State average premium as the
basis of calculating payment transfers. The average premium calculation
would be based on the total premiums assessed to enrollees, including
the portion of premiums that are attributable to administrative costs.
The State average premium would be calculated as the enrollment-
weighted mean of all plan average premiums of risk adjustment covered
plans in the applicable risk pool in the applicable market in the
State. The State average premium calculation is based on billable
member months and excludes member months for children that do not count
toward family policy rates. Plan average premiums would be calculated
from the actual premiums charged to their enrollees, weighted by the
number of months enrolled.
The proposed equations for these average premiums are:
[GRAPHIC] [TIFF OMITTED] TP07DE12.006
The first equation calculates the State average premium
Ps as the average of individual plan averages, Pi
weighted by each plan's share of statewide enrollment in the risk pool
in the market, Sis (based on billable member months). The second
equation shows how the plan averages are calculated. This is the
weighted mean over all subscribers s of subscriber premiums
Ps, with Ms representing the number of billable
member months of enrollment under the policy of each subscriber s.
(D) Actuarial Value
The proposed AV adjustment in the payment transfer formula would
account for relative differences in plan liability due to differences
in actuarial value. The AV adjustment helps to achieve the goal of
compensating plans for risk selection while allowing other determinants
of premiums--including the generosity of plan benefits--to be reflected
in premiums. If the payment transfer formula were to ignore actuarial
value, it would effectively force low-AV plans to subsidize high-AV
plans. This is because the State average premium is calculated from all
plans at all metal levels in the risk pool in the market. As a result,
in the absence of an actuarial value adjustment, a bronze plan with a
low risk score would see its transfer charge increased based on a State
average premium that includes plans with more generous benefits.
The AV adjustment would be based on the metal level actuarial value
associated with each plan type (for example, all bronze health plans
would be assigned an AV factor of .6 in the proposed payment transfer
formula). Using the metal level actuarial value as the basis for this
adjustment provides a simple and straightforward approach for
estimating the impact of benefit design on plan liability. The standard
metal level actuarial values approximate plan liability for the
standard population (that is, plan liability in the absence of risk
selection). Additionally, the adjustment should not be based on a
plan's actuarial value, including the de minimis range as computed by
the AV calculator. The cost sharing assumptions in the HHS risk
adjustment models correspond to the standard metal level actuarial
values (for example, 0.6 a bronze plan), so the actuarial value
adjustment in the payment transfer formula must also correspond to the
standard metal level actuarial values.
Table 9 shows the AV adjustment that would be used for each
category of metal level plans.
Table 9--Actuarial Value Adjustment Used for Each Metal Level in the
Payment Transfer Formula
------------------------------------------------------------------------
AV
Metal level adjustment
------------------------------------------------------------------------
Catastrophic............................................... 0.57
Bronze..................................................... 0.60
Silver..................................................... 0.70
Gold....................................................... 0.80
Platinum................................................... 0.90
------------------------------------------------------------------------
(E) Allowable Rating Variation
PHS Act section 2701, as added by the Affordable Care Act,
establishes standards for plan premium rating. Rates can vary based on
three enrollee characteristics--age, family size, and tobacco use--and
geographic area within each State. Furthermore, the law limits the
amount by which premiums may vary by age; the most expensive age
group's rating cannot be more than three times as high as the lowest
(for adults age 21 or above), and rating based on tobacco use cannot
exceed a 50 percent increment. Plans cannot base premiums on enrollee
health status. In the proposed Market Reform Rule, we have issued
proposed standards related to the rating rules under the Affordable
Care Act. The proposed payment transfer formula discussed above assumes
the rating standards of the proposed Market Reform Rule. The final
payment transfer formula may require updating in the final Payment
Notice to reflect any changes to the rating standards in the final
Market Reform Rule.
The proposed Allowable Rating Factor (ARF) adjustment in the
payment transfer formula would account only for age rating. Tobacco
use, wellness discounts, and family rating
[[Page 73143]]
requirements would not be included in the payment transfer formula for
the reasons specified below. Geographic cost variation is treated as a
separate adjustment in the payment transfer formula.
Age rating is permitted within limits to enable plans to be
partially compensated for risk based on enrollee age. Under the
proposed Market Reform Rule, each State would have a standard age curve
that all issuers would be required to use. The 3:1 age rating
restriction applies to the adults aged 21 and older. Age bands for
individuals under 21 would not be subject to the 3:1 restriction, but
their corresponding rating factors would still be specified in the
standard age curves. Each plan's allowable rating factor would be
calculated as the enrollment-weighted average of the age factor, based
on the applicable standard age curve, across all of a plan's enrollees.
In operation, for the age rating factor included in the payment
transfer formula, age would be calculated as the enrollee's age at the
time of enrollment, as outlined in the proposed Market Reform Rule.
Under the proposed Market Reform Rule, premiums for families with
three or fewer children would be calculated as the sum of individual
rates for each individual within the family. These individual rates
would be based on each person's age, tobacco use, and geographic rating
area. For families with more than three children, the family premium
would be built up from the individual premiums of the parents plus the
three oldest children. Additional children would not be reflected in
the family premium. The proposed payment transfer formula does not
include an explicit adjustment related to the family rating
requirements, as rate setting would not include a family rating factor.
Tobacco rating and wellness discounts are also not included in the
proposed allowable rating factor adjustment. These rating factors are
discretionary. HHS proposes not to include adjustments for these rating
factors in the payment transfer formula to maintain issuer flexibility
with respect to tobacco and wellness discount rating that is allowed by
the Affordable Care Act.
Table 10 shows a simplified example of how the ARF values would be
calculated for three plans.
Table 10--Example Allowable Rating Factor Calculation
----------------------------------------------------------------------------------------------------------------
State age-
Age band rating Plan A Plan B Plan C State
curve
----------------------------------------------------------------------------------------------------------------
........... Enrollment percentages (Share of member-months)
---------------------------------------------------
21............................................. 1.000 33.30% 40.00% 10.00% 31.70%
----------------------------------------------------------------------------------------------------------------
(Age bands from 22-39 omitted)
----------------------------------------------------------------------------------------------------------------
40............................................. 1.278 33.30% 40.00% 20.00% 33.30%
----------------------------------------------------------------------------------------------------------------
(Age bands from 41-63 omitted)
----------------------------------------------------------------------------------------------------------------
64 and older................................... 3.000 33.30% 20.00% 70.00% 35.00%
Total member-months............................ ........... 300,000 200,000 100,000 600,000
ARF............................................ ........... 1.758 1.511 2.456 1.793
----------------------------------------------------------------------------------------------------------------
In Table 10, three plans constitute the entire risk pool in the
market in the State. In practice, each State age rating curve would
have 44 adult bands: One for each year from 21 to 63, plus a 64-and-
older band. In this example, we simplify by considering only three
bands: 21, 40, and 64 and older. The second column shows the relative
premiums for each age band; note that these values conform to the 3:1
rating restriction.
Three plans are presented in the next three columns, followed by
statewide totals. We assume Plan A's enrollment of 300,000 member-
months is equally distributed among the three age bands. Enrollment in
Plan B is weighted toward younger ages, while Plan C captures a
disproportionately older population. Statewide, these enrollments add
up to a 31.7 percent share in the age 21 band, 33.3 percent in 40 and
older age band, and 35.0 percent in 64 and older age band.
Plan-specific ARF values are calculated similarly. For example,
Plan C's ARF is the sum of three products: 1.000*0.10 + 1.278*0.20 +
3.000*0.70 = 2.456. This value indicates that within the 3:1 rating
restriction, Plan C would be expected to collect premiums that are
higher than the State average due to Plan C's enrollments skewing
older. Plan A's enrollees are slightly younger than the State average,
which is also reflected in its 1.758 ARF, and Plan B's enrollment is
younger than Plan A.
(F) Induced Demand
Induced demand reflects differences in enrollee spending patterns
attributable to differences in the generosity of plan benefits (as
opposed to risk selection). Induced demand is a function of plan
benefit design. We believe risk adjustment should not compensate a plan
for differences in plan liability that are not attributed to the
underlying health and demographic characteristics of the plan's
enrollees. In the absence of an induced demand adjustment, relative
differences in induced demand may not be reflected in a plan's post-
transfer premiums. In other words, plans with relatively high AV and
induced demand could receive larger transfers, allowing them to reduce
the premium impact of induced demand. For example, a plan that
experiences 10 percent higher utilization due to induced demand would
have a post-transfer premium that is less than 10 percent above an
otherwise identical plan without induced demand.
The expenditure data underlying the AV calculator includes an
induced demand factor for each metal level. We propose to use the same
induced demand factors in the payment transfer formula, shown in Table
11.
Table 11--Induced Demand Adjustment Used for Each Metal Level in the
Payment Transfer Formula
------------------------------------------------------------------------
Induced
Metal level demand
adjustment
------------------------------------------------------------------------
Catastrophic............................................ 1.00
[[Page 73144]]
Bronze.................................................. 1.00
Silver.................................................. 1.03
Gold.................................................... 1.08
Platinum................................................ 1.15
------------------------------------------------------------------------
(G) Geographic Area Cost Variation
The proposed geographic cost factor (GCF) would be an adjustment in
the payment transfer formula because there are some plan costs--such as
input prices or utilization rates--that vary geographically and are
likely to affect plan premiums. By including the adjustment, these
costs would be reflected in premiums, rather than being offset by
transfers.
Excluding this adjustment would cause transfers to subsidize high-
risk plans in high-cost areas at the expense of low-risk plans in low-
cost areas. In a low-cost area, for example, a plan with lower-than-
average risk enrollees would face a charge scaled to State average
costs, which would be larger than would be appropriate in an area where
costs are low. At the same time, the payment received by higher-than-
average risk plans would be larger than necessary to compensate for the
plan's excess risk. This would disadvantage low-risk plans relative to
high-risk plans in the low-cost area. The opposite would be true in
high-cost areas.
GCFs would be calculated for each rating area. These factors would
be calculated based on the observed average silver plan premiums in a
geographic area relative to the Statewide average silver plan premium.
Using only silver plans as the basis of the adjustment would help
control for differences in premiums across rating areas due to
differential enrollment patterns in the available plan types.
Additionally, the silver plan premiums used to calculate the adjustment
must be standardized for age to isolate geographic cost differences in
premiums.
Calculation of the GCF would involve three steps. First, the
average premium would be computed for each silver plan in each rating
area (using the same formula that is used to compute plan premiums in
the State average premium calculation discussed above). The calculation
would be:
[GRAPHIC] [TIFF OMITTED] TP07DE12.007
The second step would be to generate a set of plan average premiums
that standardizes the premiums for age rating. Plan premiums are
standardized for age by dividing the average plan premium by the plan
rating factor, the enrollment-weighted rating factor applied to all
billable members (discussed above). This formula would be:
[GRAPHIC] [TIFF OMITTED] TP07DE12.008
The third and final step would compute a GCF for each area and
assign it to all plans in that area. This would be accomplished with
the following calculation:
[GRAPHIC] [TIFF OMITTED] TP07DE12.009
[[Page 73145]]
This equation divides the enrollment-weighted average of
standardized silver-level plan premiums in a geographic area by the
average of those premiums Statewide. The numerator's summation is over
all silver-level plans within plan i's geographic area,
[GRAPHIC] [TIFF OMITTED] TP07DE12.010
Using these formulas, the enrollment-weighted statewide average of
plan GCF values would equal 1.0, so deviations from 1.0 can be
interpreted as the percentage by which any geographic area's costs
deviate from the State average. In other words, a GCF equal to 1.15
indicates that the plan operates in a geographic area where costs are,
on average, 15 percent higher than the Statewide average.
(H) Calculation of the Plan Transfer Payments
The PMPM transfer payment calculated from the proposed payment
transfer formula would be multiplied by the total number of plan member
months for billable members to calculate the total plan level payment.
As discussed above, transfers would be calculated at the plan level
within rating areas (that is, a plan operating in two rating areas
would be treated as two separate plans for the purposes of calculating
transfers).
We welcome comment on this proposed payment transfer formula.
d. Overview of the Data Collection Approach
In Sec. 153.20, we propose a technical correction to the
definition of risk adjustment data collection approach. We propose to
delete ``and audited'' so that the definition of risk adjustment data
collection approach means ``the specific procedures by which risk
adjustment data is to be stored, collected, accessed, transmitted,
validated and the applicable timeframes, data formats, and privacy and
security standards.'' This technical correction clarifies that auditing
of risk adjustment data is not part of the risk adjustment data
collection approach. Risk adjustment data should be audited during the
data validation process, which is not a part of the risk adjustment
methodology or data collection approach.
We also propose to modify Sec. 153.340(b)(3) by adding the
additional restriction that ``Use and disclosure of personally
identifiable information is limited to those purposes for which the
personally identifiable information was collected (including for
purposes of data validation).'' This addition will further ensure the
privacy and security of potentially sensitive data by limiting the use
or disclosure of any personally identifiable information collected as a
part of this program.
The data collection approach HHS proposes to use when operating
risk adjustment on behalf of the State is described in the applicable
sections of section III.G. of this proposed rule and in the new
proposed Sec. 153.700 through Sec. 153.730.
We welcome comment on this proposed data collection approach.
e. Schedule for Risk Adjustment
Under Sec. 153.610(a), issuers of risk adjustment covered plans
will provide HHS with risk adjustment data in the form and manner
specified by HHS. Under the HHS-operated risk adjustment program,
issuers will not send, but must make available to HHS, anonymized
claims and enrollment data, as specified in section III.G. of this
proposed rule, for benefit year 2014 beginning January 1, 2014.
Enrollee risk scores will be calculated based on enrollee enrollment
periods and claims dates of service that occur between January 1, 2014
and December 31, 2014. Enrollee risk scores for subsequent benefit
years will be calculated based on claims and enrollment periods for
that same benefit year.
As set forth in the proposed Sec. 153.730, claims to be used in
the risk score calculation must be made available to HHS by April 30 of
the year following the benefit year. We believe this date provides for
ample claims runout to ensure that diagnoses for the benefit year are
captured, while providing HHS sufficient time to run enrollee risk
score, plan average risk, and payments and charges calculations and
meet the June 30 deadline described at the redesignated Sec.
153.310(e).
We welcome comment on this proposed schedule for risk adjustment.
4. State Alternate Methodology
a. Technical Correction
The Premium Stabilization Rule established standards for States
that establish their own risk adjustment programs. Under the proposed
revision to Sec. 153.310, a State may establish a risk adjustment
program if it elects to operate an Exchange and is approved to operate
risk adjustment in the State. If a State does not meet the requirements
to operate risk adjustment, HHS will carry out all functions of risk
adjustment on behalf of the State. In Sec. 153.320(a), we established
that Federally certified methodologies must be used in the operation of
the risk adjustment program, and defined the process by which a
methodology may become Federally certified. In this proposed rule, we
modify Sec. 153.320(a)(1) and (a)(2) to clarify that these
methodologies must be published in ``the applicable annual'' notice of
benefit and payment parameters as opposed to ``an annual'' HHS notice
of benefit and payment parameters. This proposed change makes clear
that methodologies must be certified for use each year.
b. State Alternate Risk Adjustment Methodology Evaluation Criteria
The Premium Stabilization Rule specified the information that a
State will need to provide to support its request for HHS to certify an
alternate risk adjustment methodology. In Sec. 153.330(a), we
specified the elements required to be included with the request to HHS
for certification of an alternate risk adjustment methodology. Section
153.330(a)(1)(i) states that a request for certification for an
alternate methodology must include the elements specified in Sec.
153.320(b), which includes a complete description of: (1) The risk
adjustment model; (2) the calculation of plan average actuarial risk;
(3) the calculation of payments and charges; (4) the risk adjustment
data collection approach; and (5) the schedule for the risk adjustment
program. Section 153.330(a)(1)(ii) states that the alternate
methodology request must also include the calibration methodology and
frequency of calibration, and Sec. 153.330(a)(1)(iii) provides that
the request must include statistical performance metrics specified by
HHS. Section 153.330(a)(2) requires
[[Page 73146]]
that the request also include certain descriptive and explanatory
information relating to the alternate methodology.
Under our existing regulations, States wishing to submit an
alternate risk adjustment methodology should do so by submitting the
information described in this proposed rule to HHS at
[email protected]. As described in preamble to the
Premium Stabilization Rule, at the Risk Adjustment Spring Meeting, and
in technical assistance calls with States, requests for State alternate
methodologies will be accepted up to 30 days after publication of this
proposed rule. We will review a State's request for certification of
its alternate methodology only if it has submitted an Exchange
Blueprint application and has indicated on that application its intent
to operate a risk adjustment program in the State (or, in later years,
if it is operating or has been approved to operate an Exchange). We
expect to work with States as they develop their alternate
methodologies.
We noted in the Premium Stabilization Rule that we would provide
greater detail about the process for receiving Federal certification of
alternate risk adjustment methodologies in this proposed rule. We
propose the following evaluation criteria to certify alternate risk
adjustment methodologies. We propose to redesignate paragraph (b) of
Sec. 153.330 to paragraph (c), and are proposing a new paragraph (b)
that sets forth the evaluation criteria for alternate risk adjustment
methodologies. In the new Sec. 153.330(b)(1), we propose to consider
whether the alternate risk adjustment methodology meets criteria that
correspond to the elements of the alternate methodology request
described in paragraph Sec. 153.330(a)(1) and (2). Specifically, we
will be evaluating the extent to which an alternate risk adjustment
methodology:
(i) Explains the variation in health care costs of a given
population;
(ii) Links risk factors to daily clinical practices and is
clinically meaningful to providers;
(iii) Encourages favorable behavior among providers and health
plans and discourages unfavorable behavior;
(iv) Uses data that is complete, high in quality, and available in
a timely fashion;
(v) Is easy for stakeholders to understand and implement;
(vi) Provides stable risk scores over time and across plans; and
(vii) Minimizes administrative costs.
For example, to determine the extent that an alternate methodology
explains the variation in health care costs of a given populations, we
would consider whether the risk adjustment model was calibrated from
data reflecting the applicable market benefits, was calibrated on a
sample that is reasonably representative of the anticipated risk
adjustment population, and was calibrated using a sufficient sample to
ensure stable weights across time and plans. In addition, in evaluating
this criterion, we would consider whether the methodology has suitably
categorized the types of plans subject or not subject to risk
adjustment, given the overall approach taken by the methodology and the
goal of the program to account for plan average actuarial risk. States
must provide a rationale for the methodology's approach to the plans
subject to risk adjustment. Under this proposed criteria, we would also
evaluate the State's method for calculating payments and charges, as
described in section III.B.4.c., below.
We also note that we would consider whether the alternate
methodology discriminates against vulnerable populations or creates
inappropriate incentives. Alternate methodologies must not discriminate
against individuals because of age, disability, or expected length of
life, and should take into account the health care needs of diverse
segments of the risk adjustment population, including women, children,
persons with disabilities, and other vulnerable groups.
In the proposed Sec. 153.330(b)(2), we would consider whether the
alternate methodology complies with the requirements of subpart D,
especially Sec. 153.310(e) (as proposed to be renumbered) and Sec.
153.340. Section 153.310(e) requires alternate methodologies to have a
schedule that provides annual notification to issuers of risk
adjustment covered plans of payments and charges by June 30 of the year
following the benefit year. Section 153.340(b)(1) sets forth a number
of minimum requirements for data collection under risk adjustment,
including standards relating to data privacy and security. While the
Federal approach will not directly collect data from insurers, but
instead will use a distributed approach that will not include
personally identifiable information, the Premium Stabilization Rule
gave States the flexibility to design their own data collection
approach, provided privacy and security standards are met. The privacy
and security of enrollees' data is of paramount importance to HHS, and
the data collection approach in an alternate methodology must protect
personally identifiable information, if any, that is stored,
transmitted, or analyzed, to be certified. The application for
certification of the alternate methodology should identify which data
elements contain personally identifiable information, and should
specify how the State would meet these data and privacy security
requirements.
In Sec. 153.330(b)(3), we propose to consider whether the
alternate risk adjustment methodology accounts for payment transfers
across metal levels. We believe that sharing risk across metal levels
is a critical part of a risk adjustment methodology as new market
reforms are implemented because of the need to mitigate adverse
selection across metal levels, as well as within metal levels. The
proposed HHS risk adjustment methodology transfers funds between plans
across metal levels, and under this proposal, State alternate
methodologies must do so as well.
For reasons described previously, under the proposed HHS risk
adjustment methodology, we propose to apply risk adjustment to
catastrophic plans in their own risk pool--that is, we would transfer
funds between catastrophic plans, but not between catastrophic plans
and metal level plans. For a number of plans, such as student health
plans and plans not subject to the market reform rules, we have
proposed not to transfer payments under the HHS risk adjustment
methodology. However, as discussed above, we believe that States should
have the flexibility to submit a methodology that transfers funds
between these types of plans (either in their own risk pool or with the
other metal levels).
In Sec. 153.330(b)(4), we propose to consider whether the elements
of the alternate methodology align with each other. For example, the
data collected through the data collection approach should align with
the data required by the risk adjustment model to calculate individual
risk scores.
Alternate methodologies submitted by States that are approved as
Federally certified risk adjustment methodologies for 2014 will be
published in the final 2014 HHS notice of benefit and payment
parameters. We envision working closely with States during the
development of their alternate methodologies to ensure that they meet
the criteria described above. We expect to have a number of meetings
with any State proposing an alternate methodology during the
certification process. During these meetings, we intend to provide
input to States on whether their proposed alternate methodologies meet
the given criteria. States will then have the opportunity to modify
their alternate methodologies and request further review. We are
[[Page 73147]]
committed to working with States in a collaborative fashion on these
matters.
c. Payment and Charges
In the preamble to the Premium Stabilization Rule, we noted that we
plan to establish a national method for calculation of payments and
charges. The goal of the proposed payment transfer formula is to reduce
the impact of risk selection on premiums while ensuring that payments
and charges net to zero. A national method for the calculation of
payments and charges would ensure a degree of consistency in the risk
adjustment program from State to State, while allowing States to vary
other elements of the program. However, we recognize that a uniform
national method could limit States' flexibility in developing their
alternate risk adjustment methodologies.
The proposed payment transfer formula (regardless of whether for a
plan liability or total expenditure approach, as described in section
III.B.3.10. utilizes the plan average risk score and the State average
premium. The proposed HHS payment transfer formula is based on a plan
liability model. States can adapt this formula to a total expenditure
model by replacing the plan liability risk score in the formula with
the total expenditure risk score of a plan, and multiplying the total
expenditure risk score by an adjustment for AV. We propose to provide
States the flexibility to select the adjustments used for the
calculation of payments and charges in their alternate methodologies.
The proposed HHS payment transfer formula will make adjustments for AV,
age rating factor, geographic cost differences, and induced demand.
States have the option of including or excluding any of these
adjustments. States may also include other adjustments in the
calculation of payments and charges under their alternate
methodologies. Adjustments can be added to or removed from the basic
payment transfer formula as long as these factors are normalized, so
that transfers net to zero. We will work with States on a one-on-one
basis in developing their payment transfer formulae for their alternate
methodologies.
States may construct particular adjustment factors in different
ways. For example, HHS would determine an adjustment for geographic
cost differences by comparing the area premium to the State average
premium. A State may elect to develop a different factor to adjust for
geographic cost differences. As described above, we ask States to
provide the adjustments, the associated factors or curves, and the
rationale for the adjustments they plan to use for their alternate
methodologies as part of their response to the criterion proposed in
Sec. 153.330(b)(1). We believe this approach ensures a degree of
consistency while allowing States flexibility for calculating payments
and charges.
5. Risk Adjustment Data Validation
In Sec. 153.350, we specified standards applicable to States, or
HHS on behalf of States, in validating risk adjustment data.
Specifically, we required States operating risk adjustment programs and
HHS to establish a process to appeal findings from data validation and
allow the State, or HHS on behalf of the State, to adjust risk
adjustment payments and charges based on data validation findings. The
credibility of risk adjustment data, which results from a reliable data
validation process, is important to establishing issuer confidence in
the risk adjustment program. Moreover, as error rates derived from the
results of data validation may be used to make adjustments to the plan
average actuarial risk calculated for a risk adjustment covered plan,
the data validation process will ensure that such transfers accurately
reflect each plan's average enrollee risk. In this proposed rule, we
build upon guidance released in the Risk Adjustment Bulletin and in
discussions held with stakeholders at the Risk Adjustment Spring
Meeting to define data validation standards applicable to issuers of
risk adjustment covered plans when HHS operates risk adjustment on
behalf of a State.
We propose that, beginning in 2014, HHS conduct a six-stage data
validation program when operating risk adjustment on behalf of a State:
(1) Sample selection; (2) initial validation audit; (3) second
validation audit; (4) error estimation; (5) appeals; and (6) payment
adjustments. We discuss these concepts in greater detail below. We note
States are not required to adopt this HHS data validation methodology.
a. Data Validation Standards When HHS Operates Risk Adjustment
We propose to add a new subsection, Sec. 153.630, which sets forth
risk adjustment data validation standards applicable to all issuers of
risk adjustment covered plans when HHS is operating risk adjustment. In
Sec. 153.630(a), we propose a general standard that issuers of risk
adjustment covered plans have an initial and second validation audit of
risk adjustment data. These are the second and third stages of the six-
stage data validation program described below.
b. Data Validation Process When HHS Operates Risk Adjustment
(1) Sample Selection
Under the Premium Stabilization Rule, HHS will validate a
statistically valid sample from each issuer that submits data for risk
adjustment every year. As described above, sample selection is the
first stage of HHS' six-stage risk adjustment data validation process.
HHS would select the sample for each issuer of a risk adjustment
covered plan in accordance with standards discussed in this section.
HHS would ensure that the data validation process reviews an adequate
sample size of enrollees such that the estimated payment errors will be
statistically sound and so that enrollee-level risk score distributions
reflect enrollee characteristics for each issuer. The sample would
cover applicable subpopulations for each issuer. For example, enrollees
with and without risk adjustment diagnoses would be included in the
sample. In determining the appropriate sample size for data validation,
we recognize the need to strike a balance between ensuring statistical
soundness of the sample and minimizing the operational burden on
issuers, providers, and HHS.
We expect that each issuer's initial validation audit sample within
a State will consist of approximately 300 enrollees, with up to two-
thirds of the sample consisting of enrollees with HCCs.
Note that any assumptions used by HHS that underlie the sample size
determinations in the initial years of the program may be updated as we
gain experience performing data validation for risk adjustment.
Additionally, we will continue to evaluate population distributions to
determine the sample subpopulations. We seek comment on this approach
to sample selection, particularly on use of existing data validation
program results that could be used to derive comparable estimates under
this program.
(2) Initial Validation Audit
Once the audit samples are selected by HHS, issuers would conduct
independent audits of the risk adjustment data for their initial
validation audit sample enrollees, as set forth in Sec. 153.630(b). In
Sec. 153.630(b)(1), we propose that issuers of risk adjustment covered
plans engage one or more auditors to conduct these independent initial
validation audits. We propose in Sec. 153.630(b)(2) through (4) that
issuers ensure that initial validation auditors are reasonably capable
of performing the audit, that the
[[Page 73148]]
audit is completed, that the auditor is free from conflicts of
interest, and that the auditor submits information regarding the
initial validation audit to HHS in the manner and timeframe specified
by HHS. These proposed requirements would ensure that the initial
validation audit is conducted according to minimum audit standards, and
that issuers or auditors transmit necessary information to HHS for use
in the second validation audit.
For the enrollees included in the HHS-specified audit sample,
issuers of risk adjustment covered plans would provide enrollment and
medical record documentation to the initial validation auditor to
validate the demographic and health status data of each enrollee, as
described above.\21\ We anticipate that issuers would have considerable
autonomy in selecting their initial validation auditors. However,
initial validation auditors must conduct data validation audits in
accordance with audit standards established by HHS. We have identified
three methods for establishing these standards:
---------------------------------------------------------------------------
\21\ We note that issuers will need to link information on the
dedicated distributed data environments with the information
specified this proposed rule for data validation purposes.
---------------------------------------------------------------------------
HHS or an HHS-designated entity could prospectively
certify auditors for these audits;
HHS could develop standards that issuers and initial
validation auditors would follow, without any requirement of prior HHS
certification or approval of auditors; or
HHS could issue non-binding, ``best practice'' guidelines
for issuers and auditors.
We request comment on these approaches and on any standards or best
practices that should be applicable. Upon conclusion of the initial
validation audit process, issuers of risk adjustment covered plans
would be required to submit audit findings to HHS in accordance with
the standards established by HHS.
(3) Second Validation Audit
We propose to retain an independent second validation auditor to
verify the accuracy of the findings of the initial validation audit. We
would select a sub-sample of initial validation audit sample enrollees
for review by the second validation auditor. We would provide
additional information pertaining to its approach for selecting the
second validation audit sub-sample in future guidance. The second
validation auditor would only review enrollee information that was or
was to be originally presented during the initial validation audit.
In Sec. 153.630(c), we establish standards for issuers of risk
adjustment covered plans related to HHS' second validation audit of
risk adjustment data. These requirements establish minimum standards
for issuer compliance with the second validation audit. We propose that
an issuer of a risk adjustment covered plan comply with, and ensure the
initial validation auditor complies with, HHS and the second validation
auditor in connection with the second validation audit. Specifically,
issuers would submit (or ensure their initial validation auditor
submits) data validation information, as specified by HHS, from their
initial validation audit for each enrollee included in the second
validation audit sub-sample. Issuers would also transmit all
information to HHS or its second validation auditor in an electronic
format to be determined by HHS. The second validation auditor would
inform the issuers of error findings based on their review of enrollees
in the second validation audit subsample.
(4) Error Estimation
We would estimate risk score error rates based on the findings from
the data validation process. Risk adjustment errors may include any
findings that result in a change to the demographic or health status
components of an enrollee's risk score. This may include errors due to
incorrect diagnosis coding, invalid documentation, missing or
insufficient medical record documentation, or incorrect determination
of enrollee demographic information. We are considering estimating
changes in plan average actuarial risk for the issuer error rates
calculated from data validation activities, with a suitable confidence
interval. We plan to conduct analyses to determine the most effective
methodology for adjusting plan risk scores for calculating risk
adjustment payment transfers.
Upon completion of the second validation audit and error estimation
stages of HHS's data validation process, we would provide each issuer
with enrollee-level audit results and error estimates at the issuer
level, based on the methodology described above.
We are requesting comments on the described error estimation
concepts.
c. Appeals
In accordance with Sec. 153.350(d), we provide an administrative
process to appeal findings with respect to data validation. We propose
in Sec. 153.630(d) that issuers may appeal the findings of a second
validation audit or the application of a risk score error rate to its
risk adjustment payments and charge. We anticipate that appeals would
be limited to instances in which the audit was not conducted in
accordance with second validation audit standards established by HHS.
We will provide further detail on this process in future guidance or
regulation, as appropriate.
d. Payment Adjustments
In accordance with 153.350(b), HHS may adjust charges and payments
to a risk adjustment covered plan based on the recalculation of plan
average actuarial risk following the data validation process. We
anticipate that HHS would use a prospective approach when making such
payment adjustments. We believe a prospective approach is appropriate
because we anticipate issuers' error estimates to be relatively stable
from year to year. Further, we believe it is necessary to use a
prospective approach to allow issuers and HHS sufficient time to
complete the validation and appeals processes. Transfers for a given
benefit year would likely be invoiced before the data validation
process for that benefit year is completed. The prospective approach
would ensure that issuers would not be subject to a second transfer for
the benefit year. We would use an issuer's data validation error
estimates from the prior year to adjust the issuer's average risk score
in the current year for transfers. We request comments on this
approach.
As described previously, because the risk adjustment program
transfers funds between issuers in a zero sum manner, trust in the
system is important for the success of the program. We have proposed
the data validation process described here to ensure that issuers
comply with risk adjustment standards and to promote confidence in the
risk adjustment program. As such, we propose in paragraph Sec.
153.630(e) that HHS may adjust payments and charges for issuers that do
not comply with the initial or second validation audit standards set
forth in Sec. 153.630(b) and (c). We seek comment on the types of
adjustments that may be assessed on issuers that do not comply with
parameters set forth in this proposed rule.
e. Proposed HHS-Operated Data Validation Process for Benefit Years 2014
and 2015
We propose that issuers of risk adjustment covered plans adhere to
the data validation process outlined above beginning with data for the
2014 benefit year. However, we recognize the complexity of the risk
adjustment
[[Page 73149]]
program and the data validation process, and the uncertainty in the
market that will exist in 2014. In particular, we are concerned that
adjusting payments and charges without first gathering information on
the prevalence of error could lead to a costly and potentially
ineffective audit program. Therefore, we are proposing that issuers
conduct an initial validation audit and that we conduct a second
validation audit for benefit year 2014 and 2015, but that we would not
adjust payments and charges based on validation findings during these
first two years of the program (that is, we would not adjust payments
and charges based on validation results on data from the 2014 and 2015
benefit years). However, we would conduct all aspects of the data
validation program other than adjusting payments and charges (though we
would make adjustments under the proposed Sec. 153.630(e)) during the
first two years of the program, including requiring the initial
validation and second validation audits, and calculating error rates
for each issuer. We believe that the data validation conducted during
the first two years of the program will serve an important educational
purpose for issuers and providers. Although we are proposing not to
adjust payments and charges as a correction based on error estimates
discovered, we note that other remedies, such as prosecution under the
False Claims Act, may be applicable to issuers not in compliance with
the risk adjustment program requirements. We have tried to balance the
need to provide assurance to issuers that all risk adjustment data is
adequate and that calculations are appropriate with the desire to limit
burden and uncertainty in the initial years of program operation.
This approach was taken with the Medicare Part C risk adjustment
program--the data validation audit process was observed for several
years before payment adjustments were made. We plan to work with
issuers during the first two years of the data validation program, and
will seek additional input on how to improve the process. We are
requesting comments on this approach, particularly with respect to
improvements to the data validation process generally, whether there
are alternatives to forgoing changes to payments and charges that we
should adopt, and what methods we should adopt to ensure data integrity
in the first two years of the program.
As part of our effort to refine the data validation program during
the first two years, we are considering publishing a report on the
error rates discovered during these first two years, and propose to use
these results to inform our audit program. For this report, we may
conduct special studies of the second validation audits aimed at
comparing the error rate results of the initial validation auditors and
second validation audits. For example, the second validation audits may
be used to assess the extent to which auditor error contributed to the
initial validation audit risk score error rate findings, and to
determine whether discrepancies between the results of the two audits
may result in adjustments to the estimated error rates calculated for
the initial validation audit process.
The second validation audits could also be used to assess the
accuracy of the initial audit error rates at either the auditor or
issuer level. Conducting the second validation audits at the auditor
level in future years would allow us to examine the accuracy of the
initial validation audit without having to draw large initial
validation audit record samples from each issuer that participates in
risk adjustment. We anticipate that a small number of audit firms will
perform the majority of initial audits. We seek comment on the
approaches outlined here, as well as additional approaches to data
validation for risk adjustment.
f. Data Security and Transmission
In Sec. 153.630(f), we establish data security and transmission
requirements for issuers related to the HHS data validation process.
These requirements establish the manner in which issuers and auditors
must transmit audit information, and ensure that any enrollee
information that is transmitted is protected. In Sec. 153.630(f)(1),
we propose that issuers submit any risk adjustment data and source
documentation specified by HHS for the initial and second validation
audits to HHS in the manner and timeframe established by HHS. We
propose in Sec. 153.630(f)(2) that, in connection with the initial
validation audit, the second validation audit, and any appeals, an
issuer must ensure that it and its initial validation auditor complies
with the security standards described at Sec. 164.308, Sec. 164.310,
and Sec. 164.312.
C. Provisions and Parameters for the Transitional Reinsurance Program
The Affordable Care Act directs that a transitional reinsurance
program be established in each State to help stabilize premiums for
coverage in the individual market from 2014 through 2016. The
reinsurance program is designed to alleviate the need to build into
premiums the risk of enrolling individuals with significant unmet
medical needs. By stabilizing premiums in the individual market
equitably throughout the United States, the reinsurance program is
intended to help millions of Americans purchase affordable health
insurance, reduce unreimbursed usage of hospital and other medical
facilities by the uninsured, and thereby lower medical expenses and
premiums for all people with private health insurance.
We aim to administer the reinsurance program to provide reinsurance
payments in an efficient, fair, and accurate manner, where they are
needed most, to effectively stabilize premiums nationally. In addition,
we intend to implement the reinsurance program in a manner that
minimizes the administrative burden of collecting contributions and
making reinsurance payments. For example, HHS intends to collect
contributions from health insurance issuers and self-insured group
health plans \22\ in all States, including States that elect to operate
their reinsurance programs. This would allow for a centralized and
streamlined process for the collection of contributions, and would
avoid inefficiencies related to using different processes in different
States. This would also eliminate the need for States to send to HHS
the contributions collected for the U.S. Treasury. Federal collections
will also leverage economies of scale, reducing the overall
administrative costs of the reinsurance program.
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\22\ As discussed in more detail below, Section 1341 of the
Affordable Care Act provides that health insurance issuers and
``third party administrators on behalf of group health plans'' must
make contributions to an applicable reinsurance entity. Although
self-insured group health plans are ultimately liable for
reinsurance contributions, a third-party administrator or
administrative-services-only contractor may be utilized for transfer
of the reinsurance contributions. For consistency, throughout this
proposed rule, we will refer to these contributing entities as self-
insured group health plans.
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We also intend to simplify collections by using a national per
capita uniform contribution rate. Collection based on a per capita rate
is simpler and easier to implement than other methods. In addition, in
the HHS-operated reinsurance program, we propose to calculate
reinsurance payments using the same distributed approach for data
collection that we propose for operating risk adjustment on behalf of
States.\23\ This will permit issuers to receive reinsurance payments
using the same systems established for the risk adjustment program,
resulting in less administrative burden and lower costs,
[[Page 73150]]
while maintaining the security of identifiable health information.
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\23\ See our discussion of this distributed approach in section
III.G. of this proposed rule.
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In this proposed rule, we propose modifications and refinements to
the reinsurance program standards for States and issuers. These
modifications further reduce the administrative burden of collecting
contributions and making reinsurance payments, and will more
effectively stabilize premiums in the individual markets in all States
across the country. In particular, we propose uniform reinsurance
payment parameters to be used across all States. These payment
parameters would be used to calculate reinsurance payments in all
States, regardless of whether the State or HHS on behalf of the State
operates the reinsurance program. We also propose that HHS will collect
contributions from health insurance issuers and self-insured group
health plans in all States, including States that elect to operate
their own reinsurance programs. In addition, we propose a national,
uniform calendar under which reinsurance contributions will be
collected from all contributing entities, and reinsurance payments will
be disbursed to issuers of non-grandfathered individual market plans.
Furthermore, we propose to distribute reinsurance payments based on the
need for reinsurance payments in each State. Because reinsurance
contributions and reinsurance needs will vary significantly between
States, we believe a policy of disbursing reinsurance payments solely
in a State in which the contributions are collected would not meet the
States' individual reinsurance needs, would not fulfill HHS's
obligation to provide equitable allocation of these funds under section
1341(b)(2)(B) of the Affordable Care Act as well as would disbursing
reinsurance payments in the manner proposed in this proposed rule.
We note that these proposals reflect changes from policies set
forth in the Premium Stabilization Rule. The principal proposed changes
from the policies in the Premium Stabilization Rule include:
Uniform reinsurance payment parameters to be used by all
States;
A uniform reinsurance contribution collection and payment
calendar;
A one-time annual reinsurance contribution collection,
instead of quarterly collections in a benefit year;
Collection of reinsurance contributions by HHS under the
national contribution rate from both health insurance issuers and self-
insured group health plans;
A limitation on States' ability to change reinsurance
payment parameters from those that HHS establishes in the annual HHS
notice of benefit and payment parameters--a State may only propose
supplemental reinsurance payment parameters if the State elects to
collect additional funds for reinsurance payments or use additional
State funds for reinsurance payments; and
A limitation on States that seek additional reinsurance
funds for administrative expenses, such that the State must have its
applicable reinsurance entity collect those additional funds.
These modifications are proposed in addition to other regulatory
changes outlined below to ensure effective administration of the
transitional reinsurance program.
1. State Standards Related to the Reinsurance Program
a. State Notice of Benefit and Payment Parameters
HHS intends to establish a reinsurance contribution and payment
process and reinsurance payment parameters that will be applicable in
all States, and proposes to amend the requirements set forth in the
Premium Stabilization Rule accordingly. First, instead of allowing a
State establishing its own reinsurance program to modify, via a State
notice of benefit and payment parameters, the data collection frequency
for issuers to receive reinsurance payments from those specified in
this proposed rule, we propose that all States be required to use the
annual payment schedule set forth in this proposed rule. As such, we
propose to amend Sec. 153.100(a)(1) to remove the reference to State
modification of data collection frequency. Under this proposal, the
frequency with which data must be submitted for reinsurance payments
would follow a national schedule. Under Sec. 153.100(a)(1), HHS would
continue to allow a State establishing a reinsurance program to modify
the data requirements for health insurance issuers to receive
reinsurance payments, provided that the State publishes a State notice
of benefit and payment parameters and specifies these modifications in
that notice.
We propose to also amend Sec. 153.100 by deleting subparagraph
(a)(5), and to add Sec. 153.232 to direct a State that elects to
collect additional reinsurance contributions for purposes of making
additional reinsurance payments or to use additional funds for
reinsurance payments under Sec. 153.220(d) to publish supplemental
State reinsurance payment parameters in its State notice of benefit and
payment parameters under proposed Sec. 153.100(a)(2).
The Premium Stabilization Rule stated that a State establishing a
reinsurance program may either directly collect additional reinsurance
contributions for administrative expenses and reinsurance payments when
a State elects to collect from health insurance issuers, or may elect
to have HHS collect contributions from health insurance issuers for
administrative expenses. However, we now propose to change this policy
such that a State operating its own reinsurance program will no longer
be permitted to have HHS collect additional funds for administrative
expenses. To create the most effective reinsurance program, we are
proposing to collect reinsurance contributions on behalf of all States
from both health insurance issuers and self-insured group health plans
in the aggregate, and we propose to disburse reinsurance payments based
on a State's need for reinsurance payments, not based on where the
contributions were collected. As a result, HHS will no longer be able
to attribute additional funds for administrative expenses back to a
State. We propose to amend Sec. 153.100(a)(3) to clarify that these
additional contributions may only be collected by a State operating its
own reinsurance program in that State.
We also propose to delete Sec. 153.110(d)(5) and Sec.
153.210(a)(2)(iii), because we propose to disburse reinsurance
contributions in proportion to the need for reinsurance payments. Thus,
a State's allocation of reinsurance contributions among applicable
reinsurance entities is no longer necessary. Accordingly, we also
propose to delete Sec. 153.110(d)(2), which requires that a State
notice include an estimate of the number of enrollees in fully insured
plans with the boundaries of each reinsurance entity.
We further propose that HHS collect all contributions under a
national contribution rate from all health insurance issuers in all
States. We therefore propose to delete all requirements regarding the
State collection of reinsurance contributions from health insurance
issuers under the national contribution rate, including Sec.
153.100(a)(2) and Sec. 153.110(b), removing the requirement that a
State publish a State notice of benefit and payment parameters to
announce its intention to collect reinsurance contributions from health
insurance issuers. We also propose to delete Sec. 153.110(d)(4) which
requires States to publish in their State notices an estimate of the
reinsurance contributions that will be collected by each applicable
reinsurance entity.
[[Page 73151]]
b. Reporting to HHS
We propose to amend Sec. 153.210 by adding paragraph (e), which
directs a State that establishes a reinsurance program to provide
information regarding all requests for reinsurance payments received
from all reinsurance-eligible plans for each quarter during the benefit
year. We propose to use this information to monitor requests for
reinsurance payments and reinsurance contribution amounts throughout
the benefit year, to ensure equitable reinsurance payments in all
States.
To provide issuers in the individual market with information to
assist in developing rates in subsequent benefit years, we propose in
Sec. 153.240(b)(2) that a State, or HHS on behalf of the State,
provide issuers of reinsurance-eligible plans with quarterly estimates
of the expected requests for reinsurance payments for the reinsurance-
eligible plan under both the national payment parameters and any State
supplemental payments parameters set forth under Sec. 153.232, as
determined by HHS or the State's reinsurance entity, as applicable.
These quarterly estimates would provide issuers with the timely
information that is needed to support the calculation of expected
claims assumptions that are key to rate development and ultimately,
premium stabilization. We expect that an issuer of a reinsurance-
eligible plan will use this information to estimate total reinsurance
payments to be received for future benefit years, and will use its best
estimates of future payments to reduce premiums. It is our expectation
that reinsurance payments will be used in the rate setting process to
reduce premiums, fulfilling the goals of the reinsurance program.
The national reinsurance payment parameters are calculated to
expend all reinsurance contributions collected under the national
contribution rate. Similarly, the additional funds collected by the
State for reinsurance payments or additional State funds are to be
reasonably calculated, under proposed Sec. 153.232(a)(2), to cover all
additional reinsurance payments projected to be made under the State
supplemental payment parameters. Because the national payment
parameters and State supplemental payment parameters apply to two
separate funds, we believe that it is important for a State to
distinguish between reinsurance payments made under the two different
sets of parameters so that reinsurance-eligible plans can understand
how each reinsurance program will likely affect claims costs. HHS
intends to collaborate with issuers and States to develop these early
notifications. We therefore propose in Sec. 153.240(b) that each
State, or HHS on behalf of the State, ensure that each applicable
reinsurance entity provides to issuers the expected requests for
reinsurance payments made under Sec. 153.410 and Sec. 152.232 for all
reinsurance-eligible plans in the State within 60 days of the end of
each quarter, with a final report for a benefit year sent to issuers no
later than June 30 of the year following the applicable benefit year.
For efficient administration of the reinsurance program, HHS must
ensure that reinsurance contributions are appropriately spent on
reinsurance payments. To this end, we intend to obtain reports
regarding reinsurance payments and administrative expenses from States
that establish a reinsurance program. We intend to provide details of
these reports in future regulation and guidance, along with similar
standards for Exchanges, the risk adjustment program, and other
Affordable Care Act programs.
c. Additional State Collections
Under the current Sec. 153.220(g) of the Premium Stabilization
Rule (which we now propose to redesignate as paragraph (d)), a State
operating its own reinsurance program may elect to collect more than
the amounts based on the national contribution rate set forth in the
annual HHS notice of benefit and payment parameters for administrative
expenses of the applicable reinsurance entity or additional reinsurance
payments. Under Sec. 153.220(h)(1) of the Premium Stabilization Rule
(now proposed to be designated as Sec. 153.220(d)(2)), a State must
notify HHS within 30 days after publication of the draft annual HHS
notice of benefit and payment parameters for the applicable benefit
year of the additional contribution rate that it elects to collect.
We note that although the proposed Sec. 153.220(d) specifies that
a State may elect to collect additional reinsurance contributions for
administrative expenses or reinsurance payments, nothing in section
1341 of the Affordable Care Act or this proposed rule gives a State the
authority to collect from self-insured group health plans covered by
ERISA, and that Federal law generally preempts State law that relates
to an ERISA-covered plan.
d. State Collections
We propose that HHS collect reinsurance contributions from all
contributing entities regardless of whether a State elects to operate
the reinsurance program or have HHS operate the reinsurance program on
its behalf. As reinsurance payments will be calculated based on
aggregate contributions collected and total requests for reinsurance
payments nationally, we believe that a centralized collection process
for all contributing entities will facilitate the allocation and
disbursement of funds. This will also streamline the contribution
submissions process for health insurance issuers who operate in
multiple States.
We propose to amend Sec. 153.220(a) to set forth that if a State
establishes a reinsurance program, HHS will collect all reinsurance
contributions from all contributing entities for that State under the
national contribution rate. We, therefore, propose to delete Sec.
153.220(a)(2), as we are no longer requiring a State to ensure that the
applicable reinsurance entity accepts contributions for reinsurance
contribution enrollees who reside in that State with respect to health
insurance issuers from HHS. In accordance with the proposed change
regarding State collections, we also propose to delete Sec. 153.220(b)
of the Premium Stabilization Rule, which directs a State operating its
own reinsurance program to notify HHS of its intention to collect from
its health insurance issuers for the 2014 benefit year by December 1,
2012. If finalized as proposed, we would consider any notification a
State made to HHS pursuant to Sec. 153.220(b) of the Premium
Stabilization Rule prior to the finalization of this proposed rule to
be withdrawn. We propose to delete Sec. 153.220(f) of the Premium
Stabilization Rule which includes requirements on the State collection
of reinsurance contributions from health insurance issuers.
Section 153.220(e) of the Premium Stabilization Rule requires that
reinsurance contributions are allocated as required in the annual HHS
notice of benefit and payment parameters for the applicable benefit
year such that contributions allocated for reinsurance payments within
the State are only used for reinsurance payments, and contributions
allocated for payments to the U.S. Treasury are paid in the timeframe
and manner established by HHS. We also propose that any additional
contributions collected under Sec. 153.220(d)(1)(ii) and allocated for
reinsurance payments under the State supplemental reinsurance payment
parameters must be used to make reinsurance payments. We also propose
under Sec. 153.220(d)(3) that States may use additional funds, which
were not collected as additional reinsurance contributions, to make
reinsurance payments under the State supplemental
[[Page 73152]]
reinsurance payment parameters. This would allow States to use other
revenue sources, including funds collected for State high-risk pools as
discussed below, for supplemental reinsurance payments, as determined
by a State. This proposal ensures that additional State collections for
reinsurance payments and other State funds, as applicable, may be used
to reduce premiums.
e. High-Risk Pools
We are not proposing further requirements for State high-risk pools
beyond those currently provided at Sec. 153.250. As stated in that
section, a State must eliminate or modify its high-risk pool to the
extent necessary to carry out the transitional reinsurance program.
However, any changes made to a State high-risk pool must comply with
the terms and conditions of Grants to States for Operation of Qualified
High-Risk Pools (CFDA 93.780), as applicable. Under Sec.
153.400(a)(2)(iii), State high-risk pools are excluded from making
reinsurance contributions and cannot receive reinsurance payments.
Because State high-risk pools and the transitional reinsurance program
both target high-cost enrollees, high-risk pools can operate in
parallel with the reinsurance program, serving a distinct subset of the
target population. States have the flexibility to decide whether to
maintain, phase out, or eliminate their high-risk pools.
The Affordable Care Act permits a State to coordinate its high-risk
pool with the reinsurance program ``to the extent not inconsistent''
\24\ with the statute. Thus, a State may coordinate the entry of the
State's high-risk pool enrollees into the Exchange. HHS is examining
ways in which a State could continue its program to complement Exchange
coverage. We clarify that nothing in the Premium Stabilization Rule
prevents a State that establishes its own reinsurance program from
using State money designated for its own high-risk pool towards the
reinsurance program. However, a State may not use funds collected for
the reinsurance program for its high-risk pool. As indicated in the
Premium Stabilization Rule, funds collected for the transitional
reinsurance program can only be used for the purpose of making payments
under the reinsurance program or for administering that program.
Finally, a State could designate its high-risk pool as its applicable
reinsurance entity, provided that the high-risk pool meets all
applicable criteria for being an applicable reinsurance entity.
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\24\ See section 1341(d) of the Affordable Care Act.
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2. Contributing Entities and Excluded Entities
Section 1341 of the Affordable Care Act provides that health
insurance issuers and third party administrators on behalf of group
health plans must make payments to an applicable reinsurance entity.
Thus, with respect to insured coverage, issuers are liable for making
reinsurance contributions. With respect to self-insured group health
plans, the plan is liable, although a third-party administrator or
administrative-services-only contractor may be utilized to transfer
reinsurance contributions on behalf of a self-insured group health
plan, at that plan's discretion. A self-insured, self-administered
group health plan without a third-party administrator or
administrative-services-only contractor would make its reinsurance
contributions directly.\25\
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\25\ In the Certain Preventive Services under the Affordable
Care Act Advanced Notice of Proposed Rulemaking (77 FR 16501)
published March 21, 2012, potential changes to the reinsurance
contributions were contemplated with regard to a potential religious
accommodation for contraception coverage for certain self-funded
plans. If the rules regarding the religious accommodation include
changes to the reinsurance contribution, this policy may be changed
accordingly.
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Under section 1341(b)(3)(B)(i) of the Affordable Care Act,
contribution amounts for reinsurance are to reflect, in part, an
issuer's ``fully insured commercial book of business for all major
medical products.'' We interpret this statutory language to mean that
an issuer will not be required to make reinsurance contributions for
coverage that is non-commercial, or that is not ``major medical
coverage.'' \26\ We believe it is implicit in the statute that
contributions are not required for health insurance coverage that is
not regulated by a State department of insurance and written on a
policy form filed with and approved by a State department of insurance
(but contributions are generally required for self-insured plans even
though they are not regulated by a State department of insurance). We
discuss below our intent to exclude certain types of plans.
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\26\ We note that under the definition of reinsurance-eligible
plan in Sec. 153.20, if a plan is excluded from making reinsurance
contributions, the plan is excluded from the reinsurance program
altogether, (that is, a plan excluded from making reinsurance
contributions cannot receive reinsurance payments).
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Major medical coverage: Section 1341(b)(3)(B)(i) of the Affordable
Care Act refers to ``major medical products,'' but does not define the
term. For the purpose of the reinsurance program, our view is that
coverage provided under a major medical product (which we refer to in
Part 153 as ``major medical coverage'') is health coverage, which may
be subject to reasonable enrollee cost sharing, for a broad range of
services and treatments including diagnostic and preventive services,
as well as medical and surgical conditions provided in various
settings, including inpatient, outpatient, and emergency room
settings.\27\ Thus, for purposes of the reinsurance program, we believe
that coverage that is limited in scope (for example, dread disease
coverage, hospital indemnity coverage, stand-alone vision coverage, or
stand-alone dental coverage) or extent (for example, coverage that is
not subject to the Public Health Service Act section 2711 and its
implementing regulations) would not be major medical coverage.
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\27\ See Section 7F of the National Association of Insurance
Commissioners (NAIC) Model Regulation to Implement the Accident and
Sickness Insurance Minimum Standards Model Act, (MDL-171) for a
definition of major medical expense coverage. Available at: http://naic.org/committees_index_model_description_a_c.htm#accident_health.
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In this proposed rule, we also propose to clarify that when an
individual has both Medicare coverage and employer-provided group
health coverage, Medicare Secondary Payer (MSP) rules under section
1862(b) of the Social Security Act would be applicable, and the group
health coverage would be considered major medical coverage only if the
group health coverage is the primary payer of medical expenses (and
Medicare is the individual's secondary payer) under the MSP rules. For
example, a working 68-year-old employee enrolled in a group health plan
who, under the MSP rules, is a beneficiary for whom Medicare is the
secondary payer would be counted for purposes of reinsurance
contributions. However, a 68-year-old retiree enrolled in a group
health plan who, under the MSP rules, is a beneficiary for whom
Medicare is the primary payer would not be counted for purposes of
reinsurance contributions. Similarly, an individual covered under a
group health plan with only Medicare Part A (hospitalization) benefits
(where Medicare is the primary payer), would not be counted for
purposes of reinsurance contributions because the group health coverage
would not be considered major medical coverage. We also intend that
individuals entitled to Medicare because of disability or end-stage
renal disease that have other primary coverage under the MSP rules be
treated consistently with the working
[[Page 73153]]
aged, as outlined above. We seek comment on this proposal.
Commercial book of business: Section 1341(b)(3)(B)(i) of the
Affordable Care Act refers to a ``commercial book of business,'' which
we interpret to refer to large and small employer group policies and
individual market policies. For example, products offered by an issuer
under Medicare Part C or D would be part of a ``governmental'' book of
business, not a commercial book of business. Similarly, a plan or
coverage offered by a Tribe to Tribal members and their spouses and
dependents, and other persons of Indian descent closely affiliated with
the Tribe in the capacity of the Tribal members as Tribal members (and
not in their capacity as current or former employees of the Tribe or
their dependents) would not be part of a commercial book of business,
but a plan or coverage offered by the Federal government, a State
government or a Tribe to employees (or retirees or dependents) because
of a current or former employment relationship would be part of a
commercial book of business. We seek comment on this interpretation.
Policy filed and approved in a State. We propose that a group or
individual policy for health insurance coverage not filed and approved
in a State be excluded from reinsurance contributions. To illustrate,
if group coverage for employees substantially all of whom work outside
the United States--``expatriate coverage''--is not written on a form
filed with and approved by a State department of insurance, we propose
to exclude it from reinsurance contributions because that coverage is
not within the jurisdiction of a State department of insurance and the
Affordable Care Act generally does not apply. On the other hand,
insured group ``expatriate'' coverage written on a form filed with and
approved by a State department of insurance would be subject to the
Affordable Care Act and required to make reinsurance contributions.
Individual coverage for overseas travel would be similarly treated.
Therefore, we propose to amend Sec. 153.400(a)(1) to state that a
contributing entity must make reinsurance contributions on behalf of
its self-insured group health plans and health insurance coverage
except to the extent that:
(1) The plan or coverage is not major medical coverage;
(2) In the case of health insurance coverage, the coverage is not
considered to be part of an issuer's commercial book of business; or
(3) In the case of health insurance coverage, the coverage is not
issued on a form filed and approved by a State insurance
department.\28\ We seek comment on this proposal.
---------------------------------------------------------------------------
\28\ We note that contributions are generally required for self-
insured plans even if not regulated by a State department of
insurance because self-insured plans are not typically regulated by
these entities.
---------------------------------------------------------------------------
Under the requirements proposed in Sec. 153.400(a)(1), and for
clarity, we propose in Sec. 153.400(a)(2) to explicitly exclude the
following types of plans and coverage from reinsurance contributions.
(a) Excepted benefits: We are not proposing a change in policy with
respect to plans or health insurance coverage that consist solely of
excepted benefits as defined by section 2791(c) of the PHS Act, as
currently described in Sec. 153.400(a)(2) of the Premium Stabilization
Rule.
(b) Private Medicare, Medicaid, CHIP, State high-risk pools, and
basic health plans: Both Medicare and Medicaid have fee-for-service or
traditional components, as well as managed care components, in which
private health insurance issuers, under contract with HHS, deliver the
requisite benefits. As discussed in the preamble to the Premium
Stabilization Rule, these private Medicare or Medicaid plans are
excluded from reinsurance contributions because they are not part of a
commercial book of business. We also clarify that for purposes of
reinsurance contributions, programs under the CHIP, Federal and State
high-risk pools (including the Pre-Existing Condition Insurance Plan
Program under section 1101 of the Affordable Care Act), and basic
health plans described in section 1331 of the Affordable Care Act are
similarly excluded from reinsurance contributions because they are not
part of a commercial book of business.
(c) Health Reimbursement Arrangements (HRAs) integrated with a
group health plan: HRAs are group health plans that are governed by IRS
Notice 2002-45 (2002-2 CB 93) and subsequent guidance. An employer
credits an amount to each eligible employee's HRA which the employees
may use for allowable medical expenses. An HRA that is integrated with
a group health plan is excluded from reinsurance contributions because
it is integrated with major medical coverage.\29\ We note that
reinsurance contributions generally would be required for that group
health plan.
---------------------------------------------------------------------------
\29\ The preamble to interim final regulations under section
2711 of the PHS Act provides that an HRA satisfies the prohibition
on annual and lifetime limits in section 2711 when it is integrated
as part of a group health plan with other coverage that satisfies
section 2711. See 75 FR 37190-37191.
---------------------------------------------------------------------------
(d) Health saving accounts (HSAs): Eligible individuals covered by
a high deductible health plan may have the option of contributing to an
HSA. An HSA is an individual arrangement governed by section 223(d) of
the Code and subsequent guidance that consists of a tax-favored account
held in trust to accumulate funds that can be used to pay qualified
medical expenses of the beneficiary. An HSA is offered along with a
high deductible health plan. For purposes of reinsurance contributions,
we believe that an HSA is not major medical coverage because it
consists of a fixed amount of funds that are available for both medical
and non-medical purposes, and would be excluded from reinsurance
contributions. We note that reinsurance contributions generally would
be required for the high deductible health plan because we believe that
it would constitute major medical coverage.
(e) Health flexible spending arrangements (FSAs): Health FSAs are
usually funded by an employee's voluntary salary reduction
contributions under section 125 of the Code. Because section 9005 of
the Affordable Care Act limits the annual amount that may be
contributed by an employee to a health FSA to $2,500, we believe that a
health FSA is not major medical coverage under this rule, and therefore
would be excluded from reinsurance contributions.
(f) Employee assistance plans, disease management programs, and
wellness programs: Employee assistance plans, disease management
programs, and wellness programs typically provide ancillary benefits to
employees that in many cases do not constitute major medical coverage.
Employers, plan sponsors, and health insurance issuers have flexibility
in designing these programs to provide services to provide additional
benefits to employees, participants, and beneficiaries. If the program
(whether self-insured or insured) does not provide major medical
coverage, we propose to exclude it from reinsurance contributions. We
also note that employers that provide one or more of these ancillary
benefits often sponsor major medical plans, which will be subject to
reinsurance contributions, absent other excluding circumstances.
(g) Stop-loss and indemnity reinsurance policies: For the purpose
of reinsurance, we propose to exclude stop-loss insurance and indemnity
reinsurance because they do not constitute major medical coverage for
the applicable covered lives. Generally, a stop-loss policy is an
insurance policy
[[Page 73154]]
that protects against health insurance claims that are catastrophic or
unpredictable in nature and provides coverage to self-insured group
health plans once a certain level of risk has been absorbed by the
plan. Stop-loss insurance allows an employer to self-insure for a set
amount of claims costs, with the stop-loss insurance covering most or
all of the remainder of the claims costs that exceed the set amount. An
indemnity reinsurance policy is an agreement between two or more
insurance companies under which the reinsuring company agrees to accept
and to indemnify the issuing company for all or part of the risk of
loss under policies specified in the agreement and the issuing company
retains its liability to, and its contractual relationship with, the
applicable lives covered. We believe these types of policies were not
intended to be subject to the reinsurance program. No inference is
intended as to whether stop-loss or reinsurance policies constitute
health insurance policies for purposes other than reinsurance
contributions.
(h) Military Health Benefits: TRICARE is the component of the
Military Health System that furnishes health care insurance to active
duty and retired personnel of the uniformed services (and covered
dependents) through private issuers under contract. Although TRICARE
coverage is provided by private issuers, it is not part of a commercial
book of business because the relationship between the uniformed
services and service members differs from the traditional employer-
employee relationship in certain important respects. For example,
service members may not resign from duty during a period of obligated
service, may not form unions, and may be subject to discipline for
unexcused absences from duty. Consequently, our view is that such
military health insurance is excluded from reinsurance contributions.
In addition to TRICARE, the Military Health System also includes
health care services that doctors, dentists, and nurses provide to
uniformed services members on military bases and ships. The Veterans
Health Administration within the U.S. Department of Veterans Affairs
provides health care to qualifying veterans of the uniformed services
at its outpatient clinics, hospitals, medical centers, and nursing
homes. Similarly, because we do not consider these programs to be part
of a commercial book of business, our view is that such military health
programs are excluded from reinsurance contributions.
(i) Tribal coverage: As discussed above, we propose to exclude
plans or coverage (whether fully insured or self-insured) offered by a
Tribe to Tribal members and their spouses and dependents (and other
persons of Indian descent closely affiliated with the Tribe) in the
capacity of the Tribal members as Tribal members (and not in their
capacity as current or former employees of the Tribe or their
dependents) as this would not be part of a commercial book of business.
However, a plan or coverage offered by the Federal government, a State
government or a Tribe to employees (or retirees or dependents) because
of a current or former employment relationship would be part of a
commercial book of business. Similarly, coverage provided to Indians
through programs operated under the authority of the Indian Health
Service (IHS), Tribes or Tribal organizations, or Urban Indian
organizations, as defined in section 4 of the Indian Health Care
Improvement Act would be excluded from reinsurance contributions
because it is not part of a commercial book of business. We note,
however, that a plan or coverage offered by a Tribe to its employees
(or retirees or dependents) on account of a current or former
employment relationship would not be excluded.
3. National Contribution Rate
a. 2014 Rate
As described in Sec. 153.220(c) (previously designated as Sec.
153.220(e)), we intend to publish in the annual HHS notice of benefit
and payment parameters the national per capita reinsurance contribution
rate for the upcoming benefit year. We read section 1341 of the
Affordable Care Act to specify the total contribution amounts to be
collected from contributing entities (reinsurance pool) as $10 billion
in 2014, $6 billion in 2015, and $4 billion in 2016. Additionally, we
read sections 1341(b)(3)(B)(iv) and 1341(b)(4) of the Affordable Care
Act to direct the collection of funds for contribution to the U.S.
Treasury each year as $2 billion in 2014, $2 billion in 2015, and $1
billion in 2016. These amounts, payable to the U.S. Treasury, total $5
billion, which we note is the same amount as that appropriated for the
Early Retiree Reinsurance Program under section 1102 of the Affordable
Care Act. It has been suggested that the collection of the $2 billion
in funds payable to the U.S. Treasury for 2014 should be deferred until
2016, thereby lowering the contribution rate in 2014, while ensuring
that the total amount specified by law is returned to the U.S. Treasury
by the end of this temporary program. We seek comment on whether such a
delayed collection would be consistent with the statutory requirements
described above and whether there are other steps that could be taken
to reduce the burden of these collections on contributing entities.
Finally, section 1341(b)(3)(B)(ii) of the Affordable Care Act allows
for the collection of additional amounts for administrative expenses.
Taken together, these three components make up the total dollar amount
to be collected from contributing entities for each of the three years
of the reinsurance program under the national per capita contribution
rate.
Each year, the national per capita contribution rate will be
calculated by dividing the sum of the three amounts (the national
reinsurance pool, the U.S. Treasury contribution, and administrative
costs) by the estimated number of enrollees in plans that must make
reinsurance contributions:
[GRAPHIC] [TIFF OMITTED] TP07DE12.011
As an illustration, under the Affordable Care Act, the 2014
national reinsurance pool is $10 billion, and the contribution to the
U.S. Treasury is $2 billion. The amount to be collected for
administrative expenses for benefit year 2014 would be $20.3 million
(or 0.2 percent of the $10 billion dispersed), discussed in greater
detail below. The HHS estimate of the number of enrollees in plans that
must make reinsurance contributions that total the $12.02 billion
described above yields a per capita contribution rate of $5.25 per
[[Page 73155]]
month in benefit year 2014. We seek comment on this calculation.
Section 153.220(c) (previously designated as Sec. 153.220(e))
provides that HHS will set in the annual HHS notice of benefit and
payment parameters for the applicable benefit year the national
contribution rate and the proportion of contributions collected under
the national contribution rate to be allocated to reinsurance payments,
payments to the U.S. Treasury, and administrative expenses. In Table 12
below, we specify these proportions (or amounts, as applicable):
Table 12--Proportion of Contributions Collected Under the National Contribution Rate for Reinsurance Payments,
Payments to U.S. Treasury and Administrative Expenses
----------------------------------------------------------------------------------------------------------------
If total contribution
collections under the If total contribution collections under the
Proportion or amount for: national contribution national contribution rate are more than $12.02
rate are less than or billion
equal to $12.02 billion
----------------------------------------------------------------------------------------------------------------
Reinsurance payments................. 83.2 percent ($10 The difference between total national
billion/$12.02 collections and those contributions allocated
billion). to the U.S. Treasury and administrative
expenses.
Payments to the U.S. Treasury........ 16.6 percent ($2 $2 billion.
billion/$12.02
billion).
Administrative expenses.............. 0.2 percent ($20.3 $20.3 million.
million/$12.02
billion).
----------------------------------------------------------------------------------------------------------------
As shown in Table 12, if the total amount of contributions
collected is less than equal to $12.02 billion, we propose to allocate
approximately 83.2 percent of the reinsurance contributions collected
to reinsurance payments, 16.6 percent of the reinsurance contributions
collected to the U.S. Treasury and 0.2 percent of the reinsurance
contributions collected to administrative expenses.
Section III.C.6. of this proposed rule provides details on the
methodology we used to develop enrollment estimates for the national
per capita contribution rate.
b. Federal Administrative Fees
As described in the Premium Stabilization Rule, HHS would collect
reinsurance contributions from self-insured group health plans, even if
a State is operating its own reinsurance program. As noted above, we
propose that HHS also collect reinsurance contributions from health
insurance issuers, even if a State is operating its own reinsurance
program. In this proposed rule, we estimate the Federal administrative
expenses of operating the reinsurance program in 2014 to be
approximately $20.3 million, or approximately 0.2 percent of the $10
billion in reinsurance funds to be distributed in 2014. We believe this
figure reflects the Federal government's significant economies of scale
in operating the program, and estimate a national per capita
contribution rate of $0.11 annually for HHS administrative expenses.
As shown in Table 13, we expect to apportion the annual per capita
amount of $0.11 of administrative expenses as follows: $0.055 of the
total amount collected per capita for administrative fees for the
collection of contributions from health insurance issuers and self-
insured group health plans; and $0.055 of the total amount collected
per capita for administrative fees for reinsurance payment activities,
supporting the administration of payments to issuers of reinsurance-
eligible plans.
Table 13--Breakdown of Administrative Expenses
[Annual, per capita]
------------------------------------------------------------------------
Item Estimated cost
-----------------------------------------------------------------------
Collecting contributions from health insurance $0.055
issuers and self-insured group health plans........
Payment activities.................................. 0.055
Total annual per capita fee for HHS to perform all 0.11
reinsurance functions..............................
------------------------------------------------------------------------
If HHS operates the reinsurance program on behalf of a State, HHS
would retain the annual per capita fee for HHS to perform all
reinsurance functions, which would be $0.11. If a State operates its
own reinsurance program, HHS would transfer $0.055 of the per capita
administrative fee to the State for purposes of administrative expenses
incurred in making reinsurance payments, and retain the remaining
$0.055 to offset the costs of contribution collection. We note that the
administrative expenses for reinsurance payments will be distributed in
proportion to the State-by-State total requests for reinsurance
payments made under the national payment parameters. We seek comment on
this approach, and other reasonable, administratively simple approaches
that may be used to calculate administrative costs.
4. Calculation and Collection of Reinsurance Contributions
a. Calculation of Reinsurance Contribution Amount and Timeframe for
Collections
We intend to administer the reinsurance program in a manner that
minimizes the administrative burden on health insurance issuers and
self-insured group health plans, while ensuring that contributions are
calculated accurately. Thus, we propose in Sec. 153.400(a) and Sec.
153.240(b)(1), respectively, to collect and pay out reinsurance funds
annually to minimize the costs of administering the program and the
burden on contributing entities. If we were to collect and make
reinsurance payments throughout the benefit year, we would likely be
required to hold the disbursement of a large portion of the reinsurance
payments until the end of the benefit year to ensure an equitable
allocation of payments. This would deprive contributing entities of the
use of those funds during the benefit year, and we believe that the
proposed Sec. 153.400(a)
[[Page 73156]]
and Sec. 153.240(b)(1) would address this issue. However, we note that
this approach would delay the receipt of some reinsurance payments for
individual market issuers, and solicit comment on the benefits and
burdens for issuers, States, and other stakeholders of a more frequent
collections and payment cycle.
Under the Premium Stabilization Rule, HHS would collect reinsurance
contributions through a per capita assessment on contributing entities.
To clarify how this assessment is made, we propose to add Sec.
153.405, which provides that the reinsurance contribution of a
contributing entity be calculated by multiplying the average number of
covered lives of reinsurance contribution enrollees during the benefit
year for all of the contributing entity's plans and coverage that must
pay reinsurance contributions, by the national contribution rate for
the applicable benefit year.
[GRAPHIC] [TIFF OMITTED] TP07DE12.012
We also propose to amend Sec. 153.405(b) to require that, no later
than November 15 of benefit year 2014, 2015, and 2016, as applicable, a
contributing entity must submit to HHS an annual enrollment count of
the average number of covered lives of reinsurance contribution
enrollees for each benefit year. The count must be determined as
specified in proposed Sec. 153.405(d), (e), (f), or (g) as applicable.
We propose to amend Sec. 153.400(a) so that each contributing entity
makes reinsurance contributions at the national contribution rate
annually and in a manner specified by HHS. We also propose to amend
Sec. 153.400(a) so that each contributing entity makes reinsurance
contributions under any additional applicable State supplemental
contribution rate, if a State elects to collect additional
contributions for administrative expenses or reinsurance payments under
Sec. 153.220(d), annually and in a manner specified by the State. We
believe this annual collection schedule will ensure a more accurate
count of a contributing entity's average covered lives, and would avoid
the need for any initial estimates and subsequent reconciliation to
account for fluctuations in enrollment during the course of the benefit
year.
Under Sec. 153.405(c)(1), within 15 days of submission of the
annual enrollment count or by December 15, whichever is later, HHS will
notify each contributing entity of the reinsurance contribution amounts
to be paid based on that annual enrollment count. We specify in Sec.
153.405(c)(2) that a contributing entity remit contributions to HHS
within 30 days after the date of the notification of contributions due
for the applicable benefit year. The amount to be paid by the
contributing entity must be based upon the notification received under
Sec. 153.405(c)(1).
Counting Methods for Health Insurance Issuers: In Sec. 153.405(d),
we propose a number of methods that a health insurance issuer may use
to determine the average number of covered lives of reinsurance
contribution enrollees under a health insurance plan for a benefit year
for purposes of the annual enrollment count. These methods promote
administrative efficiencies by building on the methods permitted for
purposes of the fee to fund the Patient-Centered Outcomes Research
Trust Fund (the PCORTF Rule), modified so that a health insurance
issuer may determine an annual enrollment count during the fourth
quarter of the benefit year.\30\ Thus, under each of these methods, the
number of covered lives will be determined based on the first nine
months of the benefit year.
---------------------------------------------------------------------------
\30\ See the proposed rule published on April 17, 2012 (77 FR
22691). Once the PCORTF Rule is finalized, we may modify the methods
of reporting contained in this rulemaking.
---------------------------------------------------------------------------
(1) Actual Count Method: Under the PCORTF Rule, an issuer may use
the ``actual count method'' to determine the number of lives covered
under the plan for the plan year by calculating the sum of the lives
covered for each day of the plan year and dividing that sum by the
number of days in the plan year. We propose that, for reinsurance
contributions purposes, a health insurance issuer would add the total
number of lives covered for each day of the first nine months of the
benefit year and divide that total by the number of days in those nine
months.
(2) Snapshot Count Method: Under the PCORTF Rule, a health
insurance issuer may use the ``snapshot count method'' generally by
adding the total number of lives covered on a certain date during the
same corresponding month in each quarter, or an equal number of dates
for each quarter, and dividing the total by the number of dates on
which a count was made. For reinsurance contributions purposes, an
issuer would add the totals of lives covered on a date (or more dates
if an equal number of dates are used for each quarter) during the same
corresponding month in each of the first three quarters of the benefit
year, (provided that the dates used for the second and third quarters
must be within the same week of the quarter as the date used for the
first quarter), and divide that total by the number of dates on which a
count was made. For this purpose, the same months must be used for each
quarter (for example, January, April and July).
(3) Member Months Method or State Form Method: Under the PCORTF
Rule, a health insurance issuer may use the ``Member Months Method'' or
``State Form Method'' by using data from the NAIC Supplemental Health
Exhibit or similar data from other State forms. However, data from
these forms may be out of date at the time of the annual enrollment
count submission, and we believe that it is important that health
insurance issuers achieve an accurate count of covered lives,
particularly for individual market plans. We expect that the individual
market would be subject to large increases in enrollment between 2014
and 2016. Therefore, we propose a modified counting method based upon
the ratio of covered lives per policy in the NAIC or State form.
Specifically, we propose that health insurance issuers using this
method multiply the average number of policies for the first nine
months of the applicable benefit year by the ratio of covered lives per
policy calculated from the NAIC Supplemental Health Care Exhibit (or
from a form filed with the issuer's State of domicile for the most
recent time period). Issuers would count the number of policies in the
first nine months of the applicable benefit year by adding the total
number of policies on one date in each quarter, or an equal number of
dates for each
[[Page 73157]]
quarter (or all dates for each quarter), and dividing the total by the
number of dates on which a count was made.
For example, if a health insurance issuer indicated on the NAIC
form for the most recent time period that it had 2,000 policies
covering 4,500 covered lives, it would apply the ratio of 4,500 divided
by 2,000, equaling 2.25 to the number of policies it had over the first
three quarters of the applicable benefit year. If the issuer had an
average of 2,300 policies in the three quarters of the applicable
benefit year, it would report 2.25 multiplied by 2,300 as the number of
covered lives for the purposes of reinsurance contributions.
Counting Methods for Self-Insured Group Health Plans: In Sec.
153.405(e), we propose a number of methods that a self-insured group
health plan may use to determine the average number of covered lives
for purposes of the annual enrollment count. These methods mirror the
methods permitted to sponsors of self-insured group health plans under
the PCORTF Rule, modified slightly for timing, so that enrollment
counts may be obtained on a more current basis.
(1) Actual Count Method or Snapshot Count Method: We propose that
self-insured plans, like health insurance issuers, may use the actual
count method or snapshot count method as described above.
(2) Snapshot Factor Method: Under the PCORTF Rule, a plan sponsor
generally may use the ``snapshot factor method'' by adding the totals
of lives covered on any date (or more dates if an equal number of dates
are used for each quarter) during the same corresponding month in each
quarter, and dividing that total by the number of dates on which a
count was made, except that the number of lives covered on a date is
calculated by adding the number of participants with self-only coverage
on the date to the product of the number of participants with coverage
other than self-only coverage on the date and a factor of 2.35.\31\ For
this purpose, the same months must be used for each quarter (for
example, January, April, July, and October). For reinsurance
contributions purposes, a self-insured group health plan would use this
PCORTF counting method over the first three quarters of the benefit
year, provided that for this purpose, the corresponding dates for the
second and third quarters of the benefits year must be within the same
week of the quarter as the date selected for the first quarter.
---------------------------------------------------------------------------
\31\ The preamble to the proposed PCORTF Rule explains that
``the 2.35 dependency factor reflects that all participants with
coverage other than self-only have coverage for themselves and some
number of dependents. The Treasury Department and the IRS developed
the factor, and other similar factors used in the regulations, in
consultation with Treasury Department economists and in consultation
with plan sponsors regarding the procedures they currently use for
estimating the number of covered individuals.''
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(3) Form 5500 Method: Under the PCORTF Rule, a plan sponsor may use
the ``Annual Return/Report of Employee Benefit Plan'' filed with the
Department of Labor (Form 5500) by using data from the Form 5500 for
the last applicable plan year. We propose that, for purposes of
reinsurance contributions, a self-insured group health plan may also
rely upon such data, even though the data may reflect enrollment in a
previous benefit year. Our modeling of the 2014 health insurance
marketplace, discussed in section III.C.6. of this proposed rule,
suggests that enrollment in self-insured group health plans is less
likely to fluctuate than enrollment in the individual market. Thus, we
propose that a self-insured group plan may calculate the number of
lives covered for a plan that offers only self-only coverage by adding
the total participants covered at the beginning and end of the benefit
year, as reported on the Form 5500, and dividing by two. Additionally,
a self-insured group plan that offers self-only coverage and coverage
other than self-only coverage may calculate the number of lives covered
by adding the total participants covered at the beginning and the end
of the benefit year, as reported on the Form 5500.
Counting Methods for Plans With Self-insured and Insured Options:
An employer may sponsor a group health plan that offers one or more
coverage options that are self-insured and one or more other coverage
options that are insured. In Sec. 153.405(f), we propose that to
determine the number of covered lives of reinsurance contribution
enrollees under a group health plan with both self-insured and insured
options for a benefit year must use one of the methods specified in
either Sec. 153.405(d)(1) or Sec. 153.405(d)(2)--the ``actual count''
method or ``snapshot count'' for health insurance issuers.
Aggregation of self-insured group health plans and health insurance
plans: We propose in Sec. 153.405(g)(1) that if a plan sponsor
maintains two or more group health plans or health insurance plans (or
a group health plan with both insured and self-insured components) that
collectively provide major medical coverage for the same covered lives,
which we refer to as ``multiple plans'' for the purpose of the
reinsurance program, then these multiple plans must be treated as a
single self-insured group health plan for purposes of calculating any
reinsurance contribution amount due under paragraph (c) of this
section. This approach would prevent the double counting of a covered
life for major medical coverage offered across multiple plans, and
prohibit plan sponsors that provide such major medical coverage from
splitting the coverage into separate arrangements to avoid reinsurance
contributions on the grounds that it does not offer major medical
coverage.
For purposes of Sec. 153.405(g)(1), the plan sponsor is
responsible for paying the applicable fee. We propose to define ``plan
sponsor'' in proposed Sec. 153.405(g)(2) based on the definition of
the term in the PCORTF Rule.\32\ We propose to define ``plan sponsor''
as:
---------------------------------------------------------------------------
\32\ If the definition of ``plan sponsor'' is revised in the
final PCORTF Rule, we intend to revise the definition proposed
herein to maintain consistency.
---------------------------------------------------------------------------
(A) The employer, in the case of a plan established or maintained
by a single employer;
(B) The employee organization, in the case of a plan established or
maintained by an employee organization;
(C) The joint board of trustees, in the case of a multi-employer
plan (as defined in section 414(f) of the Code);
(D) The committee, in the case of a multiple employer welfare
arrangement;
(E) The cooperative or association that establishes or maintains a
plan established or maintained by a rural electric cooperative or rural
cooperative association (as such terms are defined in section 3(40)(B)
of ERISA);
(F) The trustee, in the case of a plan established or maintained by
a voluntary employees' beneficiary association (meaning that the
association is not merely serving as a funding vehicle for a plan that
is established or maintained by an employer or other person);
(G) In the case of a plan, the plan sponsor of which is not
described in (A) through (F) above, the person identified or designated
by the terms of the document under which the plan is operated as the
plan sponsor, provided that designation is made and consented to, by no
later than the date by which the count of covered lives for that
benefit year is required to be provided. After that date, the
designation for that benefit year may not be changed or revoked, and a
person may be designated as the plan sponsor only if the person is one
of the persons maintaining the plan (for example, one of the employers
that is maintaining the plan with one or more other employers); or
(H) In the case of a plan the sponsor of which is not described in
(A) through
[[Page 73158]]
(F) above, and for which no identification or designation of a plan
sponsor has been made pursuant (G), each employer or employee
organization that maintains the plan (with respect to employees of that
employer or employee organization), and each board of trustees,
cooperative or association that maintains the plan.
Exceptions: We propose two exceptions to this aggregation rule, in
Sec. 153.405(g)(3). First, if the benefits provided by any health
insurance or self-insured group health plans are limited to excepted
benefits within the meaning of section 2791(c) of the PHS Act (such as
stand-alone dental or vision benefits), the excepted benefits coverage
need not be aggregated with other plans for purposes of this section.
Second, if benefits provided by any health insurance or self-insured
group health plan are limited to prescription drug coverage, that
prescription drug coverage need not be aggregated so as to reduce the
burden on sponsors who have chosen to structure their coverage in that
manner. As discussed in section III.C.2. of this proposed rule,
coverage that consists solely of prescription drug or excepted benefits
is not major medical coverage. If enrollees have major medical coverage
and separate coverage consisting of prescription drug or excepted
benefits, reinsurance contributions only would be required with respect
to the major medical coverage. Reinsurance contributions would not be
required with respect to the same enrollees' prescription drug or
excepted benefits coverage, and consequently, double counting of
covered lives will not occur.
Multiple Plans: In Sec. 153.405(g)(4), we propose counting
requirements for multiple plans in which at least one of the plans is
an insured plan (covered in Sec. 153.405(g)(4)(i)), and multiple self-
insured group health plans not including an insured plan (covered in
Sec. 153.405(g)(4)(ii)). First, we anticipate that a plan sponsor will
generate or obtain a list of the participants in each plan and then
analyze the lists to identify those participants that have major
medical coverage across all the plans collectively. To calculate the
average number of covered lives of reinsurance contribution enrollees
across multiple plans, we propose that a plan sponsor must use one of
the methods applicable to health insurance plans or self-insured group
health plans under Sec. 153.405(d) and Sec. 153.405(e), respectively,
applied across the multiple plans as a whole. We also propose to
require reporting to HHS or the applicable reinsurance entity
concerning multiple plans, as discussed in Sec. 153.405(g)(4).
Additionally, it is important to note that the reinsurance program
operates on a benefit year basis as discussed in section III.C.5. of
this proposed rule, which is defined at Sec. 153.20 of this part (by
reference to Sec. 155.20) as the calendar year, and the applicable
counting methods all apply on that basis, no matter the plan year
applicable to particular plans.
Multiple Group Health Plans Including an Insured Plan: When one or
more of the multiple group health plans is an insured plan, we propose
that the actual count method for health insurance issuers in Sec.
153.405(d)(1) or the snapshot count method for health insurance issuers
in Sec. 153.405(d)(2) must be used. We propose to prohibit the use of
the ``Member Months Method'' or ``State Form Method'' to count covered
lives across multiple insured plans because those methods would not
easily permit aggregate counting, since the identities of the covered
lives are not available on the applicable forms. We propose that the
plan sponsor must determine and report, in a timeframe and manner
established by HHS, to HHS (or, the applicable reinsurance entity if
the multiple plans all consist solely of health insurance plans and the
applicable reinsurance entity of a State is collecting contributions
from health insurance issuers in such State): (1) The average number of
covered lives calculated; (2) the counting method used; and (3) the
names of the multiple plans being treated as a single group health plan
as determined by the plan sponsor and reported to HHS.
Multiple Self-Insured Group Health Plans Not Including an Insured
Plan: We describe the counting provisions applicable to multiple self-
insured group health plans (that is, when none of the plans is an
insured plan) in proposed paragraph (g)(4)(ii) of this section. There
are four counting methods available for self-insured plans which are
set forth in proposed Sec. 153.405(e)(1) through Sec. 153.405(e)(4)
of this section. Proposed Sec. 153.405(e)(1) permits a plan sponsor to
use the actual count method under Sec. 153.405(d)(1) or the snapshot
count method under Sec. 153.405(d)(2) that are also available for
insured plans. Proposed paragraph (e)(2) permits an additional method
(the snapshot factor method) for self-insured plans. We propose not to
permit a plan sponsor to use the fourth method, the ``Form 5500
Method'' as described in proposed Sec. 153.405(e)(3) to count covered
lives across multiple self-insured plans because that method would not
easily permit aggregate counting, since the identities of the covered
lives are not available on that form. Thus, we propose three possible
methods for multiple self-insured plans under paragraph (g)(4)(ii). We
further propose that the plan sponsor must report, in a timeframe and
manner established by HHS, to HHS: (1) The average number of covered
lives calculated; (2) the counting method used; and (3) the names of
the multiple plans being treated as a single group health plan as
determined by the plan sponsor.
Consistency with PCORTF Rule Not Required: We intend to allow a
contributing entity to use a different counting method for the annual
enrollment count of covered lives for purposes of reinsurance
contributions from that used for purposes of the return required in
connection with the PCORTF Rule. Because time periods and counting
methods may differ, we would not require that a contributing entity
submit consistent estimates of its covered lives in the return required
in connection with the PCORTF Rule and the annual enrollment count
required for reinsurance contributions (although these counts should be
performed in accordance with the rules of the counting method chosen).
However, when calculating the average number of covered lives across
two or more plans under proposed paragraph (g), the same counting
method must be used across all of the multiple plans, because they
would be treated as a single plan for counting purposes.
We welcome comments on this approach to counting covered lives for
reinsurance contributions.
b. State Use of Contributions Attributed to Administrative Expenses
To achieve the purposes of the reinsurance program, reinsurance
contributions collected must be appropriately spent on reinsurance
payments, payments to the U.S. Treasury, and on reasonable expenses to
administer the reinsurance program. Therefore, we provide guidance on
three restrictions that we intend to propose on the use of reinsurance
contributions for administrative expenses, to permit States that
participate in the reinsurance program to accurately estimate the cost
of administrative expenses. While we will provide details of those
standards in future regulation and guidance, along with similar
standards for Exchanges, the risk adjustment program, and other
Affordable Care Act programs, we provide below an overview of our
intentions.
First, we intend to apply the prohibition described in section
1311(d)(5)(B) of the Affordable Care Act
[[Page 73159]]
to the reinsurance program so that reinsurance funds intended for
administrative expenses cannot be used for staff retreats, promotional
giveaways, excessive executive compensation, or promotion of Federal or
State legislative or regulatory modifications. Second, we intend to
propose that reinsurance funds intended for administrative expenses may
not be used for any expense not necessary to the operation and
administration of the reinsurance program. Third, we intend to propose
that an applicable reinsurance entity must allocate any shared,
indirect, or overhead costs between reinsurance-related and other State
expenses based on generally accepted accounting principles,
consistently applied. An applicable reinsurance entity would be
required to provide HHS, in a timeframe and manner specified by HHS, a
report setting forth and justifying its allocation of administrative
costs. We welcome comments on these intended proposals.
5. Eligibility for Reinsurance Payments Under Health Insurance Market
Rules
We are proposing to add Sec. 153.234 to clarify that, under either
the reinsurance national payment parameters or the State supplemental
reinsurance payment parameters, if applicable, a reinsurance-eligible
plan's covered claims costs for an enrollee incurred prior to the
application of 2014 market reform rules--Sec. 147.102 (fair health
insurance premiums), Sec. 147.104 (guaranteed availability of
coverage, subject to the student health insurance provisions at Sec.
147.145), Sec. 147.106 (guaranteed renewability of coverage, subject
to the student health insurance provisions at Sec. 147.145), Sec.
156.80 (single risk pool), and Subpart B 156 (essential health benefits
package)--do not count toward either the national or State supplemental
attachment points, reinsurance caps, or coinsurance rates. Unlike plans
subject to the market reform rules under the Affordable Care Act, plans
not subject to these 2014 market reforms rules may use several
mechanisms to avoid claims costs for newly insured, high-cost
individuals by excluding certain conditions (for example, maternity
coverage for women of child-bearing age), by denying coverage to those
with certain high-risk conditions, and by pricing individual premiums
to cover the costs of providing coverage to such individuals. (We note
that student health plan eligibility would be subject to the modified
guaranteed availability and guaranteed issue requirements only, to the
extent that they apply, as set forth in Sec. 147.145, and we would
require that the student health plans only meet those modified
requirements to be eligible for reinsurance payments.) The market
reform rules will be effective for the individual market for policy
years \33\ beginning on or after January 1, 2014, and as a result,
policies that are issued in 2013 will be subject to these rules at the
time of renewal in 2014, and therefore, become eligible for reinsurance
payments at the time of renewal in 2014.
---------------------------------------------------------------------------
\33\ As defined at 45 CFR 144.103, ``policy year means in the
individual health insurance market the 12-month period that is
designated as the policy year in the policy documents of the
individual health insurance coverage. If there is no designation of
a policy year in the policy document (or no such policy document is
available), then the policy year is the deductible or limit year
used under the coverage. If deductibles or other limits are not
imposed on a yearly basis, the policy year is the calendar year.''
---------------------------------------------------------------------------
We believe that providing reinsurance payments only to those
reinsurance-eligible plans that are subject to the 2014 market reform
rules better reflects the reinsurance program's purpose of mitigating
premium adjustments to account for risk from newly insured, high-cost
individuals. We also propose that State-operated reinsurance programs
similarly limit eligibility for reinsurance payments. We recognize that
this policy contrasts with the approach proposed for State-operated
risk adjustment programs, under which HHS is proposing to permit States
to choose to risk adjust plans not subject to the 2014 market reform
rules. Because some States may have enacted State-specific rating and
market reforms that they believe would justify the inclusion of these
plans in risk adjustment before these plans' renewal dates, permitting
State flexibility on the applicability of risk adjustment to plans not
subject to the 2014 market reform rules furthers the goals of the risk
adjustment program. However, we believe that State flexibility for
eligibility for reinsurance payments does not further the goal of the
reinsurance program.
Also, we intend to operate the reinsurance program on a calendar
year basis, which we believe makes the most sense from policy and
administrative perspectives. First, we believe that there is ambiguity
in section 1341 of the Affordable Care Act as to whether the
reinsurance program is to be administered on a plan year or calendar
year basis. Some provisions of section 1341 concerning contributions
from and payments to issuers use the term ``plan year.'' However, other
provisions of section 1341--notably sections 1341(b)(4),
1341(b)(3)(B)(iv) and 1341(c)(1)(A)--contemplate that the transitional
reinsurance program would run with the calendar year. Second, a
calendar year based program would ensure adequate collections in the
early part of the program and to preserve fairness in making
reinsurance payments. Third, implementing the reinsurance program on a
calendar year basis permits the reinsurance program schedule to
coincide with the MLR and the temporary risk corridors program
schedules, both of which operate on a calendar year basis. Finally, we
believe that the purpose of the reinsurance program is to stabilize
premiums beginning in 2014, when the Exchanges begin to operate. We
believe that the statute reflects this intent in section 1341(c)(1)(A)
of the Affordable Care Act, which states that the purpose of an
applicable reinsurance entity is ``to help stabilize premiums for
coverage in the individual market in a State during the first three
years of operation of an Exchange for such markets within the State
when the risk of adverse selection related to new rating rules and
market changes is greatest.''
We welcome comments on this proposal.
6. Reinsurance Payment Parameters
As described in the Premium Stabilization Rule, reinsurance
payments to eligible issuers will be made for a portion of an
enrollee's claims costs paid by the issuer that exceeds an attachment
point, subject to a reinsurance cap. The coinsurance rate, attachment
point, and reinsurance cap are the reinsurance ``payment parameters.''
Section 1341(b)(2)(B) of the Affordable Care Act directs the Secretary,
in establishing standards for the transitional reinsurance program to
include a formula for determining the amount of reinsurance payments to
be made to issuers for high-risk individuals that provides for the
equitable allocation funds. Using the Secretary's authority under this
provision, we propose to amend the policy described in the Premium
Stabilization Rule by establishing uniform, ``national'' reinsurance
payment parameters that will be applicable to the reinsurance program
for each State, whether or not operated by a State. We believe that
using uniform, national payment parameters would result in equitable
access to the reinsurance funds across States, while furthering the
goal of premium stabilization across all States by disbursing
reinsurance contributions where they are most needed.
The primary purpose of the transitional reinsurance program is to
stabilize premiums by setting the reinsurance payment parameters to
achieve the greatest impact on rate
[[Page 73160]]
setting, and therefore, premiums, through reductions in plan risk,
while complementing the current commercial reinsurance market. In
contrast to commercial reinsurance, which is used to protect against
risk, the primary purpose of the reinsurance program is to stabilize
premiums in the individual market from 2014 through 2016. The
reinsurance program is designed to protect against issuers' potential
perceived need to raise premiums due to the implementation of the 2014
market reform rules, specifically guaranteed availability. Even though
HHS expects that any potential new high-cost claims from newly insured
individuals would be balanced out by low-cost claims from many newly
insured individuals who enter the individual market as a result of the
availability of premium tax credits, more affordable coverage, the
minimum coverage provision, and greater transparency and competition in
the market, the reinsurance program is designed to alleviate the
concern of new high-cost claims from newly insured individuals.
Therefore, we propose that the 2014 national payment parameters be
established at an attachment point of $60,000, when reinsurance
payments would begin, a national reinsurance cap of $250,000, when the
reinsurance program stops paying claims for a high-cost individual, and
a uniform coinsurance rate of 80 percent, meant to reimburse a
proportion of claims between the attachment point and reinsurance cap
while giving issuers an incentive to contain costs. These three
proposed payment parameters would help offset high-cost enrollees,
without interfering with traditional commercial reinsurance, which
typically has attachment points in the $250,000 range. We estimate that
these national payment parameters will result in total requests for
reinsurance payments of approximately $10 billion. With the coinsurance
rate, reinsurance cap, and attachment point fixed uniformly across all
States, we believe that the reinsurance program would have the greatest
equitable impact on premiums across all States. We believe that these
proposed national payment parameters best address the reinsurance
program's goals to promote national premium stabilization and market
stability while providing plans incentives to continue effective
management of enrollee costs. We intend to continue to monitor
individual market enrollment and claims patterns to appropriately
disburse reinsurance payments throughout each of the benefit years.
To assist with the development of the payment parameters, HHS
developed a model that estimates market enrollment incorporating the
effects of State and Federal policy choices and accounting for the
behavior of individuals and employers, the Affordable Care Act Health
Insurance Model (ACAHIM). The outputs of the ACAHIM, especially the
estimated enrollment and expenditure distributions, were used to
analyze a number of policy choices relating to benefit and payment
parameters, including the national reinsurance contribution rate and
national reinsurance payment parameters.
The ACAHIM generates a range of national and State-level outputs
for 2014, including the level and composition of enrollment across
markets given the eligible population in a State. The ACAHIM is
described below in two sections: (1) The approach for estimating 2014
enrollment and (2) the approach for estimating 2014 expenditures.
Because enrollment projections are key to estimating the reinsurance
payment parameters for the reinsurance program, HHS paid much attention
to the underlying data sources and assumptions for the ACAHIM. The
ACAHIM uses recent Current Population Survey (CPS) data adjusted for
small populations at the State level, exclusion of undocumented
immigrants, and population growth to 2014, to assign individuals to the
various coverage markets.
More specifically, the ACAHIM assigns each individual to a single
health insurance market as their baseline (pre-Affordable Care Act)
insurance status. In addition to assuming that individuals currently in
Medicare, TRICARE, or Medicaid will remain in such coverage, the ACAHIM
takes into account the probability that a firm will offer employment-
based coverage based on the CPS distribution of coverage offers for
firms of a similar size and industry. Generally, to determine the
predicted insurance enrollment status for an individual or family (the
``health insurance unit'' or ``HIU'') in 2014, the ACAHIM calculates
the probability that the firm will offer insurance, then models
Medicaid eligibility, and finally models eligibility for advance
payments of the premium tax credit and cost-sharing reductions under
the Exchange. Whenever a transition to another coverage market is
possible, the ACAHIM takes into account the costs and benefits of the
decision for the HIU and assigns a higher probability of transition to
those with the greatest benefit. The ACAHIM also assumes that uninsured
individuals will take up individual market coverage as informed by
current take-up rates of insurance across States, varying by
demographics and incomes and adjusting for post Affordable Care Act
provisions, such as advance payments of the premium tax credit and
cost-sharing reductions.
Estimated expenditure distributions from the ACAHIM are used to set
the uniform, national reinsurance payment parameters so that estimated
contributions align with estimated payments for eligible enrollees. The
ACAHIM uses the Health Intelligence Company, LLC (HIC) database from
calendar year 2010, with the claims data trended to 2014 to estimate
total medical expenditures per enrollee by age, gender, and area of
residence. The expenditure distributions are further adjusted to take
into account plan benefit design, or, ``metal'' level (that is, ``level
of coverage,'' as defined in 156.20) of individual insurance coverage
in an Exchange. To describe a State's coverage market, the ACAHIM
computes the pattern of enrollment using the model's predicted number
and composition of participants in a coverage market. These estimated
expenditure distributions were the basis for the national reinsurance
payment parameters.
7. Uniform Adjustment to Reinsurance Payments
We propose to amend Sec. 153.230 by specifying in subparagraph (d)
that HHS will adjust reinsurance payments by a uniform, pro rata
adjustment rate in the event that HHS determines that the amount of
total requests for reinsurance payments under the national reinsurance
payment parameters will exceed the amount of reinsurance contributions
collected under the national contribution rate during a given benefit
year. The total amount of contributions considered for this purpose
would include any contributions collected but unused under the national
contribution rate during any previous benefit year.
For example, in 2014, if total requests for reinsurance payments
under the national reinsurance payment parameters are $10.1 billion and
only $10 billion is collected for reinsurance payments under the
national contribution rate, then all requests for reinsurance payments
would be reduced by approximately 1 percent. However, if HHS determines
that the total reinsurance contributions collected under the national
contribution rate for the applicable benefit year are equal to or more
than the total requests for reinsurance payments calculated using the
national reinsurance payment
[[Page 73161]]
parameters, then no such adjustment will be applied, and all requests
for reinsurance payments will be paid in full under the national
payment parameters. Any unused reinsurance funds would be used for the
next benefit year's reinsurance payments. This uniform pro rata
adjustment would ensure that claims are paid at the same rate out of
the national reinsurance fund, and promote equitable access to the
national reinsurance fund across all States while furthering the goal
of premium stabilization under the Affordable Care Act. We invite
comment on this policy.
8. Supplemental State Reinsurance Parameters
While we propose uniform, national payment parameters applicable to
all States as discussed above, we are also proposing to add Sec.
153.232(a), which specifies the manner in which States may modify the
national reinsurance payment parameters established in the HHS notice
of benefit and payment parameters. Specifically, we propose that a
State that establishes its own reinsurance program may only modify the
national reinsurance payment parameters by establishing State
supplemental payment parameters that cover an issuer's claims costs
beyond the national reinsurance payments parameters. Furthermore,
reinsurance payments under these State supplemental payments parameters
may only be made with additional funds the State collects for
reinsurance payments under Sec. 153.220(d)(1)(ii) or State funds
applied to the reinsurance program under Sec. 153.220(d)(3). We
believe that this approach would not prohibit States from collecting
additional amounts for reinsurance payments, as provided for under
section 1341(b)(3)(B) of the Affordable Care Act, while allowing
nationwide access to the reinsurance payments from the contributions
collected under the national reinsurance contribution rate.
We propose in Sec. 153.232(a) that a State may set State
supplemental reinsurance payments parameters by adjusting the national
reinsurance payment parameters in one or more of the following ways:
(1) Decreasing the national attachment point; (2) increasing the
national reinsurance cap; or (3) increasing the national coinsurance
rate. In other words, a State may not alter the national reinsurance
payment parameters in a manner that could result in reduced reinsurance
payments. We seek comment on this approach, including whether there
should be any limitations as to how a State may supplement the national
reinsurance payment parameters.
To provide issuers with greater certainty for premium rate setting
purposes, we propose that a State ensure that any additional funds for
reinsurance payments it collects under Sec. 153.220(d)(1)(ii) or State
funds under Sec. 153.220(d)(3) as applicable are reasonably calculated
to cover additional reinsurance payments that are projected to be made
under the State's supplemental reinsurance payment parameters for a
given benefit year. We believe that the State must also ensure that
such parameters are applied to all reinsurance-eligible plans in that
State in the same manner. We further propose in Sec. 153.232(b) that
contributions collected under Sec. 153.220(d)(1)(ii) or additional
funds collected under Sec. 153.220(d)(3), as applicable, must be
applied toward requests for reinsurance payments made under the State
supplemental reinsurance payments parameters for each benefit year
commencing in 2014 and ending in 2016.
We also propose in Sec. 153.232(c) that, as applicable, a health
insurance issuer of a non-grandfathered individual market plan becomes
eligible for reinsurance payments under a State's supplemental
reinsurance parameters, if its incurred claims costs for an individual
enrollee's covered benefits during a benefit year: (1) Exceed the
supplemental State attachment point; (2) exceed the national
reinsurance cap; or (3) exceed the national attachment point, if the
State has established a State supplemental coinsurance rate. This would
allow reinsurance payments made under the State supplemental payment
parameters to ``wrap around'' the national reinsurance payment
parameters so that the State could apply any additional contributions
it collects under proposed Sec. 153.220(d) towards reinsurance
payments beyond the national reinsurance payment parameters. In this
way, HHS can distribute funds under the national payments formula to
where they are needed most, while allowing States that elect to run
their own program the flexibility to supplement nationally calculated
reinsurance payments. As mentioned previously, States would be required
to separate in its reporting to issuers the reinsurance payments paid
under the national reinsurance payment parameters and State
supplemental reinsurance payment parameters.
To ensure that reinsurance payments under State supplemental
payment parameters do not overlap with the national reinsurance payment
parameters, we propose the method for calculating State supplemental
reinsurance payments. Specifically, we propose in Sec. 153.232(d) that
supplemental reinsurance payments with respect to a health insurance
issuer's claims costs for an individual enrollee's covered benefits
must be calculated by taking the sum of: (1) The product of such claims
costs between the supplemental State attachment point and the national
attachment point multiplied by the national coinsurance rate (or
applicable State supplemental coinsurance rate); (2) the product of
such claims costs between the national reinsurance cap and the
supplemental State reinsurance cap multiplied by the national
coinsurance rate (or applicable State supplemental coinsurance rate);
and (3) the product of such claims costs between the national
attachment point and the national reinsurance cap multiplied by the
difference between the State supplemental coinsurance rate and the
national coinsurance rate.
For example, in 2014 a State may elect to establish supplemental
State reinsurance payment parameters that modify all three national
reinsurance payment parameters, by establishing a State supplemental
attachment point of $50,000, a State supplemental coinsurance rate of
100 percent, and a State supplemental reinsurance cap of $300,000.
Under these supplemental State reinsurance payment parameters, the
State must use its additional contributions to pay up to $98,000 of the
issuer costs under $300,000 or the sum of: $10,000 (100 percent of an
issuer's costs between the State's 2014 supplemental attachment point
of $50,000 and the 2014 national attachment point $60,000); and $50,000
(100 percent of an issuer's costs between the 2014 national reinsurance
cap of $250,000 and the 2014 State supplemental reinsurance cap
$300,000); and $38,000 (the product of an issuer's costs between
$60,000 and $250,000 multiplied by the difference between the State's
supplemental coinsurance rate (100 percent) and the national
coinsurance rate (80 percent). Contributions collected under the
national contribution rate would be applied to an issuer's claims costs
above the 2014 national attachment point, subject to the national
coinsurance rate and national reinsurance cap.
Alternatively, a second State may elect to establish a State
supplemental attachment point of $40,000 in 2014, but elect not to
establish a supplemental State coinsurance rate or reinsurance cap.
That State would then use any additional contributions it collects to
cover up to $16,000 or 80 percent (the 2014 national coinsurance rate)
of an
[[Page 73162]]
issuer's claims costs between $40,000 (the 2014 supplemental State
attachment point) and $60,000 (the 2014 national attachment point). As
in the first example, contributions collected under the national
contribution rate would be applied to an issuer's claims costs above
the 2014 national attachment point, subject to the national coinsurance
rate and national reinsurance cap.
Similar to payment calculations under the national reinsurance
payments parameters, we propose in Sec. 153.232(e) that if all
requested reinsurance payments under the State supplemental reinsurance
parameters calculated in a State for a benefit year will exceed all the
additional funds a State collects for reinsurance payments under Sec.
153.220(d)(1)(ii) or State funds under Sec. 153.220(d)(3) as
applicable, the State must determine a uniform pro rata adjustment to
be applied to all such requests for reinsurance payments in the State.
Each applicable reinsurance entity in the State must reduce all such
requests for reinsurance payments under the State supplemental
reinsurance payment parameters for the applicable benefit year by that
adjustment.
Finally, in Sec. 153.232(f), we propose that a State must ensure
that reinsurance payments made to issuers under the State supplemental
reinsurance payment parameters do not exceed the issuer's total paid
amount for the reinsurance-eligible claim(s) and any remaining
additional funds collected under Sec. 153.220(d)(1)(ii) must be used
for reinsurance payments under the State supplemental parameters in
subsequent benefit years. We seek comment on this proposal, including
other areas of flexibility that could be provided to State-operated
reinsurance programs.
9. Allocation and Distribution of Reinsurance Contributions
Section 153.220(d) of the Premium Stabilization Rule currently
provides that HHS would distribute reinsurance contributions collected
for reinsurance payments from a State to the applicable reinsurance
entity for that State. We propose to replace this section with proposed
Sec. 153.235(a), which provides that HHS will allocate and distribute
the reinsurance contributions collected under the national contribution
rate based on the need for reinsurance payments, regardless of where
the contribution was collected. As previously stated in this proposed
rule, HHS will disburse all contributions collected under the national
contribution rate from all States for the applicable benefit year,
based on all available contributions and the aggregate requests for
reinsurance payments, net of the pro rata adjustment, if any. We
believe that this method of disbursing reinsurance contributions will
allow the transitional reinsurance program to equitably stabilize
premiums across the nation, and permit HHS to direct reinsurance funds
based on the need for reinsurance payments. Consistent with this
proposal, we propose to amend Sec. 153.220(a) to clarify that even if
a State establishes a reinsurance program, HHS would directly collect
from health insurance issuers, as well as self-insured group health
plans, the reinsurance contributions for enrollees who reside in that
State.
10. Reinsurance Data Collection Standards
a. Data Collection Standards for Reinsurance Payments
Section 153.240(a) directs a State's applicable reinsurance entity
to collect data needed to determine reinsurance payments as described
in Sec. 153.230. We propose to amend Sec. 153.240(a) by adding
subparagraph (1) to direct a State to ensure that its applicable
reinsurance entity either collect or be provided access to the data
necessary to determine reinsurance payments from an issuer of a
reinsurance-eligible plan. We note that this data would include data
related to cost-sharing reductions because reinsurance payments are not
based on a plan's paid claims amounts that are reimbursed by cost-
sharing reduction amounts. The applicable reinsurance entity,
therefore, must reduce a plan's paid claims amount considered for
reinsurance payments attributable to cost-sharing reductions. When HHS
operates a reinsurance program on behalf of a State, HHS would utilize
the same distributed data collection approach that we propose to use
for risk adjustment, as described in section III.G. of this proposed
rule. This proposed amendment would clarify that an applicable
reinsurance entity may either use a distributed data collection
approach for its reinsurance program or directly collect privacy-
protected data from issuers to determine an issuer's reinsurance
payments. The distributed data collection approach would not involve
the direct collection of data; instead, HHS or the State would access
data on plans' secure servers.
We also propose to amend Sec. 153.240(a) by adding subparagraph
(3), directing States to provide a process through which an issuer of a
reinsurance-eligible plan that does not generate individual enrollee
claims in the normal course of business (such as a capitated plan) may
request reinsurance payments (or submit data to be considered for
reinsurance payments) based on estimated costs of encounters for the
plan in accordance with the requirements of Sec. 153.410. We propose
to direct States to ensure that such requests (or a subset of such
requests) are subject to (to the extent required by the State) a data
validation program. A State would have the flexibility to design a data
validation program that meets its adopted methodology and State-
specific circumstances. This proposed amendment would enable certain
reinsurance-eligible plans, such as staff-model health maintenance
organizations, that do not generate claims with associated costs in the
normal course of business to provide data to request and receive
reinsurance payments.
When HHS operates a reinsurance program on behalf of a State,
issuers of capitated plans would generate claims for encounters, and
derive costs for those claims when submitting requests for reinsurance
payments (or submitting data to be considered for reinsurance
payments). It is our understanding that many capitated plans currently
use some form of encounter data pricing methodology to derive claims,
often by imputing an amount based upon the Medicare fee-for-service
equivalent price or the usual, customary, and reasonable equivalent
that would have been paid for the service in the applicable market. A
capitated plan should use its principal internal methodology for
pricing encounters, such as the methodology in use for other State or
Federal programs (for example, a methodology used for the Medicare
Advantage market). If a plan has no such methodology, or has an
incomplete methodology, it would be permitted to implement a
methodology or supplement the methodology in a manner that yields
derived claims that are reasonable in light of the specific market that
the plan is serving. Capitated plans, like all plans that submit
reinsurance payment requests (or data to be considered for reinsurance
payments) in the HHS-operated program, will be subject to validation
and audit. Because capitated plans already use pricing methodologies,
we believe this proposed policy would permit capitated plans to
participate in the reinsurance program with a minimal increase in
administrative burden. We welcome comments on this approach.
[[Page 73163]]
b. Notification of Reinsurance Payments
We propose to add Sec. 153.240(b)(1) which directs a State, or HHS
on behalf of the State, to notify issuers of the total amount of
reinsurance payments that will be made no later than June 30 of the
year following the benefit year. This corresponds with the date on
which a State or HHS must notify issuers of risk adjustment payments
and charges. As such, by June 30 of the year following the applicable
benefit year, issuers will be notified of reinsurance payments and risk
adjustment payments and charges, allowing issuers to account for their
total reinsurance payments and risk adjustment payments and charges
when submitting data for the risk corridors and MLR programs. To
provide issuers in the individual market with information to assist in
development of premiums and rates in subsequent benefit years, we also
propose in new Sec. 153.240(b)(2) that a State provide quarterly
notifications of estimates to each reinsurance-eligible plan of the
expected requests for reinsurance payments for each quarter. HHS
intends to collaborate with issuers and States to develop these early
notifications. We welcome comments on this proposal.
c. Privacy and Security Standards
We propose to amend Sec. 153.240 by adding paragraph (d)(1), to
require a State operating its own reinsurance program to ensure that
the applicable reinsurance entity's collection of personally
identifiable information is limited to information reasonably necessary
for use in the calculation of reinsurance payments and that use and
disclosure of personally identifiable information is limited to those
purposes for which the personally identifiable information was
collected (including for purposes of data validation). This proposal
aligns with corresponding language for the risk adjustment program. The
term ``personally identifiable information'' is a broadly used term
across Federal agencies, and has been defined in the Office of
Management and Budget Memorandum M-07-16 (May 22, 2007).\34\ To reduce
duplicative guidance or potentially conflicting regulatory language, we
are not defining personally identifiable information in this proposed
rule, and incorporate the aforementioned definition in to this proposed
rule.
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\34\ Available at: http://www.whitehouse.gov/sites/default/files/omb/memoranda/fy2007/m07-16.pdf.
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We also propose to amend Sec. 153.240 by adding paragraph (d)(2)
to require that an applicable reinsurance entity implement specific
privacy and security standards to ensure enrollee privacy, and to
protect sensitive information. Specifically, this provision would
require an applicable reinsurance entity to provide administrative,
physical, and technical safeguards for personally identifiable
information that may be used to request reinsurance payments. This
provision is meant to ensure that an applicable reinsurance entity
complies with the same privacy and security standards that apply to
issuers and providers, specifically the security standards described at
Sec. 164.308, Sec. 164.310, and Sec. 164.312.
d. Data Collection
We propose to add new Sec. 153.420(a) to address data collection
issues, including the distributed data collection approach that HHS
intends to use when operating the reinsurance program on behalf of a
State. We propose that issuers of plans eligible for and seeking
reinsurance payments submit or make accessible data (including data on
cost-sharing reductions to permit the calculation of enrollees' claims
costs incurred by the issuer), in accordance with the reinsurance data
collection approach established by the State, or HHS on behalf of the
State.
In Sec. 153.420(b), we propose that an issuer of a reinsurance-
eligible plan submit data to be considered for reinsurance payments for
the applicable benefit year by April 30 of the year following the end
of the applicable benefit year. The April 30 deadline would apply to
all issuers of reinsurance-eligible plans, regardless of whether HHS or
the State is operating reinsurance. We welcome comments on this
proposal.
D. Provisions for the Temporary Risk Corridors Program
1. Definitions
In the Premium Stabilization Rule, we stated in response to
comments that we intended to propose that taxes and profits be
accounted for in the risk corridors calculation, in a manner consistent
with the MLR program. We, therefore, propose the following amendments
and additions to the definitions in this section.
We propose to amend Sec. 153.500 by defining ``taxes'' with
respect to a QHP as Federal and State licensing and regulatory fees
paid with respect to the QHP as described in Sec. 158.161(a), and
Federal and State taxes and assessments paid for the QHP as described
in Sec. 158.162(a)(1) and Sec. 158.162(b)(1). This definition aligns
with the fees and taxes deductible from premiums in the MLR
calculation. We use this definition to define ``after tax premiums
earned'' which we propose to mean, with respect to a QHP, premiums
earned minus taxes.
We propose to revise the definition of ``administrative costs'' in
Sec. 153.500 to mean, with respect to a QHP, the total non-claims
costs incurred by the QHP issuer for the QHP, including taxes. We note
that under this broader definition, administrative costs may also
include fees and assessments other than ``taxes,'' as defined above.
Using the definitions above, we propose to amend Sec. 153.500 by
defining ``profits'' with respect to a QHP to mean the greater of: (1)
3 percent of after-tax premiums earned; and (2) premiums earned by the
QHP minus the sum of allowable costs and administrative costs of the
QHP. Thus, we propose to define profits for a QHP through the use of
the risk corridors equation; however, we provide for a minimum 3
percent profit margin so that the risk corridors program will protect a
reasonable profit margin (subject to the 20 percent cap on allowable
administrative costs as described below). We believe that permitting
issuers of QHPs to retain a reasonable profit margin will afford them
greater assurance of achieving reasonable financial results given the
expected changes in the market in 2014 through 2016, and will encourage
the issuers to reduce the risk premium built into their rates. Long-
term industry trends suggest an average industry underwriting margin of
approximately 2 percent.\35\ However, our understanding is that the 2
percent margin includes many plans with significant, unexpected
underwriting losses, and includes lines of business that typically have
lower underwriting margins than those customarily earned in the
individual and small group markets. MLR data from 2011 on 30 large
issuers suggest an average underwriting margin of approximately 3
percent, once individual issuer negative results are removed. We
believe that a calculation with significant negative margins removed
better reflects reasonable issuer projections of underwriting profit.
We welcome comments on the estimates, data sources, and appropriate
profit margin to use in the risk corridor calculation.
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\35\ Borsch, Matthew, CFA, and Wass, Sam, Equity Research
Report, Americas: Managed Care, Decline in Blue Cross Margins Shows
the Industry-Wide Downturn, Goldman Sachs Group, Inc. (August 28,
2012).
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Finally, using the definition of profits discussed above, we
propose to revise the definition of ``allowable administrative costs''
in Sec. 153.500 so that it means, with respect to a QHP, the sum of
administrative costs, other than
[[Page 73164]]
taxes, and profits earned, which sum is limited to 20 percent of after-
tax premiums earned (including any premium tax credit under any
governmental program), plus taxes. This definition reflects the
inclusion of profits and taxes discussed above, and clarifies that the
20 percent cap on allowable administrative costs applies to taxes,
other than taxes deductible from premium revenue under the MLR rules, a
result that is consistent with the way these taxes are accounted for by
the MLR rules.
The following example illustrates the operation of the risk
corridors calculation as proposed in this proposed rule:
Premiums earned: Assume a QHP with premiums earned of
$200.
Allowable costs: Assume allowable costs of $140, including
expenses for health care quality and health information technology, and
other applicable adjustments. Risk adjustment and reinsurance payments
are after-the-fact adjustments to allowable costs for purposes of
determining risk corridors amounts, and allowable costs must be reduced
by the amount of any cost-sharing reductions received from HHS.
Non-Claims Costs: Assume that the QHP has non-claims costs
of $50, of which $15 are properly allocable to licensing and regulatory
fees and taxes and assessments described in Sec. 158.161(a), Sec.
158.162(a)(1), and Sec. 158.162(b)(1) (that is, ``taxes'').
The following calculations result:
Taxes: Under the proposed definition of taxes, the QHP's
taxes will be $15.
Administrative costs are proposed to be defined as non-
claims costs. In this case, those costs would be $50. Administrative
costs other than taxes would be $35.
After-tax premiums earned are proposed to be defined as
premiums earned minus taxes, or in this case $200 - $15 = $185.
Profits are proposed to be defined as the greater of: 3
percent of premiums earned, or 3 percent * $200 = $6; and premiums
earned by the QHP minus the sum of allowable costs and administrative
costs, or $200--($140 + $50) = $200 - $190 = $10. Therefore, profits
for the QHP would be $10, which is greater than $6.
Allowable administrative costs are proposed to be defined
as the sum of administrative costs, other than taxes, plus profits
earned by the QHP, which sum is limited to 20 percent of after-tax
premiums earned by the QHP (including any premium tax credit under any
governmental program), plus taxes.
= ($35 + $10), limited to 20 percent of $185, plus $15
= $45, limited to $37, plus $15
= $37, plus $15
= $52.
The target amount is defined as premiums earned reduced by
allowable administrative costs, or $200 - $52 = $148.
The risk corridors ratio is the ratio of allowable costs
to target amount, or the ratio of $140 to $148, or approximately 94.6
percent (rounded to the nearest one-tenth of one percent), meaning that
the QHP issuer would be required to remit to HHS 50 percent of
approximately (97 percent - 94.6 percent) = 50 percent of 2.4 percent,
or approximately 1.2 percent of the target amount, or approximately
0.012 * $148, or approximately $1.78.
We propose these amendments to account for taxes and profits in a
manner broadly consistent with the MLR calculation. As described in the
Premium Stabilization Rule, we seek alignment between the MLR and risk
corridors program when practicable so that similar concepts in the two
programs are handled in a similar manner, and similar policy goals are
reflected. Otherwise, there would be the potential for the Federal
government to subsidize MLR rebate payments, or for an issuer to make
risk corridors payments even though no MLR rebates would have been
required.
We welcome comments on these proposals.
2. Risk Corridors Establishment and Payment Methodology
We propose to add paragraph (d) to Sec. 153.510, which would
specify the due date for QHP issuers to remit risk corridors charges to
HHS. Under this provision, an issuer would be required to remit charges
within 30 days after notification of the charges.
We propose a schedule for the risk corridors program, as follows.
By June 30 of the year following an applicable benefit year, under the
redesignated Sec. 153.310(e), issuers of QHPs will have been notified
of risk adjustment payments and charges for the applicable benefit
year. By that same date, under proposed Sec. 153.240(b)(1), QHP
issuers also would have been notified of all reinsurance payments to be
made for the applicable benefit year. As such, we propose in Sec.
153.530(d) that the due date for QHP issuers to submit all information
required under Sec. 153.530 of the Premium Stabilization Rule is July
31 of the year following the applicable benefit year. We note that in
section III.I. of this proposed rule, we are proposing that the MLR
reporting deadline be revised to align with this schedule.
We welcome comments on these proposals.
3. Risk Corridors Data Requirements
In Sec. 153.530 of the Premium Stabilization Rule, we stated that
to support the risk corridors program calculations, a QHP must submit
data related to actual premium amounts collected, including premium
amounts paid by parties other than the enrollee in a QHP, specifically
advance premium tax credits. We further specified that risk adjustment
and reinsurance payments be regarded as after-the-fact adjustments to
allowable costs for purposes of determining risk corridors amounts, and
allowable costs be reduced by the amount of any cost-sharing reductions
received from HHS. For example, if a QHP incurred $200 in allowable
costs for a benefit year, but received a risk adjustment payment of
$25, made reinsurance contributions of $10, received reinsurance
payments of $35, and received cost-sharing reduction payments of $15,
its allowable costs would be $135 ($200 allowable costs - $25 risk
adjustment payments received + $10 reinsurance contributions made - $35
reinsurance payments received - $15 cost-sharing reduction payments).
As noted in section III.E. of this proposed rule, we are proposing
an approach to reimbursement of cost-sharing reductions that would add
an additional reimbursement requirement for cost-sharing reductions by
providers with whom the issuer has a fee-for-service compensation
arrangement. As described in section III.E., we propose that issuers be
reimbursed for, in the case of a benefit for which the issuer
compensates the provider in whole or in part on a fee-for-service
basis, the actual amount of cost-sharing reductions provided to the
enrollee for the benefit and reimbursed to the provider by the issuer.
However, cost-sharing reductions on benefits rendered by providers for
which the issuer provides compensation other than on a fee-for-service
arrangement (such as a capitated system) would not be held to this
standard.
It is our understanding that, in most fee-for-service arrangements,
cost-sharing reductions will be passed through to the fee-for-service
provider, and as such a QHP's allowable costs should not include either
enrollee cost sharing or cost-sharing reductions reimbursed by HHS.
However, in contrast in capitated arrangements, cost-sharing reduction
payments should be accounted for as a deduction from
[[Page 73165]]
allowable costs because we assume in a competitive market that
capitation payments (which are reflected directly in an issuer's
allowable costs) will be raised to account for the reductions in
providers' cost-sharing income, and that the issuer will retain the
cost-sharing reduction payments.
Therefore, we are proposing to amend Sec. 153.530(b)(2)(iii) so
that allowable costs are reduced by any cost-sharing reduction payments
received by the issuer for the QHP to the extent not reimbursed to the
provider furnishing the item or service.
4. Manner of Risk Corridor Data Collection
We also propose to amend Sec. 153.530(a), (b), and (c) to specify
that we will address the manner of submitting required risk corridors
data in future guidance rather than in this HHS notice of benefit and
payment parameters.
E. Provisions for the Advance Payments of the Premium Tax Credit and
Cost-Sharing Reduction Programs
1. Exchange Responsibilities With Respect to Advance Payments of the
Premium Tax Credit and Cost-Sharing Reductions
a. Special Rule for Family Policies
We propose to amend Sec. 155.305(g)(3), currently entitled
``special rule for multiple tax households.'' Currently, this provision
sets forth a rule for determining the cost-sharing reductions
applicable to individuals who are, or who are expected to be, in
different tax households but who enroll in the same QHP policy. This
provision includes a hierarchy of cost-sharing eligibility categories.
Our proposed amendment would rename this paragraph ``special rule for
family policies,'' add a category for qualified individuals who are not
eligible for any cost-sharing reductions, and add text to explicitly
address situations in which Indians (as defined in Sec. 155.300(a))
and non-Indians enroll in a family policy. The proposed amendment would
extend the current policy with respect to tax households such that
individuals on a family policy would be eligible to be assigned to the
most generous plan variation for which all members of the family are
eligible. We note that nothing in this provision precludes qualified
individuals with different levels of eligibility for cost-sharing
reductions from purchasing separate policies to secure the highest
cost-sharing reductions for which they are respectively eligible. We
expect that Exchanges will assist consumers in understanding the
relative costs and benefits of enrolling in a family policy versus
several individual policies.
The following example demonstrates the applicability of this
provision:
Example: A and B are parent and child who live together,
but are each in separate tax households. A and B purchase a silver
level QHP family policy in the individual market on an Exchange. A has
a household income of 245 percent of the FPL, while B has a household
income of 180 percent of the FPL. Individually, A would be eligible for
enrollment in the 73 percent AV silver plan variation (that is, with
higher cost-sharing requirements), and B in the 87 percent AV silver
plan variation (that is, with lower cost-sharing requirements). Under
the proposed provision, A and B would collectively qualify for the 73
percent AV silver plan variation, but not the 87 percent AV silver plan
variation.
HHS recognizes that this policy may limit the cost-sharing
reductions that members of a family could receive if the family chooses
to enroll in a family policy; however, section 1402 of the Affordable
Care Act does not permit an individual to receive benefits under the
Federal cost-sharing reductions program for which the individual is
ineligible. In addition, because deductibles and out-of-pocket limits
are calculated at the policy level, as opposed to the individual level,
it would be operationally difficult to establish separate cost-sharing
requirements for different enrollees within the same policy. We discuss
this policy further with regard to Indians in section III.E.4.i. of
this proposed rule. We welcome comments on this proposal and its effect
on families.
b. Recalculation of Advance Payments of the Premium Tax Credit and
Cost-Sharing Reductions
We propose to add paragraph (g) to Sec. 155.330, related to
eligibility redeterminations during a benefit year, to clarify how
changes during a benefit year in a tax filer's situation that are
reported or identified in accordance with Sec. 155.330 affect
eligibility for advance payments of the premium tax credit and cost-
sharing reductions. As discussed in the Exchange Establishment Rule, an
Exchange must redetermine a tax filer's eligibility for advance
payments of the premium tax credit and cost-sharing reductions either
as a result of a self-reported change by an individual under Sec.
155.330(b) or as a result of periodic data matching as described in
Sec. 155.330(d).
As described in 26 CFR 1.36B-4(a)(1), a tax filer whose premium tax
credit for the taxable year exceeds the tax filer's advance payments
may receive the excess as an income tax refund, and a tax filer whose
advance payments for the taxable year exceed the tax filer's premium
tax credit would owe the excess as additional income tax liability,
subject to the limits specified in 26 CFR 1.36B-4(a)(3). Consequently,
it is important when calculating advance payments that the Exchange act
to minimize any projected discrepancies between the advance payments
and the final premium tax credit amount, which would be determined by
the IRS after the close of the tax year. Thus, we propose in Sec.
155.330(g)(1)(i) that when an Exchange is recalculating the amounts of
advance payments of the premium tax credit available due to an
eligibility redetermination made during the benefit year, an Exchange
must account for any advance payments already made on behalf of the tax
filer in the benefit year for which information is available to the
Exchange, such that the recalculated advance payment amount is
projected to result in total advance payments for the benefit year that
correspond to the tax filer's projected premium tax credit for the
benefit year, calculated in accordance with 26 CFR 1.36B-3. We propose
in Sec. 155.330(g)(1)(ii) to specify that the advance payment provided
on the tax filer's behalf must be greater than or equal to zero, and
must comply with 26 CFR 1.36B-3(d), which limits advance payments to
the total premiums for the QHPs (and stand-alone dental plans, if
applicable) selected.
The following example demonstrates the applicability of this
provision:
Tax filer A is determined eligible for enrollment in a QHP
through the Exchange and for advance payments of the premium tax credit
during open enrollment prior to 2014 based on an expected household
income for the year 2014 of $33,510 (300 percent of the FPL). Tax filer
A seeks to purchase coverage in a rating area where the premium for the
second lowest cost silver plan is $300 per month. As such, the maximum
amount of advance payments of the premium tax credit per month would be
calculated as follows: 300 - ((1/12)*(9.5%*33,510)) = $35. During the
month of June, the tax filer reports an expected decrease in annual
household income such that tax filer A's projected household income for
the year 2014 will now be $27,925 (250 percent of the FPL). Thus, the
maximum amount of advance payments of the premium tax credit per month
would be calculated as follows: 300 - ((1/12)*(8.05%*27,925)) = $113.
However, the Exchange's recalculation of advance payments of the
premium tax credit
[[Page 73166]]
must take into account the advance payments already made on behalf of
tax filer A. The Exchange must first multiply $113 by 12 months to
calculate the expected tax credit for the entire year ($1,356),
subtract the amount already paid for the first six months ($210), and
then divide the difference by the number of months remaining in the
year (six), which results in a recalculated maximum advance payment for
the remaining months of $191. In this example, we assume that the
taxpayer has elected to have the maximum advance payment for which he
or she is eligible to be paid to his or her selected QHP issuer.
If a tax filer is determined eligible for advance payments of the
premium tax credit during the benefit year but did not previously
receive advance payments of the premium tax credit, the Exchange would
calculate the advance payments in accordance with the process described
above, without subtracting any previous payments. We reiterate that the
provision of all advance payments of the premium tax credit must be
consistent with section 36B of the Code and its implementing
regulations, including the requirement that premium tax credits (and
advance payments) are available only for ``coverage months'' during
which the individual is eligible and enrolled in a QHP through the
Exchange. We also considered taking a different approach if an
eligibility redetermination during the benefit year results in an
increase in advance payments of the premium tax credit--we considered
proposing that in such a situation, HHS would make retroactive payments
to the QHP issuer for all prior months of the benefit year to reflect
the increased advance payment amount, not to exceed the total premium
for each month. This approach would permit us to pay out more of the
full premium tax credit amount prior to the close of the tax year.
Without retroactive payments, in the case of a redetermination late in
the year, we would have a limited ability to pay out an increase
because of the limitation that the premium tax credit--and thus the
advance payments of the premium tax credit not exceed the total premium
for the month. Following this alternative approach in the case of
increases in advance payments of the premium tax credit during the
benefit year could also help address any outstanding premium amounts
owed by an enrollee to a QHP issuer. We solicit comments regarding
whether we should adopt this approach, and how QHP issuers should be
required to provide the retroactive payments to enrollees.
In Sec. 155.330(g)(2), we propose that, when redetermining
eligibility for cost-sharing reductions during the benefit year, an
Exchange must determine an individual to be eligible for the category
of cost-sharing reductions that corresponds to the individual's
expected annual household income for the benefit year, as determined at
redetermination. Section 1402(f)(3) of the Affordable Care Act provides
that eligibility determinations for cost-sharing reductions are made on
the basis of the expected annual household income for the same taxable
year for which the advance payment determination is made under section
1412(b) of the Affordable Care Act. Therefore, if a mid-year change in
income triggers use of a new annual household income figure for
purposes of determining eligibility for advance payments of the premium
tax credit, eligibility for cost-sharing reductions must also be
redetermined using the new figure. However, unlike the premium tax
credit, cost-sharing reductions are not reconciled at the end of the
year by tax filers. As such, redeterminations of eligibility for cost-
sharing reductions should not take into account the amount of cost-
sharing reductions already provided on an individual's behalf.
The following example demonstrates the applicability of this
provision:
Tax filer B is determined eligible for enrollment in a QHP
through the Exchange and for cost-sharing reductions during open
enrollment prior to 2014 and enrolls in a silver plan QHP. Tax filer B
is assigned to a plan variation in January 2014 based on an expected
annual household income of 150 percent of the FPL. During the month of
June, the tax filer self-reports an increase in expected household
income such that tax filer B's expected annual household income will
now be at 200 percent of the FPL. The Exchange must redetermine the tax
filer's eligibility for cost-sharing reductions for the remainder of
the benefit year following the effective date of redetermination at 200
percent of the FPL, which is the tax filer's expected annual household
income, and the tax filer should then be assigned to the plan variation
designed to provide cost-sharing reductions for individuals with that
expected annual household income.
c. Administration of Advance Payments of the Premium Tax Credit and
Cost-Sharing Reductions
We propose to add two paragraphs to Sec. 155.340. First, we
propose to add paragraph (e) to Sec. 155.340, which would provide that
if one or more individuals in a tax household who are eligible for
advance payments of the premium tax credit(s) collectively enroll in
more than one policy through the Exchange (whether by enrolling in more
than one policy under a QHP, enrolling in more than one QHP, or
enrolling in one or more QHPs and one or more stand-alone dental plans)
for any month in a benefit year, the Exchange must allocate the advance
payment of the premium tax credit(s) in accordance with the methodology
proposed in Sec. 155.340(e)(1) and (2). We note that an Exchange,
under Sec. 155.340(a), must submit to HHS the dollar amount of the
advance payment that will be made to each QHP on behalf of the
enrollee.
We propose the following allocation methodology: as described in
Sec. 155.340(e)(1), the Exchange must first allocate the portion of
the advance payment of the premium tax credit(s) that is less than or
equal to the aggregate adjusted monthly premiums for the QHP policies,
as defined under 26 CFR 1.36B-3(e), properly allocated to EHB, among
the QHP policies in proportion to the respective portions of the
premiums for the policies properly allocated to EHB. As described in
proposed Sec. 155.340(e)(2), any remaining advance payment of the
premium tax credit(s) must be allocated among the stand-alone dental
policies in proportion to the respective portions of the adjusted
monthly premiums for the stand-alone dental policies properly allocated
to the pediatric dental EHB. The portion of the adjusted monthly
premium for a QHP policy or a stand-alone dental policy that is
allocated to EHB would be determined based on the information that the
QHP issuer submits, under the proposed Sec. 156.470, and described in
section III.E.2. of this proposed rule. For example, if a family
collectively eligible for advance payments of the premium tax credit
purchases two QHPs and a stand-alone dental plan, with a $500 adjusted
monthly premium allocated to EHB, a $400 adjusted monthly premium
allocated to EHB, and a $100 adjusted monthly premium allocated to the
pediatric dental essential health benefit, respectively, the Exchange
must allocate five-ninths of the advance payment of the premium tax
credit (up to $500) to the first QHP, and four-ninths (up to $400) to
the second QHP. If there is any remaining advance payment of the
premium tax credit, this will be allocated to the stand-alone dental
plan. This rule ensures a pro rata allocation (by premium) of the
advance payment of the premium tax credit to the QHPs, while ensuring
that the advance
[[Page 73167]]
payment of premium tax credits are only for (and based on) the portion
of premiums for EHB. We welcome comments on this proposal.
Second, we propose to add paragraph (f) to Sec. 155.340, which
sets forth standards for an Exchange when it is facilitating the
collection and payment of premiums to QHP issuers and stand-alone
dental plans on behalf of enrollees, as permitted under Sec.
155.240(c). Consistent with our proposed provision in Sec. 156.460(a),
Sec. 155.340(f)(1) would direct the Exchange to reduce the portion of
the premium for the policy collected from the enrollee by the amount of
the advance payment of the premium tax credit for the applicable
month(s) when the Exchange elects to collect premiums on behalf of
QHPs. Because the Exchange is responsible for premium collections in
these circumstances, the Exchange must also take responsibility for
lowering the premium costs charged to enrollees by the amount of the
credit. Proposed Sec. 155.340(f)(2) would direct Exchanges to display
the amount of the advance payment of the premium tax credit for the
applicable month(s) on an enrollee's billing statement. This is the
Exchange equivalent of the requirement for QHP issuers proposed in
Sec. 156.460(b). Both rules are drafted for the same purpose: To
ensure that an enrollee is aware of the total cost of the premium so
that he or she may verify that the correct advance payment of the
premium tax credit has been applied. We welcome comments on this
proposal.
2. Exchange Functions: Certification of Qualified Health Plans
We propose to add Sec. 155.1030. This section would set forth
standards for Exchanges to ensure that QHPs in the individual market on
the Exchange meet the requirements related to advance payments of the
premium tax credit and cost-sharing reductions, as proposed in Sec.
156.215 and described below. We propose these standards under section
1311(c) of the Affordable Care Act, which provides for the Secretary to
establish criteria for the certification of health plans as QHPs, as
well as section 1321(a)(1), which provides general rulemaking authority
for title I of the Affordable Care, including the establishment of
programs for the provision of advance payments of the premium tax
credit and cost-sharing reductions. We believe that it is appropriate
to incorporate these standards into the QHP certification criteria
because Exchanges are the primary entities that interact with and
oversee QHPs.
In Sec. 155.1030(a)(1), we propose that the Exchange ensure that
each issuer that offers or seeks to offer a QHP in the individual
market on the Exchange submit the required plan variations, as proposed
in Sec. 156.420, for each of its health plans proposed to be offered
in the individual market on the Exchange. Further we propose that the
Exchange must certify that the plan variations meet the requirements
detailed in Sec. 156.420. We expect that an Exchange would collect
prior to each benefit year the information necessary to validate that
the issuer meets the requirements for silver plan variations, as
detailed in Sec. 156.420(a), and collect for certification the
information necessary to validate that the issuer meets the
requirements for zero and limited cost sharing plan variations, as
detailed in Sec. 156.420(b) . We expect that this data collection
would include the cost-sharing requirements for the plan variations,
such as the annual limitation on cost sharing, and any reductions in
deductibles, copayments or coinsurance. In addition, the Exchange would
collect or calculate the actuarial values of each QHP and silver plan
variation, calculated under Sec. 156.135 of the proposed EHB/AV Rule.
We propose in Sec. 155.1030(a)(2) that the Exchange provide the
actuarial values of the QHPs and silver plan variations to HHS. As
described in Sec. 156.430, HHS would use this information to determine
the payments to QHP issuers for the value of the cost-sharing
reductions.
In Sec. 155.1030(b)(1), we propose to require the Exchange to
collect certain information that an issuer must submit under Sec.
156.470 that would allow for the calculation of the advance payments of
cost-sharing reductions and the premium tax credit. Specifically, in
Sec. 156.470(a), we propose that an issuer provide to the Exchange
annually for approval, for each metal level health plan (that is, a
health plan at any of the four levels of coverage, as defined in Sec.
156.20) offered, or proposed to be offered, in the individual market on
the Exchange, an allocation of the rate and the expected allowed claims
costs for the plan, in each case, to: (1) EHB, other than services
described in Sec. 156.280(d)(1),\36\ and (2) any other services or
benefits offered by the health plan not described in clause (1). We
propose this annual submission of the rate allocation information,
under section 36B(b)(3)(D) of the Code, as added by section 1401 of the
Affordable Care Act, to allow for the removal of the cost of
``additional benefits'' from the advance payments of the premium tax
credit. The rate allocation information would allow the Exchange to
calculate the percentage of the rate attributable to EHB; this
percentage could then be multiplied by the adjusted monthly premium, as
defined by 26 CFR 1.36B-3(e), and the monthly premium of the QHP in
which the taxpayer enrolls, to calculate the premium assistance amount.
The allocation of the expected allowed claims costs would be used to
validate the rate allocation, and to calculate the advance payments for
cost-sharing reductions as described in proposed Sec. 156.430 of this
proposed rule.
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\36\ 45 CFR 156.280(e)(1)(i) provides that if a QHP provides
coverage of services described in paragraph (d)(1) of that section,
the QHP issuer must not use Federal funds, including advance
payments of the premium tax credit or cost-sharing reductions, to
pay for the services.
---------------------------------------------------------------------------
In Sec. 156.470(e), we further propose that an issuer of a metal
level health plan offered, or proposed to be offered, in the individual
market on the Exchange also submit to the Exchange annually for
approval, an actuarial memorandum with a detailed description of the
methods and specific bases used to perform the allocations. The
Exchange and HHS would use this memorandum to verify that the
allocations meet the standard, proposed in Sec. 156.470(c). First, the
issuer must ensure that the allocation is performed by a member of the
American Academy of Actuaries in accordance with generally accepted
actuarial principles and methodologies. Second, the rate allocation
should reasonably reflect the allocation of the expected allowed claims
costs attributable to EHB (excluding those services described in Sec.
156.280(d)(1)). Third, the allocation should be consistent with the
allocation of State-required benefits to be submitted by the issuer as
proposed in Sec. 155.170(c) of the proposed EHB/AV Rule, and the
allocation requirements described in Sec. 156.280(e)(4) for certain
services. Fourth, the issuer should calculate the allocation as if it
was a premium under the fair health insurance premium standards
described at Sec. 147.102, the single risk pool standards described at
Sec. 156.80, and the same premium rate standards described at Sec.
156.255. We propose this requirement because we believe the allocation
of rates should be performed consistent with the standards applicable
to the setting of rates. Thus, for example, an issuer should calculate
the allocation of premiums using costs for essential health benefits
across all enrollees in all plans in the relevant risk pool, under
Sec. 156.80, and not across a standardized population or a plan-
specific population. Although the last
[[Page 73168]]
approach might yield a more accurate allocation, it would increase the
analytical burden on issuers, and it would not align with other
reporting requirements, such as for the Effective Rate Review program
(established under section 2794 of the PHS Act), which requires
projections based on the single risk pool standards. We welcome comment
on this proposed standard and alternative approaches.
In Sec. 156.470(b), we propose somewhat similar standards for the
allocation of premiums for stand-alone dental plans. Specifically, we
propose that an issuer provide to the Exchange annually for approval,
for each stand-alone dental plan offered, or proposed to be offered, in
the individual market on the Exchange, a dollar allocation of the
expected premium for the plan, to: (1) the pediatric dental essential
health benefit, and (2) any benefits offered by the stand-alone dental
plan that are not the pediatric essential health benefit. As described
in 26 CFR 1.36B-3(k), this allocation will be used to determine premium
tax credit, and thus the advance payment of the premium tax credit,
available if an individual enrolls in both a QHP and a stand-alone
dental plan. We note that unlike issuers of metal level health plans
offered or proposed to be offered as QHPs, issuers of stand-alone
dental plans would be required to submit a dollar allocation of the
expected premium for the plan (rather than a percentage of the rate,
which would be multiplied by the premium to determine the allocation of
the premium).
We propose this approach because issuers of stand-alone dental
plans are exempt from certain standards in the proposed Market Reform
Rule, including Sec. 147.102 and 156.80 (related to fair health
insurance premiums and the single risk pool), and as a result, are not
required to develop rates under the same limitations that apply to
issuers of QHPs in the individual and small group markets. Implicit in
the allocation methodology required for issuers of QHPs proposed in
Sec. 156.470(a) is a requirement that the premium rating methodology
be set prior to the allocation. We anticipate that issuers of stand-
alone dental plans may take into account additional rating factors, up
to and including medical underwriting, which would make the completion
and submission of final premium rating methodologies to the Exchange
problematic. Our proposal at Sec. 156.470(b) does not require issuers
of stand-alone dental plans to finalize the total premium prior to the
benefit year, but does require issuers to finalize the dollar amount of
the premium allocable to the pediatric dental essential health benefit
to allow for the calculation of advance payments of the premium tax
credit. This approach will ensure that Exchanges have sufficient
information to calculate advance payments of the premium tax credit at
the time an applicant selects coverage.
In proposed Sec. 156.470(e), we also propose that issuers of
stand-alone dental plans submit to the Exchange annually for approval
an actuarial memorandum with a detailed description of the methods and
specific bases used to perform the allocations, demonstrating that the
allocations meet the standards proposed in Sec. 156.470(d). These
standards are similar to those proposed for issuers of metal level
health plans offered or proposed to be offered as QHPs, with some
adaptations specific to stand-alone dental plans. In Sec.
156.470(d)(1) and (2) we propose that the allocation be performed by a
member of the American Academy of Actuaries in accordance with
generally accepted actuarial principles and methodologies, and be
consistent with the allocation applicable to State-required benefits to
be submitted by the issuer under Sec. 155.170(c). In addition, in
Sec. 156.470(d)(3), we propose that the allocation be calculated under
the fair health insurance premium standards described at 45 CFR
147.102, except for the provision related to age set forth at Sec.
147.102(a)(1)(ii); the single risk pool standards described at 45 CFR
156.80; and the same premium rate standards described at 45 CFR 156.255
(in each case subject to the standard proposed in subparagraph (4)
described below). We propose these standards because we believe that
Congress intended that premium tax credits be available based on the
market reforms embodied in the Affordable Care Act. However, in the
place of the fair health insurance premium standards related to age, we
propose in subparagraph (4) that the allocation be calculated so that
the amount of the premium allocated to the pediatric dental essential
health benefit for an individual under the age of 19 years does not
vary, and the amount of the premium allocated to the pediatric dental
essential health benefit for an individual aged 19 years or more is
equal to zero. Thus, for example, an issuer of a stand-alone dental
plan should calculate the dollar allocation for individuals under 19
years of age across all such enrollees in all plans in the relevant
risk pool, under Sec. 156.80. This will ensure that advance payments
of the premium tax credit are applied to policies that include
individuals who may benefit from the pediatric dental essential health
benefit as interpreted in the proposed EHB/AV Rule. We seek comment on
this approach and the proposed allocation standards. We also note that
issuers of stand-alone dental plans are not required to submit an
allocation of their expected allowed claims costs because these plans
are not eligible for cost-sharing reductions, as described in Sec.
156.440(b).
In Sec. 155.1030(b)(1), we propose that the Exchange collect and
review annually the rate or premium allocation, the expected allowed
claims cost allocation, and the actuarial memorandum that an issuer
submits; and ensure that such allocations meet the standards set forth
in Sec. 156.470(c). To ensure that the allocations are completed
appropriately, we expect that the Exchange will review the allocation
information in conjunction with the rate and benefit information that
the issuer submits under Sec. 156.210. To facilitate this review, we
proposed revisions to the reporting requirements for the Effective Rate
Review program in the proposed Market Reform rule to include the rate
allocation and expected allowed claims cost allocation information that
issuers of metal level health plans would submit. Therefore, an
Exchange that coordinates its review of QHP rates and benefits with the
State's Effective Rate Review program would be able to also coordinate
the allocation review, avoiding duplication. This approach should
streamline the submission process for issuers. We note, however, that
it is ultimately the responsibility of the Exchange to ensure that the
issuer performs the allocations appropriately for each health plan or
stand-alone dental plan that the issuer offers, or seeks to offer, on
the individual market in the Exchange, including those that are not
reported as part of the Effective Rate Review program. Therefore, we
expect that Exchanges will collect the allocation information through
the Effective Rate Review program or the QHP certification and annual
submission process, as appropriate.
As discussed above, the rate and premium allocation information
would then be used by the Exchange to calculate the dollar amounts of
the advance payments of the premium tax credit, and the expected
allowed claims cost allocation would be used by HHS to calculate the
advance payments of the cost-sharing reductions, as described in Sec.
156.430. To allow for these calculations, and to ensure that Federal
funds are spent appropriately, we propose under Sec. 155.1030(b)(2)
that the Exchange be required to submit to HHS the approved
allocation(s) and actuarial memorandum for each QHP and stand-
[[Page 73169]]
alone dental plan. We propose to provide further detail on the manner
and timeframe of this submission to HHS in the future; however, we
expect that the Exchange would be required to submit the information
prior to the start of the benefit year. In paragraph (b)(4), we propose
authority for the use of this data by HHS for the approval of the
estimates that issuers submit for advance payments of cost-sharing
reductions described in Sec. 156.430, and for the oversight of the
advance payments of cost-sharing reductions and premium tax credits
programs.
In Sec. 155.1030(b)(3), we propose that the Exchange collect
annually any estimates and supporting documentation that a QHP issuer
submits to receive advance payments for the value of the cost-sharing
reductions under Sec. 156.430(a). The Exchange must then submit the
estimates and supporting documentation to HHS for review and approval.
This collection from issuers should occur as part of the initial QHP
certification process and any annual submission process. We propose to
provide further detail on the manner and timeframe of the submission to
HHS in the future; however, we expect that the Exchange would be
required to submit the information prior to the start of the benefit
year.
3. QHP Minimum Certification Standards Relating to Advance Payments of
the Premium Tax Credit and Cost-Sharing Reductions
Under HHS rulemaking authority under sections 1311(c)(1),
1321(a)(1), 1402 and 1412 of the Affordable Care Act, we propose to add
Sec. 156.215. This section would amend the QHP minimum certification
standards and specify that an issuer seeking to offer a health plan on
the individual market in the Exchange meet the requirements described
in subpart E of part 156 related to the administration of advance
payments of the premium tax credit and cost-sharing reductions. We
propose to add this section to clarify that compliance with part 156
subpart E, including the standards and submission requirements proposed
at Sec. 156.420 and Sec. 156.470, is a requirement of QHP
certification, and therefore, is included in the standard described at
Sec. 155.1000(b), under which an Exchange must offer only health plans
that meet the minimum certification requirements. Under our proposal,
continuing compliance with subpart E requirements by QHPs and QHP
issuers is a condition of certification; failure to comply with the
requirements could result in decertification of the QHP as well as
other enforcement actions. This corresponds to the proposed addition of
Sec. 155.1030, which sets forth the Exchange responsibilities on
certification with respect to advance payments of the premium tax
credit and cost-sharing reductions (described previously).
4. Health Insurance Issuer Responsibilities With Respect to Advance
Payments of the Premium Tax Credit and Cost-Sharing Reductions
a. Definitions
Under Sec. 156.400, we propose definitions for terms that are used
throughout subpart E of part 156. These terms apply only to subpart E.
Some of these definitions cross-reference definitions elsewhere in
parts 155 or 156, including definitions proposed in the proposed EHB/AV
Rule: the terms ``advance payments of the premium tax credit'' and
``Affordable Care Act'' are defined by reference to Sec. 155.20, and
the term ``maximum annual limitation on cost sharing'' is defined as
the highest annual dollar amount that health plans (other than QHPs
with cost-sharing reductions) may require in cost sharing for a
particular year, as established for that year under Sec. 156.130 of
the proposed EHB/AV Rule. The terms ``Federal poverty level or FPL''
and ``Indian'' are defined by reference to Sec. 155.300(a). The term
``de minimis variation'' is defined as the allowable variation in the
AV of a health plan that does not result in a material difference in
the true dollar value of the health plan as established in Sec.
156.140(c)(1) of the proposed EHB/AV Rule. We also propose to define
``stand-alone dental plan'' as a plan offered through an Exchange under
Sec. 155.1065. We seek comment on these definitions.
We propose to rely on the definitions of ``cost sharing'' and
``cost-sharing reductions'' from Sec. 156.20. We note that the
definitions of cost sharing and cost-sharing reductions apply only with
respect to EHB, though without regard to whether the EHB is provided
inside or outside of a QHP's network. We propose to define ``annual
limitation on cost sharing'' to mean the annual dollar limitation on
cost sharing required to be paid by an enrollee that is established by
a particular health plan. However, as proposed in Sec. 156.130(c) of
the proposed EHB/AV Rule, we note again that the annual limitation on
cost sharing would not include cost sharing for benefits provided
outside of a QHP's network. If a State requires a QHP to cover benefits
in addition to EHB, the provisions of this subpart E (except for Sec.
156.420(c) and (d)) relating to cost-sharing reductions do not apply to
those additional State-required benefits. For clarity, we note these
provisions apply to State-required benefits included in EHB under Sec.
156.110(f) of the proposed EHB/AV Rule. Finally, we note that cost-
sharing reductions are subject to Sec. 156.280(e)(1)(ii).
Other definitions are proposed here to effectuate the regulations
proposed in subpart E. This Payment Notice includes five related
definitions: standard plan, silver plan variation, zero cost sharing
plan variation, limited cost sharing plan variation, and plan
variation, as follows:
We propose to define ``standard plan'' as a QHP offered at
one of the four levels of coverage, defined at Sec. 156.140, with an
annual limitation on cost sharing that conforms to the requirements of
Sec. 156.130(a). A standard plan at the bronze, silver, gold, or
platinum level of coverage is referred to as a standard bronze plan, a
standard silver plan, a standard gold plan, and a standard platinum
plan, respectively.
We propose to define ``silver plan variation'' as, with
respect to a standard silver plan, any of the variations of that
standard silver plan described in Sec. 156.420(a).
We propose to define ``zero cost sharing variation'' as,
with respect to a QHP at any level of coverage, the variation of such
QHP described in Sec. 156.420(b)(1), which provides for the
elimination of cost sharing for Indians based on household income
level.
We propose to define ``limited cost sharing variation''
as, with respect to a QHP at any level of coverage, the variation of
such QHP described in Sec. 156.420(b)(2), which provides for the
prohibition on cost sharing applicable to the receipt of benefits from
IHS or certain other providers, irrespective of income level.
We propose to define ``plan variation'' as a zero cost
sharing plan variation, limited cost sharing plan variation, or silver
plan variation. We emphasize that the plan variations of a QHP are not
separate plans, but variations in how the cost sharing required under
the QHP is to be shared between the enrollee(s) and the Federal
government.
We propose these definitions to administer and implement the cost-
sharing reductions established under section 1402 of the Affordable
Care Act. As described in more detail below, although there will only
be one actual QHP (for example, a standard silver plan) with one
standard cost-sharing structure, we use the concept of plan variations
to describe how certain eligible individuals will pay only a
[[Page 73170]]
portion of the total cost sharing required under that QHP, with the
Federal government bearing the remaining cost-sharing obligations under
section 1402 of the Affordable Care Act.
To reflect how the Affordable Care Act creates different
eligibility categories with different associated cost-sharing
reductions, we propose that each plan variation will reflect the
enrollee's portion of the cost sharing requirements for the QHP. We
refer to ``assigning'' enrollees to the applicable plan variation to
describe how the enrollee will receive the benefits described in
section 1402 of the Affordable Care Act. We reiterate that these
variations are not different QHPs and that a change in eligibility for
cost-sharing reductions simply changes the enrollee's responsibility
for part of the total cost sharing under the same QHP. We seek comment
on these definitions.
We propose to define ``de minimis variation for a silver plan
variation'' as a single percentage point. That is, we propose that 1
percentage point variation in the AV of a silver plan variation would
not result in a material difference in the true dollar value of the
silver plan variation. We note that this proposal differs from the 2
percentage point de minimis variation standard for health plans,
proposed in Sec. 156.140(c)(1) of the proposed EHB/AV Rule. We believe
that because cost-sharing reductions are reimbursed by the Federal
government, the degree of flexibility afforded to issuers of silver
plan variations in the cost-sharing design should be somewhat less.
With this standard we seek to balance the need to ensure that
individuals receive the full value of the cost-sharing reductions for
which they are eligible, and issuers' ability to set reasonable cost-
sharing requirements.
We propose to define ``most generous'' or ``more generous'' as,
between a QHP (including a standard silver plan) or plan variation and
one or more other plan variations of the same QHP, the QHP or plan
variation designed for the category of individuals last listed in Sec.
155.305(g)(3). That list, as proposed to be amended under this rule,
first lists the QHP with no cost-sharing reductions, followed by the
limited cost sharing plan variation, the 73 percent, 87 percent, and 94
percent silver plans, and finally, the zero cost sharing plan
variation. We seek comment on this definition.
We propose to define the ``annual limitation on cost sharing'' as
the annual dollar limit on cost sharing required to be paid by an
enrollee that is established by a particular QHP. We note that this
definition refers to the plan-specific cost-sharing parameter, while
the defined term ``maximum annual limitation on cost sharing'' refers
to the uniform maximum that would apply to all QHPs (other than QHPs
with cost-sharing reductions) for a particular year.
Finally, we propose to define the ``reduced maximum annual
limitation on cost sharing'' as the dollar value of the maximum annual
limitation on cost sharing for a silver plan variation that remains
after applying the reduction in the maximum annual limitation on cost
sharing required by section 1402 of the Affordable Care Act, as
announced in the annual HHS notice of benefit and payment parameters.
The reduced maximum annual limitation on cost sharing for each silver
plan variation for 2014 is proposed in the preamble for Sec. 156.420
of this Payment Notice. The reduced maximum annual limitation applies,
as does the maximum annual limitation, only with respect to cost
sharing on EHB, and does not apply to cost sharing on services provided
by out-of-network providers.
b. Cost-Sharing Reductions for Enrollees
In Sec. 156.410(a), we propose that a QHP issuer must ensure that
an individual eligible for cost-sharing reductions, as demonstrated by
assignment to a particular plan variation, pay only the cost sharing
required of an eligible individual for the applicable covered service
under a plan variation. For example, if an individual is assigned to an
87 percent AV silver plan variation, and the copayment for a hospital
emergency room visit is reduced from $100 to $50 under that silver plan
variation, the individual must be charged only the reduced copayment of
$50. We also specify in this paragraph that the enrollee receive this
reduction in cost sharing when the cost sharing is collected, which in
this instance might occur when the enrollee visits the emergency room
for care. This means that a QHP issuer may not create a system in which
an eligible enrollee is required to pay the full cost sharing
requirement and apply for a reimbursement or refund. This proposal
applies to all forms of cost sharing, including copayments,
coinsurance, and deductibles. Similarly, the QHP issuer must ensure
that the enrollee is not charged any type of cost sharing after the
applicable annual limitation on cost sharing has been met. We note,
however, that an individual eligible for cost-sharing reductions would
not be eligible for a reduced copayment or coinsurance rate until any
applicable (potentially reduced) deductible has been paid. For example,
assume that a QHP issuer requires a $750 deductible for individuals
eligible for a 73 percent AV silver plan variation, with reduced cost
sharing occurring after the deductible is met. Further assume that an
individual eligible for cost-sharing reductions has not previously
incurred cost sharing during the benefit year under the QHP and has a
two day hospital stay that costs $500 per day. Under this plan
variation, the individual must pay $500 for the first day and $250 for
the second day to meet the plan's deductible requirements before
receiving the reduced coinsurance or copayment under the 73 percent AV
plan variation. We seek comment on these provisions.
In Sec. 156.410(b), we propose that after a qualified individual
makes a plan selection, a QHP issuer would assign the individual to the
applicable plan variation under the eligibility determination sent to
the QHP issuer by the Exchange. For example, an individual determined
by the Exchange to be eligible for a 94 percent AV silver plan
variation would be provided the option to enroll in any silver health
plan with the appropriate cost-sharing reductions applied (the statute
specifies that cost-sharing reductions are available to non-Indians
only in silver health plans). We note that the QHP issuer is entitled
to rely upon the eligibility determination sent to the QHP issuer by
the Exchange.
In Sec. 156.410(b)(1), we propose that a QHP issuer assign a
qualified individual who chooses to enroll in a silver plan in the
individual market in the Exchange to the silver plan variation for
which the qualified individual is eligible. This proposal is consistent
with section 1312(a)(1) of the Affordable Care Act, which permits the
individual to enroll in the silver health plan. However, section
1312(a)(1) does not address whether the individual could opt out of the
most generous silver plan variation (that is, to refuse the most
generous cost-sharing reductions for which the individual is eligible).
We believe that allowing opting out of the most generous silver plan
variation could cause significant consumer confusion, with no attendant
policy benefit. Furthermore, we note that if a qualified individual
does not want to take advantage of the cost-sharing reductions for
which he or she is eligible, the individual may elect to decline to
apply for cost-sharing reductions when seeking enrollment through the
Exchange. In addition, we note that section 1402(a) states the
requirement on QHP issuers to provide cost-sharing reductions to
eligible individuals once the QHP issuer has
[[Page 73171]]
been notified of the individual's eligibility. We invite comment on
this approach.
Section Sec. 156.410(b)(2) and (3) are discussed below in the
section of this proposed rule related to special cost-sharing reduction
rules for Indians.
In Sec. 156.410(b)(4), we propose that a QHP issuer must assign an
individual determined ineligible by the Exchange for cost-sharing
reductions to the selected QHP with no cost-sharing reductions.
c. Plan Variations
In Sec. 156.420, we propose that issuers submit to the Exchange
for certification and approval the variations of the health plans that
they seek to offer, or continue to offer, in the individual market on
the Exchange as QHPs that include required levels of cost-sharing
reductions. We further clarify that under our proposal, multi-State
plans, as defined in Sec. 155.1000(a), and CO-OP QHPs, as defined in
Sec. 156.505, would be subject to the provisions of this subpart. OPM
will certify the plan variations of the multi-State plans and determine
the time and manner for submission.
Sections 1402(a) through (c) of the Affordable Care Act direct
issuers to reduce cost sharing for EHB for eligible insured enrolled in
a silver health plan with household incomes between 100 and 400 percent
of the FPL, such that the plan's share (before any reimbursement from
HHS for cost-sharing reductions) of the total allowed costs of the
benefits are a certain percentage (that is, the health plan meets a
certain AV level). To achieve these AV levels, the law directs issuers
to first reduce the maximum annual limitation on cost sharing. The
amount of the reduction in the maximum annual limitation on cost
sharing is specified in the statute; however, under section
1402(c)(1)(B)(ii) of the Affordable Care Act, the Secretary may adjust
the reduction to ensure that the resulting limits do not cause the AVs
of the health plans to exceed the specified levels. After the issuer
reduces the annual limitation on cost sharing to comply with the
applicable reduced maximum annual limitation, section 1402(c)(2) of the
Affordable Care Act directs the Secretary to establish procedures under
which an issuer is to further reduce cost sharing if necessary to
achieve the specified AV levels.
Table 14 sets forth the reductions in the maximum annual limitation
on cost sharing (subject to revision by the Secretary) and AV levels
applicable to silver plans for these individuals, under section 1402(c)
of the Affordable Care Act:
Table 14--Statutory Reductions in Maximum Annual Limitation on Cost Sharing
----------------------------------------------------------------------------------------------------------------
Reduction in maximum
annual limitation on AV level (calculated
Household income cost sharing (subject before any
to revision by the reimbursement from HHS)
Secretary) (percent)
----------------------------------------------------------------------------------------------------------------
100-150% of FPL............................................... \2/3\ 94
150-200% of FPL............................................... \2/3\ 87
200-250% of FPL............................................... \1/2\ 73
250-300% of FPL............................................... \1/2\ 70
300-400% of FPL............................................... \1/3\ 70
----------------------------------------------------------------------------------------------------------------
For individuals with household incomes of 250 to 400 percent of the
FPL, we note that without any change in other forms of cost sharing,
any reduction in the maximum annual limitation on cost sharing will
cause an increase in AV. Therefore, a reduction in the maximum annual
limitation on cost sharing for the standard silver plan could require
corresponding increases in other forms of cost sharing to maintain the
required 70 percent AV. For example, if a plan were directed to lower
its annual limitation on cost sharing for individuals with household
income between 250 and 400 percent of the FPL from $6,000 to $5,000,
the issuer might be required to significantly increase plan
deductibles, coinsurance, and co-payments to maintain the required 70
percent AV. We anticipate that most individuals would not expect to
reach the annual limitation on cost sharing, and therefore, would be
required to pay more in up-front costs under such a cost-sharing
structure. Given the effect of the reductions in the maximum annual
limitation on cost sharing outlined above and the additional
administrative burden required in designing and operating additional
silver plan variations, we propose not to reduce the maximum annual
limitation on cost sharing for individuals with household incomes
between 250 and 400 percent of the FPL. We believe that this approach
is within the Secretary's authority under section 1402(c)(1)(B)(ii) of
the Affordable Care Act, and would benefit those individuals who do not
expect to reach the annual limitation on cost sharing, who are likely
to represent the majority of eligible individuals. The majority of
those who commented on this approach in response to the AV/CSR Bulletin
were supportive of this proposed implementation of section 1402(c)(1)
of the Affordable Care Act.
For individuals with a household income of 100 to 250 percent of
the FPL, we propose, as outlined in the AV/CSR Bulletin, an annual
three-step process for the design of cost-sharing structures in the
silver plan variations, as follows:
Step 1. In the first step, we would identify in the annual HHS
notice of benefit and payment parameters the maximum annual limitation
on cost sharing applicable to all plans that will offer the EHB
package. This limit would be used to set the reduced maximum annual
limitation on cost sharing applicable to silver plan variations.
Section 156.130(a) of the proposed EHB/AV Rule relates to the
maximum annual limitation on cost sharing for EHB packages. For benefit
year 2014, cost sharing (except for cost sharing on services provided
by out-of-network providers) under self-only coverage and non-self-only
coverage may not exceed the annual dollar limit on cost sharing for
high deductible health plans as described in sections
223(c)(2)(A)(ii)(I) and 223(c)(2)(A)(ii)(II) of the Code, respectively.
For a benefit year beginning after 2014, the maximum annual limitation
on cost sharing will equal the dollar limit for 2014 benefit year
adjusted by a premium adjustment percentage determined by HHS, under
section 1302(c)(4) of the Affordable Care Act. We plan to propose the
premium adjustment percentage applicable to the 2015 benefit year in
the next HHS notice of benefit and payment parameters.
Maximum Annual Limitation on Cost Sharing for Benefit Year 2014: As
discussed above, the maximum annual limitation on cost sharing for 2014
will be the dollar limit on cost sharing for
[[Page 73172]]
high deductible health plans set by the IRS for 2014. The IRS will
publish this dollar limit in the spring of 2013. However, to allow time
for HHS to analyze the impact of the reductions in the maximum annual
limitation on cost sharing on health plan AV levels, and to allow
issuers adequate time to develop the cost-sharing structures of their
silver plan variations for submission during the QHP certification
process, we propose to estimate the dollar limit for 2014, using the
methodology detailed in sections 223(c)(2)(A)(ii) and 223(g) of the
Code. This methodology calls for a base dollar limit to be updated
annually by a cost-of-living adjustment, which for 2014 is based on the
average Consumer Price Index for all urban consumers, published by the
Department of Labor, for a 12-month period ending March 31, 2013.
Because that the Consumer Price Index for March 2013 is not yet
available, we propose to use a projection of this number developed by
the Office of Management Budget for the President's Budget for Fiscal
Year 2013. Using this projection, and the methodology described in the
Code, we estimate that the maximum annual limitation on cost sharing
for self-only coverage for 2014 will be approximately $6,400 (the
maximum annual limitation on cost sharing for other than self-only
coverage for 2014 would be twice that amount, or $12,800). This is
slightly more than a 2 percent increase from the limit set by IRS for
2013 ($6,250). We emphasize that this estimate was developed only for
purposes of setting the reduced maximum annual limitation on cost
sharing for silver plan variations. Under section 1302(c)(1)(A) of the
Affordable Care Act, cost sharing incurred under plans offering EHB
packages in 2014 cannot exceed the limit set by IRS under section
223(c)(2)(A)(ii)(I) and (II) of the Code for 2014 plan years. We
welcome comment on this approach.
Step 2. In the second step under our proposal, we would analyze the
effect on AV of the reductions in the maximum annual limitation on cost
sharing described in section 1402(c)(1)(A) of the Affordable Care Act.
Under section 1402(c)(1)(B)(ii), we would adjust the reduction in the
maximum annual limitation on cost sharing, if necessary, to ensure that
the actuarial value of the applicable silver plan variations would not
exceed the actuarial value specified in section 1402(c)(1)(B)(i). A
description of our analyses and the reduced annual limitations on cost
sharing for the three income categories will be published in this
annual HHS notice of benefit and payment parameters.
Reduced Maximum Annual Limitation on Cost Sharing for Benefit Year
2014. For the 2014 benefit year, we analyzed the impact on actuarial
value of the reductions described in the Affordable Care Act to the
estimated maximum annual limitation on cost sharing for self-only
coverage for 2014 ($6,400). We began by developing three model silver
level QHPs. These model plans were meant to represent the broad sets of
plan designs that we expect issuers to offer at the silver level of
coverage through an Exchange. To that end, the model plans include a
PPO plan with a typical cost-sharing structure ($1,675 deductible and
20 percent in-network coinsurance rate), a PPO plan with a lower
deductible and above-average coinsurance ($575 deductible and 40
percent in-network coinsurance rate), and an HMO-like plan ($2,100
deductible, 20 percent coinsurance rate, and the following services
with copays that are not subject to the deductible or coinsurance: $500
inpatient stay, $350 emergency department visit, $25 primary care
office visit, and $50 specialist office visit).\37\ All three model
plans meet the actuarial value requirements for silver health plans,
and start with an annual limitation on cost sharing equal to the
estimated maximum annual limitation on cost sharing ($6,400). The plan
design features of the model QHPs were entered into the AV calculator
developed by HHS and proposed at Sec. 156.135(a) in the proposed EHB/
AV Rule, implementing section 1302(d) of the Affordable Care Act. We
then observed how the reduction in the maximum annual limitation on
cost sharing specified in the Affordable Care Act (that is, \2/3\ or
\1/2\ of the annual limitation on cost sharing, as applicable) affected
the AV of the plans.
---------------------------------------------------------------------------
\37\ We note that these plan structures are broadly consistent
with structures suggested by research from ``Small Group Health
Insurance in 2010: A Comprehensive Survey of Premiums, Product
Choices, and Benefits.'' America's Health Insurance Plans Center for
Policy and Research. July 2011; ``Employer Health Benefits: 2011
Summary of Findings.'' The Kaiser Family Foundation and Health
Research & Educational Trust. Accessed on June 7, 2012 from http://ehbs.kff.org/pdf/8226.pdf; and ``What the Actuarial Values in the
Affordable Care Act Mean.'' The Kaiser Family Foundation: Focus on
Health Reform. April 2011. Accessed on June 7, 2012 from http://www.kff.org/healthreform/upload/8177.pdf.
---------------------------------------------------------------------------
We found that the reduction in the maximum annual limitation on
cost sharing specified in the Affordable Care Act for enrollees with a
household income level between 100 and 150 percent of the FPL (\2/3\
reduction), and 150 and 200 percent of the FPL (\2/3\ reduction), did
not cause the AV of any of the model QHPs to exceed the statutorily
specified AV level (94 and 87, respectively). This suggests that it is
unnecessary to adjust the reduction under section 1402(c)(1)(B)(ii) of
the Affordable Care Act for benefit year 2014. In contrast, the
reduction in the maximum annual limitation on cost sharing specified in
the Affordable Care Act for enrollees with a household income level
between 200 and 250 percent of FPL (\1/2\ reduction), did cause the AVs
of the model QHPs to exceed the specified AV level of 73 percent. As a
result, we propose that QHP issuers only be required to reduce their
annual limitation on cost sharing for enrollees in the 2014 benefit
year with a household income between 200 and 250 percent of FPL by
approximately \1/5\, rather than \1/2\. We further propose to moderate
the reductions in the maximum annual limitation on cost sharing for all
three income categories, as shown in Table 15, to account for any
potential inaccuracies in our estimate of the maximum annual limitation
on cost sharing for 2014, and unique plan designs that may not be
captured by our three model QHPs. We note that selecting a lesser
reduction for the maximum annual limitation on cost sharing will not
reduce the benefit afforded to enrollees in aggregate as QHP issuers
are required to further reduce their limit on cost sharing, or reduce
other types of cost sharing, if the required reduction does not cause
the actuarial value of the QHP to meet the specified level, as detailed
in step 3 of this proposal. Based on this analysis, in Table 15, we
propose the following reduced maximum annual limitations on cost
sharing for benefit year 2014:
[[Page 73173]]
Table 15--Reductions in Maximum Annual Limitation on Cost Sharing for 2014
----------------------------------------------------------------------------------------------------------------
Reduced maximum annual Reduced maximum annual
limitation on cost sharing limitation on cost sharing
Eligibility category for self-only coverage for for other than self-only
2014 coverage for 2014
----------------------------------------------------------------------------------------------------------------
Individuals eligible for cost-sharing reductions $2,250 $4,500
under Sec. 155.305(g)(2)(i) (that is, 100-
150% of FPL)...................................
Individuals eligible for cost-sharing reductions $2,250 $4,500
under Sec. 155.305(g)(2)(ii) (that is, 150-
200% of FPL)...................................
Individuals eligible for cost-sharing reductions $5,200 $10,400
under Sec. 155.305(g)(2)(iii) (that is, 200-
250% of FPL)...................................
----------------------------------------------------------------------------------------------------------------
We do not believe there will be a need to revise our analyses once
the IRS dollar limit for 2014 is published, and propose that QHP
issuers may rely on the reduced maximum annual limitations on cost
sharing published in the final HHS notice of benefit and payment
parameters to develop their silver plan variations for the 2014 benefit
year. We welcome comment on this approach.
Step 3. In the third step under our proposal, a QHP issuer offering
coverage in the individual market on the Exchange would develop three
variations of its standard silver plan--one each for individuals with
household incomes between 100 and 150 percent of the FPL, 150 and 200
percent of the FPL, and 200 and 250 percent of the FPL--with each
variation having an annual limitation on cost sharing that does not
exceed the applicable reduced maximum annual limitation on cost sharing
published in the annual HHS notice of benefit and payment parameters.
If the application of the reduced annual limitation on cost sharing
results in an AV for a particular silver plan variation that differs
from the required 73, 87, or 94 percent AV level by more than the
permitted amount (that is, the 1 percent de minimis amount for silver
plan variations, subject to proposed Sec. 156.420(f), as described
below), the QHP issuer would adjust the cost-sharing structure in that
silver plan variation to achieve the applicable AV level.
For example, we propose to set the reduced maximum annual
limitation on cost sharing for self-only coverage for 2014 at $2,250
for individuals with household incomes between 150 and 200 percent of
the FPL. However, an issuer might find that even when the limitation on
cost sharing for the proposed plan is reduced to $2,250, the actuarial
value of the plan may only increase to 82 percent. The issuer would
then amend its cost-sharing structure by decreasing copayments,
deductibles or coinsurance (or further reducing the annual limitation
on cost sharing) so that the silver plan variation achieves the
required AV of 87 percent (plus or minus the de minimis variation for
silver plan variations). The AV of the silver plan variation would be
calculated using the AV calculator or other permitted methods, as
described in Sec. 156.135 of the proposed EHB/AV Rule.
We set forth in Sec. 156.420(a)(1) through (3) proposed
specifications for the three silver plan variations, and propose that
they may deviate from the required AV levels by the de minimis
variation for silver plan variations, established as 1 percentage
point. We further propose that issuers submit these silver plan
variations annually to the Exchange for certification, prior to the
benefit year. Silver plan variations must be approved annually even if
the standard silver plan does not change, since the reduced maximum
annual limitation on cost sharing may change annually due to the
premium adjustment percentage. We welcome comment on this proposed
provision.
Sections 156.420(b) and (d) are discussed below in the section
related to special cost-sharing reduction rules for Indians.
In Sec. 156.420(c), we propose that silver plan variations cover
the same benefits and include the same providers as the standard silver
plan. We further propose that silver plan variations must require the
same out-of-pocket spending for benefits other than EHB. Lastly, we
propose that silver plan variations be subject to all requirements
applicable to the standard silver plan (except for the requirement that
the plan have an AV as set forth in Sec. 156.140(b)(2) of the proposed
EHB/AV Rule). This means, for example, that silver plan variations must
meet standards relating to marketing and benefit design of QHPs,
network adequacy standards, and essential community providers. Although
these requirements are implicit because a plan variation is not a
separate plan, we seek to make these requirements explicit to ensure
that QHP issuers develop appropriate plan variations.
In Sec. 156.420(e), we propose a standard to govern the design of
cost sharing structures for silver plan variations. Under this
approach, the cost sharing for enrollees under any silver plan
variation for an EHB from a provider may not exceed the corresponding
cost sharing in the standard silver plan or any other silver plan
variation of the standard silver plan with a lower AV. For example, if
the co-payment on an emergency room visit at a particular university
hospital is $30 in the silver plan variation with a 73 percent AV, the
co-payment in the silver plan variation with an 87 percent AV for that
issuer would be $30 or less. This proposed standard would apply to all
types of cost-sharing reductions, including reductions to deductibles,
coinsurance, and co-payments. An issuer would have the flexibility to
vary cost sharing on particular benefits or providers so long as that
cost sharing did not increase for a particular benefit or provider for
higher AV silver plan variations. This standard, along with the
proposed requirements in Sec. 156.420(c), would help ensure that
silver plan variations with higher AVs would always provide the most
cost savings to enrollees while providing the same benefits and
provider network. Furthermore, consumers would be best served by
enrolling in the highest AV variation of the standard silver plan
selected for which they are eligible. We also believe that this
proposed standard is appropriate as the plan variations are meant to be
the same as the QHP, except as to the payer of the cost sharing and the
reduction in out-of-pocket costs charged to the eligible individual.
We provided an overview of this proposed approach in the AV/CSR
Bulletin. One commenter expressed concern about the differential effect
of deductibles on low-income populations, and suggested that we also
set limits on deductibles in silver plan variations. A number of other
commenters also urged HHS to adopt more restrictive
[[Page 73174]]
requirements on issuers' designs of cost-sharing structures in silver
plan variations. One commenter urged HHS to systematically monitor a
number of aspects of how QHP issuers implement cost-sharing reductions.
We believe that, at this point, this proposal strikes the
appropriate balance between protecting consumers and preserving QHP
issuer flexibility. The standard in Sec. 156.420(e) that cost sharing
for a silver plan variation not exceed the corresponding cost sharing
for a standard silver plan or silver plan variation with a lower AV,
along with non-discrimination standards described in Sec. 156.130(g)
of the proposed EHB/AV Rule, protects low-income populations who are
assigned to these QHP plan variations through the Exchange. We seek
comment on this approach.
In Sec. 156.420(f), we propose that, notwithstanding the permitted
de minimis variation in AV for a health plan or the permitted de
minimis variation for a silver plan variation, the AV of the standard
silver plan (which must be 70 percent plus or minus 2 percentage
points) and the AV of the silver plan variation applicable to
individuals with household incomes between 200 and 250 percent of the
FPL (which must be 73 percent plus or minus 1 percentage point) must
differ by at least 2 percentage points. For example, under the de
minimis standard proposed in Sec. 156.140(c)(1) of the proposed EHB/AV
rule, an issuer would be permitted to offer a standard silver plan with
an AV of 72 percent. Under the proposed rule in Sec. 156.420(f), that
issuer would be permitted to offer a silver plan variation with an AV
of 74 percent to individuals with household incomes between 200 and 250
percent of the FPL, but not a silver plan variation with an AV of 73
percent. This proposal helps ensure that eligible enrollees with
household incomes between 200 and 250 percent of the FPL can purchase a
plan with a cost-sharing structure that is more generous than that
associated with the standard silver plan, consistent with Congressional
intent for cost-sharing reductions under section 1402(c). We chose to
propose a 2 percentage point differential to ensure that a difference
in cost-sharing reductions provided to each income category is
maintained, while still allowing issuers the flexibility to set the AV
within the de minimis variation standards and to develop plan designs
with easy-to-understand cost sharing arrangements. We welcome comments
on this approach.
d. Changes in Eligibility for Cost-Sharing Reductions
In Sec. 156.425(a), we propose that if the Exchange notifies a QHP
issuer of a change in an enrollee's eligibility for cost-sharing
reductions (including a change following which the enrollee will not be
eligible for cost-sharing reductions), then the QHP issuer must change
the individual's assignment so that the individual is assigned to the
applicable standard plan or plan variation. We also propose that the
QHP issuer effectuate the change in eligibility in accordance with the
effective date of eligibility provided by the Exchange, as described in
Sec. 155.330(f). We clarify that if an enrollee changes QHPs after the
effective date of the eligibility change as the result of a special
enrollment period, once the Exchange notifies the issuer of the new QHP
of the enrollment, that QHP issuer must assign the enrollee to the
applicable standard plan or plan variation of the QHP selected by the
enrollee, consistent with the proposed Sec. 156.410(b).
In paragraph (b) of Sec. 156.425, we propose that in the case of a
change in assignment to a different plan variation (or standard plan
without cost-sharing reductions) of the same QHP in the course of a
benefit year (including in the case of a re-enrollment into the QHP
following enrollment in a different plan), the QHP issuer must ensure
that any cost sharing paid by the applicable individuals under the
previous plan variations (or standard plan without cost-sharing
reductions) is accounted for in the calculation of deductibles and
annual limitations on cost sharing in the individual's new plan
variation for the remainder of the benefit year. We note that a change
from or to an individual or family policy of a QHP due to the addition
or removal of family members does not constitute a change in plan for
the family members who remain on the individual or family policy.
Individuals would therefore not be penalized by changes in eligibility
for cost-sharing reductions during the benefit year or the addition or
removal of family members, although they would be ineligible for any
refund on cost sharing to the extent the newly applicable deductible or
annual limitation on cost sharing is exceeded by prior cost sharing.
The QHP issuer would not be prohibited from or required to extend this
policy to situations in which the individual changes QHPs, including by
enrolling in a QHP at a different metal level, but would be permitted
to so extend this policy, provided that this extension of the policy is
applied across all enrollees in a uniform manner. We seek comment on
this provision.
e. Payment for Cost-Sharing Reductions
Section 1402(c)(3) of the Affordable Care Act directs a QHP issuer
to notify the Secretary of HHS of cost-sharing reductions made under
the statute for individuals with household incomes under 400 percent of
the FPL, and directs the Secretary to make periodic and timely payments
to the QHP issuer equal to the value of those reductions. Section
1402(c)(3)(B) also permits the Secretary to establish a capitated
payment system to carry out these payments. Further, section 1412(c)(3)
of the Affordable Care Act permits advance payments of cost-sharing
reduction amounts to QHP issuers based upon amounts specified by the
Secretary. Under these authorities, we propose to implement a payment
approach under which we would make monthly advance payments to issuers
to cover projected cost-sharing reduction amounts, and then reconcile
those advance payments at the end of the benefit year to the actual
cost-sharing reduction amounts.\38\ This approach fulfills the
Secretary's obligation to make ``periodic and timely payments equal to
the value of the reductions'' under section 1402(c)(3) of the
Affordable Care Act. This proposal would not require issuers to fund
the value of any cost-sharing reductions prior to reimbursement (to the
extent the issuers provide the required actuarial information), and
ensures that payments are made only for actual cost-sharing reduction
amounts realized by Exchange enrollees. This approach is similar to the
one employed for the low-income subsidy under Medicare Part D. We
welcome comments on this and alternative approaches, and whether this
approach should change over time.
---------------------------------------------------------------------------
\38\ We note that these payments (both advance and reconciled),
and the estimated or actual cost-sharing reductions underlying them,
are subject to 45 CFR 156.280(e)(1)(ii).
---------------------------------------------------------------------------
To implement our proposed payment approach, in Sec.
156.430(a)(1)(i) through (iv), we propose that for each health plan
that an issuer offers, or intends to offer, in the individual market on
the Exchange as a QHP, the issuer must provide to the Exchange annually
prior to the benefit year, for approval by HHS, an estimate of the
dollar value of the cost-sharing reductions to be provided over the
benefit year. If the QHP is a silver health plan, the submission must
identify separately the per member per month dollar value of the cost-
sharing reductions to be provided under each silver plan variation
identified in
[[Page 73175]]
Sec. 156.420(a)(1), (2), and (3). And for each QHP, regardless of
metal level, the submission must identify the per member per month
dollar value of the cost-sharing reductions to be provided under the
zero cost sharing plan variation. In addition, the estimate should be
accompanied by supporting documentation validating the estimate. We
expect that Exchanges will collect this information from issuers
through the QHP certification process or an annual submission process,
and then send the information to HHS for review and approval. Sections
156.430(a)(1)(ii) and 156.430(a)(2) are further described in section
III.E.4.i. of this proposed rule.
We further propose that issuers develop the estimates using the
methodology specified by HHS in the applicable annual HHS notice of
benefit and payment parameters. In Sec. 156.430(a)(3), we propose that
HHS will approve estimates that follow this methodology. For the 2014
benefit year, we propose that issuers use a methodology that utilizes
the data that issuers submit under Sec. 156.420 and Sec. 156.470. As
a result, issuers would not be required to submit any additional data
or supporting documentation to receive advance payments in benefit year
2014 for the value of the cost-sharing reductions that would be
provided under silver plan variations. Below, we describe in detail how
the data that issuers will submit under Sec. 156.420 and Sec. 156.470
will be used to develop the estimate of the value of the cost-sharing
reductions for the 2014 benefit year.
Methodology for Developing Estimate of Value of Cost-Sharing
Reductions for Silver Plan Variations for 2014 Benefit Year. We propose
that for the 2014 benefit year, issuers use a simplified methodology
for estimating the value of the cost-sharing reductions under silver
plan variations and calculating the advance payments. We believe that
the lack of data regarding the costs that will be associated with the
QHPs and their plan variations will make it difficult to accurately
predict the value of the cost-sharing reductions, even if a complex
methodology is used. We intend to review the methodology for estimating
the advance payments in future years, once more data is available. We
also note that the payment reconciliation process described Sec.
156.430(c) through paragraph (e) would ensure that the QHP issuer is
made whole for the value of any cost-sharing reductions provided during
the year, which may not be equal to the value of the advance payments.
For the 2014 benefit year, we propose that advance payments be
estimated on a per enrollee per month basis using the following
formula:
[GRAPHIC] [TIFF OMITTED] TP07DE12.013
In this formula, the monthly expected allowed claims cost for a
silver plan variation would equal one-twelfth of the expected allowed
claims costs allocated to EHB, other than services described in Sec.
156.280(d)(1),\39\ for the standard silver plan, multiplied by a factor
to account for the increased utilization that may occur under the
specific plan variation due to the reduced cost-sharing requirements.
As described in Sec. 156.470, the QHP issuer will submit the expected
allowed claims cost information to the Exchange annually. The Exchange
will then review this estimate, and submit the approved information to
HHS, as described in proposed Sec. 155.1030(b)(2) above, for use in
the advance payment calculation. HHS will then multiply the monthly
expected allowed claims cost by one of the following induced
utilization factors, to arrive at the monthly expected allowed claims
cost for the particular plan variation. We propose the following
induced utilization factors based on our analysis of the expected
difference in expenditures for enrollees in QHPs of different actuarial
values. For this analysis, we used the Actuarial Value Calculator,
developed by HHS using the Health Intelligence Company, LLC (HIC)
database from calendar year 2010. This database includes detailed
enrollment and claims information for individuals who are members of
regional insurers and covers over 54 million individuals. The database
includes current members of small group health plans, and a population
relatively similar to the population of enrollees likely to participate
in the health exchanges.\40\
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\39\ Under Sec. 156.20, cost-sharing reductions are only
provided on EHB. In addition, Sec. 156.280(e)(1)(i) states that if
a QHP provides coverage of services described in paragraph (d)(1) of
that section, the QHP issuer must not use federal funds, including
cost-sharing reductions, to pay for the service.
\40\ We note that these induced utilization factors appear to be
broadly consistent with results from the RAND Health Insurance
Experiment, described in Robert H. Brook, John E. Ware, William H.
Rogers, Emmett B. Keeler, Allyson Ross Davies, Cathy Donald
Sherbourne, George A. Goldberg, Kathleen N. Lohr, Patti Camp, and
Joseph P. Newhouse. The Effect of Coinsurance on the Health of
Adults: Results from the RAND Health Insurance Experiment. Santa
Monica, Calif.: RAND Corporation, R-3055-HHS, December 1984.
Table 16--Induced Utilization Factors for Purposes of Cost-Sharing
Reduction Advance Payments
------------------------------------------------------------------------
Induced
Household income Silver plan AV utilization
factor
------------------------------------------------------------------------
100-150% of FPL.................... Plan Variation 94%... 1.12
150-200% of FPL.................... Plan Variation 87%... 1.12
200-250% of FPL.................... Plan Variation 73%... 1.00
------------------------------------------------------------------------
In the second half of the formula, we propose the multiplication of
the monthly expected allowed claims cost for the particular plan
variation by the difference in AV between the standard silver plan and
the plan variation. This will allow us to estimate the difference in
cost sharing between the standard plan and the plan variation. We
propose to use the actuarial values of the QHPs and silver plan
variations that the Exchange will submit to HHS under Sec.
155.1030(a)(2).
This methodology should limit the burden of estimating cost-sharing
reduction amounts on QHP issuers, and provide a standardized per
enrollee per month estimate of the value of cost-sharing reductions.
This estimate can then be multiplied by the number of enrollees
assigned to a particular plan variation in a given month to arrive at
the total advance payment that will be provided to the issuer for each
plan variation of each QHP, for a given
[[Page 73176]]
month. We welcome comment on this methodology and the proposed induced
utilization factors, as well as the value of increasing the complexity
of the methodology versus the value of operational efficiency.
In Sec. 156.430(b), we propose making periodic advance payments to
issuers based on the approved advance estimates provided under Sec.
156.430(a) and the confirmed enrollment information. We propose to use
the methodology described above to determine the amount of these
advance payments.
In Sec. 156.430(c), we propose that a QHP issuer report to HHS the
actual amount of cost-sharing reductions provided. In general, for a
particular benefit provided by the QHP, this amount would equal the
difference between the cost sharing required of an enrollee in the
corresponding standard silver plan with no cost-sharing reductions and
the cost sharing that was actually required of the enrollee under the
plan variation at the point where the service was provided. For
example, if an individual enrolled in a silver plan variation receives
a benefit that would be subject to a $20 copayment under the standard
silver plan but is subject to only a $5 copayment under the silver plan
variation in which the individual is enrolled, the cost-sharing
reduction amount would be $15. Additional specifications regarding
submission of actual cost-sharing reduction amounts will be provided in
future guidance; however, we expect that QHP issuers will submit the
actual amount of cost-sharing reductions provided after the close of
the benefit year.
In Sec. 156.430(c)(1) and (c)(2), we propose specific standards
for the reporting of cost-sharing reduction amounts. In Sec.
156.430(c)(1), we propose that in the case of a benefit for which the
QHP issuer compensates the applicable provider in whole or in part on a
fee-for-service basis, the QHP issuer submit the total allowed costs
for essential health benefits charged for an enrollees' policy for the
benefit year, broken down by what the issuer paid, what the enrollee
paid, and the amount reimbursed to the provider for the amount that the
enrollee would have paid under the standard QHP without cost-sharing
reductions. In Sec. 156.430(c)(2), we propose that in the case of a
benefit for which the QHP issuer compensates the applicable provider in
any other manner (such as on a capitated basis), the QHP issuer submit
the total allowed costs for essential health benefits charged for an
enrollees' policy for the benefit year, broken down by what the issuer
paid, what the enrollee paid, and the amount that the enrollee would
have paid under the standard QHP without cost-sharing reductions. When
we refer to compensation made on a capitated basis in this context, we
mean a compensation model under which issuers make payments to
providers based on a contracted rate for each enrollee, commonly
referred to as a ``per-member-per-month'' rate, regardless of the
number or type of services provided. We note that a non-fee-for-service
provider is not required to be reimbursed by the issuer. However, we
expect that issuers and providers in non-fee-for-service arrangements
will make available to providers compensation for cost-sharing
reductions through their negotiated capitation payments. We seek
comments on this assumption and other payment approaches for QHPs that
use a capitated system to pay providers.
In Sec. 156.430(d), we propose to periodically reconcile advance
payments to issuers against the actual cost-sharing reduction amounts
reported under Sec. 156.430(c). Thus, where a QHP issuer compensates a
provider in whole or in part on a fee-for-service basis, we would
reconcile the advance payments provided to the issuer against the
actual amount of cost-sharing reductions reimbursed to providers and
provided to enrollees. Where the QHP issuer compensates a provider
under another arrangement, such as a capitated arrangement, we would
reconcile the advance payments made to issuers against the actual cost-
sharing reduction amounts provided to enrollees. We propose this
differentiated reimbursement approach because if issuers are paying
providers on a basis other than a fee-for-service basis, the parties
may not be exchanging data or making payments on a per-service basis.
We do not wish to interfere with contractual payment arrangements
between issuers and providers by imposing per-service accounting or
payment streams if an issuer and provider have elected not to structure
their relationship in that manner. However, in all cases we would
condition reimbursement upon provision to the enrollee at the point-of-
service of the cost-sharing reduction under the applicable plan
variation. We welcome comment on this proposal.
We propose in Sec. 156.430(e) that if the actual amounts of cost-
sharing reductions exceed the advance payment amounts provided to the
issuer (including if the QHP issuer elected not to submit an advance
estimate of the cost-sharing reduction amounts provided under the
limited cost sharing plan variation, and therefore received no advance
payments), HHS would reimburse the issuer for the shortfall, assuming
that the issuer has submitted its actual cost-sharing reduction amount
report to HHS in a timely fashion. If the actual amounts of cost-
sharing reductions are less than the advance payment amounts provided
to the issuer, we propose that the QHP issuer must repay the difference
to HHS. Detailed procedural requirements and interpretive guidance on
cost-sharing reduction reconciliation will be provided in the future.
In Sec. 156.430(f), we propose rules on advance payment and
reimbursement of cost-sharing reductions during special transitional
periods of coverage where eligibility and enrollment are uncertain,
including requirements relating to cost-sharing reductions provided
during grace periods following non-payment of premium. Under Sec.
156.270, a QHP issuer must establish a standard policy for termination
of coverage for non-payment of premiums by enrollees. Under that
policy, a three-month grace period applies if an enrollee receiving
advance payments of the premium tax credit has previously paid at least
one full month's premium during the benefit year. In the first month of
the grace period, the QHP issuer must pay all appropriate claims for
services rendered and HHS would reimburse the QHP issuer for cost-
sharing reductions for such claims (and the QHP issuer may retain any
advance payments of cost-sharing reductions), but the issuer may pend
claims for services rendered to the enrollee in the second and third
months of the grace period. If an enrollee exhausts the grace period
without making full payment of the premiums owed, the QHP issuer may
terminate coverage and deny payment for the pending claims.
In Sec. 156.430(f)(1), we propose standards related to the non-
payment of premiums and exhausted grace periods. We propose that a QHP
issuer will be eligible for reimbursement of cost-sharing reductions
provided prior to a termination of coverage effective date.
Furthermore, any advance payments of cost-sharing reductions would be
paid to a QHP issuer for coverage prior to a determination of
termination, including during any grace period as described in Sec.
155.430(b)(2)(ii)(A) and (B). The determination of termination occurs
on the date that the Exchange sends termination information to the QHP
issuer and HHS under Sec. 155.430(c)(2).
The QHP issuer would be required to repay any advance payments of
cost-sharing reductions made with respect to any month after any
termination of
[[Page 73177]]
coverage effective date during a grace period. A QHP issuer generally
would not be eligible for reimbursement of cost-sharing reductions
provided after the termination of coverage effective date with respect
to a grace period. For example, if an individual receiving advance
payments of the premium tax credit is eligible for cost-sharing
reductions, and stops paying his or her premium, HHS would continue to
provide advance payments of the cost-sharing reductions during the
grace period. HHS would reimburse the QHP issuer for any reduction in
cost sharing provided during the first month of the three-month grace
period, but not after the termination of coverage effective date (that
is, there will be no reimbursement for cost-sharing reductions provided
during the second and third month of the grace period if retroactive
termination occurs). The issuer may pend claims and payments for cost-
sharing reductions for services rendered to the individual in the
second and third month of the grace period, as described in Sec.
156.270(d). The QHP issuer must return to HHS any advance payments of
the cost-sharing reduction applicable to the second and third months.
This proposed policy aligns with the approach for advance payments of
the premium tax credit described in Sec. 156.270(e).
We propose in Sec. 156.430(f)(2) and (3) that in the case of any
other retroactive termination, if the termination (or late
determination thereof) is the fault of the QHP issuer, as reasonably
determined by the Exchange, the QHP issuer would not be eligible for
advance payments and reimbursement for cost-sharing reductions provided
during the period following the termination of coverage effective date
and prior to the determination of the termination; and if the
termination (or the late determination thereof) is not the fault of the
QHP issuer, as reasonably determined by the Exchange, the QHP issuer
would be eligible for advance payments and reimbursement for cost-
sharing reductions provided during such period. For example, if a QHP
issuer fails to timely notify the Exchange that an enrollee requested a
termination of coverage, the Exchange could reasonably determine that
the QHP issuer is at fault and would not be eligible for advance
payments and reimbursement for cost-sharing reductions provided during
the period following the termination of coverage effective date and
prior to the determination of the termination. Alternatively, if an
individual was incorrectly enrolled in a QHP due to an error by the
Exchange, the QHP issuer would not be at fault and would be eligible
for advance payments and reimbursement for cost-sharing reductions
provided during the period following the termination of coverage
effective date and prior to the determination of the termination. We
welcome comment on this proposal and other approaches, and seek comment
on the relative equities of, incentives created by, and consequences of
this proposal and other approaches, including the potential costs to
HHS.
In Sec. 156.430(f)(4), we propose that a QHP issuer would be
eligible for advance payments and reimbursement of cost-sharing
reductions provided during any period for resolution of inconsistencies
in information required to determine eligibility for enrollment under
Sec. 155.315(f). Under Sec. 155.315(f), if an Exchange cannot verify
eligibility information for an individual, it must provide the
individual at least 90 days to present satisfactory evidence of
eligibility to resolve the inconsistency. In the interim, the Exchange
must make an eligibility determination based upon the individual's
attestation and other verified information in the application,
including with respect to the cost-sharing reductions for which the
individual is eligible. At the end of the inconsistency period, if the
Exchange cannot confirm the attestation, the Exchange must make the
eligibility determination based upon the data available, subject to
certain exceptions. In the event the Exchange cannot confirm the
attestation and determines the individual to be ineligible for cost-
sharing reductions provided during the inconsistency period, we propose
to reimburse those cost-sharing reductions because there is no clear
mechanism under the Affordable Care Act for seeking reimbursement of
those amounts from the individual. We welcome comment on this proposal
and other approaches, and seek comment on the relative equities of,
incentives created by, and consequences of this proposal and other
approaches, including the potential costs to HHS.
f. Plans Eligible for Advance Payments of the Premium Tax Credit and
Cost-Sharing Reductions
In Sec. 156.440, we clarify the applicability of advance payments
of the premium tax credit and cost-sharing reductions to certain QHPs.
We propose that the provisions of part 156 subpart E generally apply to
qualified health plans offered in the individual market on the
Exchange.
However, we propose in Sec. 156.440(a) that the provisions not
apply to catastrophic plans as described in Sec. 156.155 of the
proposed Market Reform Rule to be consistent with 26 CFR 1.36B-1(c).
Section 36B(c)(3)(A) of the Code defines a QHP to exclude catastrophic
plans--a definition that also applies to section 1402 of the Affordable
Care Act, by means of section 1402(f)(1) of the Affordable Care Act.
Further, eligibility for cost-sharing reductions is tied to a
``coverage month with respect to which a premium tax credit is paid,''
which would exclude months during which the individual is enrolled in a
catastrophic health plan. Therefore, we propose that enrollment in a
catastrophic plan precludes eligibility for cost-sharing reductions.
Effectively, this proposal restricts the provision of cost-sharing
reductions with respect to Indians only, because non-Indians can only
receive cost-sharing reductions when enrolled in a silver plan
variation.
We propose in Sec. 156.440(b) that the provisions of this subpart
E, including Sec. 156.410, Sec. 156.420, Sec. 156.425, Sec.
156.430, and Sec. 156.470, to the extent each relate to cost-sharing
reductions, not apply to stand-alone dental plans. Section
1311(d)(2)(B)(ii) of the Affordable Care Act provides that an Exchange
must allow a stand-alone dental plan that provides pediatric dental
benefits that are EHB to be offered separately from or in conjunction
with a QHP. However, section 1402(c)(5) of the Affordable Care Act
states if an individual enrolls in both a QHP and a stand-alone dental
plan, the provisions on cost-sharing reductions under sections 1402(a)
and (c) of the Affordable Care Act do not apply to that portion of the
cost-sharing reductions properly allocable to pediatric dental EHB,
meaning that if an individual enrolls in both a QHP and a stand-alone
dental plan offered on an Exchange, cost-sharing reductions are not
payable with respect to pediatric dental benefits offered by the stand-
alone dental plan. However, cost-sharing reductions would be payable
with respect to pediatric dental benefits provided by a QHP. Requiring
payment of cost-sharing reductions on pediatric dental benefits within
a stand-alone dental plan offered on an Exchange would create
significant operational complexities. For example, stand-alone dental
plans would be required to submit plan variations, and since the
calculation of AV for stand-alone dental plans will not be
standardized, the review and approval of the plan variations and
advance estimates would be difficult to oversee.
We propose to clarify in Sec. 156.440(c) that the provisions of
this subpart E
[[Page 73178]]
apply to child-only plans. Section 1302(f) of the Affordable Care Act
and Sec. 156.200(c)(2) of this subchapter provides that an issuer that
offers a QHP at any level of coverage in an Exchange also must offer
the plan at the same level of coverage in the Exchange only to
individuals that have not attained age 21. Under section 1302(f) of the
Affordable Care Act, the child-only plan is to be treated as a QHP, and
is therefore subject to the provisions of this subpart E.
g. Reduction of Enrollee's Share of Premium To Account for Advance
Payments of the Premium Tax Credit
In Sec. 156.460(a), we propose to codify QHP issuer requirements
set forth in section 1412(c)(2)(B) of the Affordable Care Act. The law
authorizes the payment of advance tax credits to QHP issuers on behalf
of certain qualified enrollees. The advance payment must be used to
reduce the portion of the premium charged to enrollees. In Sec.
156.460(a)(1), we propose to codify clause (i) of that subparagraph,
which requires that a QHP issuer reduce the portion of the premium
charged to the enrollee by the amount of the advance payment of the
premium tax credit for the applicable month(s).
In Sec. 156.460(a)(2), we propose to codify section
1412(c)(2)(B)(ii) of the statute, which requires that the QHP issuer
notify the Exchange of any reduction in the portion of the premium
charged to the individual. This notification will be sent to the
Exchange through the standard enrollment acknowledgment in accordance
with Sec. 156.265(g). That information will then be submitted to the
Secretary via enrollment information sent from the Exchange to HHS
under Sec. 155.340(a)(1).
In Sec. 156.460(a)(3), we propose to codify section
1412(c)(2)(B)(iii), which requires that a QHP issuer display the amount
of the advance payment of the premium tax credit for the applicable
month(s) on an enrollee's billing statement. This requirement would
ensure that the enrollee is aware of the total cost of the premium and
would allow the enrollee to verify that the correct amount for the
advance payment of the premium tax credit has been applied to his or
her account.
In Sec. 156.460(b), we propose that a QHP issuer may not refuse to
commence coverage under a policy or terminate a policy on account of
any delay in payment from the Federal government of an advance payment
of the premium tax credit on behalf of an enrollee if the QHP issuer
has been notified by the Exchange that it would receive an advance
payment. We expect that monthly advance payments of the premium tax
credit would be paid in the middle of the month, and propose to require
that issuers not decline to cover individuals nor terminate policies
for which the enrollee's payments have been timely made on account of
the timing of the advance payments of the premium tax credit.
We welcome comment on these proposals.
h. Allocation of Rates and Claims Costs for Advance Payments of Cost-
Sharing Reductions and the Premium Tax Credit
As described in section III.E.2. of this proposed rule, we propose
in Sec. 156.470 to direct issuers to allocate the rate or expected
premium for each metal level health plan and stand-alone dental plan
offered, or proposed to be offered, in the individual market on the
Exchange, and the expected allowed claims costs for the metal level
health plans, among EHB and additional benefits. Issuers must submit
these allocations annually to the Exchange, along with an actuarial
memorandum with a detailed description of the methods and specific
bases used to perform the allocations. The Exchange and HHS will use
this memorandum to verify that these allocations meet the standards set
forth in paragraphs (c) and (d) of Sec. 156.470.
We propose that issuers submit the allocation information to the
Exchange as part of the QHP certification process and an annual
submission process for QHPs that are already certified, though an
Exchange may specify alternative submission channels. For example, for
issuers interested in participating in a Federally-facilitated
Exchange, we propose to collect the metal level health plan allocation
information through the Effective Rate Review program. We proposed
revisions to the rate review reporting requirements in the proposed
Market Reform Rule to include the allocation submission. This approach
should streamline the submission process for issuers. We note that
multi-State plans, as defined in Sec. 155.1000(a), are subject to
these provisions. OPM would determine the time and manner for multi-
State plans to submit the allocation information. We welcome comment on
this proposal.
i. Special Cost-Sharing Reduction Rules for Indians
We discuss in greater detail below a number of provisions
throughout this proposed subpart E implementing section 1402(d) of the
Affordable Care Act, which governs cost-sharing reductions for Indians.
Interpretation of section 1402(d)(2) of the Affordable Care Act:
Section 1402(d)(1) of the Affordable Care Act directs a QHP issuer to
treat an Indian with household income not more than 300 percent of the
FPL as an ``eligible insured''--a defined term in the statute
triggering cost-sharing reductions for non-Indians--and to eliminate
all cost sharing for those Indians. Conversely, section 1402(d)(2) of
the Affordable Care Act, which prohibits cost sharing under a plan for
items or services to an Indian enrolled in a QHP provided directly by
the Indian Health Service, an Indian Tribe, Tribal Organization, or
Urban Indian Organization, or through referral under contract health
services, does not direct the issuer to treat the Indian as an
``eligible insured.'' Section 1402(f)(2) of the Affordable Care Act
permits cost-sharing reductions only for months in which the
``insured''--which we interpret to be synonymous with the term
``eligible insured''--is allowed a premium tax credit. The implications
of this interpretation are that cost-sharing reductions under sections
1402(a) and 1402(d)(1) of the Affordable Care Act are only available to
individuals eligible for premium tax credits. However, cost-sharing
reductions under section 1402(d)(2) of the Affordable Care Act would be
available to Indians regardless of their eligibility for premium tax
credits. This approach aligns with the typical practice today, under
which cost sharing is not required with respect to services provided to
an Indian by the IHS, an Indian Tribe, Tribal Organization, or Urban
Indian Organization. Furthermore, as described in Sec. 155.350(b), an
Exchange may determine an Indian eligible for cost-sharing reductions
under section 1402(d)(2) of the Affordable Care Act without requiring
the applicant to request an eligibility determination for insurance
affordability programs. We welcome comment on our interpretation of
sections 1402(d)(2) and 1402(f)(2) of the Affordable Care Act.
We note also that section 1402(d) of the Affordable Care Act
specifies that reductions in cost sharing must be provided to Indians
who purchase coverage on the Exchange. Although section 1402(d)(1) of
the Affordable Care Act applies only to the individual market, section
1402(d)(2) of the Affordable Care Act does not contain this explicit
restriction. We propose to interpret section 1402(d)(2) of the
Affordable Care Act to apply only to the individual market because we
believe section 1402(d)(2) flows from and builds upon the
identification of ``any qualified health plans'' made in section
1402(d)(1). Further, we believe that Congress did not intend for
reductions
[[Page 73179]]
in cost sharing to be available outside the individual market
Exchanges. We welcome comment on this interpretation and any other
interpretation of this language.
Finally, we note that section 1402(d)(2)(B) of the Affordable Care
Act states that QHP issuers are not to reduce payments to the relevant
facility or provider for an item or service by the amount of any cost
sharing that would be due from an Indian but for the prohibition on
cost sharing set forth in section 1402(d)(2) of the Affordable Care
Act. We propose not to codify this provision in regulation because we
believe it is clear and self-enforcing, and because we believe that it
would also be impermissible for an issuer to reduce payments to a
provider for any cost-sharing reductions required under sections
1402(a) or 1402(d)(1) of the Affordable Care Act--particularly because
these cost-sharing reductions are to be reimbursed by HHS. We also note
that nothing in this section exempts an issuer from section 206 of the
Indian Health Care Improvement Act, which provides that the United
States, an Indian Tribe, Tribal organization, or urban Indian
organization has the right to recover from third party payers,
including QHPs, up to the reasonable charges billed for providing
health services, or, if higher, the highest amount an insurer would pay
to other providers.
Proposed provisions of part 156 relating to Indians: Similar to
cost-sharing reductions for non-Indians, we propose to use the concept
of plan variations to describe how Indians would pay only a portion, or
as appropriate, none of the total cost sharing required under that
plan, with the Federal government bearing the remaining cost-sharing
obligation. In Sec. 156.410(b)(2), we propose that a QHP issuer assign
an Indian determined by the Exchange to have an expected household
income that does not exceed 300 percent of the FPL to a zero cost
sharing plan variation of the selected QHP (no matter the level of
coverage) with no cost sharing, based on the enrollment and eligibility
information submitted to the QHP issuer by the Exchange. In Sec.
156.410(b)(3), we propose that a QHP issuer assign an Indian determined
eligible by the Exchange for cost-sharing reductions under section
1402(d)(2) of the Affordable Care Act to a limited cost sharing plan
variation of the selected QHP (no matter the level of coverage) with no
cost sharing required on benefits received from the IHS and certain
other providers. The assignments to the plan variations would be
subject to Sec. 155.305(g)(3), which governs plan variation placement
decisions when a single policy covers two or more individuals who are
eligible for different levels of cost-sharing reductions. We also
considered an alternative approach to the provision of cost-sharing
reductions for Indians. Rather than requiring QHP issuers to assign
Indians to zero and limited cost sharing plan variations, QHP issuers
would simply assign Indians to the standard plan (or as appropriate,
silver plan variation), and would waive the cost-sharing requirements,
as appropriate. We note that this latter approach would permit an
Indian and non-Indian to enroll in the same plan, and for each to
receive the cost-sharing reductions to which they would be individually
entitled. We are proposing the approach described above in part because
we believe that the use of plan variations will permit issuers to
efficiently and effectively provide to all enrollees eligible for cost-
sharing reductions, especially Indians, their appropriate level of
cost-sharing reductions. Because of technical constraints, we
understand that complying with the alternative approach would be nearly
impossible for many issuers for the 2014 benefit year. Due to these
considerations, adopting the alternative approach could lead many
issuers to implement cost-sharing waivers manually, which could lead to
fewer cost-sharing reductions being available to Indians. In addition,
we note that under the proposed Market Reform Rule at Sec.
147.102(c)(1), the total premium for family coverage in a State that
has not adopted community rating principles is to be determined by
summing the premiums for each individual family member (but that
premiums for no more than the three oldest family members who are under
age 21 must be taken into account). Thus, in many instances, a family
made up of Indians and non-Indians would lose no premium savings from
enrolling in different policies to obtain the maximum cost-sharing
reductions for which each family member is eligible. However, we seek
comment on which approach HHS should adopt beginning January 1, 2016.
We propose the approach first described above pending the adoption of
any change in approach. We also seek comment on the burdens that may be
imposed on individuals, providers and insurers under the proposed and
alternative approaches. Finally, we will monitor whether providers are
receiving less payment for Indians who choose to enroll in a family
policy without the benefit of cost-sharing.
In Sec. 156.420(b), we propose that QHP issuers submit to the
Exchange the zero cost sharing plan variation and limited cost sharing
plan variations for each of the QHPs (at any level of coverage) that it
intends to offer on the Exchange. The zero cost sharing plan
variation--addressing cost-sharing reductions under section 1402(d)(1)
of the Affordable Care Act and available to Indians with expected
household incomes that do not exceed 300 percent of the FPL, as
determined under Sec. 155.350(a)--must have all cost sharing
eliminated. The limited cost sharing plan variation--addressing cost-
sharing reductions under section 1402(d)(2) of the Affordable Care Act
and available to all Indians as determined in Sec. 155.350(b)--must
have no cost sharing on any item or service furnished directly by the
IHS, an Indian Tribe, Tribal Organization, Urban Indian Organization,
or through referral under contract health services, as defined in 25
U.S.C. 1603. We note that unlike silver plan variations, zero cost
sharing plan variation and limited cost sharing plan variations must
only be submitted for certification when the standard plan is submitted
for QHP certification. We welcome comment on this proposal.
In Sec. 156.420(d), we propose language similar to that proposed
in Sec. 156.420(c) for silver plan variations--that the zero cost
sharing plan variation and limited cost sharing plan variations cover
the same benefits and include the same providers as the standard QHP,
and require the same out-of-pocket spending for benefits other than
EHB. We also propose that a limited cost sharing plan variation, which
would have no cost sharing on any item or service furnished directly by
the IHS, Indian Tribe, Tribal Organization, or Urban Indian
Organization, or through referral under contract health services, must
have the same cost sharing on items or services not described in Sec.
156.420(b)(2) as the QHP with no cost-sharing reductions. Lastly, we
propose that zero cost sharing plan variation and limited cost sharing
plan variations be subject to all standards applicable to the standard
QHP (except for the requirement that the plan have an AV as set forth
in 156.140(b)). We believe that these standards are appropriate, as a
plan variation and a standard plan are meant to be the same QHP, except
for the reductions in cost sharing. We welcome comment on this
proposal.
Section 1402(d)(3) of the Affordable Care Act directs the Secretary
to pay a QHP issuer the amount necessary to reflect the increase in AV
of a QHP
[[Page 73180]]
required by reason of the changes in cost sharing for Indians under
section 1402(d) of the Affordable Care Act. We propose to use the same
payment approach to reimburse cost-sharing reductions for Indians under
sections 1402(d) as we propose to use for cost-sharing reductions
provided to eligible individuals with household incomes between 100 and
250 percent of the FPL under section 1402(a) of the Affordable Care
Act. That is, we propose that QHP issuers submit estimates for the
dollar value of the cost-sharing reductions to be provided under the
zero cost sharing plan variation and limited cost sharing plan
variations, to receive advance payments, and then reconcile the advance
payments to the actual cost-sharing reduction amounts. This unified
approach satisfies both the requirement for ``periodic and timely
payments equal to the value of the reductions'' under section
1402(c)(3) of the Affordable Care Act, and payment of ``the amount
necessary to reflect the increase in AV of the plan'' under section
1402(d)(3) of the Affordable Care Act. Because AV is a mechanism for
identifying how much the plan pays for benefits compared to the costs
paid by an enrollee, we believe reimbursement of the dollar value of
the reductions satisfies the requirement to pay QHP issuers an amount
necessary to reflect the increase in actuarial value of the qualified
health plan as a result of the reductions. Furthermore, at this time,
it would be difficult for issuers and HHS to accurately estimate the
``increase in AV of the plan'' resulting from the cost-sharing
reduction rules for Indians. Relevant data on Indian populations' cost
sharing is not easily available, and issuers would not be able to use
the AV calculator to estimate Indian-only cost-sharing features of a
plan because the calculator is based on a standard population. Our
proposed combined approach to reimbursing both cost-sharing reductions
for eligible individuals with household incomes between 100 and 250
percent of the FPL and cost-sharing reductions for Indians should
reduce the operational and financial burden on issuers and HHS, who
would otherwise be required to operate under and implement two separate
reimbursement programs.
In Sec. 156.430(a)(1)(ii) we propose that for each metal level QHP
that an issuer offers or intends to offer in the individual market on
the Exchange, the issuer must provide to the Exchange annually prior to
the benefit year, for approval by HHS, estimates, and supporting
documentation validating the estimates, of the per member per month
dollar value of cost-sharing reductions to be provided under the zero
cost sharing plan variation. These estimates must be developed using
the methodology specified by HHS in the applicable annual HHS notice of
benefit and payment parameters. We propose that issuers use the same
methodology described above for estimating advance payments for the
cost-sharing reductions provided under silver plan variations for
estimating advance payments for the cost-sharing reductions provided
under the zero cost sharing plan variation. This methodology would
utilize data that QHP issuers submit for other requirements, such as
Sec. 156.420 and Sec. 156.470. As a result, QHP issuers would not be
required to submit separate estimates or supporting documentation to
receive advance payments in benefit year 2014 for the value of the
cost-sharing reductions that would be provided under the zero cost
sharing plan variation.
As in the case of silver plan variations, the following formula
would be used:
[GRAPHIC] [TIFF OMITTED] TP07DE12.014
In this formula, the monthly expected allowed claims cost for the
zero cost sharing plan variation would equal one-twelfth of the
expected allowed claims costs allocated to EHB, other than services
described in Sec. 156.280(d)(1), for the standard plan, multiplied by
a factor to account for the increased utilization that may occur under
the zero cost sharing plan variation due to the elimination of the
cost-sharing requirements. As described in Sec. 156.470, the QHP
issuer should submit the expected allowed claims cost information to
the Exchange annually. The Exchange would then review this allocation,
and submit the approved allocation to HHS, as described in Sec.
155.1030(b)(2), for use in the advance payment calculation. HHS would
then multiply the monthly expected allowed claims cost by the induced
utilization factor, to arrive at the monthly expected allowed claims
cost for the zero cost sharing plan variation. We propose the following
induced utilization factors for the zero cost sharing plan variation,
based on our analysis of the HIC database from calendar year 2010.
Table 17--Induced Utilization Factors for Advance Payments for Cost-
Sharing Reductions for Indians
------------------------------------------------------------------------
Induced
Zero cost sharing plan variation utilization
factor
------------------------------------------------------------------------
Zero Cost Sharing Plan Variation of Bronze QHP............ 1.15
Zero Cost Sharing Plan Variation of Silver QHP............ 1.12
Zero Cost Sharing Plan Variation of Gold QHP.............. 1.07
Zero Cost Sharing Plan Variation of Platinum QHP.......... 1.00
------------------------------------------------------------------------
In the second half of the formula, we propose to multiply the
monthly expected allowed claims cost for the zero cost sharing plan
variation by the difference in AV between the standard plan and the
plan variation. The AV of the zero cost sharing plan variation would be
100, because all cost sharing is eliminated for this plan variation.
Lastly, the per enrollee per month estimate will be multiplied by the
number of individuals assigned to the zero cost sharing plan variation
(based on the most recent confirmed enrollment data) in a given month
to arrive at the total advance payment that will be provided to the
issuer for each QHP. We welcome comment on this methodology and the
proposed induced utilization factor, as well as the value of increasing
the complexity of the methodology versus the value of operational
efficiency.
In Sec. 156.430(a)(2), we discuss the process for estimating the
value of cost-sharing reductions to be provided under the limited cost
sharing plan variation open to Indians regardless of household income.
We propose that QHP issuers have the option to forgo submitting an
estimate of the value of these cost-sharing reductions if they believe
the operational cost of developing the estimate is not worth the value
of the
[[Page 73181]]
advance payment. If a QHP issuer chooses to not submit an estimate, the
issuer would provide the cost-sharing reductions as required, and would
be reimbursed by HHS after the close of the benefit year, as proposed
in Sec. 156.430(c). If a QHP issuer does seek advance payments for the
these cost-sharing reductions, the issuer must provide to the Exchange
annually prior to the benefit year, for approval by HHS, an estimate,
and supporting documentation validating the estimate, of the per member
per month dollar value of the cost-sharing reductions to be provided
under the limited cost sharing plan variation of the QHP. The estimate
must be developed using the methodology specified by HHS in the
applicable annual HHS notice of benefit and payment parameters. For the
2014 benefit year, we simply propose that issuers submit a reasonable
estimate of the value of the reductions, developed by a member of the
American Academy of Actuaries in accordance with generally accepted
actuarial principles and methodologies, and that the estimate should be
no higher than the corresponding estimate for the zero cost sharing
plan variation. We do not propose a standardized methodology because,
unlike other plan variations, these cost-sharing reductions are to be
provided for only a specific subset of providers, and the Affordable
Care Act does not prescribe an AV for these reductions. As noted above,
because the actuarial value calculator is based on a standard
population, it will not have the functionality to generate an accurate
AV for these plan variations. However, as in the case of the other plan
variations, we plan to review the methodology for calculating the
advance payments once more data is available. We also note that the
payment reconciliation process described in Sec. 156.430(c) through
(e) would ensure that the QHP issuer is made whole for the value of any
cost-sharing reductions provided during the benefit year that may not
be adequately covered by the advance payments.
The Exchange will collect the estimate and supporting
documentation, as described in Sec. 155.1030(b)(3), and submit the
estimate and supporting documentation to HHS for review. Assuming the
estimate is reasonable, HHS would make advance payments to the QHP
issuer following the same procedure as for the other plan variations,
and as discussed in Sec. 156.430(b).
We welcome comment on this approach.
F. Provisions on User Fees for a Federally-Facilitated Exchange (FFE)
Section 1311(d)(5)(A) of the Affordable Care Act contemplates an
Exchange charging assessments or user fees to participating health
insurance issuers to generate funding to support its operations. If a
State is not an electing State or does not have an approved Exchange,
section 1321(c)(1) directs HHS to operate an Exchange within the State.
In addition, 31 U.S.C. 9701 permits an agency to establish a charge for
a service provided by the agency. Circular No. A-25R establishes
Federal policy regarding user fees, and specifies that a user charge
will be assessed against each identifiable recipient for special
benefits derived from Federal activities beyond those received by the
general public. Based on section 1311(d)(5)(A) of the Affordable Care
Act and Circular No. A-25, we are proposing that HHS collect a user fee
from participating issuers (as defined in Sec. 156.50(a)) to support
the operation of Federally-facilitated Exchanges. Participating issuers
will receive two special benefits not available to the general public
when they offer plans through a Federally-facilitated Exchange: (1) The
certification of their plans as QHPs, and (2) the ability to sell
health insurance coverage through a Federally-facilitated Exchange to
individuals determined eligible for enrollment in a QHP. These special
benefits are provided to participating issuers based on the following
Federal operations in connection with the operation of Federally-
facilitated Exchanges:
Provision of consumer assistance tools;
Consumer outreach and education;
Management of a Navigator program;
Regulation of agents and brokers;
Eligibility determinations;
Administration of advance payments of the premium tax
credit and cost-sharing reductions;
Enrollment processes;
Certification processes for QHPs (including ongoing
compliance verification, recertification and decertification); and
Administration of a SHOP Exchange.
Activities performed by the Federal government that do not provide
issuers participating in a Federally-facilitated Exchange with a
special benefit will not be covered by this user fee.
Circular No. A-25R states that user charges should generally be set
at a level so that they are sufficient to recover the full cost to the
Federal government of providing the service when the government is
acting in its capacity as sovereign (as is the case when HHS operates a
Federally-facilitated Exchange). However, Circular No. A-25R also
allows for exceptions to this policy, if approved by OMB. To maintain a
competitive balance between plans inside and outside the Exchanges, to
align with the administrative cost structure of State-based Exchanges,
and because we believe that growing enrollment is likely to increase
user fee receipts in future years, we have requested an exception to
the policy for 2014. As a result, in Sec. 156.50(c), we propose that a
participating issuer offering a plan through a Federally-facilitated
Exchange remit a user fee to HHS each month, in the time and manner
established by HHS, equal to the product of the billable members
enrolled through the Exchange in the plan offered by the issuer, and
the monthly user fee rate specified in the annual HHS notice of benefit
and payment parameters for the applicable benefit year. For purposes of
this paragraph, billable members are defined under the proposed Sec.
147.102(c)(1) as the number of members on a policy, with a limitation
of three family members under age 21. This approach will ensure that
the user fee generally aligns with the number of enrollees for each
issuer.
For the 2014 benefit year, we propose a monthly user fee rate equal
to 3.5 percent of the monthly premium charged by the issuer for a
particular policy under the plan. We seek to align this rate with rates
charged by State-based Exchanges, and may adjust this rate to take into
account comparable State-based Exchange rates in the final Payment
Notice. We note that this policy does not affect the ability of a State
to use grants described in section 1311 of the Affordable Care Act to
develop functions that a State elects to operate under a Partnership
Exchange, and to support State activities to build interfaces with a
Federally-facilitated Exchange, as described in the ``State Exchange
Implementation Questions and Answers,'' published November 29, 2011.
Circular No. A-25R provides for a user fee to be collected
simultaneously with the rendering of services, and thus we further
propose to assess user fees throughout the benefit year in which
coverage is offered. Additional guidance on user fee collection
processes will be provided in the future; however, we anticipate that
user fees will be calculated based on the number of billable members
enrolled in a plan each month. We anticipate collecting
[[Page 73182]]
user fees by deducting the user fee from Exchange-related program
payments. If an issuer does not receive any Exchange-related program
payments, the issuer would be invoiced for the user fee on a monthly
basis. We welcome comment on these proposals and the operational
processes related to user fee assessment and collections.
In addition, we welcome comments on a policy that we are
considering that would provide for the pooling of Exchange user fees or
all administrative costs across a particular market (however, the user
fee would be collected only from issuers participating in the
Federally-facilitated Exchange). The Market Reform proposed rule
proposes an implementation of section 1312(c) of the Affordable Care
Act under which the claims experience of all enrollees in health plans
offered by an issuer in a State in the individual, small group, or
combined market, as applicable, are to be pooled. We are considering
further developing this policy, which we would codify in regulation at
Sec. 156.80,\41\ by requiring that Exchange user fees also be subject
to risk pooling. Specifically, we are considering proposing that
issuers be allowed an adjustment to the index rate for the pooled,
expected Exchange user fees for the set of health plans offered in a
particular market. We are considering this additional specification to
provide further protection against adverse selection for QHP coverage,
and to ensure that the costs of Exchange user fees are spread evenly
across the market. We seek comment on this policy, including whether it
should apply to a broader set of administrative costs. For example,
under this alternative, it could apply to both Exchange user fees and
distribution costs, or all administrative costs. In addition, we seek
comment on an alternative approach, under which the proposed risk
pooling would apply across all health plans within a product (defined
as a specific set of benefits), rather than across a market.
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\41\ We issued a proposed regulation on risk pooling at Sec.
156.80 of the proposed Market Reform Rule.
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G. Distributed Data Collection for the HHS-Operated Risk Adjustment and
Reinsurance Programs
1. Background
The Premium Stabilization Rule specifies at Sec. 153.20 that a
risk adjustment methodology must include a risk adjustment data
collection approach. Therefore, the Federally certified risk adjustment
methodology described in this proposed rule must include such a data
collection approach. As already discussed, we propose to add new Sec.
153.420(a) to establish that an issuer of a reinsurance-eligible plan
must submit or make accessible all required reinsurance data in
accordance with the reinsurance data collection approach established by
the State, or by HHS on behalf of the State. In addition, we propose to
amend Part 153 by adding Subpart H, entitled ``Distributed Data
Collection for HHS-Operated Programs.'' We intend to clarify in Subpart
H the data collection process that HHS would use when operating a risk
adjustment or reinsurance program on behalf of a State.
In the preamble to the proposed Premium Stabilization Rule, we
described a distributed approach as one in which each issuer formats
its own data in a manner consistent with the risk assessment database,
and then passes risk scores to the entity responsible for assessing
risk adjustment charges and payments. In the preamble to the Premium
Stabilization Rule, we indicated that we intend to use a distributed
approach to collect data for the HHS-operated risk adjustment program.
In the Reinsurance Bulletin, we stated that we will also use such an
approach when we operate the reinsurance program. We believe that this
approach minimizes issuer burden while protecting enrollees' privacy.
2. Issuer Data Collection and Submission Requirements
Under the HHS-operated risk adjustment and reinsurance programs,
HHS will use a distributed data collection approach to run software on
enrollee-level and claims-level data that reside on an issuer's
dedicated data environment. This approach will require close
technological coordination between issuers and HHS.
Distributed data environment: In Sec. 153.700(a), we propose that
an issuer of a risk adjustment covered plan or a reinsurance-eligible
plan in a State where HHS is operating the risk adjustment or
reinsurance program on behalf of the State, must establish a dedicated
data environment and provide data access to HHS, in a manner and
timeframe specified by HHS, for risk adjustment and reinsurance
operations. To accomplish the distributed data collection approach for
both the reinsurance and risk adjustment programs, issuers would be
required to establish secure, dedicated, electronic server environments
to house medical and pharmacy claims, encounter data, and enrollment
information. Issuers would be directed to make this data accessible to
HHS in HHS-specified electronic formats, and to provide HHS with access
to the data environment to install, update, and operate common software
and specific reference tables for the purpose of executing risk
adjustment and reinsurance program operations. Issuers would also be
directed to correct submitted files to resolve problems detected by HHS
during file processing. We will provide further technical details on
these standards in the future.
We note that HHS will store, in a private and secure HHS computing
environment, aggregate plan summary data and reports based on
activities performed on each issuer's dedicated server environment.
Except for purposes of data validation and audit, HHS will not store
any personally identifiable enrollee information or individual claim-
level information.
We propose in Sec. 153.700(b) that issuers must establish the
dedicated data environment (and confirm proper establishment through
successfully testing the environment to conform with HHS standards for
such testing) three months prior to the first date of full operation.
For example, for benefit year 2014, implementation, including testing,
will begin in March 2013, and continue through October 2013, in
preparation for the commencement of risk adjustment and reinsurance
program operations on January 1, 2014. HHS also plans to schedule
technical assistance trainings for issuers in 2013.
Data Requirements: In Sec. 153.710(a), we propose that an issuer
of a risk adjustment covered plan or reinsurance-eligible plan in a
State in which HHS is operating the risk adjustment or reinsurance
program, as applicable, must provide to HHS, through the dedicated data
environment, access to the enrollee-level plan enrollment data,
enrollee claims data, and enrollee encounter data specified by HHS.
We propose in Sec. 153.710(b) that all claims data submitted by an
issuer of a risk adjustment covered plan or reinsurance-eligible plan
in a State in which HHS is operating the risk adjustment or reinsurance
program, as applicable, must have resulted in payment by the issuer.
The enrollee-level data must include information from claims and
encounter data (including data related to cost-sharing reductions, to
permit HHS to calculate enrollee paid claims net of cost-sharing
reductions) as sourced from all medical and pharmacy providers,
suppliers, physicians, or other practitioners who furnished items or
services to the issuer's health plan members for all permitted paid
medical and pharmacy services during the benefit period. All
[[Page 73183]]
data must be provided at the level of aggregation specified by HHS.
A listing of required data, proposed data formats, and data
definitions for the HHS-operated distributed data approaches for the
risk adjustment and reinsurance programs will be provided in the PRA
approved under OMB Control Number (OCN) 0938-1155 with an October 31,
2015 expiration date.
In Sec. 153.710(c), we propose that an issuer that does not
generate claims in the normal course of business \42\ must derive costs
on all applicable provider encounters using their principal internal
methodology for pricing those encounters (for example, a pricing
methodology used for the Medicare Advantage encounter data collection).
If a plan has no such methodology, or has an incomplete methodology, it
would be permitted to implement a methodology or supplement the
methodology in a manner that yields derived claims that are reasonable
in light of the specific market that the plan is serving.
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\42\ Examples of such plans include staff-model health
maintenance organizations and plans that pay providers on a
capitated basis.
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Establishment and usage of masked enrollee identification numbers:
We propose in Sec. 153.720(a) that an issuer of a risk adjustment
covered plan or reinsurance-eligible plan in a State in which HHS is
operating the risk adjustment or reinsurance program, as applicable,
must establish an unique masked enrollee identification number for each
enrollee, in accordance with HHS-defined requirements as described in
this section, and maintain the same masked enrollee identification
number for an enrollee across enrollments or plans within the issuer,
within the State, during a benefit year. In Sec. 153.720(b), we
propose that an issuer of a risk adjustment covered plan or
reinsurance-eligible plan in a State in which HHS is operating the risk
adjustment or reinsurance program, as applicable, may not include an
enrollee's personally identifiable information in the masked enrollee
identification number or use the same masked enrollee identification
number for different enrollees enrolled with the issuer. The
requirements here align the specific requirements for data collection
with the requirements in Sec. 153.340(b) of the Premium Stabilization
Rule and the proposed Sec. 153.240(d). As discussed above, the term
``personally identifiable information'' is a broadly used term across
Federal agencies, and has been defined in the Office of Management and
Budget Memorandum M-07-16 (May 22, 2007).\43\ To reduce duplicative
guidance or potentially conflicting regulatory language, we are not
defining personally identifiable information in this proposed rule, and
incorporate the aforementioned definition in to this proposed rule.
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\43\ Available at: http://www.whitehouse.gov/sites/default/files/omb/memoranda/fy2007/m07-16.pdf.
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Deadline for submission of data: We propose in Sec. 153.730 that
an issuer of a risk adjustment covered plan or reinsurance-eligible
plan in a State in which HHS is operating the risk adjustment or
reinsurance program, as applicable, submit data to be considered for
risk adjustment payments and charges and reinsurance payments for the
applicable benefit year by April 30 of the year following the end of
the applicable benefit year. This timeline will permit sufficient time
for HHS to calculate and notify issuers of those payments and charges
in time to meet the June 30 deadline set forth in Sec. 153.310(e), as
proposed to be renumbered, and proposed in Sec. 153.240(b)(1).
Proposed Sec. 153.240(b)(2) provides that States administering
their own reinsurance program must notify issuers of reinsurance-
eligible plans of their expected requests for reinsurance payments on a
quarterly basis. We believe that these interim reports will provide
issuers in the individual market with information to assist in the
development of premiums and rates in subsequent benefit years.
Acceptable enrollment and claims/encounter data not submitted in a
timely manner will be considered in the next quarter or during the
annual processing period. The annual reinsurance payments will not be
determined until after April 30 of the year following the applicable
benefit year, once all requests for reinsurance payments have been
submitted, and any adjustments have been made under proposed Sec.
153.230(d). Therefore, for claims to be eligible for reinsurance
payments, acceptable enrollment and paid claims or encounter data must
be available on the issuer's environment prior to the April 30
deadline, as specified in future guidance.
3. Risk Adjustment Data Requirements
HHS's data collection approach is aligned with the HHS risk
adjustment model and its calculation of payments and charges. This
section describes the types of data that will be acceptable for risk
adjustment.
a. Data collection period: The data collection period will
encompass enrollment and services for the applicable benefit year.
(1) Claim-level service dates. Institutional and medical claims and
encounter data where the discharge date or through date of service
occurs in the applicable benefit year will be allowed for risk
adjustment, provided that all other criteria defined under this section
are met.
(2) Enrollment periods. Issuers must provide data for all
individuals enrolled in risk adjustment covered plans in the applicable
benefit year with enrollment effective dates beginning on or after
January 1 of that benefit year.
b. Acceptable Risk Adjustment Data. Acceptable risk adjustment data
for enrollee risk score calculation will be determined using the
criteria listed below.
(1) Acceptable claim types. Data to calculate enrollee risk scores
will include diagnoses reported on institutional and medical claims
that result in final payment action or encounters that result in final
accepted status. The specific criteria for capturing a complete
inpatient stay (across multiple bills) for single hospital admission
will be provided in future guidance.
(2) Acceptable provider types. Diagnoses reported on certain
hospital inpatient facility, hospital outpatient and physician provider
claims will be acceptable for risk adjustment. The risk adjustment
model discussion provides HHS' description for identifying and
excluding claims from providers based on these criteria.
(3) Acceptable diagnoses. Diagnoses will be acceptable for enrollee
risk score calculation if they are present on medical claims and
encounters that meet criteria that are acceptable for HHS-operated risk
adjustment data collection.
c. Risk Adjustment Processing and Reporting. Issuers are
responsible for correcting errors and problems identified by HHS in the
distributed data environment.
4. Reinsurance Data Requirements
This section describes the types of data that would be necessary
for the evaluation of claims eligible for reinsurance payments to
reinsurance-eligible plans as defined under Sec. 153.20. HHS would use
the same distributed data collection approach used for risk adjustment;
however, only data elements necessary for reinsurance claim selection
will be considered for the purpose of determining a reinsurance
payment. Data considered acceptable for reinsurance payment
calculations are described below.
a. Data collection period. Medical and pharmacy claims, where a
claim was
[[Page 73184]]
incurred in the benefit year beginning on or after January 1 of the
applicable benefit year and paid before the applicable data submission
deadline (provided all other criteria are met) would be accepted for
consideration.
b. Acceptable Reinsurance Data. Acceptable reinsurance data leading
to eligible claim selection for the reinsurance program will be
determined using the criteria listed below.
(1) Claim types. Data to identify eligible reinsurance paid claims
would include medical and pharmacy claims. Claims that resulted in
payment by the issuer as the final action and encounters priced in
accordance with issuer pricing methodologies would be considered for
payment. Replacement claims for the purposes of adjusting data elements
submitted on prior claim submissions, including, but not limited to
changes in payment amounts, services rendered, diagnosis, would be
accepted, but interim bills and late charges would not be accepted. The
specific criteria for submitting complete data for inpatient stays will
be provided in future guidance.
(2) Capitated plans: Encounter data submitted by issuers that do
not generate claims in the normal course of business would be accepted
for consideration when services were performed in the benefit year
beginning on or after January 1, 2014 and submitted prior to the
applicable data-submission deadline. Specific information related to
the assessment and application of encounter claims for reinsurance
calculations will be provided in future guidance.
c. Reinsurance Processing and Reporting. HHS plans to provide each
issuer with a periodic report on data functions performed in each
issuer's distributed data environment, including the identification of
reinsurance eligible claims by State. The reports would indicate
whether HHS accepted or rejected submitted files and data, and errors
detected by HHS. Issuers would need to provide corrected files and data
to address errors identified in HHS-provided reports for those files
and data to be eligible for identification during reinsurance
processing. Timeframes for the processing and reporting of these
reports, including receipt of corrected files or discrepancy
resolution, will be provided in future guidance.
H. Small Business Health Options Program
1. Employee Choice in the Federally-Facilitated SHOP (FF-SHOP)
Employee choice is a central SHOP concept, and facilitating
employee choice at a single level of coverage selected by the
employer--bronze, silver, gold, or platinum--is a required SHOP
function.\44\ In addition, the SHOP may also allow a qualified employer
to make QHPs available to employees by other methods.\45\ For the FF-
SHOP, we continue to consider whether to allow a qualified employer to
offer its employees only a single QHP. We note that, once an employer
has selected a single QHP and decided on a contribution toward that
QHP, the employer can then offer employees a choice of all the other
plans at the same metal level at no additional cost to the employer.
Since adding employee choice would have no adverse financial impact on
the employer, we propose that Federally-facilitated SHOPs will not
offer a single QHP option to employers but will focus instead on the
innovative features of a SHOP: A simpler employer experience and
enhanced employee choice. In FF-SHOPs, we propose that employers will
choose a level of coverage (bronze, silver, gold, or platinum) and a
contribution, and employees can then choose any QHP at that level.
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\44\ Sec. 155.705(b)(2).
\45\ Sec. 155.705(b)(3).
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In addition to this choice within single level of coverage, many
employers expressed support for employer and employee choice across
metal levels both in comments to the Exchange Establishment NPRM and in
stakeholder discussions. Issuers, however, have expressed concern about
the potential risk segmentation that may result. In comments submitted
to HHS in connection with the Exchange Final Rule,\46\ issuers urged
that employee choice be limited to a single level of coverage selected
by the employer based on the potential for risk segmentation with a
greater degree of employee choice. There was general agreement among
these commenters that the degree of risk segmentation is small if
employee choice is limited to a single metal level of coverage,
particularly given the presence of risk adjustment, and increases as
employee choice is extended across metal levels of coverage. Many
commenters suggested that the risk segmentation associated with broad
choice across all metal levels may adversely affect premiums.
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\46\ Patient Protection and Affordable Care Act; Establishment
of Exchanges and Qualified Health Plans; Exchange Standards for
Employers (CMS-9989), 77 FR 18310 (Mar. 27, 2012).
---------------------------------------------------------------------------
Some issuers expressed openness to allowing the employee to ``buy
up'' to certain plans at the next higher level of coverage, thereby
offering employees a broader range of health plans. Therefore, we seek
comment on adding an additional employer option in the FF-SHOP that
would allow a qualified employer to make available to employees all
QHPs at the level of coverage selected by the employer plus any QHPs at
the next higher level of coverage that a QHP issuer agrees to make
available under this option. QHP issuers could decide whether or not to
make available QHPs at the next higher level of coverage above the
level of coverage selected by the employer.
We note that concerns about risk selection will be mitigated both
by the risk adjustment program which addresses risk selection directly
and by consumer tools showing expected ``total costs'' of coverage
(premium, deductibles, copayments and coinsurance) that help consumers
compare the cost of a high premium/low cost sharing plan with a low
premium/high cost sharing plan. Nonetheless, particularly in the early
years of implementation, the FF-SHOP in each State will need to balance
the fundamental goal of enhancing employer and employee choice against
concerns about potential risk selection to achieve the broadest issuer
participation, the best range of plan design choices, and the most
effective competition in the small group market. Therefore, we seek
comment on a transitional policy in which a Federally-facilitated SHOP
would allow or direct employers to choose a single QHP from those
offered through the SHOP.
2. Methods for Employer Contributions in the FF-SHOP
Employers may elect a variety of ways to contribute toward health
coverage that are consistent with Federal law. Because employees in the
FF-SHOP will be choosing their own coverage and will need to know the
net cost to them after the employer's contribution, the employer will
need to choose a contribution method before employees select their
qualified health plans. To facilitate this, each SHOP would offer
``safe harbor'' methods of contributing toward the employee coverage--
methods that reflect a meaningful employer choice and that conform to
existing Federal law. The safe harbor methods described below are not
the only allowable methods of contribution, but are those that will be
available initially to qualified employers participating in FF-SHOPs.
Under this proposed rule at Sec. 155.705(b)(11), FF-SHOPs would
base the employer contribution methods on the cost of a reference plan
chosen by the qualified employer. This reference plan approach is one
of the methods
[[Page 73185]]
described in section III.G. of IRS Notice 2010-82 regarding allowable
ways an employer may contribute to the employees' premiums and qualify
for the small business premium tax credit prior to 2014.\47\ We note
that the IRS plans to issue additional guidance applicable to plan
years beginning after 2013.
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\47\ IRS Notice 2010-82, section III.G. describes employer
contribution methods using a reference plan with a variety of
different rating methods: Per member rating (referred to in the
Notice as ``list billing''), composite rating (referred to as
``composite billing''), and the hybrid method (referred to as an
``employer-computed composite rate''). Although prepared as guidance
regarding employer contributions eligible for the small business
premium tax credit and applicable only through 2013, it provides a
clear description of ``safe harbor'' methods that will be used in
the FF-SHOP.
---------------------------------------------------------------------------
The IRS Notice describes two types of reference plan premiums--one
in which the premium for the reference plan is a composite premium that
is the same for each member and a second in which the premium for the
reference plan varies with the age of the covered individual (or other
permissible rating factor). In both cases, the small business can
define its contribution toward a member's coverage as a percentage of
the premium for the reference plan.
Except in States that prohibit employee contributions that vary by
age or require issuers to quote only composite premiums, the qualified
employer would be asked the following question: ``Do you want each
employee to contribute the same amount toward the reference plan
premium, or do you want the employee's contribution to vary with age
within the allowed limits?'' 48 49 This option to charge
younger employees lower premiums for a given coverage may help attract
younger individuals into the risk pool and may help employer groups
meet any minimum participation rates. On the other hand, this option
also results in higher premium contributions by older employees who are
also more likely to incur higher out-of-pocket costs.\50\
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\48\ Thus, the ratio of the employee contribution made by the
oldest adult and the youngest adult toward the reference plan cannot
exceed 3:1 before any tobacco use factor is applied.
\49\ Because tobacco use information from employees will not be
available when estimating total premiums for the group and average
premiums per employee, tobacco use will always be a surcharge
applied to an employee's or dependent's premium. See the proposed
Health Insurance Market Rules (77 FR at 70595-70597) and the
Incentives for Nondiscriminatory Wellness Programs in Group Health
Plans Proposed Rule (77 FR 70620) for further discussion of the
tobacco use surcharge and wellness programs.
\50\ See 29 CFR 1625.10 for a description of the ways in which
employee contributions toward premiums may vary according to
employee age without constituting impermissible age discrimination.
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If the qualified employer decides that the employee's contribution
should vary by age, then the employer contribution would be based on
the reference plan, and the remaining employee contribution for the
employee's plan would not be affected by other employees' decisions
about participation. Once the employees have chosen their plans, the
qualified employer would approve the final application and the FF-SHOP
would enroll the employees in their chosen health plans.
If the qualified employer decides that each employee pays the same
amount for the reference plan coverage, regardless of age, the
composite premium for the reference plan, and the employer contribution
based on that plan, may change based on which employees choose to
participate, just as composite premiums may need to be re-quoted by the
issuer today. Operationally, once the employee choices have been made,
the composite premium for the reference plan would be recalculated, and
the employer and employees notified of any changes.
We welcome comments on this approach.
3. Linking Issuer Participation in an FFE to Participation in an FF-
SHOP
Consistent with the goal of ensuring choice of affordable insurance
plans, in this proposed rule, we propose standards that we believe will
help ensure that qualified employers and qualified employees enrolling
through a FF-SHOP are offered a robust set of QHP choices in a
competitive small group marketplace. We believe that a competitive
marketplace offering qualified individuals, qualified employers, and
qualified employees a choice of issuers and QHPs is a central goal of
the Affordable Care Act, and that the SHOP can provide an effective way
for small employers to offer their employees a choice of issuers and
QHPs. We propose in Sec. 156.200(g) to leverage issuers' participation
in an FFE to ensure participation in the FF-SHOP, provided that no
issuer would be required to begin offering small group market products
as a result of this provision.
While a State-operated SHOP has a variety of options available to
ensure a robust choice of QHPs and issuers, an FFE is limited to the
QHP certification process. We propose in Sec. 156.200(g) that an FFE
may certify a QHP in the individual market of an FFE only if the QHP
issuer meets one of the following conditions: (1) The issuer offers
through the FF-SHOP serving that State at least one small group market
QHP at the silver level of coverage and one at the gold level of
coverage; (2) the QHP issuer does not offer small group market plans in
that State, but another issuer in the same issuer group (as defined
below) offers through the FF-SHOP serving that State at least one small
group market QHP at the silver level of coverage and one at the gold
level of coverage; or (3) neither the issuer nor any issuer in the same
issuer group offers a small group market product in the State. Thus, no
issuer would be required to begin offering small group market plans to
meet this requirement.
We note that Sec. 156.515(c)(2) has already implemented similar
provisions for the Consumer Operated and Oriented Plans (CO-OPs). A CO-
OP is not required to offer plans in the small group market, but if the
CO-OP does offer a small group market plan, it must offer a silver and
a gold QHP in each SHOP that serves the geographic regions in which the
CO-OP offers coverage in the small group market.
We propose to add to Sec. 156.20 a definition of ``issuer group''
that will be specific to this section of the regulations. The proposed
definition includes both issuers affiliated by common ownership and
control and issuers affiliated by the common use of a nationally
licensed service mark. We believe that either of these elements--common
control or common use of a licensed mark--would appropriately identify
an issuer group. We define ``issuer group'' to help assure that the
certification standard linking Exchange participation with SHOP
participation has similar effects on small issuers and large issuer
groups. We seek comment on this issue and whether or not the policy
meets its three intended goals: Enhancing employer and employee choice,
assuring similar effects on single issuers and issuer groups, and not
requiring any issuer not already offering coverage, to begin offering
coverage in the small group market.
4. Broker Compensation for Coverage Sold Through an FFE or FF-SHOP
While a State also has a variety of policies it might adopt with
regard to broker compensation that would help create a level playing
field for enrollment inside and outside the SHOP due to the State's
broad authority to regulate insurance markets, FFE and FF-SHOP options
for creating a level playing field are again limited to QHP
certification standards. In a new paragraph Sec. 156.200(f), we
propose that QHP certification by an FFE and an FF-
[[Page 73186]]
SHOP be conditioned on the QHP issuer paying similar broker
compensation for QHPs offered through a FFE or FF-SHOP that it would
pay for similar health plans offered outside an FFE and an FF-SHOP. We
request comment on whether ``similar health plans'' is a sufficient
standard and if not, which factors should be considered in identifying
``similar health plans.'' We also request comment on how this standard
might apply when small group market product commissions are calculated
on a basis other than an amount per employee or covered life or a
percentage of premium.
5. Minimum Participation Rate in the FF-SHOP
Section 155.705(b)(10) specifies that a SHOP may establish a
uniform minimum participation rate for its QHPs. Further rulemaking is
needed to establish a minimum participation rate in the FF-SHOP. We
recognized in the proposed Exchange Establishment Rule, 76 FR at 41886,
that minimum participation rates calculated at the level of the issuer
are currently in wide use by issuers as one method to reduce the
potential for adverse selection. We note here that the ability of a
SHOP, including an FF-SHOP, to adopt a minimum participation rate as an
exception to the guaranteed issue requirements of the Affordable Care
Act is dependent on the final adoption of Sec. 147.104(b)(1) of the
proposed Health Insurance Market Rule, (77 FR 70612), which conditions
employer eligibility for the year-around open enrollment period in the
SHOP (or FF-SHOP) on meeting any minimum participation rate that the
SHOP (or FF-SHOP) might establish.
Because we believe risk selection based on employee decisions to
participate is likely without a minimum participation rate, we propose
a minimum participation rate for the FF-SHOP of 70 percent, calculated
at the level of the FF-SHOP. This rate is based on consultations with
issuer organizations and regulators about customary minimum
participation rates and would apply to all qualified employers in the
FF-SHOP serving a given State. Because State law, regulation, and
market practices vary from State to State, we also propose an option
for the FF-SHOP to adopt a different uniform minimum participation rate
in a State with a FF-SHOP if there is evidence that:
(1) A State law sets the rate; or
(2) A higher or lower rate is customarily used by the majority of
QHP issuers in that State for products in the State's small group
market outside the SHOP.
In addition, in accordance with State laws, we propose that certain
types of alternative coverage will exclude an employee entirely from
the calculation of the minimum participation rate:
(1) A group health plan offered by another employer; or
(2) A governmental program such as Medicare, Medicaid, or TRICARE.
We seek comment on the default minimum participation rate and the
exceptions that will help ensure alignment with current State practice
and standards inside and outside the SHOP.
6. Determining Employer Size for Purposes of SHOP Participation
While the Exchange Establishment Rule did not finalize a method for
determining employer size, we note that part-time employees must be
taken into account in some reasonable way to be consistent with the
Affordable Care Act standards for determining employer size. We propose
to amend the definitions of ``small employer'' and ``large employer''
in Sec. 155.20 to specify the method for determining employer size and
to add the definition of large employer to Sec. 157.20. In determining
whether an employer is a small employer for purposes related to the
SHOP, we propose that the full-time equivalent method used in section
4980H(c)(2)(e) of the Code, as added by section 1513 of the Affordable
Care Act, be used. We seek comment on the proposed definition. We
believe that having a single method will provide greater clarity and
simplicity both for employers and for States seeking to reconcile State
methods of determining group size with Federal methods in the operation
of Exchanges and for determining employer eligibility to participate in
the SHOP. We discuss the timing of this action in the ``Transitional
Policies'' section below.
7. Definition of a Full-Time Employee for Purposes of Exchanges and
SHOPs
Section 1312(f)(2)(A) of the Affordable Care Act defines a
qualified employer as one ``that elects to make all full-time employees
of such employer eligible for one or more qualified health plans
offered in the small group market through an Exchange that offers
qualified health plans.'' The Affordable Care Act does not define a
full-time employee for purposes of this provision. We propose to add to
Sec. 155.20 a definition of full-time employee that cross-references
section 4980H(c)(4) of the Code, which provides that a full-time
employee with respect to any month is generally an employee who is
employed an average at least 30 hours of service per week, subject to
the transitional policies discussed in the next paragraph. Under our
proposal, this definition would control for purposes of the section
1312(f)(2)(A) requirement that qualified employers offer coverage to
all full-time employees.
8. Transitional Policies
Most States currently use definitions of a full-time employee and
methods of counting employees to determine employer size that differ
from Federal definitions and methods. We believe that certain
provisions of the Affordable Care Act that distinguish between the
small group market and large group market and between large employers
and small employers require that a Federal definition be used. We also
note that section 1304(b)(3) of the Affordable Care Act provides States
with some discretion in how they define their small group market in
2014 and 2015. Because States will generally take legislative action
before January 1, 2016, to redefine the upper limit of the small group
market as 100 employees, we believe that States can also act at that
time to adopt a counting method that is consistent with Federal law.
Therefore, we propose that the definitions of small employer and
full-time employee proposed above be effective January 1, 2016, for
purposes of Exchange and SHOP administration. With respect to State-
operated SHOPs for 2014 and 2015 only, HHS will not take any
enforcement actions against a State-operated SHOP for including a group
in the small group market based on a State definition that does not
include part-time employees when the group should have been classified
as part of the large group market based on the Federal definition.
Similarly, during 2014 and 2015, an employer and a State-operated SHOP
may adopt a reasonable basis for their determination of whether they
have met the SHOP requirement to offer coverage to all full-time
employees, such as the definition of full-time employee from the
State's small group market definition or the Federal definition from
section 4980H of Chapter 43 of the Code.
The FF-SHOP, however, must use a counting method that takes part-
time employees into account. We propose that these definitions will be
effective October 1, 2013 for the FF-SHOP. To make an employer
eligibility determination, the FF-SHOP will ask employers about the
number of employees based on the full-time equivalent method used in
section
[[Page 73187]]
4980H of Chapter 43 of the Code, as added by section 1513 of the
Affordable Care Act. Thus, in FF-SHOP States, there may be a few
employers who can purchase a small group market plan outside of the FF-
SHOP (because they have fewer than 50 full time employees) but will not
be eligible to purchase through the FF-SHOP (because they have more
than 50 full time equivalent employees).
We request comment on the proposed definitions and on the proposed
transition policies.
9. Web Site Disclosures Relating to Agents and Brokers
We propose modifications to the Web site disclosure standards
relating to brokers in Sec. 155.220(b). Specifically, we propose a new
paragraph (b)(1) that would allow an Exchange or SHOP to limit the
display of agent and broker information to include only those licensed
agents and brokers who are registered with the Exchange or SHOP and a
new paragraph (b)(2) that would specifically adopt this provision for
an FFE and an FF-SHOP. We believe that listing only brokers who have
registered with the Exchange is in the best interest of the consumer,
both because the registration and training helps assure that the agent
or broker is familiar with the Exchange policies and application
process and because the proposed listing will not contain large numbers
of licensed brokers who are not active in the market. We welcome
comments on these proposals.
10. QHP Issuer Standards Specific to Shop
We propose modifications to the QHP issuer standards specific to
SHOP for enrollment in Sec. 156.285. Specifically, we propose a
technical correction in paragraph (c)(7) such QHP issuers participating
in the SHOP must enroll qualified employees if they are eligible for
coverage. This correction aligns SHOP enrollment standards to Exchange
enrollment standards.
I. Medical Loss Ratio Requirements Under the Patient Protection and
Affordable Care Act
1. Treatment of Premium Stabilization Payments, and Timing of Annual
MLR Reports and Distribution of Rebates
Our previous rulemakings concerning PHS Act section 2718 did not
address how issuers are to account for the premium stabilization
programs in their MLR reports and in calculating their MLR and any
rebates owing, given that the premium stabilization programs are
effective beginning in 2014. This proposed rule would modify the
definition of premium revenue in Sec. 158.130, the formula in Sec.
158.221(c) for calculating an issuer's MLR, and the formula in Sec.
158.240(c) for calculating an issuer's rebate if the MLR standard is
not met, in the current MLR regulation to account for payments and
receipts related to the premium stabilization programs. When the MLR
annual reporting form is updated for the reporting year 2014 and later,
premium stabilization amounts would be considered a part of total
premium revenue reported to the Secretary, similar to other elements
involved in the derivation of earned premium. The MLR annual reporting
form would then account for premium stabilization amounts by removing
them from adjusted earned premium, so that these amounts do not have a
net impact on the adjusted earned premium used in calculating the MLR
denominator and rebates. Additionally, this proposed rule would amend
Sec. 158.140(b) to include premium stabilization amounts as an
adjustment to incurred claims in calculating the MLR numerator as
provided in Sec. 158.221. This approach would address stakeholder
concerns that netting premium stabilization amounts directly against
adjusted earned premium in MLR and rebate calculations would result in
an issuer paying either a higher total amount or a lower total amount
for rebates and the premium stabilization programs combined, depending
on whether the issuer's net premium stabilization obligations resulted
in payment or receipt of funds by the issuer. The approach in this
proposed rule would also preserve consistency between the MLR and risk
corridors programs by treating premium stabilization amounts in MLR and
rebate calculations the same way section 1342(c) of the Affordable Care
Act treats reinsurance and risk adjustment amounts in risk corridors
calculations, by applying them as adjustments to cost, not revenue.
Although PHS Act section 2718 provides that premium revenue should
``account for'' collections or receipts for the premium stabilization
programs, we believe the statutory language provides flexibility as to
whether to account for the effects of such collections or receipts in
determining revenue (the denominator) or costs (the numerator) of the
MLR formula. We considered netting premium stabilization payments or
receipts against revenue, but for the reasons discussed above, have not
proposed that approach. We invite comment on this decision.
In sum, the formula for calculating the MLR would be amended as
follows to take into account payments for and receipts related to the
premium stabilization programs:
Adjusted MLR = [(i + q + n - r)/{(p + n - r) - t - f - n + r{time} ] +
c
Where,
i = incurred claims
q = expenditures on quality improving activities
p = earned premiums
t = Federal and State taxes
f = licensing and regulatory fees
n = reinsurance, risk corridors, and risk adjustment payments made
by issuer
r = issuer's reinsurance, risk corridors, and risk adjustment
related receipts
c = credibility adjustment, if any.
Issuers must provide rebates to enrollees if their MLRs fall short
of the applicable MLR standard for the reporting year. Rebates for a
company whose adjusted MLR value in a State falls below the minimum MLR
standard in a given market would be calculated using the following
amended formula:
Rebates = (m - a) * [(p + n - r) - t - f - n + r]
Where,
m = the applicable minimum MLR standard for a particular State and
market
a = issuer's adjusted MLR for a particular State and market.
The amendments made by this proposed rule would be effective for
MLR reporting years beginning in 2014.
In addition, this proposed rule would change the MLR reporting and
rebate deadlines, beginning with the 2014 MLR reporting year, to
coordinate them with the reporting cycles of the premium stabilization
programs. Currently, an issuer must file its annual MLR report by June
1 and pay any rebates it owes to consumers by August 1 of the year that
follows the MLR reporting year. However, looking ahead, the amounts
associated with the premium stabilization programs that issuers must
take into account in their MLR calculations will not be known until
after June 1 each year. For example, a state, or HHS on behalf of a
state, has until June 30 of the year following a benefit year to notify
issuers of the risk adjustment and reinsurance payments due or charges
owed for that benefit year (Sec. 153.310(e); Sec. 153.240(b)(1) as
proposed in this proposed rule). As further specified above in section
III.C. of this proposed rule issuers must submit risk corridors data
and calculations by July 31 of the year following a benefit year (Sec.
153.530(d) as proposed in this proposed rule). Accordingly, we propose
to amend Sec. 158.110(b) to change the date of MLR
[[Page 73188]]
reporting to the Secretary from June 1 to July 31 beginning with the
2014 MLR reporting year, and we propose to amend Sec. 158.240(d) to
change the rebate due date from August 1 to September 30 to accommodate
the schedule for the premium stabilization programs beginning with the
2014 MLR reporting year. Similarly, we propose to amend Sec.
158.241(a)(2) to change the due date for rebates provided by premium
credit from August 1 to September 30, to apply to the first month's
premium that is due on or after September 30 following the MLR
reporting year, beginning with the 2014 MLR reporting year. In choosing
these dates, we tried to balance consumers' and policyholders'
interests in maintaining the dates for MLR reporting and rebates as
close to the June 1 and August 1 dates as possible with issuers'
interests in having the necessary data to submit their annual MLR
report and sufficient time to disburse any rebates. Although we must
provide issuers any reconciliation of their risk corridors calculations
by August 31, as described above in Section C of this proposed rule, we
believe that there will be few changes to the risk corridors
calculations submitted by issuers to the Secretary by July 31. This
would give issuers one additional month from any reconciliation to
disburse any rebates owed, which we believe is sufficient time.
Comments on the proposed timeline are welcome.
2. Deduction of Community Benefit Expenditures
While we did not specifically solicit comments on the deduction
from premium for community benefit expenditures in the MLR December 7,
2011 final rule with comment period, we received a few comments that
recommend that a tax exempt not-for-profit issuer should be able to
deduct both community benefit expenditures and State premium tax. These
commenters suggest that prior to publication of the final rule, the MLR
interim final rule published on December 1, 2010 gave a tax exempt not-
for-profit issuer this flexibility. Two commenters assert that a
Federal income tax exempt issuer is required to make community benefit
expenditures to maintain its Federal income tax exempt status, and that
allowing a deduction for community benefit expenditures takes the place
of a Federal income tax deduction in the MLR calculation. Commenters
have made clear that deducting both State premium taxes and community
benefit expenditures would help level the playing field because it
would allow a Federal income tax exempt issuer to deduct its community
benefit expenditures in the same manner that a for-profit issuer is
allowed to deduct its Federal income taxes. We agree, and this proposed
rule would amend Sec. 158.162(b)(1)(vii) to allow a Federal income tax
exempt issuer to deduct both State premium taxes and community benefit
expenditures from earned premium in the MLR calculation. This proposed
rule would not change the treatment of State premium taxes and
community benefit expenditures for those issuers that are not exempt
from paying Federal income tax. Comments are welcome on the merits of
allowing a tax exempt issuer to deduct both State premium taxes and
community benefit expenditures from earned premium.
In its model MLR recommendation,\51\ the NAIC determined that the
deduction from premium for community benefit expenditures should be
limited to a reasonable amount to discourage fraud and abuse and that
this limit should be the State premium tax rate. We applied this
principle in allowing issuers exempt from State premium tax to deduct
community benefit expenditure, up to the State premium tax rate, in
their MLR calculation. However, the MLR final rule published on
December 7, 2011 allowed issuers exempt from Federal income tax to
deduct community benefit expenditures in lieu of State premium taxes,
not Federal income taxes.
---------------------------------------------------------------------------
\51\ Regulation for Uniform Definitions and Standardized
Methodologies for Calculation of the Medical Loss Ratio for Plan
Years 2011, 2012 and 2013 per Section 2718(b) of the Public Health
Service Act, available at http://www.naic.org/documents/committees_ex_mlr_reg_asadopted.pdf.
---------------------------------------------------------------------------
Commenters have suggested that a 3 percent limit on the deduction
from premium for community benefit expenditures would be sufficient to
allow a tax exempt issuer to maintain its current community benefit
expenditure. The 2011 MLR data indicate that, of the not-for-profit
issuers that reported non-zero community benefit expenditures, the
average spent on community benefit expenditures (deductible and non-
deductible) was about 1.6 percent of premium. This suggests that a 3
percent community benefit expenditure deduction limit would not
discourage a tax exempt issuer from making community benefit
expenditures. In light of the NAIC model rule and the comments
received, we propose to limit the deduction from premium for community
benefit expenditures for issuers that are exempt from Federal income
tax to the higher of either 3 percent of premium or the highest premium
tax rate charged in a State. Comments are solicited on the proposed
community benefit expenditures deduction limit.
3. Summary of Errors in the MLR Regulation
a. Errors in the December 1, 2010 Interim Final Rule
We are making two changes to the December 1, 2010 interim final
rule (75 FR 74864) to make the language of the rule consistent with the
NAIC's recommendations, which in the preamble we stated that we were
adopting.
On page 74924, in Sec. 158.140 (b)(5)(i), we mistakenly specified
the date by which issuers must define the formula they use for the
blended rate adjustment as ``January 1, 2011'' instead of ``January 1
of the MLR reporting year.'' We are updating this date to ensure that
all issuers are able to choose to make the blended rate adjustment
going forward. We mistakenly omitted the words ``by the issuer''
following the words ``will be defined'' and mistakenly used the word
``will'' instead of ``must'' in describing the objective formula to be
used in reporting group coverage at a blended rate.
On page 74928, in Sec. 158.232(d), we inadvertently used the word
``For'' instead of ``Beginning with'' when describing the date after
which partially-credible issuers that consistently fail to meet the MLR
standard will not be allowed to use a credibility adjustment.
b. Error in the May 16, 2012 Correcting Amendment
Section 158.232(c)(1)(i) of the MLR regulation was amended by the
May 16, 2012 correcting amendment (77 FR 28788), which currently reads:
``[t]he per person deductible for a policy that covers a subscriber and
the subscriber's dependents shall be the lesser of: The sum of the
deductible applicable to each of the individual family members; or the
overall family deductible for the subscriber and subscriber's family,
divided by two (regardless of the total number of individuals covered
through the subscriber).'' In this correcting amendment, we further
amend Sec. 158.232(c)(1)(i) by deleting the words ``The sum of'' after
the words ``the lesser of:'' and the comma after the words
``subscriber's family,'' which we inadvertently did not delete in the
May 16, 2012 correcting amendment.
IV. Collection of Information Requirements
Under the Paperwork Reduction Act of 1995, we are required to
provide 60-day notice in the Federal Register and solicit public
comment before a
[[Page 73189]]
collection of information requirement is submitted to the Office of
Management and Budget (OMB) for review and approval. To fairly evaluate
whether an information collection should be approved by OMB, section
3506(c)(2)(A) of the Paperwork Reduction Act of 1995 requires that we
solicit comment on the following issues:
The need for the information collection and its usefulness
in carrying out the proper functions of our agency.
The accuracy of our estimate of the information collection
burden.
The quality, utility, and clarity of the information to be
collected.
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
The following sections of this document contain paperwork burden
but not all of them are subject to the information collection
requirements (ICRs) under the PRA for reasons noted.
A. Collections Related to State Operation of Reinsurance & Risk
Adjustment Programs (Sec. 153.210 Through Sec. 153.240, Sec.
153.310)
Although the number of States that will elect to operate their own
reinsurance or risk adjustment programs is unknown, we anticipate that
fewer than nine States will choose to do so. Collections from fewer
than 10 persons are exempt from the PRA under 44 U.S.C. 3502(3)(A)(i).
Therefore, we do not plan to seek OMB approval for the following
collections. However, in the event that, by the time of the final
Payment Notice, we believe that the number of States will be greater
than 9, we will seek PRA approval based on the burden estimates
outlined below.
1. Reporting to HHS (Sec. 153.210)
We are proposing under Sec. 153.210(e) that a State operating its
own reinsurance program must ensure that its applicable reinsurance
entity provide information regarding the requests for reinsurance
payments under the national contribution rate made under Sec. 153.410
of this part for all reinsurance-eligible plans for each quarter during
the applicable benefit year. We estimate that it will take an
operations analyst 2 hours (at $55 an hour) to gather information from
applicable reinsurance entities and to submit this information to HHS,
for a total burden of $110 per State selecting to run reinsurance.
2. Collection of Reinsurance Contribution Funds (Sec. 153.220)
Under proposed Sec. 153.220(d), a State that operates its own
reinsurance program and elects to collect additional reinsurance
contributions for additional administrative expenses or supplemental
reinsurance payments or use additional State funds for supplemental
reinsurance payments must notify HHS of its intent to do so within 30
days after publication of the draft annual HHS notice of benefit and
payment parameters for the applicable benefit year. We believe that the
burden associated with this requirement is the time and effort
necessary for the State to provide this notification, and estimate it
will take each State approximately 1 hour by an operations analyst (at
$55 an hour) to submit this notification requirement. Consequently, we
estimate a total burden of $55 for each State as a result of this
requirement.
3. Collections Related to Reinsurance Payments Made Under a State
Additional Contribution Rate (Sec. 153.232)
Under Sec. 153.232(a), we propose to require a State running its
own reinsurance program that chooses to collect additional
contributions under Sec. 153.220(d) to set supplemental State
reinsurance payment parameters and to ensure that reinsurance
contributions collected and funds used are reasonably calculated to
cover additional reinsurance payments that are projected to be made
only under the supplemental reinsurance payment parameters. We estimate
that it will take an operations analyst 8 hours (at $55 an hour) and a
senior manager 2 hours (at $77 an hour) to determine appropriate
supplemental payment parameters. Therefore, we estimate that it will
cost each State choosing to collect additional contributions
approximately $594 to comply with this requirement.
Under Sec. 153.232(d), we propose that States that run their own
reinsurance program and that choose to collect additional contributions
under Sec. 153.220(d) calculate the supplemental reinsurance payments
from their additional funds collected under the State additional
contribution rate using supplemental payment parameters in conjunction
with the national payment parameters to reimburse a particular portion
of claims. Additionally, under Sec. 153.232(e), we propose that, if
all requested reinsurance payments under the State supplemental
reinsurance parameters calculated will exceed all reinsurance
contributions collected under the additional State contribution rate
for the benefit year, the State must determine a uniform pro rata
adjustment to be applied to all requests for reinsurance payments. The
State or the applicable reinsurance entity must reduce all such
requests for reinsurance payments for the applicable benefit year by
that adjustment. We estimate it will take an operations analyst 40
hours (at $55 an hour) and a senior manager 12 hours (at $77 an hour)
to determine appropriate payment calculations and, if necessary, a pro
rata adjustment. Therefore, we estimate that it will cost each State
choosing to collect additional contributions approximately $3,124 to
comply with this requirement.
4. Collections Related to Disbursement of Reinsurance Payments (Sec.
153.240)
We propose to amend Sec. 153.240(a) to direct a State operating
its own reinsurance program to ensure that the applicable reinsurance
entity either collects data or is provided access to the data required
to determine reinsurance payments as described in Sec. Sec. 153.230
and 153.232. In Sec. 153.240(b) we propose that a State or HHS on
behalf of the State notify issuers of the total amount of reinsurance
payments that will be made no later than June 30 of the year following
the benefit year, as well as an estimate to each reinsurance-eligible
plan of expected requests for reinsurance payments from the plan on a
quarterly basis during the applicable benefit year. We estimate it will
take an operations analyst 40 hours (at $55 an hour), 10 hours per
quarter, and a senior manager 12 hours (at $77 an hour), 3 hours per
quarter, to determine appropriate quarterly estimates of expected
reinsurance payments and to notify plans. Additionally, we expect it
will take an operations analyst 40 hours (at $55 an hour) and a senior
manager 12 hours (at $77 an hour) to determine the total amount of
reinsurance payments for each reinsurance-eligible plan. Therefore, we
estimate that it will cost each State choosing to run reinsurance
approximately $6,248 to comply with this requirement. We will also
revise the supporting statement of 0938-1155 to reflect the additional
burden for States choosing to run reinsurance of providing quarterly
estimates of expected reinsurance payments and notice of total
reinsurance payments to reinsurance-eligible plans. At the final
Payment Notice stage, we will revise the supporting statement of 0938-
1155 to clarify that a State has the option to ensure that the
applicable reinsurance entity provides access to data required to
determine reinsurance payments, and that the State is not required to
verify that the reinsurance entity is collecting this data directly.
In Sec. 153.240(a)(3), we propose that a State must provide a
process through which an issuer of a reinsurance-eligible plan that
does not generate individual
[[Page 73190]]
enrollee claims in the normal course of business, such as a capitated
plan, may use estimated claims costs to make a request for payment (or
to submit data to be considered for reinsurance payments) for such plan
in accordance with the requirements of Sec. 153.410. In addition, the
State must ensure that such requests for reinsurance payment are
subject to validation. We estimate that our proposal will result in a
small administrative cost to States associated with determining a
format for submission of reinsurance payment data and notifying
capitated plans of the acceptable method and format of data collection.
We anticipate that a State will only need to establish this process
once. On average, we estimate that it will take each State
approximately 50 hours to comply with this requirement. We estimate it
will take an operations analyst 40 hours (at $55 an hour) and a senior
manager 10 hours (at $77 an hour) to determine an appropriate format
for submission of reinsurance payment data for capitated plans and to
notify plans of the acceptable method and format for data collection.
Therefore, we estimate that it will cost each State choosing to run
reinsurance approximately $2,970 to comply with this proposal.
In Sec. 153.240(d)(1), we propose that, if a State establishes a
reinsurance program, the State must ensure that the applicable
reinsurance entity's collection of personally identifiable information
is limited to information reasonably necessary for use in the
calculation of reinsurance contributions or payments. Furthermore, in
Sec. 153.240(d)(2), we propose that, if a State establishes a
reinsurance program, it must ensure that the applicable reinsurance
entity implements security standards that provide administrative,
physical, and technical safeguards for the individually identifiable
information consistent with the security standards. To comply with this
requirement, we believe that most States will require the applicable
reinsurance entity to comply with privacy and security standards that
are similar to the Federal standards already established under the
HIPAA and The Health Information Technology for Economic and Clinical
Health Act (HITECH) (Pub. L. 104-191, 110 Stat. 1936, enacted August
21, 1996) or with privacy and security standards that are already
established under State law, rather than developing entirely new
standards to apply to reinsurance entities. We further anticipate that
most States will incorporate this requirement into their contracting
process with reinsurance entities. We estimate it will take a contract
administrator 2 hours (at $40 an hour) and a lawyer 2 hours (at $77 an
hour) to establish privacy and security standards for reinsurance
entities and to notify reinsurance entities of these standards.
Therefore, we estimate a total burden of 4 hours and $234 for each
State choosing to operate reinsurance to comply with this proposal.
5. HHS Approval of Risk Adjustment States (Sec. 153.310)
Under Sec. 153.310(a)(4), we are proposing that a State that
operates risk adjustment must be approved by HHS to do so. The burden
associated with this process is the time and effort required by a State
to submit evidence that it meets the approval standards set forth in
Sec. 153.310(c). Note that these processes will start in benefit year
2015--prior to that, HHS will engage in informal consultations with
States. In any given benefit year after 2015, different States may
apply for approval.
We estimate it will take each State approximately 180 hours to
complete the initial risk adjustment entity approval process. We
estimate it will take an operations analyst 72 hours (at $55 an hour),
a contract administrator 72 hours (at $40 per hour), a senior manager
24 hours (at $77 an hour), and an attorney 12 hours (at $77 an hour) to
meet the initial approval requirements. Therefore, we estimate a total
burden of $9,612 for each entity, as a result of these approval
requirements.
B. ICRs Regarding Calculation of Reinsurance Contributions (Sec.
153.405)
In Sec. 153.405, we propose an annual enrollment count of covered
lives by contributing entities using counting methods derived from the
PCORTF Rule. We propose requiring contributing entities to provide
annual counts of their enrollment and reinsurance contributions to HHS
based on their last reported PCORTF number as modified for reinsurance
purposes. The burden associated with this requirement is the time and
effort required by an issuer to derive an annual, enrollment count.
Because issuers will already be under an obligation to determine a
count of covered lives using a PCORTF method, the burden associated
with this requirement is the additional burden of conducting these
counts using the slightly modified counting methods specified in this
proposed rule. On average, we estimate it will take each issuer 1 hour
to reconcile and submit final enrollment counts to HHS. Assuming an
hourly wage rate of $55 for an operations analyst, we estimate an
aggregate burden of $110,000 for 2,000 reinsurance contributing
entities subject to this requirement. We are revising supporting
statement of OMB Control Number 0938-1155 to include the required data
elements that issuers will need to submit their enrollment counts and
to specify that issuers must follow the methodology when they derive
enrollee counts for reinsurance contributions.
C. Requests for Reinsurance Payment (Sec. 153.410)
As described in Sec. 153.410, we propose that issuers of
reinsurance-eligible plans seeking reinsurance payment must request
payment in accordance with the requirements of this proposed rule or
the State notice of benefit and payment parameters, as applicable. To
be eligible for reinsurance payments, issuers of reinsurance-eligible
plans must submit or make accessible all necessary data to be
considered for reinsurance payments for the applicable benefit year.
Issuers operating reinsurance-eligible plans in the individual
market that are subject to the reinsurance data collection requirements
are eligible to make reinsurance payment requests. To minimize burden
on issuers, HHS intends to collect data in an identical manner for the
HHS-operated reinsurance program and HHS-operated risk adjustment
programs. In addition, when HHS operates reinsurance on behalf of a
State, the maximum out-of-pocket differential between a cost-sharing
reduction plan variation and the national maximum out-of-pocket limit
established by the Federal government would be factored into an
issuer's reinsurance payment. Although we are clarifying the data
elements issuers would be required to submit as part of the reinsurance
payment request process, the burden associated with this requirement is
already accounted for under OMB Control Number 0938-1155 with an
October 31, 2015 expiration date. We are updating the supporting
statement approved under 0938-1155 with an October 31, 2015 expiration
date to reflect these clarified data elements.
D. Upload of Risk Adjustment and Reinsurance Data (Sec. 153.420)
Under the HHS-operated risk adjustment and reinsurance programs,
HHS proposes to use a distributed data collection approach to run
software on enrollee-level plan enrollment, claims and encounter data
that reside on an issuer's dedicated data environment. We propose in
Sec. 153.700(a) to require that an issuer of a risk adjustment covered
plan or a reinsurance-eligible plan in a
[[Page 73191]]
State where HHS is operating the risk adjustment or reinsurance program
on behalf of the State, as applicable, must provide HHS, through the
dedicated data environment, access to enrollee-level plan enrollment
data, enrollee claims data, and enrollee encounter data as specified by
HHS. Under Sec. 153.710(b), all claims data submitted by an issuer of
a risk adjustment covered plan or a reinsurance-eligible plan in a
State in which HHS is operating risk adjustment or reinsurance, as
applicable, must have resulted in payment by the issuer. Under Sec.
153.710(c), an issuer of a risk adjustment covered plan or a
reinsurance-eligible plan in a State in which HHS is operating risk
adjustment or reinsurance, as applicable, that does not generate
individual enrollee claims in the normal course of business must derive
costs on all applicable provider encounters using its principal
internal methodology for pricing those encounters. Issuers will be
directed to make risk adjustment and reinsurance data accessible to HHS
in a way that conforms to HHS-established guidelines and applicable
standards for electronic data collection and submission, storage,
privacy and security, and processing. In addition, in Sec. 153.720(a),
we propose requiring these issuers to establish a unique masked
enrollee identification number for each enrollee, in accordance with
HHS-defined requirements and maintain the same masked enrollee
identification number for enrollees that enroll in different plans
within the issuer, within the State, during a benefit year. Issuers
must provide all data to HHS in the specified formats, and must correct
submitted files to resolve problems detected by HHS during file
processing. The burden associated with this requirement is the time and
effort to ensure that information in the dedicated data environment
complies with HHS requirements.
We estimate that this data submission requirement will affect 1,800
issuers, and will cost each issuer approximately $327,600 in total
labor and capital costs (including the average cost of $15,000 for a
data processing server) during the start-up year. This cost will be
lower in future years when fixed costs decrease. This cost reflects an
estimate of 3 full-time equivalent employees (5,460 hours per year) at
an average hourly rate of $59.39 per hour. We anticipate that
approximately 400 data processing servers will be established across
the market in 2014, and these servers will process approximately 9
billion claims and enrollment files. Therefore, we estimate an
aggregate burden, including labor and capital costs, of $589,680,000
for all issuers as a result of these requirements. We are revising the
supporting statements associated with the submission of risk adjustment
data and reinsurance enrollment data approved under OMB Control Number
0938-1155 with an October 31, 2015 expiration date to account for this
burden.
E. ICRs Regarding Data Validation Requirements When HHS Operates Risk
Adjustment (Sec. 153.630)
Under Sec. 153.630, an issuer that offers at least one risk
adjustment covered plan in a State where HHS is operating risk
adjustment on behalf of the State for the applicable benefit year must
have an initial validation audit performed on its risk adjustment data.
The burden associated with this requirement is the issuer's time and
effort to provide HHS with source claims, records, and enrollment
information to validate enrollee demographic information for initial
and second validation audits, and the issuer's cost to employ an
independent auditor to perform the initial validation audit on a
statistically valid sample of enrollees.
The statistically valid sample of enrollees provided to each issuer
will consist of enrollees both with and without HCCs. We estimate that
each issuer sample will consist of approximately 300 enrollees, with a
disproportionate share of approximately two-thirds of the sample
consisting of enrollees with HCCs. We also anticipate that this audit
burden will affect about 1,800 issuers.
Based on Truven Health Analytics 2010 MarketScan[reg] data, we have
determined that for enrollees with HCCs, the average number of HCCs to
be reviewed by an auditor per enrollee is approximately two.
Additionally, based on HHS audit experience, we estimate that it may
cost approximately $180 ($90 per hour for 2 hours) for an auditor to
review the medical record documentation for one enrollee with roughly
two HCCs. We expect that it may cost approximately $30 per enrollee
($90 per hour for 20 minutes) to validate demographic information for
all enrollees in the audit sample, totaling approximately $210 per
enrollee with HCCs and $30 per enrollee with no HCCs. We assume that an
initial validation audit will be performed on 180,000 enrollees without
HCCs, and 360,000 enrollees with HCCs. We have developed this estimate
assuming that medical records will not be reviewed for enrollees
without HCCs, and that validation for these enrollees will be conducted
using demographic data only. Based on the information above, we
estimate that the total burden per issuer to retain initial validation
auditors to perform the initial validation would cost approximately
$45,000. Therefore, for 1,800 issuers, we anticipate that the total
burden of conducting initial validation audits will be $81 million. We
are revising the PRA currently approved OMB Control Number 0938-1155
with an October 31, 2015 expiration date to account for this additional
burden.
Under Sec. 153.630(d), issuers will have the opportunity to appeal
errors identified through the second validation audit process. Because
we intend to provide further detail on this process in later guidance
and rulemaking, we currently cannot estimate the number of issuers that
will appeal HCC findings, or the cost per issuer for doing so.
Therefore, we will seek OMB approval and solicit public comment on the
appeal information collection requirements established under Sec.
153.630(d) at a future date.
F. ICRs Regarding QHP Certification Standards Related to Advance
Payments of the Premium Tax Credit and Cost-Sharing Reductions (Sec.
155.1030)
In Sec. 155.1030(a)(1), we propose that the Exchange ensure that
each issuer that offers or seeks to offer a QHP in the individual
market on the Exchange submit the required plan variations, as proposed
in Sec. 156.420, for each of its health plans proposed to be offered
as a QHP in the individual market on the Exchange. Further we propose
that the Exchange must certify that the plan variations meet the
requirements detailed in Sec. 156.420. We expect that an Exchange
would collect prior to each benefit year the information necessary to
validate that the issuer meets the requirements for silver plan
variations, as detailed in Sec. 156.420(a), and collect for
certification the information necessary to validate that the issuer
meets the requirements for zero and limited cost sharing plan
variations, as detailed in Sec. 156.420(b). We expect that this data
collection would include the cost-sharing requirements for the plan
variations, such as the annual limitation on cost sharing, and any
reductions in deductibles, copayments or coinsurance. In addition, the
Exchange would collect or calculate the actuarial values of each QHP
and silver plan variation, calculated under Sec. 156.135 of the
proposed EHB/AV Rule. We propose in Sec. 155.1030(a)(2) that the
Exchange provide the actuarial values of the QHPs and silver plan
variations to HHS. As proposed in Sec. 155.1030(b)(4), HHS may
[[Page 73192]]
use this information in connection with approving estimates for advance
payment of cost-sharing reductions submitted by issuers under proposed
Sec. 156.430. Because HHS will already have this information for
Federally-facilitated Exchanges, the burden associated with this
requirement is the time and effort for each Partnership or State-based
Exchange to submit this information. We estimate that it will take each
Partnership or State-based Exchange approximately 3.5 hours to collect,
validate, and submit the data to HHS (3 hours by a database
administrator at $47.70 per hour, and 0.5 hours by a manager at $75.15
per hour). We estimate that this will cost each Exchange approximately
$181 per year. We plan to revise the supporting statement published
under CMS form number 10433, which is pending OMB approval, to account
for this additional burden.
In paragraph (b)(1) and (2), we propose that the Exchange collect,
review, and submit the rate or expected premium allocation, the
expected allowed claims cost allocation, and the actuarial memorandum
that a metal level health plan or stand-alone dental plan issuer
submits under Sec. 156.470. This collection will allow for the
calculation of the advance payments of cost-sharing reductions and the
premium tax credit. The Exchange must ensure that such allocations meet
the standards set forth in Sec. 156.470(c) and (d). This allocation
information must be collected and approved before a health plan or
stand-alone dental plan can be certified for participation in the
Exchange. We expect that the Exchange will collect the allocation
information in conjunction with the rate and benefit information that
the issuer submits under Sec. 156.210 and/or the rate information that
the QHP issuers submits through the Effective Rate Review program.
Therefore, we believe that the burden for Partnership Exchanges or
State-based Exchanges to submit to HHS this information collected from
QHPs is generally part of the burden that is accounted for in the PRA
approved under OMB Control Number 0938-1141. We estimate that
Partnership and State-based Exchanges will incur additional burden to
submit allocation information to HHS for stand-alone dental plans. We
estimate that it will take each Exchange 30 minutes to submit this
information for each stand-alone dental plan, and assume that this
submission will be performed at the hourly wage rate of $38.49 for an
insurance analyst. Assuming 20 stand-alone dental plans across the
market, we estimate an aggregate burden of approximately $385 for all
Partnership or State-based Exchanges to submit this information to HHS.
We plan to revise the supporting statement published under CMS form
number 10433, which is pending OMB approval, to account for this
additional burden.
In subparagraph (b)(3), we propose that the Exchange must collect
any estimates and supporting documentation that a QHP issuer submits to
receive advance payments of certain cost-sharing reductions, as
described in Sec. 156.430(a), and submit, in the manner and timeframe
established by HHS, the estimates and supporting documentation to HHS
for review. Because HHS will already have this information for
Federally-facilitated Exchanges, the burden associated with this
requirement is the time and effort for each Partnership or State-based
Exchange to submit this information. We believe that this requirement
will impose minimal burden, and that it will take an insurance analyst
5 minutes (at an hourly wage rate of $38.49), to collect and submit
this information to HHS for each Partnership or State-based Exchange.
Therefore, we estimate a burden of $3.08 for each Partnership or State-
based Exchange as a result of this requirement.
G. ICRs Regarding QHP Participation Standards in SHOP (Sec. 156.200)
In Sec. 156.200(g)(1), we propose that if the issuer of a QHP in
an FFE also participates in the State's small group market, the QHP
certification standard would be met if the issuer offers at least one
small group market QHP at the silver level of coverage and one QHP at
the gold level of coverage in an FF-SHOP serving that State. We also
propose that, if neither the issuer nor any issuer in the same issuer
group participates in the small group market of the State, the standard
would be met. Therefore, no issuer would be required to begin offering
small group market plans to meet this requirement. The burden
associated with this requirement is the time and effort for an issuer
to prepare a QHP certification application for a SHOP for at least one
silver level and one gold level plan design. This burden would be
incurred by issuers who, absent this requirement, would otherwise not
have participated in a SHOP. We describe the burden associated with
this requirement in the 30-day Federal Register Notice for the Initial
Plan Data Collection published on November 21, 2012 (77 FR 69846).
H. ICRs Regarding Plan Variations (Sec. 156.420)
In Sec. 156.420, we propose that issuers submit to the Exchange
for certification the variations of the health plans that they offer or
propose to offer in the individual market on the Exchange that include
required levels of cost-sharing reductions. We provide an overview of
the submission process associated with this requirement in this
proposed rule. In paragraph (a), we propose that, for each silver
health plan that an issuer offers or proposes to offer in the
individual market on the Exchange, the QHP issuer must submit to the
Exchange for certification the standard silver plan and three
variations of the standard silver plan. In paragraph (b), we further
propose that a QHP issuer must, for each of its health plans at any
metal level of coverage, submit a zero cost sharing plan variation and
a limited cost sharing plan variation of each health plan offered or
proposed to be offered in the individual market on the Exchange.
We estimate that 1,200 issuers will participate in an Exchange
nationally, and that each issuer will offer one QHP per metal level
with four zero cost sharing plan variations and four limited cost
sharing plan variations (one per metal level QHP) and three plan
variations for low-income populations, for a total of four standard
plans and eleven plan variations. Our burden estimate assumes that each
issuer will submit these plan variations as part of their electronic
QHP application, which is described in further detail in the
``Supporting Statement for Initial Plan Data Collection to Support QHP
Certification and other Financial Management and Exchange Operations,''
which was provided for public comment on November 21, 2012 (77 FR
69846). We estimate that it will take approximately 1.5 hours to submit
the requisite information for a plan variation (0.75 hours by an
actuary at a wage rate of $56.89, 0.5 hours by an insurance analyst at
a wage rate of $38.49, and 0.25 hours by an insurance manager at a wage
rate of $67.44). We estimate that each submission for a plan variation
will cost an issuer $78.77, for a total estimated annual cost of
$866.47 per issuer for the 11 plan variations. We estimate an aggregate
burden of $1,039,764 for all issuers participating in the Exchange. We
plan to revise the supporting statement published under CMS form number
10433, which is pending final OMB approval, to account for this
additional burden.
[[Page 73193]]
I. ICRs Regarding Payment of Cost-Sharing Reductions (Sec. 156.430)
In Sec. 156.430(a)(1), we propose that for each silver plan
variation and zero cost sharing plan variation that an issuer offers or
proposes to offer in the individual market on the Exchange, the QHP
issuer must provide to the Exchange, for approval by HHS, estimates,
and supporting documentation validating the estimates, of the dollar
value of cost-sharing reductions to be provided. However, we propose a
simplified methodology for calculating the advance payments for the
initial years of the cost-sharing reduction program. This methodology
will utilize data that QHP issuers submit for other requirements, such
as Sec. 156.420 and Sec. 156.470. As a result, there will be no
additional burden associated with this requirement.
In Sec. 156.430(a)(2), we discuss the process for estimating the
value of cost-sharing reductions to be provided under the plan
variation open to Indians with a household income above 300 percent of
the FPL, described in Sec. 156.420(b)(2). If a QHP issuer seeks
advance payments for the these cost-sharing reductions, the issuer must
provide to the Exchange, for approval by HHS, an estimate, and
supporting documentation validating the estimate, of the dollar value
of the cost-sharing reductions to be provided under the limited cost
sharing plan variation of the QHP. We estimate that 1,200 issuers will
participate in Exchanges nationally, and that each issuer will offer
one QHP per metal level, with one limited cost sharing plan variation
for each metal level. For each plan variation, the issuer may submit an
estimate and supporting documentation of the dollar value of the cost-
sharing reductions. We expect estimates and supporting documentation
will be submitted as part of the electronic QHP application, which is
described in further detail in the ``Supporting Statement for Initial
Plan Data Collection to Support QHP Certification and other Financial
Management and Exchange Operations,'' which was provided for public
comment on November 21, 2012 (77 FR 69846). We estimate that it will
take approximately 1.0 hours to submit each response for a plan
variation (0.5 hours by an actuary at a wage rate of $56.89 and 0.5
hours by an insurance analyst at a wage rate of $38.49. We estimate
that each response for a plan variation will cost an issuer $47.69, for
an estimated total issuer burden to submit responses for 4 plan
variations of $228,912 for the year. We plan to revise the supporting
statement published under CMS form number 10433, which is pending final
OMB approval, to account for this additional burden.
In Sec. 156.430(c), we propose that a QHP issuer submit to HHS, in
the manner and timeframes established by HHS the actual amount of cost-
sharing reductions provided to each enrollee. This information is
necessary so that HHS can reconcile advance payments made throughout
the year to actual cost-sharing amounts. While these information
collection requirements are subject to the Paperwork Reduction Act, the
information collection process and instruments associated with this
requirement are currently under development. We will seek OMB approval
and solicit public comments upon their completion.
J. ICRs Regarding Reduction of an Enrollee's Share of Premium to
Account for Advance Payment of the Premium Tax Credit (Sec. 156.460)
In Sec. 156.460(a)(2), we propose that if a QHP issuer receives an
advance payment of the premium tax credit on behalf of an individual,
the QHP issuer must notify the Exchange of any reduction in premium
through the standard enrollment acknowledgment in accordance with Sec.
156.265(g). Because this notification will occur through the enrollment
acknowledgement process that already exists under the final Exchange
Establishment rule (77 FR 18310), we believe that this requirement will
impose minimal burden on QHP issuers, and that it will take an
insurance analyst 5 minutes (at an hourly wage of $38.49), to collect
and submit this information to each Exchange Therefore, we estimate a
burden of $3.20 for each QHP issuer, and an aggregate burden of $3,849
for all 1,200 QHP issuers, as a result of this requirement.
K. ICRs Regarding Allocation of Rates and Claims Costs for Advance
Payments of the Premium Tax Credit and Cost-Sharing Reductions (Sec.
156.470)
In Sec. 156.470(a), we propose that an issuer provide to the
Exchange annually for approval, for each metal level health plan
offered or proposed to be offered in the individual market on the
Exchange, an allocation of the rate and the expected allowed claims
costs for the plan, for EHB, other than services described in Sec.
156.280(d)(1), and any other services or benefits offered by a health
plan that do not meet the definition of EHB. In Sec. 156.470(b) we
propose that an issuer of a stand-alone dental plan provide to the
Exchange for approval a dollar allocation of the expected premium for
the plan to the pediatric dental essential health benefit. In Sec.
156.470(c) and (d), we propose that issuers ensure that the allocation
described in paragraphs (a) and (b), respectively, are calculated
following specific standards. Lastly, in Sec. 156.470(e), we propose
that an issuer of a metal level health plan or stand-alone dental plan
offered, or proposed to be offered, in the individual market on the
Exchange, submit an actuarial memorandum with a detailed description of
the methods and specific bases used to perform the allocations that
would be required under paragraphs (a) and (b) of that section,
demonstrating that the allocations meet the standards set forth in
paragraphs (c) and (d).
QHP issuers will submit these allocations and justifications
through the Effective Rate Review program (Rate Increase Disclosure and
Review Rule, 76 FR 29964). The Rate Increase Disclosure and Review Rule
develops a process to ensure the public disclosure of all information
and justifications relating to unreasonable rate increases. To that
end, the regulation establishes various reporting requirements for
health insurance issuers, including a Preliminary Justification for a
proposed rate increase, a Final Justification for any rate increase
determined by a State or HHS to be unreasonable, and a notification
requirement for unreasonable rate increases that will not be
implemented. The Preliminary Justification includes data supporting the
potential rate increase as well as a written explanation of the rate
increase. For those rates HHS will be reviewing, issuers' submissions
also will include data and information that HHS will need to make a
valid actuarial determination regarding whether a rate increase is
unreasonable. Therefore, there will be no additional burden on QHP
issuers that submit their rates through the Effective Rate Review
program. The burden for the Effective Rate Review submission is already
accounted for in OMB Control Number 0938-1141. We are additionally
revising the supporting statement of the PRA approved under OMB Control
Number 0938-1141 to clarify that we will be collecting this allocation
information from metal plans to be offered on an Exchange, whether they
are new or existing.
This requirement will result in additional burden for stand-alone
dental plans. We estimate that it will take each stand-alone dental
plan 5 hours to prepare and submit this information to the Exchange. We
assume that this requirement will require 3 hours of labor by an
insurance analyst (at an
[[Page 73194]]
hourly wage rate of $38.49) and 2 hours of labor by an actuary (at an
hourly wage rate of $56.89). Assuming 20 stand-alone dental plans
across the market, we estimate an aggregate burden of approximately
$4,585 for all stand-alone dental plans to submit these allocations and
justifications to the Exchange. We plan to revise the supporting
statement published under HHS form number 10433, which is pending final
OMB approval, to account for this additional burden.
L. ICRs Regarding Medical Loss Ratio Reporting (Sec. 158.130, Sec.
158.140, Sec. 158.162, Sec. 158.221, Sec. 158.240)
This proposed rule would direct issuers to include all payments and
receipt amounts related to the reinsurance, risk corridors and risk
adjustment programs in the annual MLR report.
The existing information collection requirement is approved under
OMB Control Number 0938-1164. This includes the annual reporting form
that is currently used by issuers to submit MLR information to HHS.
Prior to the deadline for the submission of the annual MLR report for
the 2014 MLR reporting year, and in accordance with the PRA, HHS plans
to solicit public comment and seek OMB approval for an updated annual
form that will include reporting of the premium stabilization payments
and will reflect the changes in deduction for community benefit
expenditures for federal income tax exempt not-for-profit issuers.
Table 18--Estimated Fiscal Year Reporting Recordkeeping and Cost Burdens
--------------------------------------------------------------------------------------------------------------------------------------------------------
Hourly
Burden per Total labor cost Total
Regulation sections OMB Control No./ Respondents Responses response annual of Total labor capital/ Total cost
CMS Form No. (hours) burden reporting cost ($) maintenance ($)
(hours) \52\ ($) costs ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sec. 153.405.......... 0938-NEW.......... 2,000 2,000 1.00 2,000 55.00 110,000 0 110,000
Sec. 153.420.......... 0938-1155......... 1,800 9,000,000,000 0.001 9,828,000 59.39 583,680,000 6,000,000 589,680,000
Sec. 153.630(b)....... 0938-1155......... 1,800 540,000 1.67 900,000 90.00 81,000,000 0 81,000,000
Sec. 155.1030(a)...... 0938-NEW/CMS-10433 51 51 3.50 179 51.62 9,240 0 9,240
Sec. 155.1030(b)(2)... 0938-NEW/CMS-10433 20 20 0.50 10 38.49 385 0 385
Sec. 155.1030(b)(3)... 0938-NEW/CMS-10433 51 51 0.08 4.1 38.49 158 0 158
Sec. 156.420.......... 0938-NEW/CMS-10433 1,200 13,200 1.50 19,800 52.51 1,039,698 0 1,039,698
Sec. 156.430(a)(2).... 0938-NEW/CMS-10433 1,200 4,800 1.00 4,800 47.69 228,912 0 228,912
Sec. 156.460(a)(2).... 0938-NEW.......... 1,200 1,200 0.08 96 38.49 3,695 0 3,695
Sec. 156.470.......... 0938-NEW/CMS-10433 20 20 5 100 45.85 4,585 0 4,585
-----------------------------------------------------------------------------------------------------------
Total............... .................. 3,271 ............... ........... ........... ........... 666,076,673 6,000,000 672,076,673
--------------------------------------------------------------------------------------------------------------------------------------------------------
V. Response to Comments
Because of the large number of public comments we normally receive
on Federal Register documents, we are not able to acknowledge or
respond to them individually. We will consider all comments we receive
by the date and time specified in the DATES section of this preamble,
and, when we proceed with a subsequent document, we will respond to the
comments in the preamble to that document.
---------------------------------------------------------------------------
\52\ Bureau of Labor Statistics, U.S. Department of Labor,
National Compensation Survey: Occupational Earnings in the United
States, 2011. United States Government Printing Office. May 2011.
Retrieved from http://www.bls.gov/ncs/ncswage2010.htm.
---------------------------------------------------------------------------
VI. Regulatory Impact Analysis
A. Statement of Need
This proposed rule implements standards related to premium
stabilization programs (reinsurance, risk adjustment, and risk
corridors), consistent with the Affordable Care Act. The purpose of
these three programs is to protect issuers from the negative effects of
adverse selection and to protect consumers from increases in premiums
due to issuer uncertainty. The Premium Stabilization Rule provided that
further details on the implementation of these programs, including the
specific parameters applicable to these programs, would be forthcoming
in this proposed rule. This proposed rule also includes provisions
governing the cost-sharing reductions program, the advance payment of
the premium tax credit program, the medical loss ratio program, the
SHOP Exchange, and user fees for Federally-facilitated Exchanges.
B. Overall Impact
We have examined the impacts of this rule as required by Executive
Order 12866 on Regulatory Planning and Review (September 30, 1993),
Executive Order 13563 on Improving Regulation and Regulatory Review
(January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19,
1980, Pub. L. 96-354), section 202 of the Unfunded Mandates Reform Act
of 1995 (March 22, 1995, Pub. L. 104-4), Executive Order 13132 on
Federalism (August 4, 1999), and the Congressional Review Act (5 U.S.C.
804(2)).
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits, of reducing costs, of harmonizing rules, and of promoting
flexibility. A regulatory impact analysis (RIA) must be prepared for
rules with economically significant effects ($100 million or more in
any 1 year).
OMB has determined that this Payment Notice is ``economically
significant'' within the meaning of section 3(f)(1) of Executive Order
12866, because it is likely to have an annual effect of $100 million in
any one year. Accordingly, we have prepared an RIA that presents the
costs and benefits of this proposed rule.
It is difficult to discuss the wide-ranging effects of these
provisions in isolation, though the overarching goal of the premium
stabilization and Exchange-related provisions and policies in the
Affordable Care Act is to
[[Page 73195]]
make affordable health insurance available to individuals who do not
have access to affordable employer-sponsored coverage. The provisions
within this proposed rule are integral to the goal of expanding
coverage. For example, the premium stabilization programs (risk
adjustment, reinsurance, and risk corridors) decrease the risk of
financial loss that health insurance issuers might otherwise expect in
2014 and the cost-sharing reductions program and advanced payments of
the premium tax credit assist low- and moderate-income consumers in
purchasing health insurance. The combined impacts of these provisions
affect the private sector, issuers, and customers, through increased
access to health care services including preventive services, decreased
uncompensated care, lower premiums, and increased plan (and thereby
cost) transparency. Through the reduction of financial uncertainty for
issuers and increased affordability for consumers, the provisions are
expected to increase access to health coverage.
Recent research \53\ analyzed the effects of increased insurance
coverage. The analysis studied the health effects of expanded Medicaid
eligibility in three States (New York, Maine, and Arizona) with
comparable States that did not expand Medicaid over a multiyear time
period. The study found that increased coverage resulted in:
---------------------------------------------------------------------------
\53\ Sommers, Ben et al. ``Mortality and Access to Care among
Adults after State Medicaid Expansions'' New England Journal of
Medicine. No: 367 20121025-1034.
---------------------------------------------------------------------------
Significant reduction in mortality (19.6 deaths per
100,000);
Increased rate of self-reported health status (by three
percent); and
Reduction in cost-related delays in care (by 21 percent).
While these results may not be entirely generalizable given the
population and coverage type, they do replicate other research findings
\54\ of the importance of health coverage in improving health and
reducing mortality.
---------------------------------------------------------------------------
\54\ Finkelstein, A. et al. ``The Oregon Health Insurance
Experiment: Evidence from the First Year.'' NBER Working Paper No.
17190, July 2011.
---------------------------------------------------------------------------
There are administrative costs to States to set up and administer
these programs. For issuers not receiving payments, any contribution is
an additional cost, which an issuer could pass on to beneficiaries
through premium increases. There are also reporting costs for issuers
to submit data and financial information. This RIA discusses in detail
the benefits and costs of the provisions in this proposed rule.
In this RIA, we discuss programs and requirements newly implemented
by the proposed rule, such as certain provisions related to the cost-
sharing reductions program, the advance payment of the premium tax
credit program, the medical loss ratio program, the SHOP Exchange, and
user fees for a Federally-facilitated Exchange, as well as new
regulatory provisions for the three premium stabilization programs
(reinsurance, risk adjustment, and risk corridors) which had been
introduced as part of the Premium Stabilization Rule (77 FR 17220). In
addition to building on the RIA for that earlier rule, we are able, for
the analysis of much of the proposed rule, to use the Congressional
Budget Office's estimates of the Affordable Care Act's impact on
federal spending, revenue collection, and insurance enrollment.
C. Impact Estimates of the Payment Notice Provisions and Accounting
Table
In accordance with OMB Circular A-4, Table 19 below depicts an
accounting statement summarizing HHS' assessment of the benefits,
costs, and transfers associated with this regulatory action.
This proposed rule implements standards for programs that will have
numerous effects, including providing consumers with affordable health
insurance coverage, reducing the impact of adverse selection, and
stabilizing premiums in the individual and small group health insurance
markets and in an Exchange. We are unable to quantify benefits of the
proposed rule--such as improved health and longevity due to increased
insurance enrollment--and some costs--such as the cost to society of
providing additional medical services to newly-enrolled individuals.
Direct costs in the table below reflect administrative costs to States,
health insurance issuers, and Exchanges. The effects in Table 19
reflect estimated cost-sharing reduction payments, which are transfers
from the General Fund of the U.S. Treasury to consumers who qualify for
cost-sharing reductions. These transfer estimates are based on the
Congressional Budget Office's March 2012 baseline estimates, and have
been annualized over the 5 year period from FYs 2013-2017. Estimated
transfers do not yet reflect any user fees paid by insurance issuers
for the Federally-facilitated Exchange because we cannot estimate those
fee totals until the number of States operating an Exchange is
determined.
Table 19--Accounting Table
----------------------------------------------------------------------------------------------------------------
Units
--------------------------------------
Category Estimates Discount Period
Year dollar rate (%) covered
----------------------------------------------------------------------------------------------------------------
Benefits
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($millions/year)................... Not Estimated
Not Estimated
----------------------------------------------------------------------------------------------------------------
Costs
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($millions/year)................... $518.85 2013 7 2013-2017
$529.56 2013 3 2013-2017
----------------------------------------------------------------------------------------------------------------
Transfers
----------------------------------------------------------------------------------------------------------------
Federal Annualized Monetized ($millions/year)........... $6,513.85 2013 7 2013-2017
$6,787.26 2013 3 2013-2017
----------------------------------------------------------------------------------------------------------------
[[Page 73196]]
This impact analysis for the premium stabilization programs
references estimates from CBO and CMS. CBO's estimates remain the most
comprehensive accounting of all the interacting provisions pertaining
to the Affordable Care Act, and contain Federal budget impact estimates
of some provisions that have not been independently estimated by CMS.
Based on our review, we expect that the provisions of this proposed
rule will not significantly alter CBO's estimates of the budget impact
of the reinsurance, risk corridors, and risk adjustment programs. The
requirements of these programs are well within the parameters used in
the modeling of the Affordable Care Act. Our review and analysis of the
requirements indicate that the impacts are likely within the model's
margin of error.
For this RIA, we are updating the estimates for the reinsurance and
risk adjustment programs to reflect the five-year period from fiscal
years (FYs) 2013 through 2017. Table 20 includes the CBO estimates for
outlays and receipts for the reinsurance and risk adjustment programs
from FYs 2013 through 2017. These estimates for reinsurance and risk
adjustment reflect CBO's scoring of these provisions. Unlike the
current policy, CBO assumed risk adjustment payments and charges would
begin to be made in 2014, when in fact these payments and charges will
begin in 2015 as discussed above. Additionally, the CBO estimates do
not reflect the $5 billion in reinsurance contributions that are
submitted to the U.S. Treasury. There are no outlays and receipts for
reinsurance and risk adjustment in 2013 because the provisions do not
take effect until 2014.
CBO did not separately estimate the program costs of risk
corridors, but assumed aggregate collections from some issuers would
offset payments made to other issuers. Table 20 summarizes the effects
of the risk adjustment and reinsurance programs on the Federal budget,
with the additional, societal effects of this proposed rule discussed
in this Regulatory Impact Analysis.
Table 20--Estimated Federal Government Outlays and Receipts for the Reinsurance and Risk Adjustment Programs
From FYs 2013-2017, in Billions of Dollars
----------------------------------------------------------------------------------------------------------------
Year 2013 2014 2015 2016 2017 2013-2017
----------------------------------------------------------------------------------------------------------------
Reinsurance and Risk Adjustment ........... 11 18 18 18 65
Program Payments *...............
Reinsurance and Risk Adjustment ........... 12 16 18 18 64
Program Receipts *...............
----------------------------------------------------------------------------------------------------------------
* Risk adjustment program payments and receipts lag by one quarter. Receipt will fully offset payments over
time.
Source: Congressional Budget Office. 2011. Letter to Hon. Nancy Pelosi. March 20, 2010.
Risk Adjustment
Risk adjustment is a permanent program administrable by States that
operate an HHS-approved Exchange, with risk adjustment criteria and
methods established by HHS, with States having the option of proposing
alternative methodologies. Risk adjustment is generally applied to non-
grandfathered health plans offered in the individual and small group
markets, both inside and outside of the Exchange. A State that does not
operate an Exchange cannot operate risk adjustment, although a State
operating an Exchange can elect not to run risk adjustment. For States
that do not operate an Exchange, do not elect to operate risk
adjustment, or do not obtain HHS approval to operate risk adjustment,
HHS will administer the risk adjustment functions on the State's
behalf.
The Exchange may operate risk adjustment, although a State may also
elect to have an entity other than the Exchange perform the risk
adjustment functions, provided that the State is approved by HHS to
operate risk adjustment. Similar to the approach for reinsurance,
multiple States may contract with a single entity to administer risk
adjustment, provided that risk is pooled at the State level and that
each State is approved to operate their risk adjustment program. Having
a single entity administer risk adjustment in multiple States may
provide administrative efficiencies. In this proposed rule, we propose
to establish a risk adjustment State approval process. We describe
these administrative costs in the Collection of Information
Requirements section of this proposed rule.
The details of the HHS-developed risk adjustment methodology are
specified in this proposed rule. The HHS-developed risk adjustment
methodology is based on a model that is concurrent and uses demographic
and diagnosis information in a benefit year to predict total plan
liability in the benefit year. The national payment transfer
methodology is based on the State average premium to ensure that
payments and charges net to zero.
States may use this methodology or develop and propose alternate
risk adjustment methodologies that meet Federal standards. Once HHS
approves an alternate risk adjustment methodology, it will be
considered a Federally certified risk adjustment methodology that any
State may elect to use. In this proposed rule, we lay out the criteria
that HHS will use to evaluate alternate risk adjustment methodologies.
Approved Federally certified risk adjustment methodologies will be
published in the final HHS notice of benefit and payment parameters.
States that elect to develop their own risk adjustment
methodologies are likely to have increased administrative costs.
Developing a risk adjustment methodology requires complex data
analysis, including population simulation, predictive modeling, and
model calibration. States that elect to use the HHS developed
methodology would likely reduce administrative costs. We describe these
administrative costs in the Collection of Information Requirements
section of this proposed rule.
In the Premium Stabilization Rule, we defined a risk adjustment
covered plan as any health insurance coverage offered in the individual
or small group market with the exception of grandfathered health plans,
group health insurance coverage described in Sec. 146.145(c) of this
subchapter, individual health insurance coverage described in Sec.
148.220 of this subchapter, and any other plan determined not to be a
risk adjustment covered plan in the annual HHS notice of benefit and
payment parameters. In this proposed rule, we clarify that plans not
subject to certain market reforms and student health plans will not be
subject to the issuer requirements in subparts G and H of 45 CFR part
153.
States have the flexibility to merge the individual and small group
markets into one risk pool, or keep them separate for the purposes of
risk adjustment. Risk adjustment must be conducted separately in
unmerged markets. Developing the technology infrastructure required for
data
[[Page 73197]]
submission will likely require an administrative investment. The risk
adjustment process will require significant amounts of demographic and
diagnostic data to run through a risk assessment model to determine
individual risk scores that form the basis for plan and State averages.
The Premium Stabilization Rule requires States to collect or calculate
individual risk scores at a minimum. States may vary the amount and
type of data collected, provided that States meet specified data
collection standards.
Administrative costs will vary across States and health insurance
issuers depending on the type of data collection approach used in the
State. In States opting to operate risk adjustment using a distributed
model of data collection, the costs associated with mapping and storing
the required data and, in some cases, the costs associated with running
the risk adjustment software will likely be borne by the issuer.
States and issuers that already have systems in place for data
collection and reporting will have reduced administrative costs. For
example, issuers that already report data for Medicare Advantage (MA)
or Medicaid Managed Care may see minimal additional administrative
burden for risk adjustment. Additionally, some States risk-adjust their
Medicaid Managed Care programs. States with all-payer or multi-payer
claims databases may need to modify their systems to meet the
requirements of risk adjustment. However, these costs of modification
will be less than the costs of establishing these systems. States and
issuers that do not have existing technical capabilities will have
larger administrative costs related to developing necessary
infrastructure.
Issuer characteristics, such as size and payment methodology, will
also affect administrative costs. In general, national issuers will
likely be better prepared for the requirements of risk adjustment than
small issuers. Additionally, administrative costs may be greater for
issuers whose providers are paid by capitation and who do not receive
claims or encounter data, as they will have to modify their systems to
account for the information required for risk adjustment methodology.
In this proposed rule, we provide more details on the data
collection approach when we operate risk adjustment on behalf of a
State. The Premium Stabilization Rule established that when HHS
operates risk adjustment on behalf of a State, it will use a
distributed approach. We believe that this approach minimizes issuer
burden while protecting enrollee privacy. Under a distributed approach,
issuers will need to format risk adjustment data, and maintain that
data in compliance with HHS-established guidelines and applicable
standards. We describe these administrative costs in the Collection of
Information Requirements section of this proposed rule.
The Premium Stabilization Rule directs States to audit a sample of
data from each issuer and to ensure proper implementation of risk
adjustment software by all issuers that participate in risk adjustment.
States may extrapolate results from the sample to adjust the average
actuarial risk for the plan. This approach is consistent with the
approach now used in Medicare Advantage, where audit sample error rates
will be extrapolated to contract-level payments to recoup overpayment
amounts.
In this proposed rule, we propose data validation standards for
when HHS operates risk adjustment on behalf of a State. We are
proposing that HHS conduct a data validation program consisting of six
stages: (1) Sample selection; (2) initial validation audit; (3) second
validation audit; (4) error estimation; (5) appeals; and (6) payment
adjustments. Issuers would engage independent initial auditors to
conduct an initial audit of an HHS-selected sample of risk adjustment
data. HHS would retain a second validation auditor to verify the
findings of the initial validation audit and provide error estimates.
However, in this proposed rule we propose that there be no adjustments
to payments and charges based on the error estimates for benefit years
2014 and 2015. We describe these administrative costs in the Collection
of Information Requirements section of this proposed rule. We are also
proposing a process to appeal data validation findings. Issuers will
have an opportunity to appeal findings from both the initial validation
audit and second validation audit.
Risk adjustment transfers dollars from health plans with lower-risk
enrollees to health plans with higher-risk enrollees. From 2014 through
2016, it is estimated that $27 billion will be transferred between
issuers. We are updating the cost estimates for this RIA to include
2017, using CBO estimates.\55\ From 2014 through 2017, we estimate that
there will be $45 billion transferred between issuers.
---------------------------------------------------------------------------
\55\ Congressional Budget Office. 2011. Letter to Hon. Nancy
Pelosi. March 20, 2010.
---------------------------------------------------------------------------
Risk adjustment protects against adverse selection by allowing
insurers to set premiums according to the average actuarial risk in the
individual and small group market without respect to the type of risk
selection the insurer would otherwise expect to experience with a
specific product offering in the market. This should lower the risk
premium and allow issuers to price their products closer to the average
actuarial risk in the market. In addition, it mitigates the incentive
for health plans to avoid unhealthy members.
The risk adjustment program also serves to level the playing field
inside and outside of the Exchange, as payments and charges are applied
to all non-grandfathered individual and small group plans. This
mitigates the potential for excessive premium growth within the
Exchange due to anticipated adverse selection.
Reinsurance
The Affordable Care Act creates a transitional reinsurance program
for the years 2014, 2015, and 2016. Each State is eligible to establish
a reinsurance program. If a State establishes a reinsurance program,
the State must enter into a contract with an applicable reinsurance
entity to carry out the program. If a State does not elect to establish
its own reinsurance program, HHS will carry out the reinsurance program
for that State.
The Affordable Care Act requires a reinsurance pool of $10 billion
in 2014, $6 billion in 2015, and $4 billion in 2016. It also requires
annual contributions to the U.S. Treasury of $2 billion, $2 billion,
and $1 billion for those years, respectively. These contributions are
funded by health insurance issuers and third party administrators on
behalf of self-insured group health plans. Section 1341(b)(3) of the
Affordable Care Act directs the Secretary of HHS to establish the
method for determining contribution levels for the program. HHS
proposes to establish a national per capita contribution rate designed
to collect the $12.02 billion in 2014 to cover the required $10 billion
in reinsurance payments, the $2 billion contribution to the U.S.
Treasury, and the additional $20.3 million to cover the Federal
administrative expenses of operating the reinsurance program in 2014.
We continue to estimate that we will collect these amounts authorized
from 2014 through 2016 for the reinsurance pool, including the annual
contributions to the U.S. Treasury.
HHS proposes to collect the required contributions under the
national contribution rate from health insurance issuers and self-
insured group health
[[Page 73198]]
plans.\56\ States establishing their own reinsurance program may
collect additional contributions for administrative costs and/or
reinsurance payments. Section 1341(a)(3)(B) of the Affordable Care Act
requires that the reinsurance contribution amount for each issuer
reflect each issuers' fully insured commercial book of business for all
major medical products. In this proposed rule, we clarify which types
of health insurance coverage and self-insured group health plans are to
make reinsurance contributions, and which are not. This clarification
does not affect the amounts authorized to be collected for reinsurance.
---------------------------------------------------------------------------
\56\ The Department of Labor has reviewed this proposed rule and
advised that paying required reinsurance contributions would
constitute a permissible expense of the plan for purposes of Title I
of the Employee Retirement Income Security Act (ERISA) because the
payment is required by the plan under the Affordable Care Act as
interpreted in this proposed rule. (See generally, Advisory Opinion
2001-01A to Mr. Carl Stoney, Jr., available at www.dol.gov/ebsa
discussing settlor versus plan expenses.)
---------------------------------------------------------------------------
A State that establishes a reinsurance program may elect to collect
additional contributions to provide funding for administrative expenses
or supplemental reinsurance payments. Additional contributions for
administrative expenses may be collected by the State's applicable
reinsurance entity, at the State's election. Any additional
contributions for reinsurance payments must be collected by the State's
applicable reinsurance entity. In this proposed rule, we propose to
collect administrative expenses for HHS-operated reinsurance programs.
A State that operates the reinsurance program bears the administrative
costs of the applicable reinsurance entity, and must ensure that the
reinsurance entity complies with program requirements. HHS will share
some of its collections for administrative costs with States that run
the program. If a State operates its own reinsurance program, HHS would
transfer $0.055 of the per capita administrative fee to the State for
purposes of administrative expenses incurred in making reinsurance
payments, and retain the remaining $0.055 to offset the costs of
contribution collection. A State may have more than one reinsurance
entity, and two or more States may jointly enter into an agreement with
the same applicable reinsurance entity to carry out reinsurance in
their State. Administrative costs will likely increase if multiple
reinsurance entities are established within a State, whereas
administrative efficiencies may be found if multiple States contract
with one applicable reinsurance entity.
We propose in this proposed rule an annual collections and payment
cycle. We also considered a quarterly collections and payment cycle, as
envisioned by the Premium Stabilization Rule. However, a quarterly
cycle would impose significant costs on contributing entities. Because
HHS and States operating reinsurance would likely need to hold back a
significant portion of reinsurance funds until the end of the year to
ensure equitable payment of requests for reinsurance payments. We
believe that issuers would receive only limited benefits from a
quarterly payment cycle.
In Sec. 153.100(a), a State is required to issue an annual notice
of benefit and payment parameters specific to that State if it elects
to: (i) Modify the data requirements from the HHS-operated reinsurance
program; (ii) collect additional reinsurance contributions, under Sec.
153.220(d); or (iii) use more than one applicable reinsurance entity.
States that establish a reinsurance program will also maintain any
records associated with the reinsurance program, as set forth in Sec.
153.240(c). In addition, a State will notify HHS if it intends to
collect additional administrative expenses and provide justification
for the additional collection. The Premium Stabilization Rule
established that reinsurance contributions will be based on a per
capita amount. The per capita approach would be less complex to
administer in comparison to the percent of premium approach that HHS
considered but ultimately decided not to pursue. Further, the per
capita approach will better enable HHS to maintain the goals of the
reinsurance program by providing issuers with a more straightforward
approach to reinsurance contributions. States would be permitted to
collect additional contributions towards supplemental reinsurance
payments. We describe the administrative costs in the Collection of
Information Requirements section of this proposed rule.
In this proposed rule, we establish the methodology to be used for
counting covered lives for purposes of calculating reinsurance
contributions. This methodology is based upon counting methods
permitted under the PCORTF Rule. We believe that relying on a
previously established process set forth in the PCORTF Rule for
counting enrollees will minimize issuer burden for conducting these
counts. In the Collection of Information Requirements section of this
proposed rule, we describe the administrative costs for issuers
associated with the data requirements in Sec. 153.400(b) for all
contributing entities both inside and outside the Exchange. The
contributing entities would be required to provide enrollment data to
HHS to substantiate contribution amounts.
Reinsurance payments will be made to issuers of individual
insurance coverage for high claims costs for enrollees. In this
proposed rule, we propose a national attachment point, national
reinsurance cap, and national coinsurance rate. In the Premium
Stabilization Rule, we established that payments will be made on a
portion of claims costs for enrollees in reinsurance eligible plans
incurred above an attachment point, subject to a reinsurance cap.
Use of a reinsurance cap, as well as the requirement for health
insurance issuer costsharing above the attachment point and below the
cap, may incentivize health insurance issuers to control costs. This
approach based on claims costs is simpler to implement and more
familiar to health insurance issuers, and therefore will likely result
in savings in administrative costs as compared to a condition-based
reinsurance approach. The program costs of reinsurance are expected to
be reflected in changes to health insurance premiums.
A State operating its own reinsurance program may opt to supplement
the reinsurance parameters proposed by HHS only if the State elects to
collect additional contributions for supplemental reinsurance payments
or use additional State funds for supplemental reinsurance payments,
and must specify these supplemental payment parameters in its State
notice of benefit and payment parameters.
In this proposed rule, we propose that States provide a process
through which a reinsurance-eligible plan that does not generate
individual enrollee claims may derive costs to request reinsurance
payments. In addition, we clarify that when HHS operates a reinsurance
program on behalf of a State that these plans may price encounters in
accordance with its existing principal, internal encounter pricing
methodology. Additionally, we propose in Sec. 153.240(b) of this
proposed rule that States operating their own reinsurance program must
notify issuers of reinsurance payments to be made, as well as provide
reinsurance-eligible plans an estimate of expected requests for
reinsurance payments. Moreover, we propose for both State- and HHS-
operated reinsurance programs, that only plans subject to the 2014
market
[[Page 73199]]
reform rules would be eligible for reinsurance payment.
In this proposed rule, we also provide more details on the data
collection approach for HHS-operated reinsurance programs. HHS plans to
use the same distributed data collection approach used for risk
adjustment; however, only data elements necessary for reinsurance claim
selection will be considered for the purpose of determining reinsurance
payments. In the Collection of Information Requirements section, we
describe the administrative costs required in Sec. 153.410 for issuers
of reinsurance-eligible plans in States where HHS is operating
reinsurance to receive reinsurance payments. We believe details on the
reinsurance data collection approach proposed in the HHS notice of
benefit and payment parameters are reflected in these cost estimates.
All health insurance issuers contribute to the reinsurance pool,
because successful implementation of the range of reforms in 2014
benefit all of their enrollees (for example, those reforms should lead
to fewer unreimbursed health costs, lowering the costs for all issuers
and group health plans) while only health insurance issuers with plans
in the individual market are eligible to receive payments. This serves
to stabilize premiums in the individual market while having a minimal
impact on large group issuers and plans. Reinsurance will attenuate
individual market rate increases that might otherwise occur because of
the immediate enrollment of higher risk individuals, potentially
including those currently in State high-risk pools. It will also help
prevent insurers from building in risk premiums to their rates given
the unknown health of their new enrollees. It is expected that the cost
of reinsurance contributions will be roughly equal to one percent of
premiums in the total market in 2014, less in 2015 and 2016, and will
end in 2017. In contrast, it is anticipated that reinsurance payments
will result in premium decreases in the individual market of between 10
and 15 percent.
Evidence from the Healthy New York (Healthy NY) program \57\
supports the magnitude of these estimates. In 2001, the State of New
York began operating Healthy NY and required all HMOs in the State to
offer policies for which small businesses and low-income individuals
would be eligible. The program contained a ``stop-loss'' reinsurance
provision designed to lower premiums for enrollees. Under the program,
if any enrollee incurred $30,000 in annual claims, his or her insurer
was reimbursed for 90 percent of the next $70,000 in claims. Premiums
for Healthy NY policies were about 15 percent to 30 percent less than
those for comparable HMO policies in the small group market.
---------------------------------------------------------------------------
\57\ Swartz, K. ``Health New York: Making Insurance More
Affordable for Low-Income Workers.'' The Commonwealth Fund. November
2001.
---------------------------------------------------------------------------
Medical Loss Ratio
This proposed rule proposes to amend the MLR and rebate calculation
methodologies to include payments and receipts related to the premium
stabilization programs. The definition of premium revenue would be
modified to account for these payments and receipts. When the MLR
annual reporting form is updated for the reporting year 2014 and later,
premium stabilization payment and receipt amounts would be considered a
part of gross earned premium reported to the Secretary, similar to
other elements involved in the derivation of earned premium. The MLR
annual reporting form would then account for premium stabilization
payment and receipt amounts by removing them from adjusted earned
premium, so that these amounts do not have a net impact on the adjusted
earned premium used in calculating the MLR denominator and rebates.
Additionally, this proposed rule proposes to amend the MLR calculation
methodology to add or subtract premium stabilization payment(s) and
receipt amounts in the MLR numerator, consistent with the way the
statute prescribes the calculation methodology for risk corridors.
These adjustments will reduce or increase issuers' MLRs, and may
increase or reduce issuers' rebates, respectively. The amended
methodology will result in a more accurate calculation of MLR and
rebate amounts, since it will reflect issuers' actual claims-related
expenditures. This approach will also support the effectiveness of both
the MLR and the premium stabilization programs by correctly offsetting
the premium stabilization payment and receipt amounts against rebates,
consistently with the risk corridors calculation methodology adopted in
Sec. 153.530.
Based on HHS's experience with the 2011 MLR reporting year, there
are 466 health insurance issuers \58\ offering coverage in the
individual and group markets to almost 80 million enrollees that will
be affected by the proposed amendment to account for premium
stabilization payments in MLR and rebate calculations. In 2012, an
estimated 54 issuers paid $396 million in rebates for the 2011 MLR
reporting year to approximately 4 million enrollees in the individual
markets, while 59 issuers in the small group market provided
approximately $289 million in rebates to policyholders and subscribers
on behalf of over 3 million enrollees, and 47 issuers in the large
group market provided approximately $403 million in rebates to
policyholders and subscribers on behalf of almost 6 million enrollees.
Lack of data makes it difficult to predict how high-risk enrollees will
be distributed among issuers and, therefore, how MLRs and total rebates
would be affected. Issuers with relatively low-risk enrollees are
likely to have positive net premium stabilization payments (that is,
payments would be greater than receipts) and, if so, their MLRs will
increase as a result of the amended MLR calculation methodology. If any
of these issuers fail to meet the MLR standard, taking the premium
stabilization payments and receipts into account in the MLR
calculations will result in lower rebate payments. Issuers with
relatively high-risk enrollees are likely to have positive net receipts
(that is, receipts would be greater than payments) and, if so, their
MLRs would decrease as a result. If any such issuer fails to meet the
MLR standard, its rebate amount will increase. Since such issuers are
likely to have high claims expenditures and therefore, high MLRs, they
would be less likely to owe rebates. So we do not anticipate that
rebates will go up for such issuers.
---------------------------------------------------------------------------
\58\ Issuers represent companies (for example, NAIC company
code). These estimates do not include issuers of plans with total
annual limits of $250,000 or less (sometimes referred to as ``mini-
med'' plans) or expatriate plans.
---------------------------------------------------------------------------
The Payment Notice proposes to also change the deadlines for MLR
report submission and rebate payments so that the deadlines occur after
all the premium stabilization payment and receipt amounts are
determined. The change in the deadlines will allow issuers to calculate
the MLR and rebate amounts based on actual calculated payments and
receipts rather than estimated amounts and will improve the accuracy of
the rebate payments and reports. This will also reinforce the
effectiveness of the premium stabilization programs, since issuers are
less likely to pay higher or lower rebates based on inaccurate payment
and receipt estimations. Accordingly, we propose to change the date of
MLR reporting to the Secretary from June 1 to July 31, and the rebate
due date from August 1 to September 30.
Issuers will also have to report their payments and receipts
related to the premium stabilization programs in the
[[Page 73200]]
annual MLR report beginning in the 2014 MLR reporting year. Once
issuers calculate these amounts, which they will be required to do
regardless of the MLR reporting requirements, the administrative cost
of including these amounts in the report will be minimal.
The current MLR calculation methodology allows an issuer to deduct
from premiums in the calculation of an issuer's MLR and rebates either
the amount it paid in State premium taxes, or the amount of its
community benefit expenditures up to a maximum of the highest premium
tax rate in the State, whichever is greater, as provided in the final
rule with comment period (76 FR 76574) published on December 7, 2011.
This proposed rule proposes to amend the MLR methodology and allow a
federal income tax exempt not-for-profit issuer to deduct from premium
both community benefit expenditures and State premium taxes, limited to
the higher of the State's highest premium tax rate or 3 percent of
premium. Other issuers would continue to use the current methodology.
This would create a level playing field for Federal income tax exempt
not-for-profit issuers, who are required to make community benefit
expenditures to maintain their federal income tax exempt status and
would not discourage community benefit expenditures. This is likely to
increase the MLRs for tax exempt not-for-profit issuers. If any of
these issuers fail to meet the MLR standard, then this will result in
lower rebate payments.
Based on MLR annual reports submitted by issuers for the 2011 MLR
reporting year, we estimate that there are 132 not-for-profit issuers
that will be affected by this proposed amendment. In the absence of
data on tax exempt not-for-profit issuers, we use the estimates for
not-for-profit issuers in our analysis. Therefore, the actual impact is
likely to be lower. For the 20 not-for-profit issuers that submitted
data on community benefit expenditures, such expenditures as a
percentage of earned premiums ranged from 0.04 percent to 4.11 percent
with an average of 1.57 percent, which is likely to be less than the
current limit for most of the issuers and is less than the proposed
limit as well. We assume that issuers will maintain the level of
community benefit expenditures as reported in their MLR annual reports
for the 2011 MLR reporting year. We estimate that under the current
policy, in the 2012 MLR reporting year, 17 not-for-profit issuers will
owe approximately $182 million in rebates to approximately 1.5 million
enrollees. The proposed change in treatment of community benefit
expenditures for such issuers will have minimal effect on their MLRs
and rebates under this assumption, since their current expenditures are
below the current deduction limits.
Issuers with lower rebate payments as a result of these adjustments
would need to send fewer rebate notices, and therefore, would have
lower administrative costs related to rebates and rebate notices.
Risk Corridors
The Affordable Care Act creates a temporary risk corridors program
for the years 2014, 2015, and 2016 that applies to QHPs. The risk
corridors program creates a mechanism for sharing risk for allowable
costs between the Federal government and QHP issuers. The Affordable
Care Act establishes the risk corridors program as a Federal program;
consequently, HHS will operate the risk corridors program under Federal
rules with no State variation. The risk corridors program will help
protect against inaccurate rate setting in the early years of the
Exchanges by limiting the extent of issuer losses and gains.
QHP issuers must submit to HHS data on premiums earned, allowable
claims and quality costs, and allowable administrative costs,
reflecting data categories required under the Medical Loss Ratio
Interim Final Rule (75 FR 74918). In designing the program, HHS has
sought to leverage existing data reporting for Medical Loss Ratio
purposes as much as possible.
As noted above, the risk corridors program is intended to protect
QHP issuers in the individual and small group market against inaccurate
rate setting. Due to uncertainty about the population during the first
years of Exchange operation, issuers may not be able to predict their
risk accurately, and their premiums may reflect costs that are
ultimately lower or higher than predicted. To determine whether an
issuer pays into, or receives payments from, the risk corridors
program, HHS will compare allowable costs (essentially, claims costs)
and the target amount--the difference between a plan's earned premiums
and allowable administrative costs. In this proposed rule, we have
provided for adjustments to the risk corridors calculation to account
for taxes and profits within its allowable administrative costs. The
threshold for risk corridor payments and charges is reached when a QHP
issuer's allowable costs exceed, or fall short of, the target amount by
at least three percent. A QHP with allowable costs that are at least
three percent less than its target amount will pay into the risk
corridors program. Conversely, HHS will pay a QHP with allowable costs
that exceed its target amount by at least 3 percent. Risk corridor
payments and charges are a percentage of the difference between
allowable costs and target amount and therefore are not on a ``first
dollar'' basis.
In this proposed rule, HHS also specified the annual schedule for
the risk corridors program, including dates for claims run-out, data
submission, and notification of risk corridors payments and charges.
We believe the proposals on the risk corridors program in this
proposed rule have a negligible effect on the impact of the program
established by and described in the Premium Stabilization Rule.
Advance Payments of the Premium Tax Credit and Cost-Sharing Reductions
The impact analysis for Payment Notice provisions relating to
advance payments of the premium tax credit and cost-sharing reductions
references estimates from the CBO's March 2012 baseline projections.
Based on our review, we expect that those proposed provisions will not
alter CBO's March 2012 baseline estimates of the budget impact of those
two programs. The requirements are well within the parameters used in
the modeling of the Affordable Care Act. Our review and analysis of the
requirements indicate that the impacts are likely within the model's
margin of error. The Affordable Care Act provides for premium tax
credits and the reduction or elimination of cost sharing for certain
individuals enrolled in QHPs offered through the Exchanges. This
assistance will help many low- and moderate-income individuals and
families obtain health insurance--for many people, cost sharing is a
barrier to obtaining needed health care.\59\
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\59\ Brook, et al., at footnote 5 above.
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Section 1402(a)-(c) of the Affordable Care Act directs issuers to
reduce cost sharing for essential health benefits for individuals with
household incomes between 100 and 400 percent of the FPL who are
enrolled in a QHP offered at the silver level of coverage in the
individual market on the Exchange and are eligible for a premium tax
credit or advance payment of premium tax credits. The Affordable Care
Act, at section 1402(d), also directs issuers to eliminate cost sharing
for Indians (as defined in Sec. 155.300) with a household income at or
below 300 percent of the FPL who are enrolled in a QHP of any metal
level in the individual market on the Exchange, and prohibits issuers
from requiring cost sharing for Indians, regardless of household
income, for items or services
[[Page 73201]]
furnished directly by the IHS, an Indian Tribe, a Tribal Organization,
or an Urban Indian Organization or through referral under contracted
health services. Finally, the Affordable Care Act, at section 1412,
provides for the advance payments of the premium tax credit and cost-
sharing reductions.
A subset of the persons who enroll in QHPs in the individual market
through the Exchanges beginning in 2014 will be affected by the
provisions relating to advance payments of premium tax credit and cost-
sharing reductions (those with household incomes below 400 percent of
the FPL and Indians enrolled in QHPs). In March 2012, CBO estimated
that there will be approximately 20 million enrollees in Exchange
coverage by 2016, including approximately 16 million Exchange enrollees
who will be receiving subsidies.\60\ Participation rates among
potential enrollees are expected to be lower in the first few years of
Exchange availability as employers and individuals adjust to the
features of the Exchanges.\3\
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\60\ ``Updated Estimates for the Insurance Coverage Provisions
of the Affordable Care Act,'' Congressional Budget Office, March
2012.
\3\ Congressional Budget Office, ``Letter to the Honorable Evan
Bayh: An Analysis of Health Insurance Premiums under the Patient
Protection and Affordable Care Act,'' Washington, DC, 2009.
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In this proposed rule, we provide additional details for Exchanges
and issuers on the administration of advance payments of premium tax
credit and cost-sharing reductions for individuals and families. We
clarify the approach to providing for cost-sharing reductions to
individuals who purchase a family policy. We also propose standards
applicable to Exchanges when setting effective dates for changes in
eligibility, collecting premiums from enrollees, and administering
advance payments of cost-sharing reductions and the premium tax credit.
We describe these administrative costs in the Collection of Information
Requirements section of this proposed rule.
Finally, we direct QHP issuers to enroll individuals in the plan
variation with the correct cost-sharing structure, and to provide those
individuals with the cost-sharing reductions for which they are
eligible. QHP issuers are responsible for submitting plan variations
containing the cost-sharing structures proposed by HHS as required by
the Affordable Care Act. We also clarify which plans are eligible for
cost-sharing reductions, and we propose standards relating to advance
payments of cost-sharing reductions and reconciliation of those advance
payments against actual cost-sharing reduction provided. In addition,
we propose that QHP issuers reduce an enrollee's share of premium to
account for advance payments of the premium tax credit, and submit
allocations of rates and claims costs to allow for the calculation of
advance payments of cost-sharing reductions and the premium tax credit.
We describe these administrative costs in the Collection of Information
Requirements section of this proposed rule.
The cost-sharing reduction and advance payment of the premium tax
credit policies will apply to all issuers that choose to seek
certification to offer QHPs through the Exchanges for the individual
market. QHP issuers will experience costs related to preparing and
submitting to HHS data to support the administration of cost-sharing
reductions. We anticipate that the provisions for advance payments of
the premium tax credit and cost-sharing reductions will result in
transfers from the General Fund of the Treasury to people receiving
cost-sharing reductions and advance payments of the premium tax credit.
User Fees
To support certain Federal operations of Federally-facilitated
Exchanges, we propose in this proposed rule, under section
1311(d)(5)(A) of the Affordable Care and 31 U.S.C. 9701, that a
participating issuer offering a plan through a Federally-facilitated
Exchange remit a user fee to HHS each month equal to the product of the
billable members (that is, members that count towards the premium)
enrolled in the QHP offered by the issuer in the Exchange, and the
monthly user fee rate specified in the annual HHS notice of benefit and
payment parameters for the applicable benefit year. In this proposed
rule we set forth our intention to have the Federally-facilitated
Exchange user fee generally reflect the user fee in place by State-
based Exchanges in 2014. For the 2014 benefit year, we propose a
monthly user fee rate equal to 3.5 percent of the monthly premium
charged by the issuer for a particular policy under the QHP. Because we
seek to align this rate with rates charged by State-based Exchanges, we
may adjust this rate to conform with State-based Exchange rates in the
final Payment Notice. We do not have an aggregate estimate of the
collections from the user fee at this time because we do not yet have a
count of the number of States in which HHS will run a Federally-
facilitated Exchange. We anticipate that this user fee collection will
be sufficient to cover the majority of costs related to the operation
of Federally-facilitated Exchanges and maintain balance within the
market.
SHOP
The Small Business Health Options Program (SHOP) facilitates the
enrollment of small businesses into small group health insurance plans.
A qualitative analysis of the costs and benefits of establishing a SHOP
was included in the RIA published in conjunction with the Exchange
Establishment Rule.\61\ This Impact Analysis addresses the additional
costs and benefits of the proposed modifications in this proposed rule
to the SHOP sections of the Exchange Final Rule.
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\61\ Available at: http://cciio.cms.gov/resources/files/Files2/03162012/hie3r-ria-032012.pdf.
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In this proposed rule, we propose to implement policies for FF-
SHOPs designed to prevent significant adverse selection while promoting
robust plan choice for employees. These policies include methods a
qualified employer may use to make QHPs available to its employees,
rules to ensure parity with a market's group participation
requirements, rules to permit the display of agent and broker
information on FF-SHOP Web sites, alignment of market definitions with
other applicable rules, and incentives for issuers to participate in
FF-SHOPs. Many of these proposed policies are expected to create no
significant new costs.
The Affordable Care Act permits a qualified employer participating
in a SHOP to select a metal level of coverage and make all plans in
that level of coverage available to its employees. This represents an
increase in plan choice over what many employees of small employers
have today. Limiting this choice to a single level of coverage reduces
potential adverse selection within the group and therefore any
additional cost due to expanded choice. In the Exchange Establishment
Rule, we did not quantify either the small risk premium or the modest
additional consumer benefit resulting from employee choice at a single
level of coverage. We seek comment on both limiting employee choice to
prevent adverse selection and allowing for choice across two rather
than one metal level.
The Exchange Final Rule permits a SHOP to set a minimum
participation rate; such authority is limited to the extent the minimum
participation rate is permissible under the PHS Act and applicable
State law. Minimum participation rates require participation in the
health plan by a substantial portion of the employer's group, thereby
[[Page 73202]]
assuring a more representative risk pool and reducing adverse
selection. Setting a minimum participation rate that is too low would
make it ineffective, while setting it too high would reduce the number
of employers offering coverage. This proposed rule proposes, subject to
permissibility under the PHS Act, that FF-SHOPs use a default
participation rate of 70 percent that may be modified if there is
evidence that a higher or lower rate is either customary in the State
or required by State statute. Because this policy results in no change
in market dynamics, it places no additional costs on employers or
issuers.
This proposed rule proposes new incentives for some health
insurance issuers to participate in the FF-SHOP. Health insurance
issuers that offer coverage in both the individual and small group
markets and wish to sell QHPs in an FFE must also offer QHPs in an FF-
SHOP. This policy promotes robust issuer participation in the FF-SHOP
which will help small employers offer their employees a broad choice of
health plan.
The benefits of broad plan choice are quite significant. One study
suggests expanding plan choice while holding premiums constant for
employees results in a median increase in consumer surplus by 20
percent of the premium cost of coverage.\62\ Some of this benefit is
due to expanded choice in plan type and health insurance issuer. There
are two costs associated with this policy. The first is the cost for
the QHP issuer of submitting plans for certification in the FF-SHOP,
which is described in the 30-day Federal Register Notice for the
Initial Plan Data Collection published on November 21, 2012 (77 FR
69846). The second is the cost of additional user fees QHP issuers must
pay for participating in the FF-SHOP.
---------------------------------------------------------------------------
\62\ Dafny, L., Ho, K., & Varela, M. (2010). Let them have
choice: Gains from shifting away from employer-sponsored health
insurance and toward an individual exchange (No. w15687). National
Bureau of Economic Research.
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D. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA)
requires agencies to prepare an initial regulatory flexibility analysis
to describe the impact of the final rule on small entities, unless the
head of the agency can certify that the rule will not have a
significant economic impact on a substantial number of small entities.
The RFA generally defines a ``small entity'' as (1) A proprietary firm
meeting the size standards of the Small Business Administration (SBA),
(2) a not-for-profit organization that is not dominant in its field, or
(3) a small government jurisdiction with a population of less than
50,000. States and individuals are not included in the definition of
``small entity.'' HHS uses a change in revenues of more than three to
five percent as its measure of significant economic impact on a
substantial number of small entities.
This proposed rule contains proposed rules for premium
stabilization programs required of health plan issuers including the
risk adjustment program as well as the transitional reinsurance program
and temporary risk corridors programs. Because we believe that few
insurance firms offering comprehensive health insurance policies fall
below the size thresholds for ``small entities'' established by the
SBA, we do not believe that an initial regulatory flexibility analysis
is required with respect to such firms.
For purposes of the RFA, we expect the following types of entities
to be affected by this proposed rule: (1) Health insurance issuers; (2)
health insurance plan sponsors; (3) reinsurance entities; (4) risk
adjustment entities; and (5) third-party administrators. We believe
that health insurance issuers and plan sponsors would be classified
under the North American Industry Classification System (NAICS) code
524114 (Direct Health and Medical Insurance Carriers); reinsurance
entities, risk adjustment entities and third party administrators would
be classified under NAICS codes 524130 (Reinsurance Carriers), 524298
(Actuarial Services) and 524292 (Third Party Administration of
Insurance). According to SBA size standards, entities with average
annual receipts of $7 million or less would be considered small
entities for these NAICS codes. Issuers could possibly be classified in
621491 (HMO Medical Centers) and, if this is the case, the SBA size
standard would be $10 million or less.
Based on data from Medical Loss Ratio annual report submissions for
the 2011 MLR reporting year, there are 22 small entities (companies),
each with less than $7 million in earned premiums, that offer
individual or group health insurance coverage and would therefore be
subject to the provisions related to MLR. These small entities account
for less than 5 percent of the estimated 466 issuers that would be
affected by the provisions of this rule. Thirty six percent of these
small issuers belong to holding groups, and many if not all of these
small issuers are likely to have other lines of business that would
result in their revenues exceeding $7 million.
In this proposed rule, we propose requirements on employers that
choose to participate in a SHOP Exchange. As discussed above, the SHOP
is limited by statute to employers with at least one but not more than
100 employees. For this reason, we expect that many employers would
meet the SBA standard for small entities. We do not believe that the
regulation imposes requirements on employers offering health insurance
through SHOP that are more restrictive than the current requirements on
small employers offering ESI. For example, we propose to generally
match existing minimum participation rates in the outside market.
Additionally, as discussed in the Regulatory Impact Analysis, we
believe the proposed policy will provide greater choice for the
employee among plans and issuers, benefitting both employer and
employee and simplify the process for the employer of administering
multiple health benefit plans. We believe the processes that we have
established constitute the minimum amount of requirements necessary to
implement statutory mandates and accomplish our policy goals, and that
no appropriate regulatory alternatives could be developed to further
lessen the compliance burden.
We believe that a substantial number of sponsors of self-insured
group health plans could qualify as ``small entities.'' This proposed
rule specifies the reinsurance contributions that would be required
from third-party administrators on behalf of such entities. However, we
do not believe that these contributions are likely to result in a
change in revenues of more than 3 to 5 percent. We request comment on
whether the small entities affected by this proposed rule have been
fully identified. We also request comment and information on potential
costs for these entities and on any alternatives that we should
consider.
E. Unfunded Mandates
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated costs and benefits and take
certain other actions before issuing a final rule that includes any
Federal mandate that may result in expenditures in any one year by a
State, local, or Tribal governments, in the aggregate, or by the
private sector, of $100 million in 1995 dollars, updated annually for
inflation. In 2012, that threshold is approximately $139 million. Since
the impact on State, local, or Tribal governments and the private
sector is below the threshold, no analysis under UMRA is required.
[[Page 73203]]
F. Federalism
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a final rule that imposes
substantial direct costs on State and local governments, pre-empts
State law, or otherwise has Federalism implications. Because States
have flexibility in designing their Exchange and Exchange-related
programs, State decisions will ultimately influence both administrative
expenses and overall premiums. States are not required to establish an
Exchange. For States electing to operate an Exchange, risk adjustment
and reinsurance, much of the initial cost of creating Exchanges and
Exchange-related programs will be funded by Exchange Planning and
Establishment Grants. After establishment, Exchanges will be
financially self-sustaining, with revenue sources at the discretion of
the State. Current State Exchanges charge user fees to issuers.
In HHS's view, while this proposed rule does not impose substantial
direct requirement costs on State and local governments, this
regulation has Federalism implications due to direct effects on the
distribution of power and responsibilities among the State and Federal
governments relating to determining standards relating to health
insurance that is offered in the individual and small group markets.
Each State electing to establish an Exchange must adopt the Federal
standards contained in the Affordable Care Act and in this Payment
Notice, or have in effect a State law or regulation that implements
these Federal standards. However, HHS anticipates that the Federalism
implications (if any) are substantially mitigated because under the
statute, States have choices regarding the structure and governance of
their Exchanges. Additionally, the Affordable Care Act does not require
States to establish an Exchange; if a State elects not to establish an
Exchange or the State's Exchange is not approved, HHS, either directly,
or through agreement with a non-profit entity, must establish and
operate an Exchange in that State.
In compliance with the requirement of Executive Order 13132 that
agencies examine closely any policies that may have Federalism
implications or limit the policy making discretion of the States, HHS
has engaged in efforts to consult with and work cooperatively with
affected States, including participating in conference calls with and
attending conferences of the National Association of Insurance
Commissioners, and consulting with State insurance officials on an
individual basis.
Throughout the process of developing this proposed rule, HHS has
attempted to balance the States' interests in regulating health
insurance issuers, and Congress' intent to provide access to Affordable
Insurance Exchanges for consumers in every State. By doing so, it is
HHS's view that we have complied with the requirements of Executive
Order 13132.
G. Congressional Review Act
This proposed rule is subject to the Congressional Review Act
provisions of the Small Business Regulatory Enforcement Fairness Act of
1996 (5 U.S.C. 801 et seq.), which specifies that before a rule can
take effect, the Federal agency promulgating the rule shall submit to
each House of the Congress and to the Comptroller General a report
containing a copy of the rule along with other specified information,
and has been transmitted to Congress and the Comptroller General for
review.
List of Subjects
45 CFR Part 153
Administrative practice and procedure, Adverse selection, Health
care, Health insurance, Health records, Organization and functions
(Government agencies), Premium stabilization, Reporting and
recordkeeping requirements, Reinsurance, Risk adjustment, Risk
corridors, Risk mitigation, State and local governments.
45 CFR Part 155
Administrative practice and procedure, Health care access, Health
insurance, Reporting and recordkeeping requirements, State and local
governments, Cost-sharing reductions, Advance payments of premium tax
credit, Administration and calculation of advance payments of the
premium tax credit, Plan variations, Actuarial value.
45 CFR Part 156
Administrative practice and procedure, Advertising, Advisory
committees, Brokers, Conflict of interest, Consumer protection, Grant
programs--health, Grants administration, Health care, Health insurance,
Health maintenance organization (HMO), Health records, Hospitals,
American Indian/Alaska Natives, Individuals with disabilities, Loan
programs--health, Organization and functions (Government agencies),
Medicaid, Public assistance programs, Reporting and recordkeeping
requirements, State and local governments, Sunshine Act, Technical
assistance, Women, and Youth.
45 CFR Part 157
Employee benefit plans, Health insurance, Health maintenance
organization (HMO), Health records, Hospitals, Indians, Individuals
with disabilities, Organization and functions (Government agencies),
Medicaid, Public assistance programs, Reporting and recordkeeping
requirements, Safety, State and local governments, Sunshine Act,
Technical Assistance, Women, and Youth.
45 CFR Part 158
Administrative practice and procedure, Claims, Health care, Health
insurance, Health plans, penalties, Reporting and recordkeeping
requirements, Premium revenues, Medical loss ratio, Rebating.
For the reasons set forth in the preamble, the Department of Health
and Human Services proposes to amend 45 CFR parts 153, 155, 156, 157,
and 158 as set forth below:
PART 153--STANDARDS RELATED TO REINSURANCE, RISK CORRIDORS, AND
RISK ADJUSTMENT UNDER THE AFFORDABLE CARE ACT
1. The authority citation for part 153 continues to read as
follows:
Authority: Secs. 1321, 1341-1343, Pub. L. 111-148, 24 Stat.
119.
2. Section 153.20 is amended by revising the definitions of ``Risk
adjustment covered plan'' and ``Risk adjustment data collection
approach'' as follows:
Sec. 153.20 Definitions.
* * * * *
Risk adjustment covered plan means, for the purpose of the risk
adjustment program, any health insurance coverage offered in the
individual or small group market with the exception of grandfathered
health plans, group health insurance coverage described in Sec.
146.145(c) of this subchapter, individual health insurance coverage
described in Sec. 148.220 of this subchapter, and any plan determined
not to be a risk adjustment covered plan in the applicable Federally
certified risk adjustment methodology.
* * * * *
Risk adjustment data collection approach means the specific
procedures by which risk adjustment data is to be stored, collected,
accessed, transmitted, and validated and the applicable timeframes,
data formats, and privacy and security standards.
* * * * *
[[Page 73204]]
3. Section 153.100 is amended by--
A. Revising paragraph (a)(1).
B. Removing paragraph (a)(2).
C. Redesignating paragraphs (a)(3) and (4) as paragraphs (a)(2) and
(3).
D. Revising newly designated paragraph (a)(2).
E. Removing paragraph (a)(5).
F. Revising paragraph (c).
G. Revising paragraph (d)(1).
H. Removing paragraph (d)(2).
I. Redesignating paragraphs (d)(3) and (4) as paragraphs (d)(2) and
(3).
J. Revising newly designated paragraph (d)(2).
K. Removing paragraph (d)(5).
L. Redesignating paragraph (d)(6) as paragraph (d)(4).
The revisions read as follows:
Sec. 153.100 State notice of benefit and payment parameters.
(a) * * *
(1) Modify the data requirements for health insurance issuers to
receive reinsurance payments from those specified in the annual HHS
notice of benefit and payment parameters for the applicable benefit
year;
(2) Collect additional reinsurance contributions under Sec.
153.220(d) or use additional funds for reinsurance payments under Sec.
153.220(d)(3); or
* * * * *
(c) State notice deadlines. If a State is required to publish an
annual State notice of benefit and payment parameters for a particular
benefit year, then with respect to benefit year 2014, it must do so by
March 1, 2013, or by the 30th day following the publication of the
final HHS notice of benefit and payment parameters, whichever is later.
With respect to subsequent benefit years, a State must do so by March 1
of the calendar year prior to the benefit year for which the notice
applies.
(d) * * *
(1) Adhere to the data requirements for health insurance issuers to
receive reinsurance payments that are specified in the annual HHS
notice of benefit and payment parameters for the applicable benefit
year;
(2) Forgo the collection of additional reinsurance contributions
under Sec. 153.220(d) and the use of additional funds for reinsurance
payments under Sec. 153.220(d)(3);
* * * * *
4. Section 153.110 is amended by:
A. Revising paragraph (a).
B. Removing paragraph (b).
C. Redesignating paragraph (c) as paragraph (b) and revising newly
designated paragraph (b).
D. Redesignating paragraph (d) as paragraph (c).
E. Removing newly designated paragraph (c)(2).
F. Removing newly designated paragraph (c)(4).
G. Removing newly designated paragraph (c)(5).
H. Redesignating paragraph (c)(6) as paragraph (c)(3).
I. Removing paragraph (e).
J. Redesignating paragraph (f) as paragraph (d).
The revisions read as follows:
Sec. 153.110 Standards for the State notice of benefit and payment
parameters.
(a) Data requirements. If a State that establishes a reinsurance
program elects to modify the data requirements for health insurance
issuers to receive reinsurance payments from those specified in the
annual HHS notice of benefit and payment parameters for the applicable
benefit year, the State notice of benefit and payment parameters must
specify those modifications.
(b) Additional collections. If a State that establishes a
reinsurance program elects to collect additional funds under Sec.
153.220(d) or use additional funds for reinsurance payments under Sec.
153.220(d)(3), the State must publish in the State notice of benefit
and payment parameters the following:
(1) A description of the purpose of the additional collection,
including whether it will be used to cover reinsurance payments made
under Sec. 153.232, administrative costs, or both;
(2) The additional contribution rate at which the funds will be
collected; and
(3) If the purpose of the additional collection includes
reinsurance payments (or if the State is using additional funds for
reinsurance payments under Sec. 153.220(d)(3)), the State supplemental
reinsurance payment parameters required under Sec. 153.232.
* * * * *
5. Section 153.210 is amended by revising paragraph (a)(2) and
adding paragraph (e) to read as follows:
Sec. 153.210 State establishment of a reinsurance program.
(a) * * *
(2) If a State contracts with more than one applicable reinsurance
entity, the State must ensure that each applicable reinsurance entity
operates in a distinct geographic area with no overlap of jurisdiction
with any other applicable reinsurance entity.
* * * * *
(e) Reporting to HHS. Each State that establishes a reinsurance
program must ensure that each applicable reinsurance entity provides
information regarding requests for reinsurance payments under the
national contribution rate made under Sec. 153.410 for all
reinsurance-eligible plans for each quarter during the applicable
benefit year in a manner and timeframe established by HHS.
6. Section 153.220 is amended by--
A. Revising paragraph (a).
B. Removing paragraph (b).
C. Redesignating paragraph (c) as paragraph (b).
D. Removing paragraph (d).
E. Redesignating paragraph (e) as paragraph (c).
F. Revising newly designated paragraph (c)(2).
G. Removing paragraph (f).
H. Redesignating paragraph (g) as paragraph (d).
I. Revising newly designated paragraph (d).
J. Removing paragraph (h).
The revisions read as follows:
Sec. 153.220 Collection of reinsurance contribution funds.
(a) Collections. If a State establishes a reinsurance program, HHS
will collect all reinsurance contributions from all contributing
entities for that State under the national contribution rate.
* * * * *
(c) * * *
(2) Payments to the U.S. Treasury as described in paragraph (b)(2)
of this section; and
* * * * *
(d) Additional State collections. If a State establishes a
reinsurance program:
(1) The State may elect to collect more than the amounts that would
be collected based on the national contribution rate set forth in the
annual HHS notice of benefit and payment parameters for the applicable
benefit year to provide:
(i) Funding for administrative expenses of the applicable
reinsurance entity; or
(ii) Additional funds for reinsurance payments.
(2) The State must notify HHS within 30 days after publication of
the draft annual HHS notice of benefit and payment parameters for the
applicable benefit year of the additional contribution rate that it
elects to collect for any additional contributions under paragraph
(d)(1) of this section.
(3) A State may use additional funds which were not collected as
additional reinsurance contributions under this part for reinsurance
payments under the State supplemental payment parameters under Sec.
153.232.
* * * * *
7. Section 153.230 is revised to read as follows:
[[Page 73205]]
Sec. 153.230 Calculation of reinsurance payments made under the
national contribution rate.
(a) Eligibility for reinsurance payments under the national
reinsurance parameters. A health insurance issuer of a non-
grandfathered individual market plan becomes eligible for reinsurance
payments from contributions under the national contribution rate when
its claims costs for an individual enrollee's covered benefits in a
benefit year exceed the national attachment point.
(b) National reinsurance payment parameters. The national
reinsurance payment parameters for each year commencing in 2014 and
ending in 2016 set forth in the annual HHS notice of benefit and
payment parameters for an applicable benefit year will apply with
respect to reinsurance payments made from contributions received under
the national contribution rate.
(c) National reinsurance payments. Each reinsurance payment made
from contributions received under the national contribution rate will
be calculated as the product of the national coinsurance rate
multiplied by the health insurance issuer's claims costs for an
individual enrollee's covered benefits that the health insurance issuer
incurs between the national attachment point and the national
reinsurance cap.
(d) Uniform adjustment to national reinsurance payments. If HHS
determines that all reinsurance payments requested under the national
payment parameters from all reinsurance-eligible plans in all States
for a benefit year will exceed all reinsurance contributions collected
under the national contribution rate in all States for an applicable
benefit year, HHS will determine a uniform pro rata adjustment to be
applied to all such requests for reinsurance payments for all States.
Each applicable reinsurance entity, or HHS on behalf of a State, must
reduce all requests for reinsurance payments for the applicable benefit
year by any adjustment required under this paragraph (d).
8. Section 153.232 is added to read as follows:
Sec. 153.232 Calculation of reinsurance payments made under a State
additional contribution rate.
(a) State supplemental reinsurance payment parameters. (1) If a
State establishes a reinsurance program and elects to collect
additional contributions under Sec. 153.220(d)(1)(ii) or use
additional funds for reinsurance payments under Sec. 153.220(d)(3),
the State must set supplemental reinsurance payment parameters using
one or more of the following methods:
(i) Decreasing the national attachment point;
(ii) Increasing the national reinsurance cap; or
(iii) Increasing the national coinsurance rate.
(2) The State must ensure that additional reinsurance contributions
and funds projected to be received under Sec. 153.220(d)(1)(ii) and
Sec. 153.220(d)(3), as applicable, for any applicable benefit year are
reasonably calculated to cover additional reinsurance payments that are
projected to be made only under the supplemental reinsurance payment
parameters (that will not be paid under the national payment
parameters) for the given benefit year.
(3) All applicable reinsurance entities in a State collecting
additional reinsurance contributions must apply the State supplemental
reinsurance payment parameters established under paragraph (a)(1) of
this section when calculating reinsurance payments.
(b) General requirement for payments under State supplemental
reinsurance parameters. Contributions collected under Sec.
153.220(d)(1)(ii) or funds under Sec. 153.220(d)(3), as applicable,
must be applied towards requests for reinsurance payments made under
the State supplemental reinsurance payments parameters for each benefit
year commencing in 2014 and ending in 2016.
(c) Eligibility for reinsurance payments under State supplemental
reinsurance parameters. If a State establishes supplemental State
reinsurance payment parameters under Sec. 153.232(a)(1), a health
insurance issuer of a non-grandfathered individual market plan becomes
eligible for reinsurance payments from contributions under Sec.
153.220(d)(1)(ii) or funds under Sec. 153.220(d)(3), as applicable, if
its incurred claims costs for an individual enrollee's covered benefits
in a benefit year:
(1) Exceed the supplemental State attachment point set forth in the
State notice of benefit and payment parameters for the applicable
benefit year if a State has established such a supplemental attachment
point under Sec. 153.232(a)(1)(i);
(2) Exceed the national reinsurance cap set forth in the annual HHS
notice of benefit and payment parameters for the applicable benefit
year if a State has established a supplemental State reinsurance cap
under Sec. 153.232(a)(1)(ii); or
(3) Exceed the national attachment point set forth in the annual
HHS notice of benefit and payment parameters for the applicable benefit
year if a State has established a supplemental coinsurance rate under
Sec. 153.232(a)(1)(iii).
(d) Payments under State supplemental reinsurance parameters. Each
reinsurance payment made from contributions received under Sec.
153.220(d)(1)(ii) or funds under Sec. 153.220(d)(3), as applicable,
will be calculated with respect to a health insurance issuer's claims
costs for an individual enrollee's covered benefits as the sum of the
following:
(1) If the State has established a supplemental State attachment
point, to the extent the issuer's incurred claims costs for such
benefits exceed the supplemental State attachment point but do not
exceed the national attachment point, the product of such claims costs
between the supplemental State attachment point and the national
attachment point multiplied by the national coinsurance rate (or, if
the State has established a supplemental State coinsurance rate, the
supplemental State coinsurance rate);
(2) If the State has established a supplemental State reinsurance
cap, to the extent the issuer's incurred claims costs for such benefits
exceed the national reinsurance cap but do not exceed the supplemental
State reinsurance cap, the product of such claims costs between the
national reinsurance cap and the supplemental State reinsurance cap
multiplied by the national coinsurance rate (or, if the State has
established a supplemental State coinsurance rate, the supplemental
State coinsurance rate); and
(3) If the State has established a supplemental coinsurance rate,
the product of the issuer's incurred claims costs for such benefits
between the national attachment point and the national reinsurance cap
multiplied by the difference between the supplemental coinsurance rate
and the national coinsurance rate.
(e) Uniform adjustment to payments under State supplemental
reinsurance payment parameters. If all requested reinsurance payments
under the State supplemental reinsurance parameters calculated in
accordance with paragraph (a)(1) of this section from all reinsurance-
eligible plans in a State for a benefit year will exceed all
reinsurance contributions collected under Sec. 153.220(d)(1)(ii) or
funds under Sec. 153.220(d)(3) for the applicable benefit year, the
State must determine a uniform pro rata adjustment to be applied to all
such requests for reinsurance payments. Each applicable reinsurance
entity in the State must reduce all such requests for reinsurance
[[Page 73206]]
payments for the applicable benefit year by that adjustment.
(f) Limitations on payments under State supplemental reinsurance
parameters. A State must ensure that:
(1) The payments made to issuers must not exceed the issuer's total
paid amount for the reinsurance-eligible claim(s); and
(2) Any remaining additional funds for reinsurance payments
collected under Sec. 153.220(d)(1)(ii) must be used for reinsurance
payments under the State supplemental reinsurance payment parameters in
subsequent benefit years.
9. Section 153.234 is added to read as follows:
Sec. 153.234 Eligibility under health insurance market rules.
A reinsurance-eligible plan's covered claims costs for an enrollee
incurred prior to the application of the following provisions do not
count towards either the national reinsurance parameters or the State
supplemental reinsurance parameters: 45 CFR 147.102, 147.104 (subject
to 147.145), 147.106 (subject to 147.145), 156.80, and subpart B of
part 156.
10. Section 153.235 is added to read as follows:
Sec. 153.235 Allocation and distribution of reinsurance
contributions.
(a) Allocation of reinsurance contributions. HHS will allocate and
distribute reinsurance contributions collected from contributing
entities under the national contribution rate for reinsurance payments
to each State based on total requests for reinsurance payments made
under the national reinsurance payment parameters in all States and
submitted under Sec. 153.410, net of any adjustment under Sec.
153.230(d).
(b) Excess reinsurance contributions. Any reinsurance contributions
collected from contributing entities under the national contribution
rate for reinsurance payments for any benefit year but unused for the
applicable benefit year will be used for reinsurance payments under the
national reinsurance payment parameters for subsequent benefit years.
11. Section 153.240 is amended by revising paragraphs (a) and (b)
and by adding a new paragraph (d) to read as follows:
Sec. 153.240 Disbursement of reinsurance payments.
(a) Data collection. If a State establishes a reinsurance program,
the State must ensure that the applicable reinsurance entity:
(1) Collects data required to determine reinsurance payments as
described in Sec. 153.230 and Sec. 153.232, as applicable, from an
issuer of reinsurance-eligible plans or is provided access to such
data, according to the data requirements specified by the State in the
State notice of benefit and payment parameters described in subpart B
of this part.
(2) Makes reinsurance payments to the issuer of a reinsurance-
eligible plan after receiving a valid claim for payment from that
health insurance issuer in accordance with the requirements of Sec.
153.410.
(3) Provides a process through which an issuer of a reinsurance-
eligible plan that does not generate individual enrollee claims in the
normal course of business may use estimated claims costs to make a
request for payment (or to submit data to be considered for reinsurance
payments) in accordance with the requirements of Sec. 153.410. The
State must ensure that such requests for reinsurance payment (or a
subset of such requests) are subject to validation.
(b) Notification of reinsurance payments. For each applicable
benefit year,
(1) A State, or HHS on behalf of the State, must notify issuers
annually of:
(i) Reinsurance payments under the national payment parameters, and
(ii) Reinsurance payments under the State supplemental payment
parameters if applicable, to be made for the applicable benefit year no
later than June 30 of the year following the applicable benefit year.
(2) A State must provide to each reinsurance-eligible plan the
expected requests for reinsurance payments made under:
(i) The national payment parameters, and
(ii) State supplemental payments parameters if applicable, from
such plan on a quarterly basis during the applicable benefit year in a
timeframe and manner determined by HHS.
* * * * *
(d) Privacy and security. (1) If a State establishes a reinsurance
program, the State must ensure that the applicable reinsurance entity's
collection of personally identifiable information is limited to
information reasonably necessary for use in the calculation of
reinsurance payments, and that use and disclosure of personally
identifiable information is limited to those purposes for which the
personally identifiable information was collected (including for
purposes of data validation).
(2) If a State establishes a reinsurance program, the State must
ensure that the applicable reinsurance entity implements security
standards that provide administrative, physical, and technical
safeguards for the personally identifiable information consistent with
the security standards described at 45 CFR 164.308, 164.310, and
164.312.
12. Section 153.310 is amended by:
A. Redesignating paragraphs (c) and (d) as paragraphs (e) and (f),
respectively.
B. Adding new paragraphs (a)(4), (c) and (d).
The additions read as follows:
Sec. 153.310 Risk adjustment administration.
(a) * * *
(4) Beginning in 2015, any State that is approved to operate an
Exchange and elects to operate risk adjustment but has not been
approved by HHS to operate risk adjustment prior to publication of its
State notice of benefit and payment parameters for the applicable
benefit year, will forgo implementation of all State functions in this
subpart, and HHS will carry out all of the provisions of this subpart
on behalf of the State.
* * * * *
(c) State responsibility for risk adjustment. (1) A State operating
a risk adjustment program for a benefit year must administer the
applicable Federally certified risk adjustment methodology through an
entity that--
(i) Is operationally ready to implement the applicable Federally
certified risk adjustment methodology and process the resulting
payments and charges; and
(ii) Has experience relevant to operating the risk adjustment
program.
(2) The State must ensure that the risk adjustment entity complies
with all applicable provisions of subpart D of this part in the
administration of the applicable Federally certified risk adjustment
methodology.
(3) The State must conduct oversight and monitoring of its risk
adjustment program.
(d) Certification for a State to operate risk adjustment. (1) To be
approved by HHS to operate risk adjustment under a particular Federally
certified risk adjustment methodology for a benefit year, a State must
establish that it and its risk adjustment entity meet the standards set
forth in paragraph (c) of this section.
(2) To obtain such approval, the State must submit to HHS, in a
form and manner specified by HHS, evidence that its risk adjustment
entity meets these standards.
13. Section 153.320 is amended by revising paragraphs (a)(1) and
(a)(2) to read as follows:
[[Page 73207]]
Sec. 153.320 Federally certified risk adjustment methodology.
* * * * *
(a) * * *
(1) The risk adjustment methodology is developed by HHS and
published in the applicable annual HHS notice of benefit and payment
parameters; or
(2) An alternate risk adjustment methodology is submitted by a
State in accordance with Sec. 153.330, reviewed and certified by HHS,
and published in the applicable annual HHS notice of benefit and
payment parameters.
* * * * *
14. Section 153.330 is amended by--
A. Redesignating paragraph (b) as paragraph (c).
B. Adding new paragraph (b).
The additions read as follows:
Sec. 153.330 State alternate risk adjustment methodology.
* * * * *
(b) Evaluation criteria for alternate risk adjustment methodology.
An alternate risk adjustment methodology will be certified by HHS as a
Federally certified risk adjustment methodology based on the following
criteria:
(1) The criteria listed in paragraph (a)(2) of this section;
(2) Whether the methodology complies with the requirements of this
subpart D;
(3) Whether the methodology accounts for risk selection across
metal levels; and
(4) Whether each of the elements of the methodology are aligned.
* * * * *
15. Section 153.340 is amended by revising paragraph (b)(3) to read
as follows:
Sec. 153.340 Data collection under risk adjustment.
* * * * *
(b) * * *
(3) If a State is operating a risk adjustment program, the State
must ensure that any collection of personally identifiable information
is limited to information reasonably necessary for use in the
applicable risk adjustment model, calculation of plan average actuarial
risk, or calculation of payments and charges. Except for purposes of
data validation, the State may not collect or store any personally
identifiable information for use as a unique identifier for an
enrollee's data, unless such information is masked or encrypted by the
issuer, with the key to that masking or encryption withheld from the
State. Use and disclosure of personally identifiable information is
limited to those purposes for which the personally identifiable
information was collected (including for purposes of data validation).
* * * * *
16. Section 153.360 is added to subpart D to read as follows:
Sec. 153.360 Application of risk adjustment to the small group
market.
Enrollees in a risk adjustment covered plan must be assigned to the
applicable risk pool in the State in which the enrollee's policy was
filed and approved.
17. Section 153.400 is revised to read as follows:
Sec. 153.400 Reinsurance contribution funds.
(a) General requirement. Each contributing entity must make
reinsurance contributions annually: at the national contribution for
all reinsurance contribution enrollees, in a manner specified by HHS;
and at the additional State supplemental contribution rate if the State
has elected to collect additional contributions under Sec. 153.220(d),
in a manner specified by the State.
(1) A contributing entity must make reinsurance contributions for
its self-insured group health plans and health insurance coverage
except to the extent that:
(i) Such plan or coverage is not major medical coverage;
(ii) In the case of health insurance coverage, such coverage is not
considered to be part of an issuer's commercial book of business;
(iii) In the case of health insurance coverage, such coverage is
not issued on a form filed and approved by a State.
(2) Accordingly, as specified in paragraph (a)(1) of this section,
a contributing entity is not required to make contributions on behalf
of the following:
(i) A self-insured group health plan or health insurance coverage
that consists solely of excepted benefits as defined by section 2791(c)
of the PHS Act;
(ii) Coverage offered by an issuer under contract to provide
benefits under any of the following titles of the Social Security Act:
(A) Title XVIII (Medicare);
(B) Title XIX (Medicaid); or
(C)Title XXI (Children's Health insurance Program);
(iii) A Federal or State high-risk pool, including the Pre-Existing
Condition Insurance Plan Program;
(iv) Basic health plan coverage offered by issuers under contract
with a State as described in section 1331 of the Affordable Care Act;
(v) A health reimbursement arrangement within the meaning of IRS
Notice 2002-45 (2002-2 CB 93) or any subsequent applicable guidance,
that is integrated with a self-insured group health plan or health
insurance coverage;
(vi) A health savings account within the meaning of section 223(d)
of the Code;
(vii) A health flexible spending arrangement within the meaning of
section 125 of the Code;
(viii) An employee assistance plan, disease management program, or
wellness program that does not provide major medical coverage;
(ix) A stop-loss policy or an indemnity reinsurance policy;
(x) TRICARE and other military health benefits for active and
retired uniformed services personnel and their dependents;
(xi) A plan or coverage provided by an Indian Tribe to Tribal
members and their spouses and dependents (and other persons of Indian
descent closely affiliated with the Tribe), in the capacity of the
Tribal members as Tribal members (and not in their capacity as current
or former employees of the Tribe or their dependents); or
(xii) Health programs operated under the authority of the Indian
Health Service.
(b) Data requirements. Each contributing entity must submit to HHS
data required to substantiate the contribution amounts for the
contributing entity, in the manner and timeframe specified by HHS.
18. Section 153.405 is added to read as follows:
Sec. 153.405 Calculation of reinsurance contributions.
(a) In general. The reinsurance contribution required from a
contributing entity for its reinsurance contribution enrollees during a
benefit year is calculated by multiplying:
(1) The average number of covered lives of reinsurance contribution
enrollees during the applicable benefit year for all plans and coverage
described in Sec. 153.400(a)(1) of the contributing entity; by
(2) The contribution rate for the applicable benefit year.
(b) Annual enrollment count. No later than November 15 of benefit
year 2014, 2015, or 2016, as applicable, a contributing entity must
submit an annual enrollment count of the average number of covered
lives of reinsurance contribution enrollees for the applicable benefit
year to HHS. The count must be determined as specified in paragraphs
(d) or (e) of this section, as applicable.
(c) Notification and payment. (1) Within 15 days of the submission
of the annual enrollment count described in
[[Page 73208]]
paragraph (b) of this section or by December 15 of the applicable
benefit year, whichever is later HHS will notify the contributing
entity of the reinsurance contribution amount to be paid for the
applicable benefit year.
(2) A contributing entity must remit reinsurance contributions to
HHS within 30 days after the date of the notification.
(d) Procedures for counting covered lives for health insurance
issuers. To determine the average number of covered lives of
reinsurance contribution enrollees under a health insurance plan for a
benefit year, a health insurance issuer must use one of the following
methods:
(1) Adding the total number of lives covered for each day of the
first nine months of the benefit year and dividing that total by the
number of days in the first nine months;
(2) Adding the total number of lives covered on any date (or more
dates, if an equal number of dates are used for each quarter) during
the same corresponding month in each of the first three quarters of the
benefit year, and dividing that total by the number of dates on which a
count was made. For this purpose, the same months must be used for each
quarter (for example January, April and July) and the date used for the
second and third quarter must fall within the same week of the quarter
as the corresponding date used for the first quarter; or
(3) Multiplying the average number of policies in effect for the
first nine months of the benefit year by the ratio of covered lives per
policy in effect, calculated using the prior National Association of
Insurance Commissioners (NAIC) Supplemental Health Care Exhibit (or a
form filed with the issuer's State of domicile for the most recent time
period).
(e) Procedures for counting covered lives for self-insured group
health plans. To determine the number of covered lives of reinsurance
contribution enrollees under a self-insured group health plan for a
benefit year, a plan must use one of the following methods:
(1) One of the methods specified in either paragraph (d)(1) or
paragraph (d)(2) of this section;
(2) Adding the total number of lives covered on any date (or more
dates, if an equal number of dates are used for each quarter) during
the same corresponding month in each of the first three quarters of the
benefit year (provided that the date used for the second and third
quarters must fall within the same week of the quarter as the
corresponding date used for the first quarter), and dividing that total
by the number of dates on which a count was made, except that the
number of lives covered on a date is calculated by adding the number of
participants with self-only coverage on the date to the product of the
number of participants with coverage other than self-only coverage on
the date and a factor of 2.35. For this purpose, the same months must
be used for each quarter (for example, January, April, and July);
(3) Using the number of lives covered for the benefit year
calculated based upon the ``Annual Return/Report of Employee Benefit
Plan'' filed with the Department of Labor (Form 5500) for the last
applicable time period. For purposes of this paragraph (e)(3), the
number of lives covered for the benefit year for a plan offering only
self-only coverage equals the sum of the total participants covered at
the beginning and end of the benefit year, as reported on the Form
5500, divided by 2, and the number of lives covered for the benefit
year for a plan offering self-only coverage and coverage other than
self-only coverage equals the sum of the total participants covered at
the beginning and the end of the benefit year, as reported on the Form
5500; and
(f) Procedures for counting covered lives for group health plans
with a self-insured coverage option and an insured coverage option. To
determine the number of covered lives of reinsurance contribution
enrollees under a group health plan with a self-insured coverage option
and an insured coverage option for a benefit year, a plan must use one
of the methods specified in either paragraph (d)(1) or paragraph (d)(2)
of this section.
(g) Multiple group health plans maintained by the same plan
sponsor--(1) General rule. If a plan sponsor maintains two or more
self-insured group health plans (including one or more group health
plans that provide health insurance coverage) that collectively provide
major medical coverage for the same covered lives, then those multiple
plans shall be treated as a single self-insured group health plan for
purposes of calculating any reinsurance contribution amount due under
paragraph (d) of this section.
(2) Plan Sponsor. For purposes of this paragraph (g), the term
``plan sponsor'' means:
(i) The employer, in the case of a plan established or maintained
by a single employer;
(ii) The employee organization, in the case of a plan established
or maintained by an employee organization;
(iii) The joint board of trustees, in the case of a multiemployer
plan (as defined in section 414(f) of the Code);
(iv) The committee, in the case of a multiple employer welfare
arrangement;
(v) The cooperative or association that establishes or maintains a
plan established or maintained by a rural electric cooperative or rural
cooperative association (as such terms are defined in section 3(40)(B)
of ERISA);
(vi) The trustee, in the case of a plan established or maintained
by a voluntary employees' beneficiary association (meaning that the
association is not merely serving as a funding vehicle for a plan that
is established or maintained by an employer or other person);
(vii) In the case of a plan, the sponsor of which is not described
in paragraph (g)(2)(i) through (g)(2)(vi) of this section, the person
identified by the terms of the document under which the plan is
operated as the plan sponsor, or the person designated by the terms of
the document under which the plan is operated as the plan sponsor,
provided that designation is made, and that person has consented to the
designation, by no later than the date by which the count of covered
lives for that benefit year is required to be provided, after which
date that designation for that benefit year may not be changed or
revoked, and provided further that a person may be designated as the
plan sponsor only if the person is one of the persons maintaining the
plan (for example, one of the employers that is maintaining the plan
with one or more other employers or employee organizations); or
(viii) In the case of a plan, the sponsor of which is not described
in paragraph (g)(2)(i) through (g)(2)(vi) of this section, and for
which no identification or designation of a plan sponsor has been made
under paragraph (g)(2)(i)(vii) of this section, each employer that
maintains the plan (with respect to employees of that employer), each
employee organization that maintains the plan (with respect to members
of that employee organization), and each board of trustees, cooperative
or association that maintains the plan.
(3) Exception. A plan sponsor is not required to include as part of
a single self-insured group health plan as determined under paragraph
(g)(1) of this section any self-insured group health plan (including a
group health plan that provides health insurance coverage) that
consists solely of excepted benefits as defined by section 2791(c) of
the PHS Act, or that only provides benefits related to prescription
drugs.
(4) Procedures for counting covered lives for multiple group health
plans treated as a single group health plan.
[[Page 73209]]
The rules in this paragraph (g)(4) govern the determination of the
average number of covered lives in a benefit year for any set of
multiple self-insured group health plans or health insurance plans (or
a combination of one or more self-insured group health plans and one or
more health insurance plans) that are treated as a single group health
plan under paragraph (g)(1) of this section.
(i) Multiple group health plans including an insured plan. If at
least one of the multiple plans is an insured plan, the average number
of covered lives of reinsurance contribution enrollees must be
calculated using one of the methods specified in either paragraph
(d)(1) or paragraph (d)(2) of this section, applied across the multiple
plans as a whole. The following information must be determined by the
plan sponsor and reported to HHS, in a manner and timeframe specified
by HHS:
(A) The average number of covered lives calculated;
(B) The counting method used; and
(C) The names of the multiple plans being treated as a single group
health plan as determined by the plan sponsor and reported to HHS.
(ii) Multiple group health plans not including an insured plan. If
each of the multiple plans is a self-insured group health plan, the
average number of covered lives of reinsurance contribution enrollees
must be calculated using one of the methods specified either in
paragraph (e)(1) or paragraph (e)(2) of this section, applied across
the multiple plans as a whole. The following information must be
determined by the plan sponsor and reported to HHS, in a manner and
timeframe specified by HHS:
(A) The average number of covered lives calculated;
(B) The counting method used; and
(C) The names of the multiple plans being treated as a single group
health plan as determined by the plan sponsor.
19. Section 153.410 is amended by revising paragraph (a) as
follows:
Sec. 153.410 Requests for reinsurance payments.
(a) General requirement. An issuer of a reinsurance-eligible plan
may make a request for payment when an enrollee of that reinsurance-
eligible plan has met the criteria for reinsurance payment set forth in
subpart B of this part and the HHS notice of benefit and payment
parameters and State notice of benefit and payment parameters for the
applicable benefit year, if applicable.
* * * * *
20. Section 153.420 is added to subpart E to read as follows:
Sec. 153.420 Data collection.
(a) Data requirement. To be eligible for reinsurance payments, an
issuer of a reinsurance-eligible plan must submit or make accessible
all required reinsurance data in accordance with the reinsurance data
collection approach established by the State, or by HHS on behalf of
the State.
(b) Deadline for submission of data. An issuer of a reinsurance-
eligible plan must submit or make accessible data to be considered for
reinsurance payments for the applicable benefit year by April 30 of the
year following the end of the applicable benefit year.
21. Section 153.500 is amended by--
A. Revising the definitions of ``Administrative costs'' and
``Allowable administrative costs.''
B. Adding the definitions of ``After-tax premiums earned,''
``Profits,'' and ``Taxes'' in alphabetical order.
The revisions and additions read as follows:
Sec. 153.500 Definitions.
* * * * *
Administrative costs mean, with respect to a QHP, total non-claims
costs incurred by the QHP issuer for the QHP, including taxes.
After-tax premiums earned mean, with respect to a QHP, premiums
earned with respect to the QHP minus taxes.
Allowable administrative costs mean, with respect to a QHP, the sum
of administrative costs of the QHP, other than taxes plus profits
earned by the QHP, which sum is limited to 20 percent of after-tax
premiums earned with respect to the QHP (including any premium tax
credit under any governmental program), plus taxes.
* * * * *
Profits mean, with respect to a QHP, the greater of:
(1) Three percent of after tax premiums earned, and
(2) Premiums earned of the QHP minus the sum of allowable costs and
administrative costs of the QHP.
* * * * *
Taxes mean, with respect to a QHP, Federal and State licensing and
regulatory fees paid with respect to the QHP as described in Sec.
158.161(a) of this subchapter, and Federal and State taxes and
assessments paid with respect to the QHP as described in Sec.
158.162(a)(1) and (b)(1) of this subchapter.
* * * * *
22. Section 153.510 is amended by adding new paragraph (d) to read
as follows:.
Sec. 153.510 Risk corridors establishment and payment methodology.
* * * * *
(d) Charge submission deadline. A QHP issuer must remit charges to
HHS within 30 days after notification of such charges.
23. Section 153.530 is amended by--
A. Revising paragraphs (a), (b) introductory text, (b)(2)(iii), and
(c).
B. Adding new paragraph (d).
The revisions and additions read as follows:
Sec. 153.530 Risk corridors data requirements.
(a) Premium data. A QHP issuer must submit to HHS data on the
premiums earned with respect to each QHP that the issuer offers in a
manner specified by HHS.
(b) Allowable costs. A QHP issuer must submit to HHS data on the
allowable costs incurred with respect to each QHP that the QHP issuer
offers in a manner specified by HHS. For purposes of this subpart,
allowable costs must be--
* * * * *
(2) * * *
(iii) Any cost-sharing reduction payments received by the issuer
for the QHP to the extent not reimbursed to the provider furnishing the
item or service.
(c) Allowable administrative costs. A QHP issuer must submit to HHS
data on the allowable administrative costs incurred with respect to
each QHP that the QHP issuer offers in a manner specified by HHS.
(d) Timeframes. For each benefit year, a QHP issuer must submit all
information required under this section by July 31 of the year
following the benefit year.
24. Section 153.630 is added to subpart G to read as follows:
Sec. 153.630 Data validation requirements when HHS operates risk
adjustment.
(a) General requirement. An issuer of a risk adjustment covered
plan in a State where HHS is operating risk adjustment on behalf of the
State for the applicable benefit year must have an initial and second
validation audit performed on its risk adjustment data as described in
this section.
(b) Initial validation audit.
(1) An issuer of a risk adjustment covered plan must engage one or
more independent auditors to perform an initial validation audit of a
sample of its risk adjustment data selected by HHS.
(2) The issuer must ensure that the initial validation auditors are
reasonably capable of performing an initial data validation audit
according to the standards established by HHS for such audit, and must
ensure that the audit is so performed.
(3) The issuer must ensure that each initial validation auditor is
reasonably
[[Page 73210]]
free of conflicts of interest, such that it is able to conduct the
initial validation audit in an impartial manner and its impartiality is
not reasonably open to question.
(4) The issuer must ensure validation of the accuracy of risk
adjustment data for a sample of enrollees selected by HHS. The issuer
must ensure that the initial validation audit findings are submitted to
HHS in a manner and timeframe specified by HHS.
(c) Second validation audit. HHS will select a subsample of the
risk adjustment data validated by the initial validation audit for a
second validation audit. The issuer must comply with, and must ensure
the initial validation auditor complies with, standards for such audit
established by HHS, and must cooperate with, and must ensure that the
initial validation auditor cooperates with, HHS and the second
validation auditor in connection with such audit.
(d) Data validation appeals. An issuer may appeal the findings of a
second validation audit or the application of a risk score error rate
to its risk adjustment payments and charges.
(e) Adjustment of payments and charges. HHS may adjust payments and
charges for issuers that do not comply with audit requirements and
standards, as specified in part (b) and (c) of this section.
(f) Data security and transmission.
(1) An issuer must submit the risk adjustment data and source
documentation for the initial and second validation audits specified by
HHS to HHS or its designee in the manner and timeframe specified by
HHS.
(2) An issuer must ensure that it and its initial validation
auditor comply with the security standards described at 45 CFR 164.308,
164.310, and 164.312 in connection with the initial validation audit,
the second validation audit, and any appeal.
25. Subpart H is added to read as follows:
Subpart H--Distributed Data Collection for HHS-Operated Programs
Sec.
153.700 Distributed data environment.
153.710 Data requirements.
153.720 Establishment and usage of masked enrollee identification
numbers.
153.730 Deadline for submission of data.
Subpart H--Distributed Data Collection for HHS-Operated Programs
Sec. 153.700 Distributed data environment.
(a) Dedicated distributed data environments. For each benefit year
in which HHS operates the risk adjustment or reinsurance program on
behalf of a State, an issuer of a risk adjustment covered plan or a
reinsurance-eligible plan in the State, as applicable, must establish a
dedicated data environment and provide data access to HHS, in a manner
and timeframe specified by HHS, for any HHS-operated risk adjustment
and reinsurance program.
(b) Timeline. An issuer must establish the dedicated data
environment (and confirm proper establishment through successfully
testing the environment to conform with applicable HHS standards for
such testing) three months prior to the first date of full operation.
Sec. 153.710 Data requirements.
(a) Enrollment, claims, and encounter data. An issuer of a risk
adjustment covered plan or a reinsurance-eligible plan in a State in
which HHS is operating the risk adjustment or reinsurance program, as
applicable, must provide to HHS, through the dedicated data
environment, access to enrollee-level plan enrollment data, enrollee
claims data, and enrollee encounter data as specified by HHS.
(b) Claims data. All claims data submitted by an issuer of a risk
adjustment covered plan or a reinsurance-eligible plan in a State in
which HHS is operating the risk adjustment or reinsurance program, as
applicable, must have resulted in payment by the issuer.
(c) Claims data from capitated plans. An issuer of a risk
adjustment covered plan or a reinsurance-eligible plan in a State in
which HHS is operating the risk adjustment or reinsurance program, as
applicable, that does not generate individual enrollee claims in the
normal course of business must derive the costs of all applicable
provider encounters using its principal internal methodology for
pricing those encounters. If the issuer does not have such a
methodology, or has an incomplete methodology, it must supplement the
methodology in a manner that yields derived claims that are reasonable
in light of the specific service and insurance market that the plan is
serving.
Sec. 153.720 Establishment and usage of masked enrollee
identification numbers.
(a) Enrollee identification numbers. An issuer of a risk adjustment
covered plan or a reinsurance-eligible plan in a State in which HHS is
operating the risk adjustment or reinsurance program, as applicable,
must--
(1) Establish a unique masked enrollee identification number for
each enrollee; and
(2) Maintain the same masked enrollee identification number for an
enrollee across enrollments or plans within the issuer, within the
State, during a benefit year.
(b) Prohibition on personally identifiable information. An issuer
of a risk adjustment covered plan or a reinsurance-eligible plan in a
State in which HHS is operating the risk adjustment or reinsurance
program on behalf of the State, as applicable, may not--
(1) Include enrollee's personally identifiable information in the
masked enrollee identification number; or
(2) Use the same masked enrollee identification number for
different enrollees enrolled with the issuer.
Sec. 153.730 Deadline for submission of data.
A risk adjustment covered plan or a reinsurance-eligible plan in a
State in which HHS is operating the risk adjustment or reinsurance
program, as applicable, must submit data to be considered for risk
adjustment payments and charges and reinsurance payments for the
applicable benefit year by April 30 of the year following the
applicable benefit year.
PART 155--EXCHANGE ESTABLISHMENT STANDARDS AND OTHER RELATED
STANDARDS UNDER THE AFFORDABLE CARE ACT
26. The authority citation for part 155 continues to read as
follows:
Authority: Secs. 1301, 1302, 1303, 1304, 1311, 1312, 1313,
1321, 1322, 1331, 1334, 1401, 1402, 1411, 1412, 1413.
27. Section 155.20 is amended by--
A. Revising the definitions of ``Large employer'' and ``Small
employer''.
B. Adding definitions of ``Federally-facilitated Exchange,''
``Federally-facilitated SHOP,'' and ``Full-time employee'' in
alphabetical order.
The revisions and additions read as follows:
Sec. 155.20 Definitions.
* * * * *
Federally-facilitated Exchange means an Exchange established and
operated within a State by the Secretary under section 1321(c)(1) of
the Affordable Care Act.
Federally-facilitated SHOP means a Small Business Health Options
Program established and operated within a State by the Secretary under
section 1321(c)(1) of the Affordable Care Act.
Full-time employee has the meaning given in section 4980H (c)(4) of
the Code effective for plan years beginning on or after January 1,
2016, except for operations of a Federally-facilitated
[[Page 73211]]
SHOP for which it is effective for plan years beginning on or after
October 1, 2013.
* * * * *
Large employer means, in connection with a group health plan with
respect to a calendar year and a plan year, an employer who employed an
average of at least 101 employees on business days during the preceding
calendar year and who employs at least 1 employee on the first day of
the plan year. In the case of plan years beginning before January 1,
2016, a State may elect to define larger employer by substituting ``51
employees'' for ``101 employees.'' The number of employees shall be
determined using the method set forth in section 4980H (c)(2)(E) of the
Code, effective for plan years beginning on or after January 1, 2016,
except for operations of a Federally-facilitated SHOP for which the
method shall be used for plan years beginning on or after October 1,
2013.
* * * * *
Small employer means, in connection with a group health plan with
respect to a calendar year and a plan year, an employer who employed an
average of at least 1 but not more than 100 employees on business days
during the preceding calendar year and who employs at least 1 employee
on the first day of the plan year. In the case of plan years beginning
before January 1, 2016, a State may elect to define small employer by
substituting ``50 employees'' for ``100 employees.'' The number of
employees shall be determined using the method set forth in section
4980H (c)(2)(E) of the Code, effective for plan years beginning on or
after January 1, 2016, except for operations of a Federally-facilitated
SHOP for which the method shall be used for plan years beginning on or
after October 1, 2013.
* * * * *
28. Section 155.220 is amended by revising paragraph (b) to read as
follows--
Sec. 155.220 Ability to States to permit agents and brokers to assist
qualified individuals, qualified employers, or qualified employees
enrolling in QHPs.
* * * * *
(b)(1) Web site disclosure. The Exchange or SHOP may elect to
provide information regarding licensed agents and brokers on its Web
site for the convenience of consumers seeking insurance through that
Exchange and may elect to limit the information to information
regarding licensed agents and brokers who have completed any required
Exchange or SHOP registration and training process.
(2) A Federally-facilitated Exchange or SHOP will limit the
information provided on its Web site regarding licensed agents and
brokers to information regarding licensed agents and brokers who have
completed registration and training.
* * * * *
29. Section 155.305 is amended by revising paragraph (g)(3) to read
as follows:
Sec. 155.305 Eligibility standards.
* * * * *
(g) * * *
(3) Special rule for family policies. To the extent that an
enrollment in a QHP in the individual market offered through an
Exchange under a single policy covers two or more individuals who, if
they were to enroll in separate individual policies would be eligible
for different cost sharing, the Exchange must deem the individuals
under such policy to be collectively eligible only for the category of
eligibility last listed below for which all the individuals covered by
the policy would be eligible:
(i) Individuals not eligible for changes to cost sharing;
(ii) Individuals described in Sec. 155.350(b) (the special cost-
sharing rule for Indians regardless of income);
(iii) Individuals described in paragraph (g)(2)(iii) of this
section;
(iv) Individuals described in paragraph (g)(2)(ii) of this section;
(v) Individuals described in paragraph (g)(2)(i) of this section;
and
(vi) Individuals described in Sec. 155.350(a) (the cost-sharing
rule for Indians with household incomes under 300 percent of the FPL).
* * * * *
30. Section 155.330 is amended by adding paragraph (g) to read as
follows:
Sec. 155.330 Eligibility redetermination during a benefit year.
* * * * *
(g) Recalculation of advance payments of the premium tax credit and
cost-sharing reductions. (1) When recalculating the amount of advance
payments of the premium tax credit for which a tax filer is determined
eligible as a result of an eligibility redetermination in accordance
with this section, the Exchange must --
(i) Account for any advance payments already made on behalf of the
tax filer for the benefit year for which information is available to
the Exchange, such that the recalculated advance payment amount is
projected to result in total advance payments for the benefit year that
correspond to the tax filer's total projected premium tax credit for
the benefit year, calculated in accordance with 26 CFR 1.36B-3; and
(ii) Ensure that that the advance payment provided on the tax
filer's behalf is greater than or equal to zero and is calculated in
accordance with 26 CFR 1.36B-3(d)(1).
(2) When redetermining eligibility for cost-sharing reductions in
accordance with this section, the Exchange must determine an individual
eligible for the category of cost-sharing reductions that corresponds
to his or her expected annual household income for the benefit year
(subject to the special rule for family policies set forth in Sec.
155.305(g)(3).
31. Section 155.340 is amended by adding paragraphs (e) and (f) to
read as follows:
Sec. 155.340 Administration of advance payments of the premium tax
credit and cost-sharing reductions.
* * * * *
(e) Allocation of advance payments of the premium tax credit
between policies. If advance payments of the premium tax credit are to
be made on behalf of a tax filer (or two tax filers who are a married
couple), and individuals in the tax filer's tax household are enrolled
in more than one QHP or stand-alone dental plan, then the advance
payments must be allocated as follows:
(1) That portion of the advance payment of the premium tax credit
that is less than or equal to the aggregate adjusted monthly premiums,
as defined in 26 CFR Sec. 1.36B-3(e), for the QHP policies properly
allocated to EHB must be allocated among the QHP policies in proportion
to the respective portions of the premiums for the policies properly
allocated to EHB; and
(2) Any remaining advance payment of the premium tax credit must be
allocated among the stand-alone dental policies (if any) in proportion
to the respective portions of the adjusted monthly premiums for the
stand-alone dental policies properly allocated to the pediatric dental
essential health benefit.
(f) Reduction of enrollee's portion of premium to account for
advance payments of the premium tax credit. If an Exchange is
facilitating the collection and payment of premiums to QHP issuers and
stand-alone dental plans on behalf of enrollees under Sec. 155.240,
and if a QHP issuer or stand-alone dental plan has been notified that
it will receive an advance payment of the premium tax credit on behalf
of an enrollee for whom the Exchange is facilitating such functions,
the Exchange must--
[[Page 73212]]
(1) Reduce the portion of the premium for the policy collected from
the individual for the applicable month(s) by the amount of the advance
payment of the premium tax credit; and
(2) Include with each billing statement, as applicable, to or for
the individual the amount of the advance payment of the premium tax
credit for the applicable month(s) and the remaining premium owed for
the policy.
32. Section 155.705 is amended by revising paragraph (b)(3) and by
adding new paragraphs (b)(10)(i), (b)(10)(ii), (b)(11)(i) and
(b)(11)(ii) to read as follows:
Sec. 155.705 Functions of a SHOP.
* * * * *
(b) * * *
(3) (i) SHOP options with respect to employer choice requirements.
With regard to QHPs offered through the SHOP, the SHOP may allow a
qualified employer to make one or more QHPs available to qualified
employees by a method other than the method described in paragraph
(b)(2) of this section.
(ii) A Federally-facilitated SHOP will only permit a qualified
employer to make available to qualified employees all QHPs at the level
of coverage selected by the employer as described in paragraph (b)(2)
of this section.
* * * * *
(10) * * *
(i) Subject to sections 2702 and 2703 of the Public Health Service
Act, a Federally-facilitated SHOP must use a minimum participation rate
of 70 percent, calculated as the number of qualified employees
accepting coverage under the employer's group health plan, divided by
the number of qualified employees offered coverage, excluding from the
calculation any employee who, at the time the employer submits the SHOP
application, is enrolled in coverage through another employer's group
health plan or through a governmental plan such as Medicare, Medicaid,
or TRICARE.
(ii) Notwithstanding paragraph (b)(10)(i) of this section, a
Federally-facilitated SHOP may utilize a different minimum
participation rate in a State if there is evidence that a State law
sets a minimum participation rate or that a higher or lower minimum
participation rate is customarily used by the majority of QHP issuers
in that State for products in the State's small group market outside
the SHOP.
(11) * * *
(i) To determine the employer and employee contributions, a SHOP
may establish one or more standard methods that employers may use to
define their contributions toward employee and dependent coverage.
(ii) A Federally-facilitated SHOP must use the following method for
employer contributions:
(A) The employer will select a level of coverage as described in
paragraph (b)(2) and (b)(3) of this section.
(B) The employer will select a QHP within that level of coverage to
serves as a reference plan on which contributions will be based.
(C) The employer will define a percentage contribution toward
premiums for employee-only coverage under the reference plan and, if
dependent coverage is offered, a percentage contribution toward
premiums for dependent coverage under the reference plan.
(D) An employer may establish, to the extent allowed by Federal and
State law, different percentages for different employee categories.
(E) Either State law or the employer may require that a Federally-
facilitated SHOP base contributions on a calculated composite premium
for the reference plan for employees, for adult dependents, and for
dependents below age 21.
(F) The resulting contribution amounts for each employee's coverage
may then be applied toward the QHP selected by the employee.
33. Section 155.1030 is added to read as follows:
Sec. 155.1030 QHP certification standards related to advance payments
of the premium tax credit and cost-sharing reductions.
(a) Review of plan variations for cost-sharing reductions. (1) The
Exchange must ensure that each issuer that offers or seeks to offer a
health plan at any level of coverage in the individual market on the
Exchange submits the required plan variations for the health plan as
described in Sec. 156.420 of this subchapter. The Exchange must
certify that the plan variations meet the requirements of Sec.
156.420.
(2) The Exchange must provide to HHS the actuarial values of each
QHP and silver plan variation, calculated under Sec. 156.135 of this
subchapter, in the manner and timeframe established by HHS.
(b) Information for administering advance payments of the premium
tax credit and advance payments of cost-sharing reductions. (1) The
Exchange must collect and review annually the rate allocation, the
expected allowed claims cost allocation, and the actuarial memorandum
that an issuer submits to the Exchange under Sec. 156.470 of this
subchapter, to ensure that such allocations meet the standards set
forth in Sec. 156.470(c) and (d).
(2) The Exchange must submit, in the manner and timeframe
established by HHS, to HHS the approved allocations and actuarial
memorandum underlying the approved allocations for each health plan at
any level of coverage or stand-alone dental plan offered, or proposed
to be offered in the individual market on the Exchange.
(3) The Exchange must collect annually any estimates and supporting
documentation that a QHP issuer submits to receive advance payments of
certain cost-sharing reductions, under Sec. 156.430(a) of this
subchapter, and submit, in the manner and timeframe established by HHS,
the estimates and supporting documentation to HHS for review.
(4) HHS may use the information provided to HHS by the Exchange
under this section for the approval of the estimates that an issuer
submits for advance payments of cost-sharing reductions, as described
in Sec. 156.430 of this subchapter, and the oversight of the advance
payments of cost-sharing reductions and premium tax credits programs.
PART 156--HEALTH INSURANCE ISSUER STANDARDS UNDER THE AFFORDABLE
CARE ACT, INCLUDING STANDARDS RELATED TO EXCHANGES
34. The authority citation for part 156 is revised to read as
follows:
Authority: Title I of the Affordable Care Act, sections 1301-
1304, 1311-1312, 1321-1322, 1324, 1334, 1342-1343, 1401-1402, and
1412, Pub. L. 111-148, 124 Stat. 119 (42 U.S.C. 18021-18024, 18031-
18032, 18041-18042, 18044, 18054, 18061, 18063, 18071, 18082, 26
U.S.C. 36B, and 31 U.S.C. 9701).
35. Section 156.20 is amended by adding definitions for
``Federally-facilitated SHOP'' and ``Issuer group'' in alphabetical
order to read as follows:
Sec. 156.20 Definitions.
* * * * *
Federally-facilitated SHOP has the meaning given to the term in
Sec. 155.20 of this subchapter.
* * * * *
Issuer group means all entities treated under subsection (a) or (b)
of section 52 of the Internal Revenue Code of 1986 as a member of the
same controlled group of corporations as (or under common control with)
a health insurance issuer, or issuers affiliated by the common use of a
nationally licensed service mark.
* * * * *
[[Page 73213]]
36. Section 156.50 is amended by revising paragraph (b) and by
adding paragraph (c) to read as follows:
Sec. 156.50 Financial support.
* * * * *
(b) Requirement for State-based Exchange user fees. A participating
issuer must remit user fee payments, or any other payments, charges, or
fees, if assessed by a State-based Exchange under Sec. 155.160 of this
subchapter.
(c) Requirement for Federally-facilitated Exchange user fee. To
support the functions of Federally-facilitated Exchanges, a
participating issuer offering a plan through a Federally-facilitated
Exchange must remit a user fee to HHS each month, in the timeframe and
manner established by HHS, equal to the product of the billable members
enrolled through the Exchange in the plan offered by the issuer, and
the monthly user fee rate specified in the annual HHS notice of benefit
and payment parameters for the applicable benefit year. For purposes of
this paragraph, billable members are defined under 45 CFR 147.102(c)(1)
as each family member in a policy, with a limitation of three family
members under age 21.
37. Section 156.200 is amended by adding paragraphs (f) and (g) to
read as follows:
Sec. 156.200 QHP issuer participation standards.
* * * * *
(f) Broker compensation in a Federally-facilitated Exchange. A QHP
issuer must pay the same broker compensation for QHPs offered through a
Federally-facilitated Exchange that the QHP issuer pays for similar
health plans offered in the State outside a Federally-facilitated
Exchange.
(g) Certification standard specific to a Federally-facilitated
Exchange. A Federally-facilitated Exchange may certify a QHP in the
individual market of a Federally-facilitated Exchange only if the QHP
issuer meets one of the conditions below:
(1) The QHP issuer also offers through a Federally-facilitated SHOP
serving that State at least one small group market QHP at the silver
level of coverage and one at the gold level of coverage as described in
section 1302(d) of the Affordable Care Act;
(2) The QHP issuer does not offer small group market products in
that State, but another issuer in the same issuer group offers through
a Federally-facilitated SHOP serving that State at least one small
group market QHP at the silver level of coverage and one at the gold
level of coverage; or
(3) Neither the issuer nor any other issuer in the same issuer
group offers a small group market product in that State.
38. Section 156.215 is added to read as follows:
Sec. 156.215 Advance payments of the premium tax credit and cost-
sharing reduction standards.
(a) Standards relative to advance payments of the premium tax
credit and cost-sharing reductions. In order for a health plan to be
certified as a QHP initially and to maintain certification to be
offered in the individual market on the Exchange, the issuer must meet
the requirements related to the administration of cost-sharing
reductions and advance payments of the premium tax credit set forth in
subpart E of this part.
(b) [Reserved]
39. Section 156.285 is amended by adding paragraph (c)(7) to read
as follows:
Sec. 156.285 Additional standards specific to SHOP.
* * * * *
(c) * * *
(7) A QHP issuer must enroll a qualified employee only if the
Exchange--
(i) Notifies the QHP issuer that the employee is a qualified
employee; and
(ii) Transmits information to the QHP issuer as provided in Sec.
155.400(a) of this subchapter.
* * * * *
40. Subpart E is added to read as follows:
Subpart E--Health Insurance Issuer Responsibilities With Respect to
Advance Payments of the Premium Tax Credit and Cost-Sharing Reductions
Sec.
156.400 Definitions.
156.410 Cost-sharing reductions for enrollees.
156.420 Plan variations.
156.425 Changes in eligibility for cost-sharing reductions.
156.430 Payment for cost-sharing reductions.
156.440 Plans eligible for advance payments of the premium tax
credit and cost-sharing reductions.
156.460 Reduction of enrollee's share of premium to account for
advance payments of the premium tax credit.
156.470 Allocation of rates and claims costs for advance payments of
cost-sharing reductions and the premium tax credit.
Subpart E--Health Insurance Issuer Responsibilities With Respect to
Advance Payments of the Premium Tax Credit and Cost-Sharing
Reductions
Sec. 156.400 Definitions.
The following definitions apply to this subpart:
Advance payments of the premium tax credit has the meaning given to
the term in Sec. 155.20 of this subchapter.
Affordable Care Act has the meaning given to the term in Sec.
155.20 of this subchapter.
Annual limitation on cost sharing means the annual dollar limit on
cost sharing required to be paid by an enrollee that is established by
a particular qualified health plan.
De minimis variation means the allowable variation in the AV of a
health plan that does not result in a material difference in the true
dollar value of the health plan as established in Sec. 156.140(c)(1).
De minimis variation for a silver plan variation means a single
percentage point.
Federal poverty level or FPL has the meaning given to the term in
Sec. 155.300(a) of this subchapter.
Indian has the meaning given to the term in Sec. 155.300(a) of
this subchapter.
Limited cost sharing plan variation means, with respect to a QHP at
any level of coverage, the variation of such QHP described in Sec.
156.420(b)(2).
Maximum annual limitation on cost sharing means the highest annual
dollar amount that qualified health plans (other than QHPs with cost-
sharing reductions) may require in cost sharing for a particular year,
as established for that year under Sec. 156.130.
Most generous or more generous means, between a QHP (including a
standard silver plan) or plan variation, and one or more other plan
variations of the same QHP, the QHP or plan variation designed for the
category of individuals last listed in Sec. 155.305(g)(3) of this
subchapter.
Plan variation means a zero cost sharing plan variation, a limited
cost sharing plan variation, or a silver plan variation.
Reduced maximum annual limitation on cost sharing means the dollar
value of the maximum annual limitation on cost sharing for a silver
plan variation that remains after applying the reduction, if any, in
the maximum annual limitation on cost sharing required by section 1402
of the Affordable Care Act as announced in the annual HHS notice of
benefit and payment parameters.
[[Page 73214]]
Silver plan variation means, with respect to a standard silver
plan, any of the variations of that standard silver plan described in
Sec. 156.420(a).
Stand-alone dental plan means a plan offered through an Exchange
under Sec. 155.1065 of this subchapter.
Standard plan means a QHP offered at one of the four levels of
coverage, defined at Sec. 156.140, with an annual limitation on cost
sharing that conforms to the requirements of Sec. 156.130(a). A
standard plan at the bronze, silver, gold, or platinum level of
coverage is referred to as a standard bronze plan, a standard silver
plan, a standard gold plan, and a standard platinum plan, respectively.
Zero cost sharing plan variation means, with respect to a QHP at
any level of coverage, the variation of such QHP described in Sec.
156.420(b)(1).
Sec. 156.410 Cost-sharing reductions for enrollees.
(a) General requirement. A QHP issuer must ensure that an
individual eligible for cost-sharing reductions, as demonstrated by
assignment to a particular plan variation, pay only the cost sharing
required of an eligible individual for the applicable covered service
under the plan variation. The cost-sharing reduction for which an
individual is eligible must be applied when the cost sharing is
collected.
(b) Assignment to applicable plan variation. If an individual is
determined to be eligible to enroll in a QHP in the individual market
offered through an Exchange and elects to do so, the QHP issuer must
assign the individual under enrollment and eligibility information
submitted by the Exchange as follows--
(1) If the individual is determined eligible by the Exchange for
cost-sharing reductions under Sec. 155.305(g)(2)(i), (ii), or (iii) of
this subchapter (subject to the special rule for family policies set
forth in Sec. 155.305(g)(3) of this subchapter) and chooses to enroll
in a silver health plan, the QHP issuer must assign the individual to
the silver plan variation of the selected silver health plan described
in Sec. 156.420(a)(1), (2), or (3), respectively.
(2) If the individual is determined eligible by the Exchange for
cost-sharing reductions for Indians with lower household income under
Sec. 155.350(a) of this subchapter (subject to the special rule for
family policies set forth in Sec. 155.305(g)(3) of this subchapter),
and chooses to enroll in a QHP, the QHP issuer must assign the
individual to the zero cost sharing plan variation of the selected QHP
with all cost sharing eliminated described in Sec. 156.420(b)(1).
(3) If the individual is determined by the Exchange to be eligible
for cost-sharing reductions for Indians regardless of household income
under Sec. 155.350(b) of this subchapter (subject to the special rule
for family policies set forth in Sec. 155.305(g)(3) of this
subchapter), and chooses to enroll in a QHP, the QHP issuer must assign
the individual to the limited cost sharing plan variation of the
selected QHP with the prohibition on cost sharing for benefits received
from the Indian Health Service and certain other providers described in
Sec. 156.420(b)(2).
(4) If the individual is determined by the Exchange not to be
eligible for cost-sharing reductions (including eligibility under the
special rule for family policies set forth in Sec. 155.305(g)(3) of
this subchapter), and chooses to enroll in a QHP, the QHP issuer must
assign the individual to the selected QHP with no cost-sharing
reductions.
Sec. 156.420 Plan variations.
(a) Submission of silver plan variations. For each of its silver
health plans that an issuer seeks to offer or to continue to offer in
the individual market on an Exchange, the issuer must submit annually
to the Exchange for certification prior to each benefit year the
standard silver plan and three variations of the standard silver plan,
as follows--
(1) For individuals eligible for cost-sharing reductions under
Sec. 155.305(g)(2)(i) of this subchapter, a variation of the standard
silver plan with:
(i) An annual limitation on cost sharing no greater than the
reduced maximum annual limitation on cost sharing specified in the
annual HHS notice of benefit and payment parameters for such
individuals, and
(ii) Other cost-sharing reductions such that the AV of the silver
plan variation is 94 percent plus or minus the de minimis variation for
a silver plan variation;
(2) For individuals eligible for cost-sharing reductions under
Sec. 155.305(g)(2)(ii) of this subchapter, a variation of the standard
silver plan with:
(i) An annual limitation on cost sharing no greater than the
reduced maximum annual limitation on cost sharing specified in the
annual HHS notice of benefit and payment parameters for such
individuals, and
(ii) Other cost-sharing reductions such that the AV of the silver
plan variation is 87 percent plus or minus the de minimis variation for
a silver plan variation; and
(3) For individuals eligible for cost-sharing reductions under
Sec. 155.305(g)(2)(iii) of this subchapter, a variation of the
standard silver plan with:
(i) An annual limitation on cost sharing no greater than the
reduced maximum annual limitation on cost sharing specified in the
annual HHS notice of benefit and payment parameters for such
individuals, and
(ii) Other cost-sharing reductions such that the AV of the silver
plan variation is 73 percent plus or minus the de minimis variation for
a silver plan variation (subject to Sec. 156.420(h)).
(b) Submission of zero and limited cost sharing plan variations.
For each of its health plans at any level of coverage that an issuer
seeks QHP certification for the individual market on an Exchange, the
issuer must submit to the Exchange for certification the health plan
and two variations of the health plan, as follows--
(1) For individuals eligible for cost-sharing reductions under
Sec. 155.350(a) of this subchapter, a variation of the health plan
with all cost sharing eliminated; and
(2) For individuals eligible for cost-sharing reductions under
Sec. 155.350(b) of this subchapter, a variation of the health plan
with no cost sharing on any item or service that is an EHB furnished
directly by the Indian Health Service, an Indian Tribe, Tribal
Organization, or Urban Indian Organization (each as defined in 25
U.S.C. 1603), or through referral under contract health services.
(c) Benefit and network equivalence in silver plan variations. A
standard silver plan and each silver plan variation thereof must cover
the same benefits and providers, and require the same out-of-pocket
spending for benefits other than essential health benefits. Each silver
plan variation is subject to all requirements applicable to the
standard silver plan (except for the requirement that the plan have an
AV as set forth in Sec. 156.140(b)(2)).
(d) Benefit and network equivalence in zero and limited cost
sharing plan variations. A QHP and each zero cost sharing plan
variation or limited cost sharing plan variation thereof must cover the
same benefits and providers, and require the same out-of-pocket
spending for benefits other than essential health benefits. A limited
cost sharing plan variation must have the same cost sharing on items or
services not described in paragraph (b)(2) of this section as the QHP
with no cost-sharing reductions. Each zero cost sharing plan variation
or limited cost sharing plan variation is subject to all requirements
applicable to the QHP (except for the requirement that the plan have an
AV as set forth in Sec. 156.140(b)).
[[Page 73215]]
(e) Decreasing cost sharing in higher AV silver plan variations.
The cost sharing required of enrollees under any silver plan variation
of a standard silver plan for an essential health benefit from a
provider (including a provider outside the plan's network) may not
exceed the corresponding cost sharing required in the standard silver
plan or any other silver plan variation thereof with a lower AV.
(f) Minimum AV differential between 70 percent and 73 percent
silver plan variations. Notwithstanding any permitted de minimis
variation in AV for a health plan or permitted de minimis variation for
a silver plan variation, the AVs of a standard silver plan and the
silver plan variation thereof described in paragraph (a)(3) of this
section must differ by at least 2 percentage points.
Sec. 156.425 Changes in eligibility for cost-sharing reductions.
(a) Effective date of change in assignment. If the Exchange
notifies a QHP issuer of a change in an enrollee's eligibility for
cost-sharing reductions (including a change in the individual's
eligibility under the special rule for family policies set forth in
Sec. 155.305(g)(3) of this subchapter due to a change in eligibility
of another individual on the same policy), then the QHP issuer must
change the individual's assignment such that the individual is assigned
to the applicable standard plan or plan variation of the QHP as
required under Sec. 156.410(b) as of the effective date of eligibility
required by the Exchange.
(b) Continuity of deductible and out-of-pocket amounts. In the case
of a change in assignment to a different plan variation (or standard
plan without cost-sharing reductions) of the same QHP in the course of
a benefit year under this section, the QHP issuer must ensure that any
cost sharing paid by the applicable individual under previous plan
variations (or standard plan without cost-sharing reductions) for that
benefit year is taken into account in the new plan variation (or
standard plan without cost-sharing reductions) for purposes of
calculating cost sharing based on aggregate spending by the individual,
such as for deductibles or for the annual limitations on cost sharing.
Sec. 156.430 Payment for cost-sharing reductions.
(a) Estimates of value of cost-sharing reductions for purposes of
advance payments. (1) For each health plan that an issuer offers, or
intends to offer, in the individual market on an Exchange as a QHP, the
issuer must provide to the Exchange annually prior to the benefit year,
for approval by HHS, an estimate of the dollar value of the cost-
sharing reductions to be provided over the benefit year. The estimate
must:
(i) If the QHP is a silver health plan, identify separately the per
member per month dollar value of the cost-sharing reductions to be
provided under each silver plan variation identified in Sec.
156.420(a)(1), (2), and (3);
(ii) Regardless of the level of coverage of the QHP, identify the
per member per month dollar value of the cost-sharing reductions to be
provided under the zero cost sharing plan variation;
(iii) Be accompanied by supporting documentation validating the
estimate; and
(iv) Be developed using the methodology specified by HHS in the
applicable annual HHS notice of benefit and payment parameters.
(2) If an issuer seeks advance payments for the cost-sharing
reductions to be provided under the limited cost sharing plan variation
of a health plan it offers, or seeks to offer, in the individual market
on the Exchange as a QHP at any level of coverage, the issuer must
provide to the Exchange annually prior to the benefit year, for
approval by HHS, an estimate of the per member per month dollar value
of the cost-sharing reductions to be provided over the benefit year
under such limited cost sharing plan variation. The estimate must:
(i) Be accompanied by supporting documentation validating the
estimate; and
(ii) Be developed using the methodology specified by HHS in the
annual HHS notice of benefit and payment parameters.
(3) HHS's approval of the estimate will be based on whether the
estimate is made consistent with the methodology specified by HHS in
the annual HHS notice of benefit and payment parameters.
(b) Advance payments. A QHP issuer will receive periodic advance
payments based on the approved advance estimates provided under
paragraph (a) of this section and the actual enrollment in the
applicable plan variation.
(c) Submission of actual amounts. A QHP issuer must submit to HHS,
in the manner and timeframe established by HHS, the following--
(1) In the case of a benefit for which the QHP issuer compensates
the applicable provider in whole or in part on a fee-for-service basis,
the total allowed costs for essential health benefits charged for an
enrollees' policy for the benefit year, broken down by what the issuer
paid, what the enrollee paid, and the amount reimbursed to the provider
by the QHP issuer for the amount that the enrollee would have paid
under the standard QHP without cost-sharing reductions; and
(2) In the case of a benefit for which the QHP issuer compensates
the applicable provider in any other manner, the total allowed costs
for essential health benefits charged for an enrollees' policy for the
benefit year, broken down by what the issuer paid, what the enrollee
paid, and what the enrollee would have paid under the standard QHP
without cost-sharing reductions.
(d) Reconciliation of amounts. HHS will perform periodic
reconciliations of any advance payments of cost-sharing reductions
provided to a QHP issuer under paragraph (b) of this section against--
(1) The actual amount of cost-sharing reductions provided to
enrollees and reimbursed to providers by the QHP issuer for benefits
for which the QHP issuer compensates the applicable providers in whole
or in part on a fee-for-service basis; and
(2) The actual amount of cost-sharing reductions provided to
enrollees for benefits for which the QHP issuer compensates the
applicable providers in any other manner.
(e) Payment of discrepancies. If the actual amounts of cost-sharing
reductions described in paragraphs (d)(1) and (2) of this section are--
(1) More than the amount of advance payments provided and the QHP
issuer has timely provided the actual amounts of cost-sharing
reductions as required under paragraph (c) of this section, HHS will
reimburse the QHP issuer for the difference; and
(2) Less than the amount of advance payments provided, the QHP
issuer must repay the difference to HHS in the manner and timeframe
specified by HHS.
(f) Cost-sharing reductions during special periods. (1)
Notwithstanding the reconciliation process described in paragraphs (c)
through (e) of this section, a QHP issuer will not be eligible for
reimbursement of any cost-sharing reductions provided following a
termination of coverage effective date with respect to a grace period
as described in Sec. 155.430(b)(2)(ii)(A) or (B) of this subchapter.
However, the QHP issuer will be eligible for reimbursement of cost-
sharing reductions provided prior to the termination of coverage
effective date. Advance payments of cost-sharing reductions will be
paid to a QHP issuer prior to a determination of termination (including
during any grace period, but the QHP issuer will be
[[Page 73216]]
required to repay any advance payments made with respect to any month
after any termination of coverage effective date during a grace
period).
(2) Notwithstanding the reconciliation process described in
paragraphs (c) through (e) of this section, if the termination of
coverage effective date is prior to the determination of termination
other than in the circumstances described in paragraph (f)(1) of this
section, and if the termination (or the late determination thereof) is
the fault of the QHP issuer, as reasonably determined by the Exchange,
the QHP issuer will not be eligible for advance payments and
reimbursement for cost-sharing reductions provided during the period
following the termination of coverage effective date and prior to the
determination of the termination.
(3) Subject to the requirements of the reconciliation process
described in paragraphs (c) through (e) of this section, if the
termination of coverage effective date is prior to the determination of
termination other than in the circumstances described in paragraph
(f)(1) of this section, and if the reason for the termination (or late
determination thereof) is not the fault of the QHP issuer, as
reasonably determined by the Exchange, the QHP issuer will be eligible
for advance payments and reimbursement for cost-sharing reductions
provided during such period.
(4) Subject to the requirements of the reconciliation process
described in paragraphs (c) through (e) of this section, a QHP issuer
will be eligible for advance payments and reimbursement for cost-
sharing reductions provided during any period of coverage pending
resolution of inconsistencies in information required to determine
eligibility for enrollment under Sec. 155.315(f) of this subchapter.
Sec. 156.440 Plans eligible for advance payments of the premium tax
credit and cost-sharing reductions.
Except as noted in paragraph (a) through (c) of this section, the
provisions of this subpart apply to qualified health plans offered in
the individual market on the Exchange.
(a) Catastrophic plans. The provisions of this subpart do not apply
to catastrophic plans as described in Sec. 156.155.
(b) Stand-alone dental plans. The provisions of this subpart, to
the extent relating to cost-sharing reductions, do not apply to stand-
alone dental plans. The provisions of this subpart, to the extent
relating to advance payments of the premium tax credit, apply to stand-
alone dental plans.
(c) Child-only plans. The provisions of this subpart apply to
child-only QHPs, as described in Sec. 156.200(c)(2).
Sec. 156.460 Reduction of enrollee's share of premium to account for
advance payments of the premium tax credit.
(a) Reduction of enrollee's share of premium to account for advance
payments of the premium tax credit. A QHP issuer that receives notice
from the Exchange that an individual enrolled in the issuer's QHP is
eligible for an advance payment of the premium tax credit must--
(1) Reduce the portion of the premium charged to or for the
individual for the applicable month(s) by the amount of the advance
payment of the premium tax credit;
(2) Notify the Exchange of the reduction in the portion of the
premium charged to the individual in accordance with Sec. 156.265(g);
and
(3) Include with each billing statement, as applicable, to or for
the individual the amount of the advance payment of the premium tax
credit for the applicable month(s), and the remaining premium owed.
(b) Delays in payment. A QHP issuer may not refuse to commence
coverage under a policy or terminate coverage on account of any delay
in payment of an advance payment of the premium tax credit on behalf of
an enrollee if the QHP issuer has been notified by the Exchange under
Sec. 155.340(a) of this subchapter that the QHP issuer will receive
such advance payment.
Sec. 156.470 Allocation of rates and claims costs for advance
payments of cost-sharing reductions and the premium tax credit.
(a) Allocation to additional health benefits for QHPs. An issuer
must provide to the Exchange annually for approval, in the manner and
timeframe established by HHS, for each health plan at any level of
coverage offered, or proposed to be offered in the individual market on
an Exchange, an allocation of the rate and the expected allowed claims
costs for the plan, in each case, to:
(1) EHB, other than services described in Sec. 156.280(d)(1), and
(2) Any other services or benefits offered by the health plan not
described paragraph (a)(1) of this section.
(b) Allocation to additional health benefits for stand-alone dental
plans. An issuer must provide to the Exchange annually for approval, in
the manner and timeframe established by HHS, for each stand-alone
dental plan offered, or proposed to be offered, in the individual
market on the Exchange, a dollar allocation of the expected premium for
the plan, to:
(1) The pediatric dental essential health benefit, and
(2) Any benefits offered by the stand-alone dental plan that are
not the pediatric dental essential health benefit.
(c) Allocation standards for QHPs. The issuer must ensure that the
allocation described in paragraph (a) of this section--
(1) Is performed by a member of the American Academy of Actuaries
in accordance with generally accepted actuarial principles and
methodologies;
(2) Reasonably reflects the allocation of the expected allowed
claims costs attributable to EHB (excluding those services described in
Sec. 156.280(d)(1));
(3) Is consistent with the allocation applicable to State-required
benefits to be submitted by the issuer under Sec. 155.170(c) of this
subchapter, and the allocation requirements described in Sec.
156.280(e)(4) for certain services; and
(4) Is calculated under the fair health insurance premium standards
described at 45 CFR 147.102, the single risk pool standards described
at 45 CFR 156.80, and the same premium rate standards described at 45
CFR 156.255.
(d) Allocation standards for stand-alone dental plans. The issuer
must ensure that the dollar allocation described in paragraph (b) of
this section--
(1) Is performed by a member of the American Academy of Actuaries
in accordance with generally accepted actuarial principles and
methodologies;
(2) Is consistent with the allocation applicable to State-required
benefits to be submitted by the issuer under Sec. 155.170(c) of this
subchapter;
(3) Is calculated under the fair health insurance premium standards
described at 45 CFR 147.102, except for the provision related to age
set forth at Sec. 147.102(a)(1)(ii); the single risk pool standards
described at 45 CFR 156.80; and the same premium rate standards
described at 45 CFR 156.255 (in each case subject to paragraph (d)(4)
of this section); and
(4) Is calculated so that the dollar amount of the premium
allocable to the pediatric dental essential health benefit for an
individual under the age of 19 years does not vary, and the dollar
amount of the premium allocable to the pediatric dental essential
health benefit for an individual aged 19 years or more is equal to
zero.
(e) Disclosure of attribution and allocation methods. An issuer of
a health plan at any level of coverage or a stand-alone dental plan
offered, or proposed to be offered in the individual
[[Page 73217]]
market on the Exchange must submit to the Exchange annually for
approval, an actuarial memorandum, in the manner and timeframe
specified by HHS, with a detailed description of the methods and
specific bases used to perform the allocations set forth in paragraphs
(a) and (b), and demonstrating that the allocations meet the standards
set forth in paragraphs (c) and (d) of this section, respectively.
PART 157--EMPLOYER INTERACTIONS WITH EXCHANGES AND SHOP
PARTICIPATION
41. The authority citation for part 157 continues to read as
follows:
Authority: Title I of the Affordable Care Act, sections 1311,
1312, 1321, 1411, 1412, Pub. L. 111-148, 124 Stat. 199.
42. Section 157.20 is amended by adding the definitions for
``Federally-facilitated SHOP,'' ``Full-time employee,'' and ``Large
employer'' in alphabetical order to read as follows:
Sec. 157.20 Definitions.
* * * * *
Federally-facilitated SHOP has the meaning given to the term in
Sec. 155.20 of this subchapter.
Full-time employee has the meaning given to the term in Sec.
155.20 of this subchapter.
Large employer has the meaning given to the term in Sec. 155.20 of
this subchapter.
* * * * *
PART 158--ISSUER USE OF PREMIUM REVENUE: REPORTING AND REBATE
REQUIREMENTS
43. The authority citation for part 158 continues to read as
follows:
Authority: Section 2718 of the Public Health Service Act (42
U.S.C. 300gg-18), as amended.
44. Section 158.110 is amended by revising paragraph (b) to read as
follows:
Sec. 158.110 Reporting requirements related to premiums and
expenditures.
* * * * *
(b) Timing and form of report. The report for each of the 2011,
2012, and 2013 MLR reporting years must be submitted to the Secretary
by June 1 of the year following the end of an MLR reporting year, on a
form and in the manner prescribed by the Secretary. Beginning with the
2014 MLR reporting year, the report for each MLR reporting year must be
submitted to the Secretary by July 31 of the year following the end of
an MLR reporting year, on a form and in the manner prescribed by the
Secretary.
* * * * *
45. Section 158.130 is amended by adding paragraph (b)(5) to read
as follows:
Sec. 158.130 Premium revenue.
* * * * *
(b) * * *
(5) Account for the net payments or receipts related to risk
adjustment, risk corridors, and reinsurance programs under sections
1341, 1342, and 1343 of the Patient Protection and Affordable Care Act,
42 U.S.C. 18061, 18062, 18063.
46. Section 158.140 is amended by adding paragraph (b)(4)(ii) and
revising paragraph (b)(5)(i) to read as follows:
Sec. 158.140 Requirements for clinical services provided to
enrollees.
* * * * *
(b) * * *
(4) * * *
(ii) Net payments or receipts related to risk adjustment, risk
corridors, and reinsurance programs under sections 1341, 1342, and 1343
of the Patient Protection and Affordable Care Act, 42 U.S.C. 18061,
18062, 18063.
(5) * * *
(i) Affiliated issuers that offer group coverage at a blended rate
may choose whether to make an adjustment to each affiliate's incurred
claims and activities to improve health care quality, to reflect the
experience of the issuer with respect to the employer as a whole,
according to an objective formula that must be defined by the issuer
prior to January 1 of the MLR reporting year, so as to result in each
affiliate having the same ratio of incurred claims to earned premium
for that employer group for the MLR reporting year as the ratio of
incurred claims to earned premium calculated for the employer group in
the aggregate.
* * * * *
47. Section 158.162 is amended by revising paragraph (b)(1)(vii)
and adding paragraph (b)(1)(viii) to read as follows:
Sec. 158.162 Reporting of Federal and State taxes.
* * * * *
(b) * * *
(1) * * *
(vii) Payments made by a Federal income tax exempt issuer for
community benefit expenditures as defined in paragraph (c) of this
section, limited to the highest of either:
(A) Three percent of earned premium; or
(B) The highest premium tax rate in the State for which the report
is being submitted, multiplied by the issuer's earned premium in the
applicable State market.
(viii) In lieu of reporting amounts described in paragraph
(b)(1)(vi) of this section, an issuer that is not exempt from Federal
income tax may choose to report payment for community benefit
expenditures as described in paragraph (c) of this section, limited to
the highest premium tax rate in the State for which the report is being
submitted multiplied by the issuer's earned premium in the applicable
State market.
* * * * *
48. Section 158.221 is amended by revising paragraph (c) to read as
follows:
Sec. 158.221 Formula for calculating an issuer's medical loss ratio.
* * * * *
(c) Denominator. The denominator of an issuer's MLR must equal the
issuer's premium revenue, as defined in Sec. 158.130, excluding the
issuer's Federal and State taxes and licensing and regulatory fees,
described in Sec. Sec. 158.161(a) and 158.162(a)(1) and (b)(1), and
after accounting for payments or receipts for risk adjustment, risk
corridors, and reinsurance, described in Sec. 158.130(b)(5).
49. Section 158.232 is amended by revising paragraph (c)(1)(i) and
paragraph (d) introductory text to read as follows:
Sec. 158.232 Calculating the credibility adjustment.
* * * * *
(c) * * *
(1) * * *
(i) The per person deductible for a policy that covers a subscriber
and the subscriber's dependents shall be the lesser of: the deductible
applicable to each of the individual family members; or the overall
family deductible for the subscriber and subscriber's family divided by
two (regardless of the total number of individuals covered through the
subscriber).
* * * * *
(d) No credibility adjustment. Beginning with the 2013 MLR
reporting year, the credibility adjustment for and MLR based on
partially credible experience is zero if both of the following
conditions are met:
* * * * *
50. Section 158.240 is amended by revising paragraphs (c) and (d)
to read as follows:
Sec. 158.240 Rebating premium if the applicable medical loss ratio
standard is not met.
* * * * *
(c) Amount of rebate to each enrollee. (1) For each MLR reporting
year, an
[[Page 73218]]
issuer must rebate to the enrollee the total amount of premium revenue,
as defined in Sec. 158.130 of this part, received by the issuer from
the enrollee, after subtracting Federal and State taxes and licensing
and regulatory fees as provided in Sec. Sec. 158.161(a) and
158.162(a)(1) and (b)(1), and after accounting for payments or receipts
for risk adjustment, risk corridors, and reinsurance as provided in
Sec. 158.130(b)(5), multiplied by the difference between the MLR
required by Sec. 158.210 or Sec. 158.211, and the issuer's MLR as
calculated under Sec. 158.221.
(2) For example, an issuer must rebate a pro rata portion of
premium revenue if it does not meet an 80 percent MLR for the
individual market in a State that has not set a higher MLR. If an
issuer has a 75 percent MLR for the coverage it offers in the
individual market in a State that has not set a higher MLR, the issuer
must rebate 5 percent of the premium paid by or on behalf of the
enrollee for the MLR reporting year after subtracting taxes and fees
and accounting for payments or receipts related to reinsurance, risk
adjustment and risk corridors. In this example, an enrollee may have
paid $2,000 in premiums for the MLR reporting year. If the issuer
received net payments related to reinsurance, risk adjustment and risk
corridors of $200, the gross earned premium would be $2,200. If the
Federal and State taxes and licensing and regulatory fees that may be
excluded from premium revenue as described in Sec. Sec. 158.161(a),
158.161(a)(1), and 158.162(b)(1) are $150 and the net payments related
to reinsurance, risk adjustment and risk corridors that must be
accounted for in premium revenue as described in Sec. Sec.
158.130(b)(5), 158.221 and 158.240 are $200, then the issuer would
subtract $150 and $200 from gross premium revenue of $2,200, for a base
of $1,850 in premium. The enrollee would be entitled to a rebate of 5
percent of $1,850, or $92.50.
(d) Timing of rebate. For each of the 2011, 2012, and 2013 MLR
reporting years, an issuer must provide any rebate owing to an enrollee
no later than August 1 following the end of the MLR reporting year.
Beginning with the 2014 MLR reporting year, an issuer must provide any
rebate owing to an enrollee no later than September 30 following the
end of the MLR reporting year.
* * * * *
51. Section 158.241 is amended by revising paragraph (a)(2) to read
as follows:
Sec. 158.241 Form of rebate.
(a) * * *
(2) For each of the 2011, 2012, and 2013 MLR reporting years, any
rebate provided in the form of a premium credit must be provided by
applying the full amount due to the first month's premium that is due
on or after August 1 following the MLR reporting year. If the amount of
the rebate exceeds the premium due for August, then any overage shall
be applied to succeeding premium payments until the full amount of the
rebate has been credited. Beginning with the 2014 MLR reporting year,
any rebate provided in the form of a premium credit must be provided by
applying the full amount due to the first month's premium that is due
on or after September 30 following the MLR reporting year. If the
amount of the rebate exceeds the premium due for October, then any
overage shall be applied to succeeding premium payments until the full
amount of the rebate has been credited.
* * * * *
Dated: November 28, 2012.
Marilyn Tavenner,
Acting Administrator, Centers for Medicare & Medicaid Services.
Approved: November 28, 2012.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2012-29184 Filed 11-30-12; 11:15 am]
BILLING CODE 4120-01-P