76976 Federal Register / Vol. 85, No. 231 / Tuesday, December 1, 2020 / Rules and Regulations 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[TD 9912] 

RIN 1545–BP76 

Guidance Clarifying Premium Tax 

Credit Unaffected by Suspension of 

Personal Exemption Deduction 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final regulations. 

SUMMARY: This document includes final 

regulations under sections 36B and 6011 

of the Internal Revenue Code (Code) that 

clarify that the reduction of the personal 

exemption deduction to zero for taxable 

years beginning after December 31, 

2017, and before January 1, 2026, does 

not affect an individual taxpayer’s 

ability to claim the premium tax credit. 

These final regulations affect 

individuals who claim the premium tax 

credit. 

DATES: Effective date: These final 

regulations are effective on December 1, 

2020. 

Applicability date: These final 

regulations apply to taxable years 

ending on or after December 31, 2020. 

FOR FURTHER INFORMATION CONTACT: 

Suzanne R. Sinno at (202) 317–4718 or 

Lisa Mojiri-Azad at (202) 317–4649 (not 

toll-free numbers). 

SUPPLEMENTARY INFORMATION: 

Background and Explanation of 

Provisions 

I. Overview 

This document contains final 

amendments to the Income Tax 

Regulations (26 CFR part 1) under 

sections 36B and 6011 of the Code. 

Section 151 of the Code generally 

allows a taxpayer to claim a personal 

exemption deduction, based on the 

exemption amount defined in section 

151(d), for the taxpayer, the taxpayer’s 

spouse, and any dependents, as defined 

in section 152 of the Code. On 

December 22, 2017, section 151(d)(5) 

was added to the Code by section 11041 

of Public Law 115–97, 131 Stat. 2054, 

2082, commonly referred to as the Tax 

Cuts and Jobs Act (TCJA). Section 

151(d)(5)(A) provides that, for taxable 

years beginning after December 31, 

2017, and before January 1, 2026, ‘‘[t]he 

term ‘exemption amount’ means zero.’’ 

However, section 151(d)(5)(B) provides 

that the reduction of the exemption 

amount to zero is not taken into account 

in determining whether a deduction 

under section 151 is allowed or 

allowable to a taxpayer, or whether a 

taxpayer is entitled to a deduction 

under section 151, for purposes of any 

other provision of the Code. The 

conference report to the TCJA states that 

this provision clarifies that the 

reduction of the personal exemption to 

zero ‘‘should not alter the operation of 

those provisions of the Code which refer 

to a taxpayer allowed a deduction . . . 

under section 151.’’ See H.R. Rep. No. 

115–466 at 203 n.16 (Conf. Rep.) (2017). 

Beginning in 2014, under the Patient 

Protection and Affordable Care Act, 

Public Law 111–148 (124 Stat. 119 

(2010)), and the Health Care and 

Education Reconciliation Act of 2010, 

Public Law 111–152 (124 Stat. 1029 

(2010)) (collectively, PPACA), eligible 

individuals who purchase coverage 

under a qualified health plan through a 

Health Insurance Exchange (Exchange) 

established under section 1311 of the 

PPACA may claim a premium tax credit 

under section 36B of the Code. Several 

rules relating to the premium tax credit 

apply based on whether a taxpayer 

properly claims or claimed a personal 

exemption deduction under section 151 

for the taxpayer, the taxpayer’s spouse, 

and any dependents. These rules affect 

eligibility for the premium tax credit, 

computation of the premium tax credit, 

reconciliation of advance credit 

payments with the premium tax credit 

a taxpayer is allowed for the taxable 

year, and income tax return filing 

requirements related to the premium tax 

credit. 

II. Eligibility for, and Computation of, 

the Premium Tax Credit 

To be eligible for the premium tax 

credit, an individual must be an 

applicable taxpayer. Under section 

36B(c)(1), an applicable taxpayer 

generally is a taxpayer whose household 

income for the taxable year is at least 

100 percent but not more than 400 

percent of the Federal poverty line for 

the taxpayer’s family size for the taxable 

year. A taxpayer’s family size is equal to 

the number of individuals in the 

taxpayer’s family. Section 1.36B–1(d) of 

the Income Tax Regulations provides 

the rules for determining the 

individuals in a taxpayer’s family. 

Section 1.36B–1(d), as currently in 

effect, provides that a taxpayer’s family 

means the individuals for whom a 

taxpayer properly claims a deduction 

for a personal exemption under section 

151 for the taxable year, and further 

provides that family size means the 

number of individuals in the family. 

Additionally, § 1.36B–2(b)(3) provides 

that an individual is not an applicable 

taxpayer if another taxpayer may claim 

a deduction under section 151 for the 

individual for a taxable year beginning 

in the calendar year in which the 

individual’s taxable year begins. 

Section 36B(c)(2) provides that the 

premium tax credit generally is not 

allowed for a month with respect to an 

individual if for that month the 

individual is eligible for minimum 

essential coverage other than coverage 

in the individual market. However, 

under a special eligibility rule in 

§ 1.36B–2(c)(4)(i), an individual who 

may enroll in minimum essential 

coverage because of a relationship to 

another person eligible for the coverage 

but for whom the other eligible person 

does not claim a personal exemption 

deduction under section 151 is treated 

as eligible for minimum essential 

coverage under such coverage only for 

months that the related individual is 

enrolled in the coverage. 

Under section 36B(a), a taxpayer’s 

premium tax credit is equal to the 

premium assistance credit amount for 

the taxable year. Section 36B(b)(1) and 

§ 1.36B–3(d) generally provide that the 

premium assistance credit amount is the 

sum of the premium assistance amounts 

for all coverage months in the taxable 

year for individuals in the taxpayer’s 

family, as defined in § 1.36B–1(d). 

III. Reconciliation of Advance Credit 

Payments With the Premium Tax Credit 

Under section 1412 of the PPACA, 

advance payments of the premium tax 

credit (advance credit payments) may be 

paid directly to issuers of qualified 

health plans on behalf of eligible 

individuals. The amount of advance 

credit payments made on behalf of a 

taxpayer in a taxable year is determined 

by a number of factors, including 

projections of the taxpayer’s household 

income and family size for the taxable 

year. Under § 1.36B–4, a taxpayer 

generally must reconcile all advance 

credit payments for coverage of any 

member of the taxpayer’s family with 

the amount of the premium tax credit 

allowed under section 36B. 

Section 1.36B–4(a)(1)(ii) provides 

allocation rules to reconcile advance 

credit payments when a taxpayer’s 

family members are enrolled with one 

or more individuals who are not 

members of the taxpayer’s family. If a 

taxpayer enrolls an individual and 

another taxpayer claims a personal 

exemption deduction for the individual, 

the allocation rules in 

§ 1.36B(a)(1)(ii)(B) apply for purposes of 

computing each taxpayer’s premium tax 

credit and reconciling any advance 

credit payments. If advance credit 

payments are made for coverage of an 

individual for whom no taxpayer claims 

a personal exemption deduction, 


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Federal Register / Vol. 85, No. 231 / Tuesday, December 1, 2020 / Rules and Regulations 76977 

§ 1.36B–4(a)(1)(ii)(C) provides that the 

taxpayer who attested to the Exchange 

to the intention to claim a personal 

exemption deduction for the individual 

as part of the advance credit payment 

eligibility determination for coverage of 

the individual must reconcile the 

advance credit payments. 

IV. Income Tax Return Filing 

Requirements Related to the Premium 

Tax Credit 

Section 6011 provides the general 

rules for filing a return. Section 1.6011– 

8 requires a taxpayer who receives the 

benefit of advance credit payments in a 

taxable year to file an income tax return 

for that taxable year to reconcile 

advance credit payments with the 

taxpayer’s premium tax credit. The 

regulation further provides that if 

advance credit payments are made for 

coverage of an individual for whom no 

taxpayer claims a personal exemption 

deduction, the taxpayer who attested to 

the Exchange to the intention to claim 

a personal exemption deduction for the 

individual as part of the advance credit 

payment eligibility determination for 

coverage of the individual must file a 

tax return and reconcile the advance 

credit payments. Taxpayers who are 

required to reconcile advance credit 

payments or who claim the premium tax 

credit must complete Form 8962, 

Premium Tax Credit (PTC), and file it 

with their income tax return. 

V. Notice 2018–84 

On November 5, 2018, the Department 

of the Treasury (Treasury Department) 

and the IRS issued Notice 2018–84, 

2018–45 I.R.B. 768, which provided 

interim guidance clarifying that the 

reduction of the personal exemption 

deduction to zero under section 

151(d)(5) does not affect the ability of 

individual taxpayers to claim the 

premium tax credit. Specifically, the 

notice provides that (1) a taxpayer is 

considered to have claimed a personal 

exemption deduction for himself or 

herself for a taxable year if the taxpayer 

files an income tax return for the year 

and does not qualify as a dependent of 

another taxpayer under section 152 for 

the year; and (2) a taxpayer is 

considered to have claimed a personal 

exemption deduction for an individual 

other than the taxpayer if the taxpayer 

is allowed a personal exemption 

deduction for the individual, taking into 

account section 151(d)(5)(B), and lists 

the individual’s name and taxpayer 

identification number (TIN) on the Form 

1040, U.S. Individual Income Tax 

Return, or Form 1040NR, U.S. 

Nonresident Alien Income Tax Return, 

the taxpayer files for the year. The 

notice states that until further guidance 

is issued, the interim guidance 

described in the notice applies. The 

notice also states that the Treasury 

Department and the IRS intend to 

amend the regulations under sections 

36B and 6011 to clarify the application 

of section 151(d)(5). 

VI. Proposed Regulations 

On May 27, 2020, the Treasury 

Department and the IRS published a 

notice of proposed rulemaking (REG– 

124810–19) in the Federal Register (85 

FR 31710) under section 36B. The 

notice of proposed rulemaking 

announced that the regulations 

currently in effect would be amended to 

reflect the guidance in Notice 2018–84. 

Specifically, § 1.36B–1(d), as proposed, 

would define the term family to mean 

the taxpayer, including both spouses in 

the case of a joint return, except for 

individuals who qualify as a dependent 

of another taxpayer under section 152, 

and any other individual for whom the 

taxpayer is allowed a personal 

exemption deduction and whom the 

taxpayer properly reports on the 

taxpayer’s income tax return for the 

taxable year. Consistent with Notice 

2018–84, the proposed regulations 

would provide that an individual is 

reported on the taxpayer’s income tax 

return if the individual’s name and 

taxpayer identification number (TIN) are 

listed on the taxpayer’s Form 1040 

series return. To conform to § 1.36–1(d) 

as proposed, §§ 1.36B–2, 1.36B–4, and 

1.6011–8 would be amended. These 

amendments as proposed would apply 

for taxable years ending after the date of 

publication of the final regulations in 

the Federal Register. 

VII. Final Regulations 

No comments responsive to the 

subject of the notice of proposed 

rulemaking were received. There were 

no requests for a public hearing on the 

proposed regulations, so no public 

hearing was held. Accordingly, the 

Treasury Department and the IRS are 

finalizing the proposed regulations with 

no changes. The final regulations are 

applicable for taxable years ending on or 

after December 31, 2020. However, 

taxpayers may apply the final 

regulations for taxable years to which 

section 151(d)(5) applies ending before 

December 31, 2020. See section 

7805(b)(7). 

Special Analyses 

These final regulations are not subject 

to review under section 6(b) of 

Executive Order 12866 pursuant to the 

Memorandum of Agreement (April 11, 

2018) between the Treasury Department 

and the Office of Management and 

Budget regarding review of tax 

regulations. 

Pursuant to the Regulatory Flexibility 

Act (5 U.S.C. chapter 6), it is hereby 

certified that this final rule will not 

have a significant economic impact on 

a substantial number of small entities. 

This certification is based on the fact 

that the final regulations affect 

individual taxpayers, not entities. 

Accordingly, the Secretary certifies that 

the rule will not have a significant 

economic impact on a substantial 

number of small entities. 

Pursuant to section 7805(f), these final 

regulations have been submitted to the 

Chief Counsel for the Office of 

Advocacy of the Small Business 

Administration for comment on their 

impact on small business (85 FR 31710). 

No comments on the notice were 

received from the Chief Counsel for the 

Office of Advocacy of the Small 

Business Administration. 

Unfunded Mandates Reform Act 

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 government, in 

the aggregate, or by the private sector, of 

$100 million (updated annually for 

inflation). This rule does not include 

any Federal mandate that may result in 

expenditures by state, local, or tribal 

governments, or by the private sector in 

excess of that threshold. 

Executive Order 13132: Federalism 

Executive Order 13132 (entitled 

‘‘Federalism’’) prohibits an agency from 

publishing any rule that has federalism 

implications if the rule either imposes 

substantial, direct compliance costs on 

state and local governments, and is not 

required by statute, or preempts state 

law, unless the agency meets the 

consultation and funding requirements 

of section 6 of the Executive Order. This 

final rule does not have federalism 

implications and does not impose 

substantial direct compliance costs on 

state and local governments or preempt 

state law within the meaning of the 

Executive Order. 

Statement of Availability of IRS 

Documents 

The regulations, notices and other 

guidance cited in this preamble are 

generally published in the Internal 

Revenue Bulletin and are available from 

the Superintendent of Documents, U.S. 

Government Publishing Office, 


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76978 Federal Register / Vol. 85, No. 231 / Tuesday, December 1, 2020 / Rules and Regulations 

Washington, DC 20402, or by visiting 

the IRS website at www.irs.gov. 

Drafting Information 

The principal author of these final 

regulations is Suzanne R. Sinno of the 

Office of Associate Chief Counsel 

(Income Tax and Accounting). Other 

personnel from the Treasury 

Department and the IRS participated in 

the development of the regulations. 

List of Subjects in 26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

Amendments to the Regulations 

Accordingly, 26 CFR part 1 is 

amended as follows: 

PART 1—INCOME TAXES 

■ Paragraph 1. The authority citation 

for part 1 is amended by adding entries 

in numerical order to read in part as 

follows: 

Authority: 26 U.S.C. 7805 * * * 

■ Par. 2. Section 1.36B–0 is amended 

by: 

■ 1. Revising the entries for § 1.36B–1(d) 

and (o). 

■ 2. Revising the entries for § 1.36B– 

2(c)(4)(i) and (e). 

■ 3. Revising the entries for § 1.36B– 

4(a)(1)(ii)(B) and (C). 

■ 4. Revising the entry for § 1.36B–4(c). 

The revisions read as follows: 

§ 1.36B–1 Premium tax credit definitions. 

* * * * * 

(d) Family and family size. 

(1) In general. 

(2) Special rule for tax years to which 

section 151(d)(5) applies. 

* * * * * 

(o) Applicability dates. 

§ 1.36B–2 Eligibility for premium tax credit. 

* * * * * 

(c) * * * 

(4) * * * 

(i) Related individual. 

* * * * * 

(e) Applicability dates. 

§ 1.36B–4 Reconciling the premium tax 

credit with advance credit payments. 

* * * * * 

(a) * * * 

(1) * * * 

(ii) * * * 

(B) Individuals enrolled by a taxpayer and 

claimed by another taxpayer. 

(C) Responsibility for advance credit 

payments for an individual not reported on 

any taxpayer’s return. 

* * * * * 

(c) Applicability dates. 

* * * * * 

■ Par. 3. Section 1.36B–1 is amended by 

■ 1. Redesignating paragraph (d) as 

paragraph (d)(1). 

■ 2. Revising the paragraph heading to 

newly designated paragraph (d)(1). 

■ 3. Adding paragraph (d)(2). 

■ 4. Revising paragraph (o). 

The additions and revisions read as 

follows: 

§ 1.36B–1 Premium tax credit definitions. 

* * * * * 

(d) Family and family size—(1) In 

general. * * * 

(2) Special rule for tax years to which 

section 151(d)(5) applies. For taxable 

years to which section 151(d)(5) applies, 

a taxpayer’s family means the taxpayer, 

including both spouses in the case of a 

joint return, except for individuals who 

qualify as a dependent of another 

taxpayer under section 152, and any 

other individual for whom the taxpayer 

is allowed a personal exemption 

deduction and whom the taxpayer 

properly reports on the taxpayer’s 

income tax return for the taxable year. 

For purposes of this paragraph (d)(2), an 

individual is reported on the taxpayer’s 

income tax return if the individual’s 

name and taxpayer identification 

number (TIN) are listed on the 

taxpayer’s Form 1040 series return. See 

§ 601.602 of this chapter. 

* * * * * 

(o) Applicability dates. (1) Except for 

paragraphs (d)(2), (l), and (m) of this 

section, this section applies to taxable 

years ending after December 31, 2013. 

(2) Paragraph (d)(2) of this section 

applies to taxable years ending on or 

after December 31, 2020. 

(3) Paragraphs (l) and (m) of this 

section apply to taxable years beginning 

after December 31, 2018. Paragraphs (l) 

and (m) of § 1.36B–1 as contained in 26 

CFR part 1 edition revised as of April 1, 

2016, apply to taxable years ending after 

December 31, 2013, and beginning 

before January 1, 2019. 

■ Par. 4. Section 1.36B–2 is amended 

by: 

■ 1. Revising paragraph (c)(4)(i). 

■ 2. Revising the heading for paragraph 

(e). 

■ 3. Adding paragraph (e)(4). 

The revisions and addition read as 

follows: 

§ 1.36B–2 Eligibility for premium tax 

credit. 

* * * * * 

(c) * * * 

(4) Special eligibility rules—(i) 

Related individual. An individual who 

may enroll in minimum essential 

coverage because of a relationship to 

another person eligible for the coverage, 

but is not included in the family, as 

defined in § 1.36B–1(d), of the other 

eligible person, is treated as eligible for 

such minimum essential coverage only 

for months that the related individual is 

enrolled in the coverage. 

* * * * * 

(e) Applicability dates. * * * 

(4) Paragraph (c)(4)(i) of this section 

applies to taxable years ending on or 

after December 31, 2020. 

■ Par. 5. Section 1.36B–4 is amended 

by: 

■ 1. Adding a sentence to the end of 

paragraph (a)(1)(ii)(B)(1). 

■ 2. Revising paragraphs (a)(1)(ii)(B)(2) 

and (a)(1)(ii)(C). 

■ 3. Revising the paragraph heading to 

paragraph (c) and adding a sentence at 

the end. 

The additions and revisions read as 

follows: 

§ 1.36B–4 Reconciling the premium tax 

credit with advance credit payments. 

(a) * * * 

(1) * * * 

(ii) * * * 

(B) Individual enrolled by a taxpayer 

and claimed by another taxpayer—(1) In 

general. * * * For taxable years to 

which section 151(d)(5) applies, the 

claiming taxpayer is the taxpayer who 

properly includes the shifting enrollee 

in his or her family for the taxable year. 

(2) Allocation percentage. The 

enrolling taxpayer and claiming 

taxpayer may agree on any allocation 

percentage between zero and one 

hundred percent. If the enrolling 

taxpayer and claiming taxpayer do not 

agree on an allocation percentage, the 

percentage is equal to the number of 

shifting enrollees properly included in 

the enrolling taxpayer’s family divided 

by the number of individuals enrolled 

by the enrolling taxpayer in the same 

qualified health plan as the shifting 

enrollee. 

* * * * * 

(C) Responsibility for advance credit 

payments for an individual not reported 

on any taxpayer’s return. If advance 

credit payments are made for coverage 

of an individual who is not included in 

any taxpayer’s family, as defined in 

§ 1.36B–1(d), the taxpayer who attested 

to the Exchange to the intention to 

include such individual in the 

taxpayer’s family as part of the advance 

credit payment eligibility determination 

for coverage of the individual must 

reconcile the advance credit payments. 

* * * * * 

(c) Applicability dates. * * * The last 

sentence of paragraph (a)(1)(ii)(B)(1), 

paragraph (a)(1)(ii)(B)(2), and paragraph 

(a)(1)(ii)(C) of this section apply to 

taxable years ending on or after 

December 31, 2020. 

■ Par. 6. Section 1.6011–8 is amended 

by revising paragraphs (a) and (b) as 

follows: 


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Federal Register / Vol. 85, No. 231 / Tuesday, December 1, 2020 / Rules and Regulations 76979 

1 42 U.S.C. 18063. 

2 42 U.S.C. 18063(a) and (b). 

3 42 U.S.C. 18063(b). 

4HHS also uses the data issuers submit to their 

EDGE servers for the calculation of the high-cost 

risk pool payments and charges added to the HHS 

risk adjustment methodology beginning with the 

2018 benefit year. 

§ 1.6011–8 Requirement of income tax 

return for taxpayers who claim the premium 

tax credit under section 36B. 

(a) Requirement of return. Except as 

otherwise provided in this paragraph 

(a), a taxpayer who receives the benefit 

of advance payments of the premium 

tax credit (advance credit payments) 

under section 36B must file an income 

tax return for that taxable year on or 

before the due date for the return 

(including extensions of time for filing) 

and reconcile the advance credit 

payments. However, if advance credit 

payments are made for coverage of an 

individual who is not included in any 

taxpayer’s family, as defined in § 1.36B– 

1(d), the taxpayer who attested to the 

Exchange to the intention to include 

such individual in the taxpayer’s family 

as part of the advance credit payment 

eligibility determination for coverage of 

the individual must file a tax return and 

reconcile the advance credit payments. 

(b) Applicability dates—(1) In general. 

Except as provided in paragraph (b)(2) 

of this section, paragraph (a) of this 

section applies for taxable years ending 

on or after December 31, 2020. 

(2) Prior periods. Paragraph (a) of this 

section as contained in 26 CFR part 1 

edition revised as of April 1, 2016, 

applies to taxable years ending after 

December 31, 2013, and beginning 

before January 1, 2017. Paragraph (a) of 

this section as contained in 26 CFR part 

1 edition revised as of April 1, 2020, 

applies to taxable years beginning after 

December 31, 2016, and ending before 

December 31, 2020. 

Sunita Lough, 

Deputy Commissioner for Services and 

Enforcement. 

Approved: September 4, 2020. 

David J. Kautter, 

Assistant Secretary of the Treasury (Tax 

Policy). 

[FR Doc. 2020–26200 Filed 11–27–20; 11:15 am] 

BILLING CODE 4830–01–P 

DEPARTMENT OF JUSTICE 

Office of the Attorney General 

28 CFR Part 26 

[Docket Number OAG 171; AG Order No. 

4911–2020 ] 

RIN 1105–AB63 

Manner of Federal Executions 

Correction 

In rule document 2020–25867 

beginning on page 75846 in the issue of 

Friday, November 27, 2020, make the 

following correction: 

On page 75846, in the third column, 

in the last line, ‘‘December 24, 2020’’ 

should read ‘‘December 28, 2020.’’ 

[FR Doc. C1–2020–25867 Filed 11–30–20; 8:45 am] 

BILLING CODE 1301–00–D 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

45 CFR Part 153 

[CMS–9913–F] 

RIN 0938–AU23 

Amendments to the HHS-Operated 

Risk Adjustment Data Validation (HHS– 

RADV) Under the Patient Protection 

and Affordable Care Act’s HHSOperated Risk Adjustment Program 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), Department 

of Health and Human Services (HHS). 

ACTION: Final rule. 

SUMMARY: This final rule adopts certain 

changes to the risk adjustment data 

validation error estimation methodology 

beginning with the 2019 benefit year for 

states where the Department of Health 

and Human Services (HHS) operates the 

risk adjustment program. This rule is 

finalizing changes to the HHS–RADV 

error estimation methodology, which is 

used to calculate adjusted risk scores 

and risk adjustment transfers, beginning 

with the 2019 benefit year of HHS– 

RADV. This rule also finalizes a change 

to the benefit year to which HHS–RADV 

adjustments to risk scores and risk 

adjustment transfers would be applied 

beginning with the 2020 benefit year of 

HHS–RADV. These policies seek to 

further the integrity of HHS–RADV, 

address stakeholder feedback, promote 

fairness, and improve the predictability 

of HHS–RADV adjustments. 

DATES: These regulations are effective 

on December 31, 2020. 

FOR FURTHER INFORMATION CONTACT: 

Allison Yadsko, (410) 786–1740; Joshua 

Paul, (301) 492–4347; Adrianne 

Patterson, (410) 786–0686; and Jaya 

Ghildiyal, (301) 492–5149. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Legislative and Regulatory Overview 

The Patient Protection and Affordable 

Care Act (Pub. L. 111–148) was enacted 

on March 23, 2010; the Health Care and 

Education Reconciliation Act of 2010 

(Pub. L. 111–152) was enacted on March 

30, 2010. These statutes are collectively 

referred to as ‘‘PPACA’’ in this final 

rule. Section 1343 of the PPACA 1

established a permanent risk adjustment 

program to provide payments to health 

insurance issuers that attract higherthan-average risk populations, such as 

those with chronic conditions, funded 

by payments from those that attract 

lower-than-average risk populations, 

thereby reducing incentives for issuers 

to avoid higher-risk enrollees. The 

PPACA directs the Secretary of the 

Department of Health and Human 

Services (Secretary), in consultation 

with the states, to establish criteria and 

methods to be used in carrying out risk 

adjustment activities, such as 

determining the actuarial risk of 

enrollees in risk adjustment covered 

plans within a state market risk pool.2

The statute also provides that the 

Secretary may utilize criteria and 

methods similar to the ones utilized 

under Medicare Parts C or D.3

Consistent with section 1321(c)(1) of the 

PPACA, the Secretary is responsible for 

operating the risk adjustment program 

on behalf of any state that elected not 

to do so. For the 2014 through 2016 

benefit years, all states and the District 

of Columbia, except Massachusetts, 

participated in the HHS-operated risk 

adjustment program. Since the 2017 

benefit year, all states and the District of 

Columbia have participated in the HHSoperated risk adjustment program. 

Data submission requirements for the 

HHS-operated risk adjustment program 

are set forth at 45 CFR 153.700 through 

153.740. Each issuer is required to 

establish and maintain an External Data 

Gathering Environment (EDGE) server 

on which the issuer submits masked 

enrollee demographics, claims, and 

encounter diagnosis-level data in a 

format specified by the Department of 

Health and Human Services (HHS). 

Issuers must also execute software 

provided by HHS on their respective 

EDGE servers to generate summary 

reports, which HHS uses to calculate the 

enrollee-level risk scores to determine 

the average plan liability risk scores for 

each state market risk pool, the 

individual issuers’ plan liability risk 

scores, and the transfer amounts by state 

market risk pool for the applicable 

benefit year.4

Pursuant to 45 CFR 153.350, HHS 

performs HHS–RADV to validate the 

accuracy of data submitted by issuers 


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