Vol. 78 Monday, 

No. 47 March 11, 2013 

Part II 

Department of Health and Human Services 

45 CFR Parts 153, 155, 156, et al. 

Patient Protection and Affordable Care Act; HHS Notice of Benefit and 

Payment Parameters for 2014 and Amendments to the HHS Notice of 

Benefit and Payment Parameters for 2014; Final Rules; Patient Protection 

and Affordable Care Act; Establishment of Exchanges and Qualified Health 

Plans; Small Business Health Options Program; Proposed Rule 

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15410 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

45 CFR Parts 153, 155, 156, 157 and 

158 

[CMS–9964–F] 

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), Department 

of Health and Human Services (HHS). 

ACTION: Final rule. 

SUMMARY: This final rule provides detail 

and parameters related to: the risk 

adjustment, reinsurance, and risk 

corridors programs; cost-sharing 

reductions; user fees for Federallyfacilitated Exchanges; advance 

payments of the premium tax credit; the 

Federally-facilitated Small Business 

Health Option Program; and the medical 

loss ratio program. Cost-sharing 

reductions and advance payments of the 

premium tax credit, combined with new 

insurance market reforms, are expected 

to significantly increase the number of 

individuals with health insurance 

coverage, particularly in the individual 

market. In addition, we expect the 

premium stabilization programs—risk 

adjustment, reinsurance, and risk 

corridors—to protect against the effects 

of adverse selection. These programs, in 

combination with the medical loss ratio 

program and market reforms extending 

guaranteed availability (also known as 

guaranteed issue) 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: This final rule is effective on 

April 30, 2013. 

FOR FURTHER INFORMATION CONTACT: 

Sharon Arnold, (301) 492–4286; Laurie 

McWright, (301) 492–4311; or Jeff Wu, 

(301) 492–4305, for general 

information. 

Kelly Horney, (410) 786–0558, for 

matters related to the risk adjustment 

program generally. 

Michael Cohen, (301) 492–4277, for 

matters related to the risk adjustment 

methodology and the methodology for 

determining the reinsurance 

contribution rate and payment 

parameters. 

Adrianne Glasgow, (410) 786–0686, for 

matters related to the reinsurance 

program. 

Jaya Ghildiyal, (301) 492–5149, for 

matters related to the risk corridors 

program and user fees for Federallyfacilitated Exchanges. 

Johanna Lauer, (301) 492–4397, for 

matters related to cost-sharing 

reductions and advance payments of 

the premium tax credit. 

Bobbie Knickman, (410) 786–4161, for 

matters related to the distributed data 

collection approach for the HHSoperated risk adjustment and 

reinsurance programs. 

Rex Cowdry, (301) 492–4387, for 

matters related to the Small Business 

Health Options Program. 

Carol Jimenez, (301) 492–4457, for 

matters related to the medical loss 

ratio program. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Executive Summary 

A. Purpose 

B. Summary of Major Provisions 

C. Costs and Benefits 

II. Background 

A. Premium Stabilization 

B. Cost-Sharing Reductions 

C. Advance Payments of the Premium Tax 

Credit 

D. Exchanges 

E. Market Reform Rules 

F. Essential Health Benefits and Actuarial 

Value 

G. Medical Loss Ratio 

H. Tribal Consultation 

III. Provisions of the Proposed Rule and 

Responses to Public Comments 

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 Will Implement 

When Operating Risk Adjustment on 

Behalf of a State 

4. State Alternate Methodology 

5. Risk Adjustment Data Validation 

6. State-Submitted Alternate Risk 

Adjustment Methodology 

C. Provisions and Parameters for the 

Transitional Reinsurance Program 

1. State Standards Related to the 

Reinsurance Program 

2. Contributing Entities and Excluded 

Entities 

3. National Contribution Rate 

4. Calculation and Collection of 

Reinsurance Contributions 

5. Eligibility for Reinsurance Payments 

Under the Health Insurance Market 

Reform Rules 

6. Reinsurance Payment Parameters 

7. Uniform Adjustment to Reinsurance 

Payments 

8. Supplemental State Reinsurance 

Payment Parameters 

9. Allocation and Distribution of 

Reinsurance Contributions 

10. Reinsurance Data Collection Standards 

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 Payments of 

the Premium Tax Credit and CostSharing 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 CostSharing Reductions 

F. Provisions on User Fees for a Federallyfacilitated Exchange (FFE) 

G. Distributed Data Collection for the HHSOperated Risk Adjustment and 

Reinsurance Programs 

1. Background 

2. Issuer Data Collection and Submission 

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. Provisions of the Final Regulations 

V. Collection of Information Requirements 

VI. Regulatory Impact Analysis 

A. Statement of Need 

B. Overall Impact 

C. Impact Estimates of the Payment Notice 

Provisions 

D. Alternatives Considered 

E. Regulatory Flexibility Act 

F. Unfunded Mandates 

G. Federalism 

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 payments of the premium 

tax credit 

ASO Administrative services only 

contractor 

AV Actuarial Value 

CFR Code of Federal Regulations 

CHIP Children’s Health Insurance Program 

CMS Centers for Medicare & Medicaid 

Services 

COBRA Consolidated Omnibus Budget 

Reconciliation Act 

EHB Essential health benefits 

ERISA Employee Retirement Income 

Security Act 

FFE Federally-facilitated Exchange 

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Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 15411 

1 77 FR 17220 (March 23, 2012). 

2Available at: http://cciio.cms.gov/resources/ 

files/Files2/02242012/Av-csr-bulletin.pdf. 

FF–SHOP Federally-facilitated Small 

Business Health Options Program 

Exchange 

FPL Federal poverty level 

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 United States 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 

TPA Third party administrator 

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, 

‘‘Exchanges,’’ or ‘‘Marketplaces.’’ 

Individuals who enroll in qualified 

health plans through Exchanges may 

receive premium tax credits that make 

health insurance more affordable and 

financial assistance to cover some or all 

cost sharing for essential health benefits. 

We expect that 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—are 

expected to protect against the effects of 

adverse selection. These programs, in 

combination with the medical loss ratio 

program and market reforms extending 

guaranteed availability (also known as 

guaranteed issue), 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 

care. 

Premium stabilization programs: The 

Affordable Care Act establishes a 

permanent risk adjustment program, a 

transitional reinsurance program, and a 

temporary risk corridors 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 and Exchanges 

facilitate increased enrollment. The 

reinsurance program will reduce the 

uncertainty of insurance risk in the 

individual market by partially offsetting 

issuers’ risk associated with high-cost 

enrollees. The risk corridors program 

will protect against uncertainty in rate 

setting for qualified health plans by 

limiting the extent of issuers’ financial 

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 1

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 final rule. In this final 

rule, we describe these standards, and 

include payment parameters for these 

programs. 

Advance payments of the premium 

tax credit and cost-sharing reductions: 

This final rule establishes standards for 

advance payments of the premium tax 

credit and for cost-sharing reductions. 

These programs assist eligible 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 

36B credit is designed to make a 

qualified health plan (QHP) purchased 

on an Exchange affordable by reducing 

an eligible taxpayer’s out-of-pocket 

premium cost. 

Under sections 1401, 1411, and 1412 

of the Affordable Care Act and 45 CFR 

part 155 subpart D, an Exchange makes 

an advance determination of tax credit 

eligibility for individuals who enroll in 

QHP coverage through the Exchange 

and seek financial assistance. Using 

information available at the time of 

enrollment, the Exchange determines 

whether the individual meets the 

income and other requirements for 

advance payments and the amount of 

the advance payments that can be used 

to pay premiums. Advance payments 

are made periodically under section 

1412 of the Affordable Care Act to the 

issuer of the 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 a QHP through an Exchange, and 

section 1412 of the Affordable Care Act 

provides for the advance payment of 

these reductions to issuers. This 

assistance will help eligible low- and 

moderate-income qualified individuals 

and families afford the out-of-pocket 

spending associated with health care 

services provided through Exchangebased QHP coverage. The statute 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 

payments of the premium tax credit. 

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 

contract health services. 

HHS published a bulletin 2 outlining 

an intended regulatory approach to 

calculating actuarial value and 

implementing cost-sharing reductions 

on February 24, 2012 (AV/CSR 

Bulletin). The AV/CSR Bulletin outlined 

an intended regulatory approach 

governing the calculation of AV, de 

minimis variation standards, silver plan 

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15412 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

3 77 FR 18310 (March 27, 2012). 

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,3 we set 

forth eligibility standards for these costsharing reductions. In this final rule, we 

make minor revisions to the eligibility 

standards for families and establish 

standards governing the administration 

of cost-sharing reductions and provide 

specific payment parameters for the 

program. 

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. When 

operating a Federally-facilitated 

Exchange under section 1321(c)(1) of 

the Affordable Care Act, HHS has the 

authority under sections 1321(c)(1) and 

1311(d)(5)(A) of the statute to collect 

and spend such user fees. In addition, 

31 U.S.C. 9701 permits a Federal 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 

final rule, we establish a user fee for 

issuers participating in a Federallyfacilitated Exchange. 

Small Business Health Options 

Program (SHOP): Section 1311(b)(1)(B) 

of the Affordable Care Act directs each 

State that chooses to operate an 

Exchange to establish a SHOP that 

provides QHP options for small 

businesses. The Exchange Establishment 

Rule sets forth standards for the 

administration of SHOP Exchanges. In 

this final rule, we clarify and expand 

upon the standards established in the 

Exchange Establishment Rule. 

Medical loss ratio (MLR) program: 

Section 2718 of the Public Health 

Service Act (PHS Act) generally requires 

health insurance issuers to submit an 

annual MLR report to HHS and provide 

rebates of premium 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) which established standards 

for the MLR program. Since then, we 

have made several revisions and 

technical corrections to those rules. This 

final rule amends the regulations to 

specify how issuers are to account for 

payments or receipts from the risk 

adjustment, reinsurance, and risk 

corridors programs, and to change the 

timing of the annual MLR report and 

distribution of rebates required of 

issuers to account for the premium 

stabilization programs. This final rule 

also amends the regulations to revise the 

treatment of community benefit 

expenditures in the MLR calculation for 

issuers exempt from Federal income tax 

to promote a level playing field. 

B. Summary of the Major Provisions 

This final rule fills in the framework 

established by the Premium 

Stabilization Rule with 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 establishes key provisions 

governing advance payments of the 

premium tax credit, cost-sharing 

reductions, and user fees for Federallyfacilitated Exchanges. Finally, the final 

rule includes a number of amendments 

relating to the SHOP and the MLR 

program. 

Risk Adjustment: The goal of the 

Affordable Care Act risk adjustment 

program is to mitigate the impact of 

possible adverse selection and stabilize 

the premiums in the individual and 

small group markets as and after 

insurance market reforms are 

implemented. We are finalizing 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 expect 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 final rule, we 

establish a number of standards and 

parameters for implementing the 

reinsurance program, including: 

• Provisions excluding certain types 

of health insurance coverage and plans 

from reinsurance contributions; 

• The national per capita contribution 

rate and the methodology for calculating 

the contributions to be paid by health 

insurance issuers and self-insured group 

health plans; 

• Provisions establishing eligibility 

for reinsurance payments; 

• The uniform reinsurance payment 

parameters and the approach that HHS 

will use to calculate and administer the 

reinsurance program on behalf of a 

State; and 

• The distributed data collection 

approach we will 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 

through 2016. We are finalizing a 

change to the risk corridors calculation 

in which reinsurance contributions will 

be treated as a regulatory fee instead of 

an adjustment to allowable costs, and 

are replacing the term ‘‘taxes’’ in our 

proposed definition of taxes with the 

term ‘‘taxes and regulatory fees.’’ We are 

also finalizing provisions governing the 

treatment of profits and taxes and 

regulatory fees within the risk corridors 

calculation. This provision aligns the 

risk corridors calculation with the MLR 

calculation. We are also finalizing 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 a QHP through an 

Exchange. In this final rule, we are 

finalizing 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 

silver level health plans offered in the 

individual market on Exchanges. It also 

provides for reductions in cost sharing 

for Indians enrolled in QHPs at any 

metal level. In this final rule, we 

establish 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 to 

implement cost-sharing reductions; 

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Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 15413 

4Michelle 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. 

5Source: 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. 

6Source: 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. 

7Brook, 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. 

8Congressional 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. 

• The maximum annual limitations 

on cost sharing applicable to the plan 

variations; 

• Provisions governing the 

assignment and reassignment of 

enrollees to plan variations based on 

eligibility for cost-sharing reductions; 

• Provisions governing issuer 

submissions of estimates of cost-sharing 

reductions, which are paid in advance 

to QHP issuers by the Federal 

government; and 

• Provisions governing reconciliation 

of these advance estimates against 

actual cost-sharing reductions provided. 

User Fees: This final rule establishes 

a user fee, calculated as a percentage of 

the premium for a QHP, applicable to 

issuers participating in a Federallyfacilitated Exchange. This final 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 final rule, we establish a number of 

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 and whether an 

employee is a full-time employee; 

• A method for employers to make a 

QHP available to employees in the 

Federally-facilitated SHOP (FF–SHOP); 

• The default minimum participation 

rate in the FF–SHOP; 

• QHP standards linking FFE 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 an 

issuer to rebate a portion of premiums 

if its medical loss ratio falls short of the 

applicable standard for the reporting 

year. This ratio is calculated as the sum 

of health care claims costs and amounts 

spent on quality improvement activities 

divided by premium revenue, excluding 

taxes and regulatory fees, and after 

accounting for the premium 

stabilization programs. In this final rule, 

we establish a number of standards 

governing the MLR program, including: 

• Provisions accounting for risk 

adjustment, reinsurance, and risk 

corridors payments and charges 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 final 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.4

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,5 while 

only around 10.8 million were enrolled 

in the individual market.6 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. 

The provisions of this final 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 help 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 

the expected cost of 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 the potential of 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 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 unhealthy 

members. The risk adjustment program 

also serves to level the playing field 

inside and outside of the Exchange. 

Provisions addressing advance 

payments of the premium tax credit and 

cost-sharing reductions will help 

provide financial assistance for certain 

eligible individuals enrolled in QHPs 

through the Exchanges. This assistance 

will help many low-and moderateincome individuals and families obtain 

health insurance. For many people, cost 

sharing is a significant barrier to 

obtaining needed health care.7 The 

availability of premium tax credits and 

cost-sharing reductions 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, leading to 

a healthier risk pool and to reductions 

in premium rates for current 

policyholders.8

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 

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15414 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

allow for small employers to preserve 

control over health plan choices while 

saving employers money by spreading 

issuers’ 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’ claimsrelated expenditures, after adjusting for 

the premium stabilization programs. 

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. In addition, States may incur 

administrative and operating costs if 

they choose to establish their own 

programs. 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 qualified health plans— 

private health insurance that has been 

certified as meeting certain standards— 

through competitive marketplaces, 

called Exchanges. The Department of 

Health and Human Services, the 

Department of Labor, and the 

Department of the Treasury have been 

working in close coordination to release 

guidance related to qualified health 

plans and 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 final rule. HHS published detail 

and parameters related to the risk 

adjustment, reinsurance, and risk 

corridors programs; cost-sharing 

reductions; user fees for Federallyfacilitated Exchanges; advance 

payments of the premium tax credit; the 

Federally-facilitated Small Business 

Health Option Program; and the medical 

loss ratio program, in a December 7, 

2012 Federal Register proposed rule 

entitled ‘‘Patient Protection and 

Affordable Care Act; HHS Notice of 

Benefit and Payment Parameters for 

2014’’ (77 FR 73118). 

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. The 

Premium Stabilization 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. A 

white paper on risk adjustment concepts 

was published on September 12, 2011 

(Risk Adjustment White Paper). A 

bulletin was published 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 and 8, 2012, we hosted a 

public meeting in which we discussed 

that approach (Risk Adjustment Spring 

Meeting). 

A bulletin was published 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). HHS 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 

The AV/CSR Bulletin was published 

on February 24, 2012 outlining an 

intended regulatory approach to 

calculating actuarial value and 

implementing cost-sharing reductions. 

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 the provisions 

relating to cost-sharing reductions in 

this final 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 (77 

FR 30377, to be codified at 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 

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 March 27, 

2012 Federal Register (77 FR 18310). 

A proposed rule which, among other 

things, reflects new statutory eligibility 

provisions, titled ‘‘Medicaid, Children’s 

Health Insurance Programs, and 

Exchanges: Essential Health Benefits in 

Alternative Benefit Plans, Eligibility 

Notices, Fair Hearing and Appeal 

Processes for Medicaid and Exchange 

Eligibility Appeals and Other Provisions 

Related to Eligibility and Enrollment for 

Exchanges, Medicaid and CHIP, and 

Medicaid Premiums and Cost Sharing’’ 

was published in the January 22, 2013 

Federal Register (78 FR 4594) (Medicaid 

and Exchange Eligibility Appeals and 

Notices). 

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). The final rule was made 

available for public inspection at the 

Office of the Federal Register on 

February 22, 2013 (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). The final rule was 

published in the Federal Register on 

February 25, 2013 (78 FR 12834) (EHB/ 

AV Rule). 

G. Medical Loss Ratio 

HHS published a request for comment 

on section 2718 of the PHS Act in the 

April 14, 2010 Federal Register (75 FR 

19297), and published an interim final 

rule with 60-day comment period 

relating to MLR program on December 1, 

2010 (75 FR 74864). An interim final 

rule with 30-day comment period and a 

final rule with 30-day comment period 

were published in the Federal Register 

on December 7, 2011 (76 FR 76596 and 

76574). A final rule was published in 

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the Federal Register on May 16, 2012 

(77 FR 28790). 

H. Tribal Consultations 

Following publication of the proposed 

rule, we issued a letter to Tribal leaders 

seeking input on the provisions of the 

proposed rule. We also discussed the 

provisions of the proposed rule in an 

all-Tribes webinar and conference call 

and in two meetings with the Tribal 

Technical Advisory Group. We 

considered the comments offered during 

these discussions in developing the 

provisions in this final rule. 

III. Provisions of the Proposed Rule and 

Responses to Public Comments 

We received approximately 420 

comments from consumer advocacy 

groups, health care providers, 

employers, health insurers, health care 

associations, and individuals. The 

comments ranged from general support 

or opposition to the proposed 

provisions to very specific questions or 

comments regarding proposed changes. 

In this section, we summarize the 

provisions of the proposed rule and 

discuss and provide responses to the 

comments (with the exception of 

comments on the paperwork burden or 

the economic impact analysis, which we 

discuss in those sections of this final 

rule). We have carefully considered 

these comments in finalizing this rule. 

Comment: We received a number of 

comments requesting that the comment 

period be extended to 60 days. 

Response: HHS provided a 30-day 

comment period, which is consistent 

with the Administrative Procedure Act. 

We note that HHS previously sought 

and received significant comment on 

the Risk Adjustment White Paper, the 

Risk Adjustment Bulletin, presentations 

made during the Risk Adjustment 

Spring Meeting, the Reinsurance 

Bulletin, the AV/CSR Bulletin, and the 

Premium Stabilization Rule, which 

outlined the policy proposed in the 

proposed rule. HHS believes that 

interested stakeholders had adequate 

opportunity to provide comment on the 

policies established in this final rule. 

Comment: One commenter requested 

that HHS issue a separate final rule 

containing provisions for each part of 

the Code of Federal Regulations. 

Response: As noted in the Premium 

Stabilization Rule, the proposed rule, 

and this final rule, many of the 

programs covered by this rule are 

closely linked. To simplify the 

regulatory process, facilitate public 

comment, and provide the information 

needed to meet statutory deadlines, we 

elected to propose and finalize these 

regulatory provisions in one rule. 

Comment: We received several 

comments pertaining to the proposed 

EHB/AV Rule and the proposed Market 

Reform Rule. 

Response: Those comments are 

addressed in the final EHB/AV Rule and 

the final Market Reform Rule. 

Comment: One commenter suggested 

that the standards set forth by HHS 

pertaining to the HHS-operated risk 

adjustment or reinsurance programs be 

the minimum requirements for Stateoperated risk adjustment or reinsurance 

programs. 

Response: HHS aims to provide States 

with flexibility in implementing these 

programs while ensuring that the goals 

of the premium stabilizations programs 

are being met. Many of the provisions 

applicable to the risk adjustment and 

reinsurance programs when operated by 

a State are also applicable to these 

programs when operated by HHS on 

behalf of a State. 

Comment: Several commenters asked 

that HHS monitor and oversee the 

implementation of the premium 

stabilization programs. 

Response: HHS takes seriously its 

responsibility to monitor the 

implementation of these programs to 

protect consumers, prevent fraud and 

abuse, and ensure the programs achieve 

their goals. We will provide further 

detail on the oversight of these programs 

in future rulemaking and guidance. 

A. Provisions for the State Notice of 

Benefit and Payment Parameters 

In § 153.100(c), we proposed 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 for 2014, whichever is later. 

Because the effective date of this rule 

will be 60 days after its publication, we 

will not finalize the proposed change to 

§ 153.100(c). Nevertheless, consistent 

with our proposal, we are finalizing our 

policy that, for 2014 only, a State must 

publish a State notice of benefit and 

payment parameters by the 30th day 

following publication of this final rule 

by deeming the March 1 deadline 

specified in the existing regulation to be 

extended until the date that is 30 days 

after publication of this final rule. 

Comment: A number of commenters 

supported the proposed deadline 

extension for benefit year 2014, while 

others opposed such an extension. Some 

suggested that HHS not allow States to 

operate risk adjustment or reinsurance. 

Response: We believe that States 

should have the flexibility to operate 

risk adjustment and reinsurance. 

Because of the publication date of this 

final rule, it is clear that a State will not 

have the notice necessary to publish a 

State notice of benefit and payment 

parameters by the deadline specified in 

the regulation—that is, March 1, 2013 

for the 2014 benefit year. Thus, as 

described above, although we are not 

finalizing our proposal to amend the 

regulation, we are setting the deadline 

for 2014 only as the 30th day after 

publication of this final rule. 

B. Provisions and Parameters for the 

Permanent Risk Adjustment Program 

The risk adjustment program is a 

permanent program created by Section 

1343 of the Affordable Care Act that 

transfers funds from lower risk, nongrandfathered plans to higher risk, nongrandfathered 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. Section 1343 of the 

Affordable Care Act requires each State 

to operate a risk adjustment program. In 

States that have elected not to operate 

their own risk adjustment program, HHS 

will operate a program on their behalf. 

Our authority to operate risk adjustment 

on the State’s behalf arises from sections 

1321(c)(1) and 1343 of the Affordable 

Care Act. Based on HHS’s 

communications with States, as of 

February 25, 2013, Massachusetts is the 

only State electing to operate a risk 

adjustment program for the 2014 benefit 

year. 

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 the proposed rule, 

we proposed standards for HHS 

approval of a State-operated risk 

adjustment program (regardless of 

whether a State elects to use the HHSdeveloped methodology or an alternate, 

Federally certified risk adjustment 

methodology). In section III.B.2. of the 

proposed rule, we proposed a small fee 

to support HHS operation of the risk 

adjustment program. In section III.B.3. 

of the proposed rule, we described the 

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methodology that HHS would use when 

operating a risk adjustment program on 

behalf of a State. States operating a risk 

adjustment program can use this 

methodology, or submit an alternate 

methodology, in a process we described 

in section III.B.4. of the proposed rule. 

Finally, in section III.B.5. of the 

proposed rule, we described the data 

validation process we proposed to use 

when operating a risk adjustment 

program on behalf of a State. (These 

provisions are discussed fully in the 

proposed rule at 77 FR at 73123–73149). 

1. Approval of State-Operated Risk 

Adjustment 

a. Risk Adjustment Approval Process 

In the proposed rule, we proposed an 

approval process for States seeking to 

operate their own risk adjustment 

program. Specifically, we proposed a 

new paragraph (c) in § 153.310, entitled 

‘‘State responsibility for risk 

adjustment,’’ which sets forth a State’s 

responsibilities with regard to risk 

adjustment program operations. With 

this change, we also proposed to 

redesignate paragraphs (c) and (d) to 

paragraphs (e) and (f) of § 153.310. 

In paragraph § 153.310(c)(1), we 

proposed 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 Federally certified risk 

adjustment methodology the State has 

chosen to use. 

As proposed in § 153.310(c)(1)(i), the 

entity must be operationally ready to 

implement 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 potential 

effects of adverse selection. To meet this 

standard, we proposed that a State 

demonstrate that the risk adjustment 

entity: (1) Have 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) have tested, or 

have 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. We 

proposed that States 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 proposed in paragraph 

§ 153.310(c)(1)(ii) that the entity have 

relevant experience to operate a risk 

adjustment program. To meet this 

standard, we proposed that a State 

demonstrate that the entity have on 

staff, or have 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 proposed in paragraph 

§ 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, we 

proposed that the State ensure that the 

entity complies with the privacy and 

security standards set forth in § 153.340. 

We proposed in § 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 proposed to consider 

the State’s plan to monitor the conduct 

of the entity. 

Finally, we proposed in § 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 § 153.310(c). 

Comment: Commenters generally 

agreed with our approach to approving 

State risk adjustment programs 

beginning in benefit year 2015. 

Response: We are finalizing these 

provisions as proposed. 

b. Risk Adjustment Approval Process for 

Benefit Year 2014 

Because of the unique timing issues 

for approving a State-operated risk 

adjustment program, we proposed a 

transitional policy for benefit year 2014. 

We proposed not to require that a Stateoperated risk adjustment program 

receive approval for benefit year 2014. 

Instead, we proposed a transitional, 

consultative process that would 

commence shortly after the provisions 

of this final rule are effective. We are 

finalizing these provisions as proposed. 

Comment: One commenter supported 

the transitional process but urged that 

the transitional process not be applied 

to future years. Another commenter 

requested that HHS require approval in 

2014, but make the approval 

determination on the basis of the 

proposed consultative process. Other 

commenters suggested that HHS not 

allow States to conduct risk adjustment 

until the agency could formally approve 

States, beginning in 2015. 

Response: We proposed the 

transitional policy based on the unique 

circumstances of 2014, and we do not 

anticipate extending it to future years. 

Although we are mindful of concerns 

that States may not be fully ready to 

operate a complex risk adjustment 

program for benefit year 2014, we note 

that each aspect of a State’s operations 

(including data collection) must be 

performed in line with one of the 

Federally certified risk adjustment 

methodologies published in this final 

rule. Finally, we note that any State that 

begins operation of risk adjustment 

under this transitional process must 

obtain formal certification for benefit 

year 2015. We believe this process is 

sufficiently robust to ensure any State 

operating risk adjustment in 2014 will 

be prepared to do so. 

2. Risk Adjustment User Fees 

In the proposed rule, we noted that, 

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 

behalf. Our authority to operate risk 

adjustment on the State’s behalf arises 

from sections 1321(c)(1) and 1343 of the 

Affordable Care Act. In States where 

HHS is operating risk adjustment, we 

proposed that issuers of risk adjustment 

covered plans remit a user fee to fund 

HHS’s operation of a Federally operated 

risk adjustment program. The authority 

to charge this user fee can be found 

under sections 1343, 1311(d)(5), and 

1321(c)(1) of the statute, and under 31 

U.S.C. 9701, which permits a Federal 

agency to establish a charge for a service 

provided by the agency. OMB Circular 

No. A–25R, which establishes Federal 

policy regarding user fees, specifies that 

a user charge will be assessed against 

each identifiable recipient of 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 OMB Circular No. 

A–25R to an issuer of a risk adjustment 

covered plan because it will mitigate the 

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financial instability associated with 

adverse 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 further proposed to determine the 

total amount needed to fund HHS risk 

adjustment operations by examining the 

contract costs of operating the program, 

including 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 (not including 

Federal personnel costs). We proposed 

to develop a per capita user fee rate by 

dividing the amount we intend to 

collect over the course of the benefit 

year by the expected annual enrollment 

in risk adjustment covered plans (other 

than plans not subject to market reforms 

and student health plans) for that 

benefit year. We also proposed a 

standardized schedule for assessment 

and collection of risk adjustment user 

fees. Although the user fees would be 

assessed on a per-enrollee-per-month 

basis to account for fluctuations in 

monthly enrollment, we proposed to 

collect them only once, in June of the 

year following the benefit year, in order 

to synchronize user fee collection with 

risk adjustment payments and charges. 

Based on comments received, we are 

adding § 153.610(f), finalizing our risk 

adjustment user fee assessment and 

collection approach as proposed. We 

clarify that enrollment data for each 

month will be captured by the servers 

used in the distributed data collection 

approach. We are also finalizing our 

intention to set a per capita user fee rate 

in the annual HHS notice of benefit and 

payment parameters using the proposed 

methodology. The user fee will be 

determined by dividing HHS’s total 

contract costs for risk adjustment 

operations in the applicable benefit year 

by the expected annual enrollment in 

risk adjustment covered plans for that 

benefit year. Based on this methodology, 

for benefit year 2014, we are 

establishing a per capita annual user fee 

rate of $0.96, which we will apply as a 

per-enrollee-per-month risk adjusted 

user fee of $0.08. 

Comment: One commenter expressed 

support for the proposal to collect user 

fees to fund HHS risk adjustment 

operations. Other commenters, though 

not commenting on risk adjustment user 

fees specifically, urged HHS to 

minimize or eliminate the fees it 

collects from issuers in order to 

maintain affordable coverage in the 

post-2014 health insurance market. 

Response: We believe that a reliable 

funding source is necessary to ensure a 

robust Federal risk adjustment program. 

We clarify that we are establishing the 

risk adjustment user fee for the sole 

purpose of funding HHS’s costs for 

operating the Federal risk adjustment 

program, and we intend to keep the user 

fee amount as low as possible. 

3. Overview of the Risk Adjustment 

Methodology HHS Will 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 in the proposed 

rule, 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 § 153.20 of the Premium 

Stabilization Rule, 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 to 

be transferred between plans. In the 

proposed rule, these two elements of the 

methodology were presented together as 

the payment transfer formula. 

• The data collection approach 

describes the program’s approach to 

obtaining data. HHS will do so using the 

distributed model described in section 

III.G. of this final rule. 

• The schedule for the risk 

adjustment program describes the 

timeframe for risk adjustment 

operations. 

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 are 

calculated from the payment transfer 

formula. 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 the proposed rule, the 

risk adjustment methodology developed 

by HHS: 

• Was developed on commercial 

claims data for a population similar to 

the expected population to be risk 

adjusted; 

• Uses the 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. 

We are finalizing the methodology 

HHS will use when operating the risk 

adjustment program as proposed, with 

the following modifications: we have 

included individuals over 64 in the 

demographic factors; we have updated 

the cost-sharing reduction (CSR) 

adjustment factors for zero cost-sharing 

plan variations to align with the 

induced demand factors used in the 

CSR program; we have made technical 

corrections to the payment transfer 

formula; we have clarified that 

geographic cost factors will be 

calculated for each risk pool in each 

market in a State; and we have clarified 

how transfers will be calculated at the 

plan level. 

Comment: We received many 

comments supporting HHS’s general 

approach to the risk adjustment 

methodology we will use when 

operating risk adjustment on behalf of a 

State. 

Response: We are finalizing the 

methodology as proposed with minor 

modifications. 

Comment: We received one comment 

suggesting that current risk adjustment 

methodologies are inadequate because 

they do not fully account for the sickest 

patients with the most complex medical 

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conditions. Another commenter 

suggested that HHS take an expanded 

view of risk mitigation by working to 

ensure a stable risk pool. 

Response: The Affordable Care Act 

establishes a risk adjustment program, 

and permits the Secretary to base this 

program on the criteria and methods 

used in Medicare Parts C and D. While 

we used criteria and methods from 

Medicare when appropriate, we also 

customized this methodology to best 

mitigate adverse selection based on our 

projections of the 2014 marketplace. 

Though we anticipate making future 

adjustments to the model, we seek to 

balance stakeholders’ desire for a stable 

model in the initial years with 

introducing model improvements as 

additional data becomes available. We 

look forward to engaging with 

stakeholders throughout this process. 

We believe that this program, along with 

the other 2014 market reforms, will help 

ensure a stable risk pool. 

Comment: We received one comment 

that HHS should provide issuers 

information to assess their risk scores 

and State average risk scores as part of 

the premium development process for 

2014. 

Response: As noted in the proposed 

rule, risk adjustment transfers depend 

not only on a plan’s average risk score, 

but also on its cost factors compared to 

the average of these factors within a risk 

pool within a market within a State. 

HHS does not currently have the data 

necessary to calculate the State average 

risk score to provide to issuers in time 

for the development of 2014 premiums. 

HHS contemplates providing technical 

assistance to States and issuers who are 

interested in this information. 

Comment: We received several 

comments that HHS should monitor the 

risk adjustment methodology’s 

performance, with a particular focus on 

the newly insured population. 

Response: We intend to monitor the 

methodology’s performance to 

determine future adjustments to the 

model, as data become available. 

a. Risk Adjustment Applied to Plans in 

the Individual and Small Group Markets 

In the Premium Stabilization Rule, we 

defined a ‘‘risk adjustment covered 

plan’’ in § 153.20 as health 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 

proposed 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 

other plan determined not to be a risk 

adjustment covered plan in the 

applicable Federally certified risk 

adjustment methodology.’’ We noted 

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 

HHS notice of benefit and payment 

parameters, which is subject to notice 

and comment. 

We described 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. 

Plans not subject to market reforms: 

Certain types of plans offering nongrandfathered health insurance coverage 

in the individual and small group 

markets would not be subject to the 

insurance market reforms in the Market 

Reform Rule and the EHB/AV Rule. In 

addition, plans providing benefits 

through health insurance policies that 

begin in 2013, with renewal dates in 

2014, would not be subject to these 

requirements until renewal in 2014. The 

statute specifies that the risk adjustment 

program is to assess charges on nongrandfathered health insurance coverage 

in the individual and small group 

markets with less than average actuarial 

risk and to make payments to nongrandfathered health insurance coverage 

in these markets with higher than 

average actuarial risk. We stated that 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 § 147.102 

(fair health insurance premiums), 

§ 147.104 (guaranteed availability of 

coverage, subject to the student health 

insurance provisions at § 147.145), 

§ 147.106 (guaranteed renewability of 

coverage, subject to the student health 

insurance provisions at § 147.145), 

§ 156.80 (single risk pool), and subpart 

B of part 156 (essential health benefits), 

and so are generally able to minimize 

actuarial risk by excluding certain 

conditions (for example, maternity 

coverage for women of child-bearing 

age) and denying coverage to those with 

certain high-risk conditions. 

In the proposed rule, we proposed 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’’ for plans not subject to 

insurance market reforms at § 147.102 

(fair health insurance premiums), 

§ 147.104 (guaranteed availability of 

coverage, subject to the student health 

insurance provisions at § 147.145), 

§ 147.106 (guaranteed renewability of 

coverage, subject to the student health 

insurance provisions at § 147.145), 

§ 156.80 (single risk pool), and subpart 

B of part 156 (essential health benefits 

package). We stated that because 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 proposed 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 noted 

that plans offering coverage through 

policies 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 § 147.145) offered by that 

college or university. In the proposed 

rule, we stated our belief that student 

health plans, because of their unique 

characteristics, will have relatively 

uniform actuarial risk. We proposed 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 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 proposed 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 

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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. We did 

not propose 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) of the Affordable 

Care Act 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 

proposed to merge markets when 

operating risk adjustment on behalf of a 

State if the State elects to do the same 

for single risk pool purposes. When the 

individual and small group markets are 

merged, we proposed that the State 

average premium described in section 

III.B.3.c would be the average premium 

of all applicable individual and small 

group market plans in the applicable 

risk pool, and normalization under the 

transfer equation 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 market within a State, as 

described above. In general, a risk 

adjustment methodology will be linked 

to the rate and benefit requirements 

applicable under State and Federal law 

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. 

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 proposed in § 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 are finalizing these provisions as 

proposed, with a clarification that risk 

adjustment covered plans in the small 

group market will be subject to risk 

adjustment in the State in which the 

employer’s policy is filed and approved. 

Comment: We received a number of 

comments that expressed support for 

our proposed approach to student 

health plans, plans not subject to market 

reform rules, and catastrophic plans. 

Several of these commenters urged HHS 

to align the single risk pool approach to 

student health plans with the proposed 

approach in risk adjustment. Some 

commenters expressed concern that 

separately risk adjusting catastrophic 

plans would prevent the enrollees in 

these plans from contributing to the 

general risk pool. 

Response: Provisions related to the 

single risk pool provision were finalized 

in the Market Reform Rule, which was 

made available for public inspection at 

the Office of the Federal Register on 

February 22, 2013. Non-grandfathered 

student health insurance coverage is 

exempt from the single risk pool 

requirement. 

As commenters noted, the risk 

adjustment program complements the 

single risk pool provision, which 

broadens the risk pool by including 

catastrophic claims experience in the 

development of the index rate. Because 

enrollment in catastrophic plans is 

limited to certain enrollees that are 

likely to have a different risk profile 

than enrollees in metal-level plans, we 

believe it is appropriate to risk adjust 

these plans in a separate risk pool. For 

this reason, we are finalizing the 

treatment of catastrophic plans, student 

health plans, and plans not subject to 

the market reform rules as proposed. 

Comment: We received comments 

suggesting several different approaches 

to our proposal that risk adjustment 

covered plans be subject to risk 

adjustment in the State in which the 

enrollee’s policy is filed and approved, 

including that we modify the 

requirement to mirror the MLR 

program’s situs of contract requirement, 

and that we clarify that the employer, 

not the enrollee, is the policyholder in 

the small group market. 

Response: We are modifying the 

proposed provision to clarify that risk 

adjustment covered plans in the small 

group will be subject to risk adjustment 

in the State in which the employer’s 

policy is filed and approved. 

b. Overview of the HHS Risk 

Adjustment Model 

The proposed HHS risk adjustment 

models predict plan liability for an 

enrollee based on that person’s age, sex, 

and diagnoses (risk factors), producing a 

risk score. We proposed separate models 

for adults, children, and infants to 

account for cost differences in each of 

these age groups. Each HHS risk 

adjustment model predicts individuallevel risk scores, but is designed to 

predict average group costs to account 

for risk across plans. This method 

accords with the Actuarial Standard 

Board’s Actuarial Standard of Practice 

for risk classification. 

We are finalizing the HHS risk 

adjustment models as proposed with the 

following modifications: we have fixed 

a typographical error to include 

individuals over 64 in the demographic 

factors, we have clarified the calculation 

of age for infants who were born in one 

benefit year and discharged in the 

following benefit year, and we have 

updated the CSR adjustment factors to 

align with the induced demand factors 

used in the CSR program. 

Comment: We received a number of 

comments supporting HHS’s general 

approach to establishing risk adjustment 

models. 

Response: We are finalizing the 

models as proposed with minor 

modifications. 

Comment: One commenter expressed 

concern that the number of HHS risk 

adjustment models proposed would 

create inaccuracies in the model. 

Response: The statistical performance 

of each of the models is well within the 

published ranges for concurrent models. 

The HHS risk adjustment models better 

predict plan liability because they 

account for age-related clinical and cost 

differences and differing plan liabilities 

due to differences in actuarial value 

across metal levels. 

(1) Data Used To Develop the HHS Risk 

Adjustment Models 

In the proposed rule, we described the 

data used to develop (that is, calibrate) 

the HHS risk adjustment models. We 

proposed that the HHS risk adjustment 

models would be concurrent and not 

include prescription drug use as a 

predictor. Finally, we proposed 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 received the following 

comments about these approaches: 

Comment: We received several 

comments in support of HHS’s decision 

not to include prescription drug data as 

a predictor in the HHS risk adjustment 

models. A number of other commenters 

suggested that HHS include prescription 

drug data as a predictor in the HHS risk 

adjustment models to improve each 

model’s predictive accuracy, or consider 

inclusion of this data as a predictor in 

the future. 

Response: HHS is finalizing its 

proposal to exclude prescription drugs 

for the initial HHS risk adjustment 

models, but will consider how 

prescription drugs could be included in 

future HHS risk adjustment models. 

Comment: We received a number of 

comments in support of the concurrent 

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15420 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

modeling approach, though a number of 

these comments suggested that we 

transition to a prospective model. 

Response: In 2014, 2013 diagnostic 

data for individuals enrolled in risk 

adjustment covered plans will not be 

available. We also anticipate that 

enrollees may move between plans, or 

between programs. A concurrent model 

is 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. We are therefore finalizing 

our approach to use a concurrent model. 

We plan to investigate the feasibility of 

transitioning to a prospective approach 

in the future. 

Comment: One commenter asked for 

further information about the 

standardized benefit designs used to 

estimate plan liability in the HHS risk 

adjustment models. 

Response: Plan liabilities were 

defined by applying standardized 

benefit design parameters for each given 

metal level to total expenditures. The 

standard benefit designs were created 

using the Actuarial Value Calculator to 

ensure that each benefit design aligns 

with the applicable metal level. While 

an individual plan’s design may differ 

from the standardized benefit, we 

believe the design is a reasonable 

approximation for the average plan 

design at each metal level. The 

catastrophic plan design was estimated 

using the estimated maximum annual 

limitation on cost sharing described in 

section III.E. of this final rule. 

Comment: We received several 

comments on HHS’s approach to 

account for infant claims if there is no 

separate infant birth claim from which 

to gather diagnoses. Some commenters 

encouraged HHS to require separate 

claims for mothers and infants. Some 

commenters recommended that HHS 

separate these claims in operations. One 

commenter noted that in the State of 

Washington there are legal impediments 

to separating claims for mothers and 

infants in the first 21 days of life. 

Response: HHS calibrated the HHS 

risk adjustment models by excluding 

infant claims that were bundled with 

the mothers, as well as infants without 

birth codes due to data limitations. In 

operation, issuers will separate infant 

and mother claims when possible. If an 

infant claim cannot be separated, HHS 

will assign the infant to the lowest 

severity category and the ‘‘term’’ 

maturity category. We note that HHS 

does not intend to unbundle claims in 

operation. 

Comment: We received one comment 

that data used to calibrate the HHS risk 

adjustment models will not reflect the 

risk adjustment population beginning in 

2014. Several commenters suggested 

that the calibration data set did not 

reflect benefits that issuers will offer 

beginning in 2014. 

Response: We believe that the 

commercial data set used for calibration 

is a reasonable approximation of the 

population that will be risk adjusted in 

2014. The calibration data set was 

restricted to individuals with 

prescription drug coverage, mental 

health coverage, and medical coverage, 

which are part of the essential health 

benefits package that issuers will offer 

starting in 2014. 

(2) Principles of Risk Adjustment and 

the HCC Classification System 

We proposed to use a diagnostic 

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 HCC 

classification system for the Medicare 

risk adjustment model also guided the 

creation of the HHS risk adjustment 

models that we proposed to use when 

HHS operates risk adjustment on behalf 

of a State. We selected 127 of the full 

classification of 264 HHS HCCs for 

inclusion in the HHS risk adjustment 

models. 

Comment: We received several 

comments in support of the HHS HCC 

classification system. 

Response: We are finalizing the HHS 

HCC classification system as proposed. 

Comment: Several commenters 

requested that HHS provide the ICD–9 

codes included in each HHS HCC. 

Response: We have provided this 

information for the proposed HHS risk 

adjustment models on our Web site at: 

http://cciio.cms.gov/resources/files/ 

ra_instructions_proposed_1_2013.pdf 

and http://cciio.cms.gov/resources/files/ 

ra_tables_proposed_1_2013.xlsx. We 

intend to provide a final version of these 

documents to reflect the HHS risk 

adjustment models in the future. 

Comment: Several commenters 

requested the classification of ICD–10 

codes to HHS HCCs. 

Response: We are completing the 

mapping of ICD–10 codes to HHS HCCs 

and will release this information in 

future guidance. 

Comment: Several commenters 

suggested that additional HHS HCCs 

should be included in the HHS risk 

adjustment models. 

Response: In selecting the factors to 

be included in the HHS risk adjustment 

models, 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; 

• Whether the HCCs represent poor 

quality of care; and 

• Whether the HCC is applicable to 

the model age group. 

We also included a factor to measure 

increased utilization due to receipt of 

CSRs. Each model’s R-squared and 

predictive ratios were within published 

ranges for concurrent models. Thus, we 

have not included additional HCCs at 

this time. 

Comment: We received a comment in 

support of our approach to HHS HCC 

selection. 

Response: We are finalizing the HHS 

HCCs included in the HHS risk 

adjustment models as proposed. 

(3) Factors Included in the HHS Risk 

Adjustment Models 

The proposed HHS risk adjustment 

models predict annualized plan liability 

expenditures using age and sex 

categories, HHS HCCs, and, where 

applicable, disease interactions. Dollar 

coefficients were estimated for these 

factors 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 coefficients divided by 

a weighted average plan liability for the 

full modeling sample. Due to the 

inherent clinical and cost differences in 

the adult (age 21+), child (age 2–20), 

and infant (age 0–1) populations, HHS 

proposed separate risk adjustment 

models for each age group. 

Comment: We received a few 

comments suggesting the weights of 

specific factors in the HHS risk 

adjustment models were lower than 

expected. 

Response: The HHS risk adjustment 

models predict annualized plan 

liability. The factors were estimated 

using weighted least squares regression. 

For each risk adjustment model, the 

factors were the statistical regression 

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Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 15421 

dollar values for each factor in the 

model divided by a weighted average 

plan liability for the full modeling 

sample. Some factors were grouped or 

constrained and thus do not exactly 

represent the statistical regression dollar 

value. Some factors were grouped or 

constrained to reduce model 

complexity, avoid inclusion of HHS 

HCCs with small sample size, limit 

upcoding by severity within an HCC 

hierarchy, reduce additivity within a 

disease group, and avoid coefficient 

values in which a lower-ranked HCC in 

a disease hierarchy had higher 

coefficient than a higher-ranked HCC. 

Comment: A few commenters 

requested that age be calculated at the 

time of enrollment. Several commenters 

asked that age for newborns be defined 

as date of birth rather than the age as of 

the last day of enrollment in a risk 

adjustment covered plan. Another 

commenter requested that HHS clarify 

that age determinations be consistent 

between model calibration and program 

operation. 

Response: The HHS risk adjustment 

models were calibrated using age as of 

the last month of enrollment due to data 

limitations. To align with model 

calibration, an enrollee’s age for risk 

score calculation will be the age as of 

the enrollee’s last day of enrollment in 

a risk adjustment covered plan in the 

applicable benefit year will be used for 

enrollees in program operation. We are 

clarifying our approach to calculating 

the age of infants who are born in a 

benefit year but are not discharged until 

the following year. In such a case, the 

infant will be defined as age 0 for both 

benefit years. For example, if an infant 

is born in December of 2014 but has a 

discharge date of January 2015, the 

infant would be assigned age 0 for 

purposes of risk score calculation in 

benefit year 2014 and for the entire 2015 

benefit year. 

Comment: We received comments 

supporting the inclusion of a 

demographic factor to account for 

individuals aged 65 or older. We also 

received comments requesting that the 

HHS risk adjustment models include 

additional factors such as income, 

receipt of care from an essential 

community provider, and enrollee 

language. 

Response: In response to comments, 

we made a typographical correction to 

re-label the highest adult age factor as 

60+. Because data for individuals 65 or 

older is not captured in the calibration 

dataset, the estimation of a separate 

demographic factor for those 65 or older 

is impractical at this time. Other factors 

such as income are also not feasible to 

include due to data limitations. 

Therefore, we have not modified the 

HHS risk adjustment models to include 

such factors. Tables 2, 4, and 5 contain 

the final factors for the HHS risk 

adjustment models. 

Comment: We received several 

comments that the HHS risk adjustment 

models do not appropriately account for 

short-term enrollment. One commenter 

suggested that risk scores for 

individuals that were enrolled for only 

part of a year would be inaccurate. 

Response: Our models were calibrated 

to account for short-term enrollment in 

several ways. First, enrollee diagnoses 

were included from the time of 

enrollment. Also, in the statistical 

estimation strategy for the HHS HCCs, 

average monthly expenditures were 

defined as the enrollee’s expenditures 

for the enrollment period divided by the 

number of enrollment months, 

annualized expenditures (plan liability) 

were defined as average monthly 

expenditures multiplied by 12, and 

regressions were weighted by months of 

enrollment divided by 12. We believe 

that this statistical strategy, alongside 

the minimum enrollment requirement, 

ensures that monthly expenditures are 

correctly estimated for all individuals. 

(4) Adjustments to Model Discussed in 

the Risk Adjustment White Paper 

We proposed to include an 

adjustment for the receipt of CSRs in the 

HHS risk adjustment models, but not to 

adjust for receipt of reinsurance 

payments. 

Comment: We received comments 

that were generally supportive of the 

CSR adjustment to risk scores. One 

commenter stated that the proposed 

factors do not adequately account for 

changes in utilization as enrollees in 

cost-sharing plan variations may also 

use more high cost services. Another 

commenter requested that HHS clarify 

whether plan liability for increased 

utilization due to CSR is accounted for 

by the CSR adjustment factor in the 

HHS risk adjustment models. 

Response: We are finalizing the CSR 

adjustment factor as proposed, with the 

modification to the typographical error 

described in Table 1 below. The CSR 

adjustment factor for the HHS risk 

adjustment models is intended to 

account for the increased plan liability 

due to increased utilization of health 

care services by enrollees receiving 

CSRs. 

Comment: We received several 

comments that noted a typographical 

error in the zero cost-sharing 

adjustments. 

Response: We have revised the CSR 

adjustment to align with the CSR 

adjustment in section III.E. for enrollees 

in zero cost-sharing plan variations. 

Table 1 contains the final CSR 

adjustment factors. 

Comment: Several commenters 

supported our proposal to not adjust the 

HHS risk adjustment models for 

reinsurance payments. 

Response: We are finalizing our 

proposal to not adjust the HHS risk 

adjustment models for reinsurance 

payments since reinsurance is a 

temporary program and already offsets 

adverse selection. 

TABLE 1—COST-SHARING REDUCTION ADJUSTMENT

Household income Plan AV 

Induced 

utilization 

factor 

Silver Plan Variant Recipients 

100–150 percent of FPL ............................................................. Plan Variation 94 percent ........................................................... 1.12 

150–200 percent of FPL ............................................................. Plan Variation 87 percent ........................................................... 1.12 

200–250 percent of FPL ............................................................. Plan Variation 73 percent ........................................................... 1.00 

>250 percent of FPL ................................................................... Standard Plan 70 percent .......................................................... 1.00 

Zero Cost-Sharing Recipients 

<300 percent of FPL ................................................................... Platinum (90 percent) ................................................................. 1.00 

<300 percent of FPL ................................................................... Gold (80 percent) ....................................................................... 1.07 

<300 percent of FPL ................................................................... Silver (70 percent) ...................................................................... 1.12 

<300 percent of FPL ................................................................... Bronze (60 percent) ................................................................... 1.15 

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9Winkelman, Ross and Syed Mehmud. ‘‘A 

Comparative Analysis of Claims-Based Tools for 

Health Risk Assessment.’’ Society of Actuaries. 

April 2007. 

TABLE 1—COST-SHARING REDUCTION ADJUSTMENT—Continued 

Household income Plan AV 

Induced 

utilization 

factor 

>300 percent of FPL ................................................................... Limited Cost-Sharing Recipients ................................................ 1.00 

(5) Model Performance Statistics 

To evaluate model performance, we 

examined the R-squared and predictive 

ratios of the HHS risk adjustment 

models. 

Comment: Several commenters asked 

for further details on the statistical 

performance of the HHS risk adjustment 

models. 

Response: HHS analyzed the 

statistical performance of each model 

(adult, child, infant at each metal level). 

The R-squared (the percentage of 

individual variation explained by the 

model) for each model was within the 

range of published estimates for 

concurrent models.9 These values can 

be found in Table 8. Additionally, the 

predictive ratios for the overall samples 

for each of the 15 models were also 

within the range of published estimates. 

(6) Summary of Models 

For clarity, we describe here the HHS 

risk adjustment models that we are 

finalizing. An individual’s risk score 

will be calculated for adults and 

children as the sum of the factors in the 

applicable model for the relevant age 

and sex categories, HHS HCCs, and, 

where applicable, disease interactions. 

These factors are listed below in Tables 

2 and 4. In the adult models, an 

individual with at least one of the HCCs 

that comprises the severe illness 

indicator variable and at least one of the 

HCCs interacted with the severe 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. The HCCs that 

comprise the severe illness indicator 

variable can be found in Table 3. The 

CSR adjustment factors listed in Table 1 

are multiplied by the sum of the 

applicable demographic, HHS HCCs, 

and disease interaction factors. 

The infant model utilizes a mutually 

exclusive group 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. As discussed previously, 

infants who are born in a benefit year 

but are not discharged until the 

following year will be defined as age 0 

for both benefit years. There are 5 

severity categories based on the clinical 

severity and associated costs of the nonmaturity 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 nonmaturity HCCs. The 5 maturity 

categories and 5 severity categories 

would be used to create 25 mutually 

exclusive interaction terms to which 

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). 

The male-age factor would be added to 

the maturity-severity category to which 

the infant is assigned, and the sum of 

the factors would be multiplied by the 

CSR adjustment factor. The maturityseverity factors and the HCCs that 

comprise these factors can be found in 

Tables 5–7. 

TABLE 2—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+, Male ..................................................................... 1.028 0.880 0.704 0.487 0.424 

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+, Female ................................................................. 1.156 0.990 0.798 0.559 0.489 

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Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 15423 

TABLE 2—ADULT RISK ADJUSTMENT MODEL FACTORS—Continued 

Factor Platinum Gold Silver Bronze Catastrophic 

Diagnosis Factors 

HIV/AIDS .............................................................................. 5.485 4.972 4.740 4.740 4.749 

Septicemia, Sepsis, Systemic Inflammatory Response 

Syndrome/Shock .............................................................. 13.696 13.506 13.429 13.503 13.529 

Central Nervous System Infections, Except Viral Meningitis ................................................................................... 7.277 7.140 7.083 7.117 7.129 

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, Including Pediatric Acute Lymphoid Leukemia ....................................... 11.791 11.377 11.191 11.224 11.235 

Non-Hodgkin‘s Lymphomas and Other Cancers and Tumors .................................................................................. 6.432 6.150 6.018 5.983 5.970 

Colorectal, Breast (Age < 50), Kidney, and Other Cancers 5.961 5.679 5.544 5.500 5.483 

Breast (Age 50+) and Prostate Cancer, Benign/Uncertain 

Brain Tumors, and Other Cancers and Tumors .............. 3.509 3.294 3.194 3.141 3.121 

Thyroid Cancer, Melanoma, Neurofibromatosis, and Other 

Cancers and Tumors ........................................................ 1.727 1.559 1.466 1.353 1.315 

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 

Mucopolysaccharidosis ........................................................ 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 Disorders ..... 2.335 2.198 2.130 2.071 2.052 

Adrenal, Pituitary, and Other Significant Endocrine Disorders ............................................................................... 2.335 2.198 2.130 2.071 2.052 

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 Neonatal Hepatitis 4.824 4.634 4.548 4.547 4.550 

Intestine Transplant Status/Complications .......................... 77.945 78.110 78.175 78.189 78.195 

Peritonitis/Gastrointestinal Perforation/Necrotizing 

Enterocolitis ...................................................................... 13.144 12.823 12.681 12.743 12.764 

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 Disorders and Intestinal Malabsorption ........................................................... 3.614 3.380 3.281 3.245 3.234 

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 Autoimmune Disorders 3.414 3.135 3.009 2.987 2.982 

Systemic Lupus Erythematosus and Other Autoimmune 

Disorders .......................................................................... 1.263 1.124 1.051 0.954 0.921 

Osteogenesis Imperfecta and Other Osteodystrophies ...... 3.524 3.300 3.184 3.126 3.107 

Congenital/Developmental Skeletal and Connective Tissue 

Disorders .......................................................................... 3.524 3.300 3.184 3.126 3.107 

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 Hemolytic Disease 

of Newborn ....................................................................... 7.405 7.198 7.099 7.090 7.089 

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 Hematological 

Disorders .......................................................................... 3.080 2.959 2.899 2.880 2.872 

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, Delusional Disorders 1.870 1.698 1.601 1.476 1.436 

Personality Disorders ........................................................... 1.187 1.065 0.974 0.836 0.790 

Anorexia/Bulimia Nervosa .................................................... 3.010 2.829 2.732 2.657 2.631 

Prader-Willi, Patau, Edwards, and Autosomal Deletion 

Syndromes ....................................................................... 5.387 5.219 5.141 5.101 5.091 

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15424 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

TABLE 2—ADULT RISK ADJUSTMENT MODEL FACTORS—Continued 

Factor Platinum Gold Silver Bronze Catastrophic 

Down Syndrome, Fragile X, Other Chromosomal Anomalies, and Congenital Malformation Syndromes ................ 1.264 1.171 1.099 1.015 0.985 

Autistic Disorder ................................................................... 1.187 1.065 0.974 0.836 0.790 

Pervasive Developmental Disorders, Except Autistic Disorder ................................................................................. 1.187 1.065 0.974 0.836 0.790 

Traumatic Complete Lesion Cervical Spinal Cord .............. 11.728 11.537 11.444 11.448 11.449 

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 Anterior Horn 

Cell Disease ..................................................................... 3.379 3.094 2.967 2.927 2.919 

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 System Congenital Anomalies ............................................................. 0.727 0.590 0.522 0.467 0.449 

Myasthenia Gravis/Myoneural Disorders and Guillain-Barre 

Syndrome/Inflammatory and Toxic Neuropathy ............... 5.174 4.999 4.921 4.900 4.891 

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 Spinocerebellar Disease, 

and Other Neurodegenerative Disorders ......................... 2.118 1.928 1.848 1.771 1.745 

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/Anoxic 

Damage ............................................................................ 9.265 9.102 9.022 9.026 9.025 

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, Including Respiratory Distress Syndromes ............................................ 12.913 12.707 12.612 12.699 12.728 

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 Heart Disease 6.369 6.001 5.861 5.912 5.935 

Heart Infection/Inflammation, Except Rheumatic ................ 6.770 6.611 6.537 6.530 6.528 

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 Malformation ......... 5.263 5.000 4.890 4.867 4.859 

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 Ulceration or Gangrene ................................................................................ 11.941 11.801 11.745 11.844 11.876 

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, Including 

Bronchiectasis .................................................................. 1.098 0.978 0.904 0.810 0.780 

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 Pneumonias and Other 

Severe Lung Infections .................................................... 9.052 8.934 8.883 8.913 8.924 

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 Renal Failure, 

Shock, or Embolism ......................................................... 1.377 1.219 1.120 0.912 0.828 

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 Complications ...... 3.778 3.285 3.134 2.931 2.906 

Chronic Ulcer of Skin, Except Pressure .............................. 2.515 2.371 2.313 2.304 2.304 

Hip Fractures and Pathological Vertebral or Humerus 

Fractures .......................................................................... 9.788 9.570 9.480 9.521 9.536 

Pathological Fractures, Except of Vertebrae, Hip, or Humerus ................................................................................ 1.927 1.805 1.735 1.648 1.620 

Stem Cell, Including Bone Marrow, Transplant Status/ 

Complications ................................................................... 30.944 30.908 30.893 30.917 30.928 

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Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 15425 

TABLE 2—ADULT RISK ADJUSTMENT MODEL FACTORS—Continued 

Factor Platinum Gold Silver Bronze Catastrophic 

Artificial Openings for Feeding or Elimination ..................... 11.093 10.939 10.872 10.943 10.965 

Amputation Status, Lower Limb/Amputation Complications 7.277 7.087 7.009 7.056 7.073 

Interaction Factors 

Severe illness × Opportunistic Infections ............................ 12.094 12.327 12.427 12.527 12.555 

Severe illness × Metastatic Cancer ..................................... 12.094 12.327 12.427 12.527 12.555 

Severe illness × Lung, Brain, and Other Severe Cancers, 

Including Pediatric Acute Lymphoid Leukemia ................ 12.094 12.327 12.427 12.527 12.555 

Severe illness × Non-Hodgkin‘s Lymphomas and Other 

Cancers and Tumors ........................................................ 12.094 12.327 12.427 12.527 12.555 

Severe illness × Myasthenia Gravis/Myoneural Disorders 

and Guillain-Barre Syndrome/Inflammatory and Toxic 

Neuropathy ....................................................................... 12.094 12.327 12.427 12.527 12.555 

Severe illness × Heart Infection/Inflammation, Except 

Rheumatic ........................................................................ 12.094 12.327 12.427 12.527 12.555 

Severe illness × Intracranial Hemorrhage ........................... 12.094 12.327 12.427 12.527 12.555 

Severe illness × HCC group G06 (HCC Group 6 includes 

Myelodysplastic Syndromes and Myelofibrosis, and 

Aplastic Anemia) .............................................................. 12.094 12.327 12.427 12.527 12.555 

Severe illness × HCC group G08 (HCC Group 8 includes 

Combined and Other Severe Immunodeficiencies, and 

Disorders of the Immune Mechanism) ............................. 12.094 12.327 12.427 12.527 12.555 

Severe illness × End-Stage Liver Disease .......................... 2.498 2.648 2.714 2.813 2.841 

Severe illness × Acute Liver Failure/Disease, Including 

Neonatal Hepatitis ............................................................ 2.498 2.648 2.714 2.813 2.841 

Severe illness × Atherosclerosis of the Extremities with Ulceration or Gangrene ....................................................... 2.498 2.648 2.714 2.813 2.841 

Severe illness × Vascular Disease with Complications ....... 2.498 2.648 2.714 2.813 2.841 

Severe illness × Aspiration and Specified Bacterial Pneumonias and Other Severe Lung Infections ...................... 2.498 2.648 2.714 2.813 2.841 

Severe illness × Artificial Openings for Feeding or Elimination ................................................................................ 2.498 2.648 2.714 2.813 2.841 

Severe illness × HCC group G03 (HCC Group 3 includes 

Necrotizing Fasciitis and Bone/Joint/Muscle Infections/ 

Necrosis) .......................................................................... 2.498 2.648 2.714 2.813 2.841 

TABLE 3—HHS HCCS IN THE SEVERE 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 4—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 Response Syndrome/ 

Shock ................................................................................................. 17.309 17.142 17.061 17.081 17.088 

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15426 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

TABLE 4—CHILD RISK ADJUSTMENT MODEL FACTORS—Continued 

Factor Platinum Gold Silver Bronze Catastrophic 

Central Nervous System Infections, Except Viral Meningitis ................ 12.636 12.409 12.296 12.313 12.319 

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, Including Pediatric Acute 

Lymphoid Leukemia ........................................................................... 11.939 11.618 11.436 11.358 11.334 

Non-Hodgkin‘s Lymphomas and Other Cancers and Tumors .............. 9.354 9.071 8.908 8.806 8.774 

Colorectal, Breast (Age < 50), Kidney, and Other Cancers .................. 3.689 3.480 3.337 3.188 3.143 

Benign/Uncertain Brain Tumors, and Other Cancers and Tumors 10 ... 3.308 3.084 2.954 2.814 2.769 

Thyroid Cancer, Melanoma, Neurofibromatosis, and Other Cancers 

and Tumors ........................................................................................ 1.530 1.368 1.254 1.114 1.066

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 Elsewhere Classified .................. 6.177 5.867 5.696 5.642 5.625 

Amyloidosis, Porphyria, and Other Metabolic Disorders ....................... 6.177 5.867 5.696 5.642 5.625 

Adrenal, Pituitary, and Other Significant Endocrine Disorders ............. 6.177 5.867 5.696 5.642 5.625 

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 Neonatal Hepatitis ................... 6.255 6.092 6.003 5.972 5.966 

Intestine Transplant Status/Complications ............................................ 106.169 106.704 106.991 107.180 107.222 

Peritonitis/Gastrointestinal Perforation/Necrotizing Enterocolitis ........... 16.784 16.360 16.156 16.171 16.179 

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 Disorders and Intestinal Malabsorption ........................................................................................... 3.843 3.685 3.584 3.471 3.434 

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 Autoimmune Disorders ................. 2.689 2.473 2.327 2.171 2.122 

Systemic Lupus Erythematosus and Other Autoimmune Disorders ..... 1.397 1.249 1.139 0.996 0.951 

Osteogenesis Imperfecta and Other Osteodystrophies ........................ 1.536 1.410 1.311 1.211 1.183 

Congenital/Developmental Skeletal and Connective Tissue Disorders 1.536 1.410 1.311 1.211 1.183 

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 Hemolytic Disease of Newborn 7.791 7.476 7.308 7.229 7.203 

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 Hematological Disorders ..... 4.909 4.754 4.650 4.543 4.511 

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, Delusional Disorders ................. 1.779 1.591 1.453 1.252 1.188 

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 Deletion Syndromes ..... 3.606 3.347 3.239 3.201 3.189 

Down Syndrome, Fragile X, Other Chromosomal Anomalies, and 

Congenital Malformation Syndromes ................................................. 2.403 2.203 2.093 1.982 1.943 

Autistic Disorder ..................................................................................... 1.673 1.500 1.372 1.177 1.112 

Pervasive Developmental Disorders, Except Autistic Disorder ............. 0.963 0.850 0.723 0.511 0.441 

Traumatic Complete Lesion Cervical Spinal Cord ................................ 18.394 18.224 18.156 18.210 18.228 

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 Anterior Horn Cell Disease 14.484 14.155 13.995 13.958 13.954 

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 System Congenital 

Anomalies ........................................................................................... 0.943 0.785 0.686 0.592 0.562 

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Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 15427 

10This HCC also includes Breast (Age 50+) and 

Prostate Cancer. 

TABLE 4—CHILD RISK ADJUSTMENT MODEL FACTORS—Continued 

Factor Platinum Gold Silver Bronze Catastrophic 

Myasthenia Gravis/Myoneural Disorders and Guillain-Barre Syndrome/Inflammatory and Toxic Neuropathy ....................................... 5.301 5.071 4.950 4.861 4.832 

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 Spinocerebellar Disease, and Other 

Neurodegenerative Disorders ............................................................ 3.122 2.915 2.800 2.698 2.669 

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 

Non-Traumatic Coma, and Brain Compression/Anoxic Damage .......... 9.073 8.882 8.788 8.753 8.735 

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, Including Respiratory Distress 

Syndromes ......................................................................................... 14.998 14.772 14.669 14.691 14.696 

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 Heart Disease ................. 4.568 4.453 4.410 4.433 4.448 

Heart Infection/Inflammation, Except Rheumatic .................................. 12.842 12.655 12.573 12.590 12.597 

Hypoplastic Left Heart Syndrome and Other Severe Congenital Heart 

Disorders ............................................................................................ 7.019 6.823 6.668 6.528 6.480 

Major Congenital Heart/Circulatory Disorders ....................................... 2.257 2.143 2.018 1.870 1.828 

Atrial and Ventricular Septal Defects, Patent Ductus Arteriosus, and 

Other Congenital Heart/Circulatory Disorders ................................... 1.411 1.319 1.206 1.078 1.047 

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 Malformation ........................... 4.704 4.464 4.344 4.280 4.250 

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 Ulceration or Gangrene ........... 10.174 9.937 9.799 9.688 9.641 

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, Including Bronchiectasis ...... 0.521 0.458 0.354 0.215 0.175 

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 Pneumonias and Other Severe 

Lung Infections ................................................................................... 10.730 10.615 10.549 10.566 10.571 

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 Renal Failure, Shock, or 

Embolism ............................................................................................ 1.191 1.042 0.917 0.674 0.590 

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 Complications ........................ 3.419 2.956 2.778 2.498 2.437 

Chronic Ulcer of Skin, Except Pressure ................................................ 1.570 1.479 1.394 1.314 1.289 

Hip Fractures and Pathological Vertebral or Humerus Fractures ......... 7.389 7.174 7.022 6.882 6.842 

Pathological Fractures, Except of Vertebrae, Hip, or Humerus ............ 2.353 2.244 2.128 1.965 1.912 

Stem Cell, Including Bone Marrow, Transplant Status/Complications .. 30.558 30.485 30.466 30.522 30.538 

Artificial Openings for Feeding or Elimination ....................................... 14.410 14.247 14.197 14.340 14.383 

Amputation Status, Lower Limb/Amputation Complications .................. 10.174 9.937 9.799 9.688 9.641 

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TABLE 5—INFANT RISK ADJUSTMENT MODELS FACTORS

Group Platinum Gold Silver Bronze Catastrophic 

Extremely Immature * Severity Level 5 (Highest) ............... 393.816 392.281 391.387 391.399 391.407 

Extremely Immature * Severity Level 4 ............................... 225.037 223.380 222.424 222.371 222.365 

Extremely Immature * Severity Level 3 ............................... 60.363 59.232 58.532 58.247 58.181 

Extremely Immature * Severity Level 2 ............................... 60.363 59.232 58.532 58.247 58.181 

Extremely Immature * Severity Level 1 (Lowest) ................ 60.363 59.232 58.532 58.247 58.181 

Immature * Severity Level 5 (Highest) ................................ 207.274 205.589 204.615 204.629 204.644 

Immature * Severity Level 4 ................................................ 89.694 88.105 87.188 87.169 87.178 

Immature * Severity Level 3 ................................................ 45.715 44.305 43.503 43.394 43.379 

Immature * Severity Level 2 ................................................ 33.585 32.247 31.449 31.221 31.163 

Immature * Severity Level 1 (Lowest) ................................. 33.585 32.247 31.449 31.221 31.163 

Premature/Multiples * Severity Level 5 (Highest) ................ 173.696 172.095 171.169 171.111 171.108 

Premature/Multiples * Severity Level 4 ............................... 34.417 32.981 32.155 31.960 31.925 

Premature/Multiples * Severity Level 3 ............................... 18.502 17.382 16.694 16.311 16.200 

Premature/Multiples * Severity Level 2 ............................... 9.362 8.533 7.967 7.411 7.241 

Premature/Multiples * Severity Level 1 (Lowest) ................ 6.763 6.144 5.599 4.961 4.771 

Term * Severity Level 5 (Highest) ....................................... 132.588 131.294 130.511 130.346 130.292 

Term * Severity Level 4 ....................................................... 20.283 19.222 18.560 18.082 17.951 

Term * Severity Level 3 ....................................................... 6.915 6.286 5.765 5.092 4.866 

Term * Severity Level 2 ....................................................... 3.825 3.393 2.925 2.189 1.951 

Term * Severity Level 1 (Lowest) ........................................ 1.661 1.449 0.998 0.339 0.188 

Age1 * Severity Level 5 (Highest) ....................................... 62.385 61.657 61.217 61.130 61.108 

Age1 * Severity Level 4 ....................................................... 10.855 10.334 9.988 9.747 9.686 

Age1 * Severity Level 3 ....................................................... 3.633 3.299 3.007 2.692 2.608 

Age1 * Severity Level 2 ....................................................... 2.177 1.930 1.665 1.320 1.223 

Age1 * 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 6—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 7—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. 

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TABLE 7—HHS HCCS INCLUDED IN INFANT MODEL SEVERITY CATEGORIES—Continued 

Severity category HCC 

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. 

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.11

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). 

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15430 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

11This HCC also includes Breast (Age 50+) and 

Prostate Cancer. 

TABLE 7—HHS HCCS INCLUDED IN INFANT MODEL SEVERITY CATEGORIES—Continued 

Severity category HCC 

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. 

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. 

TABLE 8—R-SQUARED STATISTIC FOR

HHS RISK ADJUSTMENT MODELS

Risk adjustment model R-Squared 

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 

TABLE 8—R-SQUARED STATISTIC FOR

HHS RISK ADJUSTMENT MODELS— 

Continued 

Risk adjustment model R-Squared 

statistic 

Catastrophic Infant ................. 0.289 

c. Overview of the Payment Transfer 

Formula 

In the proposed rule, we proposed to 

calculate risk adjustment transfers after 

the close of the applicable benefit year, 

following the completion of issuer risk 

adjustment data reporting. 

Transfers are calculated at the 

geographic rating area level for each 

plan (HHS would calculate two separate 

transfer amounts for a plan that operates 

in two rating areas). In other words, the 

payment transfer formula would treat 

each rating area segment of enrollment 

as a separate plan for the purposes of 

calculating transfers. 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. 

The payment transfer formula 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: 

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 are based on the State average 

premium. 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 (AV): A particular 

plan’s premium may differ from the 

State average premium based on the 

plan’s cost-sharing structure, or AV. 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 


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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: 

We are finalizing the payment transfer 

formula as proposed, with several 

technical corrections. We clarify that 

IDF stands for induced demand factor in 

the equations, and modify the 

denominator of the plan average 

premium formula within the State 

average premium and geographic cost 

factor calculations to reflect the billable 

member calculation. Therefore, the 2014 

HHS risk adjustment payment transfer 

formula is: 

Where: 

P ̄ s= State average premium; 

PLRSt = plan i’s plan liability risk score; 

AVi= plan i’s metal level AV; 

ARFi= plan i‘s 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. 

Risk adjustment transfers will be 

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, depending on how 

the State treats these pools under the 

single risk pool provisions. 

The payment transfer formula 

provides a per member per month 

(PMPM) transfer amount for a plan 

within a rating area. The PMPM transfer 

amount derived from the payment 

transfer formula (TPMPM) will be 

multiplied by each plan’s rating area 

billable member months (SbMb) to 

calculate the plan’s total risk adjustment 

payment for a given rating area (Ti). 

Comment: We received a number of 

comments in support of the general 

approach to calculating payment 

transfers, including HHS’s approach to 

adjusting for plan cost factors in the 

transfer equation. 

Response: We are finalizing the 

payment transfer formula as proposed 

with minor technical corrections, 

specified below. 

Comment: We received one comment 

requesting that HHS clarify the 

calculation of payment transfers at the 

plan level. 

Response: Because we have proposed 

and are finalizing a geographic cost 

factor, transfers must be calculated for 

each rating area in which a plan 

operates. However, we note that, 

because the denominator of each term of 

the payment transfer equation is the 

Statewide average of the product of the 

terms, transfers occur within the risk 

pool within the market within the State. 

Comment: We received one comment 

requesting that HHS provide detailed 

examples of the payment transfer 

formula. 

Response: We anticipate working 

closely with issuers and other 

stakeholders to provide examples of the 

payment transfer formula and its 

application in a market. 

(1) State Average Premium 

We proposed a payment transfer 

formula that is based on the State 

average premium for the applicable 

market. Plan average premiums will be 

calculated from the actual premiums 

charged to their enrollees, weighted by 

the number of months enrolled. We 

make a technical correction to the 

formula to calculate PMPM plan average 

premiums, as described below. The 

equations for calculating State average 

premiums were proposed as: 


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15432 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

The second equation shows the 

proposed formula to calculate plan 

average premiums. The proposed 

formula, which we are modifying as 

described below, was the weighted 

mean over all subscribers s of subscriber 

premiums Ps, with Ms representing the 

number of billable member months of 

enrollment for each subscriber s. Due to 

a typographical error and to align with 

the calculation of plan average risk 

score, we have modified the 

denominator of the plan average 

premium equation from the proposed 

rule. The denominator in the revised 

formula is equal to the sum of the 

billable member months for all billable 

members b enrolled in the plan. The 

numerator of this formula remains 

unchanged from the proposed rule. The 

numerator is equal to the product of 

each subscriber’s billable member 

months (the billable member months 

attributed to the individual that is the 

policy subscriber) and the average 

monthly premium for the subscriber, 

summed across all of the subscribers s 

in the plan. The calculation of each 

plan’s total premium revenue—the 

numerator of this formula—uses 

subscriber-level premiums in order to 

align with the way that premium 

information will be captured in data on 

issuers’ distributed data environments. 

The final formula is: 

Billable member months are defined 

as the number of months during the risk 

adjustment period billable members are 

enrolled in the plan (billable members 

exclude children who do not count 

towards family rates). In noncommunity rated States, issuers are 

required to individually rate each 

member covered under a family policy 

and, in the case of large families, issuers 

are only allowed to include the three 

oldest children in the development of 

family rates. Therefore, for large 

families, only the three oldest children 

are counted as billable members in the 

risk adjustment transfer formula. In 

community rated States that require 

family tiering, the number of billable 

members under a family policy may 

vary based on the State’s tiering 

structure. For example, if a State’s 

largest family tier is set at two or more 

children, only the first two children 

under the family policy would count as 

billable members. HHS will assess each 

State’s rating requirements and will 

provide community rated States with 

additional details on how billable 

members will be counted in the transfer 

formula. 

Comment: We received a number of 

comments in support of our proposal to 

use the State average premium as the 

basis for risk adjustment transfers. One 

commenter suggested that use of a 

plan’s own premium may cause 

unintended distortions in the transfer 

formula. One commenter suggested that 

we use net claims, or approximate net 

claims by using 90 percent of the State 

average premium, as the basis for risk 

adjustment transfers. 

Response: The goal of the payment 

transfer formula is, to the extent 

possible, to promote risk-neutral 

premiums. We agree with commenters 

that use of a plan’s own premium may 

cause unintended distortions in 

transfers. We also believe that both 

claims and administrative costs include 

elements of risk selection, and therefore, 

that transfers should be based on the 

entire premium. We are finalizing our 

proposal to base the payment transfer 

formula on the State average premium. 

(2) Plan Average Risk Score 

The proposed plan average risk score 

calculation included an adjustment to 

account for the family rating rules set 

forth in the Market Reform Rule, which 

limits the number of dependent 

children in non-community rated States 

that count toward the build-up of family 

rates to three. The formula below shows 

the final plan average risk score 

calculation including the risk of all 

members on the policy, including those 

children not included in the premium. 

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 is 

enrolled in the plan; and 

Mb is the number of months during the risk 

adjustment period the billable member b 

is enrolled in the plan (billable members 

exclude children who do not count 

towards family rates). 

We received the following comments 

regarding the calculation of the plan 

average risk score: 

Comment: We received comments in 

support of this approach to calculating 

plan average risk score. We received one 

comment that calculating plan average 

risk score with an adjustment for 

billable members would be 

administratively burdensome for 

issuers. 

Response: We are finalizing this term 

as proposed. We note that, when HHS 

is operating risk adjustment on behalf of 

the State, HHS will calculate the plan 

average risk score and so there will be 

no additional administrative burden for 

issuers. 

(3) Actuarial Value (AV) 

The proposed AV adjustment in the 

payment transfer formula accounts for 

relative differences in plan liability due 

to differences in AV. Table 9 shows the 

AV adjustment that will be used for 


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each category of metal level plans. We 

received no comments on this 

adjustment, and are finalizing this 

provision as proposed. 

TABLE 9—ACTUARIAL VALUE (AV) ADJUSTMENT USED FOR EACH METAL

LEVEL IN THE PAYMENT TRANSFER

FORMULA

Metal level AV Adjustment 

Catastrophic ............................ 0.57 

Bronze .................................... 0.60 

Silver ....................................... 0.70 

TABLE 9—ACTUARIAL VALUE (AV) ADJUSTMENT USED FOR EACH METAL

LEVEL IN THE PAYMENT TRANSFER

FORMULA—Continued 

Metal level AV Adjustment 

Gold ........................................ 0.80 

Platinum .................................. 0.90 

(4) Allowable rating variation 

We proposed an allowable rating 

factor adjustment in the payment 

transfer formula. The Allowable Rating 

Factor (ARF) adjustment accounts only 

for age rating. Tobacco use, wellness 

discounts, and family rating 

requirements will not be included in the 

payment transfer formula. Geographic 

cost variation is treated as a separate 

adjustment in the payment transfer 

formula. We recognize that there may be 

special rating circumstances in States 

(for example, community rating) and we 

intend to clarify how the payment 

transfer formula will address these 

circumstances through future 

rulemaking or guidance. We received 

comments in support of the allowable 

rating variation adjustment, and are 

finalizing this provision as proposed. 

TABLE 10—EXAMPLE ALLOWABLE RATING FACTOR CALCULATION

Age band State age-rating curve 

Enrollment percentages (Share of member-months) 

Plan A Plan B Plan C State 

21 ............................................................................. 1.000 33.30 percent ... 40.00 percent ... 10.00 percent ... 31.70 percent 

(Age bands from 22–39 omitted) 

40 ............................................................................. 1.278 33.30 percent ... 40.00 percent ... 20.00 percent ... 33.30 percent 

(Age bands from 41–63 omitted) 

64 and older ............................................................. 3.000 33.30 percent ... 20.00 percent ... 70.00 percent ... 35.00 percent 

Total member-months .............................................. ........................ 300,000 ............ 200,000 ............ 100,000 ............ 600,000 

Allowable Rating Factor ........................................... ........................ 1.758 ................ 1.511 ................ 2.456 ................ 1.793 

(5) Induced demand 

We proposed to use the same induced 

demand factors in the payment transfer 

formula, shown in Table 11. We 

received the following comments 

regarding the induced demand proposed 

provisions: 

Comment: We received comments 

that, due to a typographical error, the 

definition of the induced demand factor 

expressed in the full payment transfer 

formula in the proposed rule was ‘‘plan 

i’s allowable rating factor’’ rather than 

‘‘plan i’s induced demand factor.’’ 

Response: We have made this change 

in the equation above. 

TABLE 11—INDUCED DEMAND ADJUSTMENT USED FOR EACH METAL LEVEL

IN THE PAYMENT TRANSFER FORMULA

Metal level 

Induced demand adjustment 

Catastrophic ............................ 1.00 

Bronze .................................... 1.00 

Silver ....................................... 1.03 

Gold ........................................ 1.08 

Platinum .................................. 1.15 

(6) Geographic Area Cost Variation 

The proposed geographic cost factor 

(GCF) is 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. GCFs will be calculated 

for each rating area established by the 

State under § 147.102(b). These factors 

will be calculated based on the observed 

average silver plan premium for the 

metal-level risk pool (calculated 

separately for individual and small 

group if the State does not have a 

merged market) or catastrophic plan 

premium for the catastrophic risk pool, 

in a geographic area relative to the 

Statewide average silver or catastrophic 

plan premium. Calculation of the GCF 

involves three steps. First, the average 

premium is computed for each silver or 

catastrophic plan, as applicable, in each 

rating area (using the same formula that 

is used to compute plan premiums in 

the State average premium calculation 

discussed above). We note that the same 

modification described above regarding 

the calculation of the plan average 

premium also applies to this term. The 

proposed calculation was: 

Where: 

Pi, is the average premium for plan i; 

s indexes all subscribers enrolled in the plan; 

Ms is the number of billable member months 

for billable members under the policy of 

subscriber s; and 

Ps is the premium for subscriber s. 

The final calculation is: 

Where: 

Pi, is the average premium for plan i; 

s indexes all subscribers enrolled in the plan; 

Ms is the number of billable member months 

for the subscriber s; 

Ps is the premium for subscriber s; and 

Mb is the number of billable members b 

enrolled in the plan. 

The second step is 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 

(calculated at the rating area level), the 

enrollment-weighted rating factor 

applied to all billable members 

(discussed above). This formula is: 

Where: 

Pi

AS is plan i’s age standardized average 

premium; 

Pi, is the average premium for plan i; and 

ARFi is the allowable rating factor. 

The third and final step is to compute 

a GCF for each area in each risk pool 

and assign it to all plans in that area. 

This is accomplished with the following 

calculation: 


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12Available at: http://www.whitehouse.gov/sites/ 

default/files/omb/memoranda/fy2007/m07-16.pdf. 

With the exception of the plan 

average risk score calculation discussed 

above, all of the other calculations used 

in the 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. 

Comment: We received one comment 

requesting that HHS include a 

geographic cost adjustment even if the 

State elected to use one rating area. 

Another commenter suggested that HHS 

include an adjustment in the risk 

adjustment methodology that accounts 

for the increased cost of providing care 

in rural areas. 

Response: The purpose of the 

geographic cost adjustment is to remove 

differences in premium due to allowable 

geographic rating variation. We believe 

that the cost of care in a particular area 

are reflected in premiums, and therefore 

captured in the geographic cost factor 

adjustment. Issuers of plans in a State 

with a single rating area would not vary 

rates within the State based on 

geography, and so it would not be 

necessary to remove differences in 

premiums due to allowed rating 

variation based on geography. 

d. Overview of the Data Collection 

Approach 

In § 153.20, we proposed a technical 

correction to the definition of risk 

adjustment data collection approach. 

We proposed 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.’’ We received no 

comments on the proposed technical 

correction to the definition of data 

collection approach, and are finalizing 

the provision as proposed. Comments 

regarding the data collection approach 

for the risk adjustment program are 

addressed in section III.G. of this final 

rule. 

We also proposed to modify 

§ 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).’’ ‘‘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).12 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. We received no 

comments on the proposed modification 

and are finalizing the provision as 

proposed. 

e. Schedule for Risk Adjustment 

Under § 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 

final rule, for benefit year 2014 

beginning January 1, 2014. Enrollee risk 

scores will be calculated based on 

enrollee enrollment periods and claims 

dates of discharge 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 § 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 run-out 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 § 153.310(e). Comments in 

response to the proposed § 153.730 are 

addressed in section III.G of this final 

rule. 

Comment: We received a number of 

comments that HHS should provide 

issuers with interim reports of risk 

scores and other information. 

Response: We are committed to 

implementing the risk adjustment 

program in a transparent way, and seek 

to provide issuers with the information 

necessary for program operations and 

rate development. We are assessing the 

feasibility of providing program 

information prior to the close of the 

benefit year. 

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 § 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 


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§ 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. We 

proposed to modify § 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. We did not 

receive any comments on this proposed 

change, and will finalize it as proposed. 

b. State Alternate Risk Adjustment 

Methodology Evaluation Criteria 

In § 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 § 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 § 153.330(a)(1)(iii) 

provides that the request must include 

statistical performance metrics specified 

by HHS. Section 153.330(a)(2) requires 

that the request also include certain 

descriptive and explanatory information 

relating to the alternate methodology. 

We proposed to evaluate risk 

adjustment methodologies based on the 

information submitted under 

§ 153.330(a). We proposed additional 

evaluation criteria to certify alternate 

risk adjustment methodologies in a new 

paragraph § 153.330(b). 

In the new § 153.330(b)(1), we 

proposed to consider whether the 

alternate risk adjustment methodology 

meets criteria that correspond to the 

elements of the alternate methodology 

request described in paragraph 

§ 153.330(a)(1) and (2). Specifically, we 

stated that we would 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 population, 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. 

In the proposed § 153.330(b)(2), we 

would consider whether the alternate 

methodology complies with the 

requirements of subpart D, especially 

§ 153.310(e) (as proposed to be 

renumbered) and § 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 issuers, 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 § 153.330(b)(3), we proposed 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 would do so as well. 

Under the proposed HHS risk 

adjustment methodology, we will apply 

risk adjustment to catastrophic plans in 

their own risk pool—that is, we will 

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 will not 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 § 153.330(b)(4), we proposed 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. 

Comment: A commenter requested 

further clarity on § 153.330(a)(2)(iii), 

which requires that a State’s request to 

operate an alternate methodology must 

include an assessment of the extent to 

which the methodology encourages 

favorable behavior among providers and 

discourages unfavorable behavior. 

Response: We provided examples of 

favorable and unfavorable behavior in 

the proposed rule, at 77 FR at 73146. 

There, we stated that we would consider 

whether the alternate methodology 

discriminates against vulnerable 

populations, as evidenced by unjustified 

differential treatment on the basis of 

features like age, disability, or expected 

length of life. We also stated that 

alternate methodologies should take 

into account the health care needs of 

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diverse segments of the risk adjustment 

population, including but not limited to 

women, children, people with 

disabilities, and other vulnerable 

groups. We will provide further 

guidance on these criteria in connection 

with our evaluation of particular 

proposed State alternate methodologies. 

Comment: A commenter requested 

that HHS delete the reference to 

‘‘stakeholders’’ in the criterion that an 

alternate methodology be easy to 

understand and replace it with the term 

‘‘carriers.’’ 

Response: Risk adjustment affects the 

overall stability of State insurance 

markets, with potential impacts on 

many individuals and entities, 

including State governments and 

enrollees. Therefore, we believe the 

methodology should be reasonably 

comprehensible to all enrollees and 

entities, or ‘‘stakeholders.’’ We will 

maintain our use of ‘‘stakeholders’’ 

rather than ‘‘carriers’’ because we 

believe that all affected individuals 

should be reasonably able to understand 

the methodology. 

Comment: A commenter requested 

that HHS approve alternate 

methodologies independent of a State’s 

factor weights. 

Response: An alternate methodology’s 

factor weights may influence the risk 

adjustment methodology’s ability to 

meet the evaluation criteria. The factor 

weights, therefore, will be included in 

the evaluation process. 

Comment: A commenter generally 

supported our alternate methodology 

certification process, but recommended 

that we additionally require that a 

State’s proposed alternate methodology 

must perform similarly to or better than 

the HHS methodology in that State. 

Response: We believe it would be 

difficult to assess whether a State’s 

methodology performs ‘‘better’’ than the 

HHS methodology in light of the various 

policy goals that different States may 

have in mind. We believe that States 

understand their markets well, and that 

the proposed set of criteria is 

sufficiently detailed to achieve a high 

quality risk adjustment methodology. 

Therefore, we are finalizing these 

criteria as proposed. 

Comment: A commenter 

recommended that State alternate 

methodology applications be made 

available to the public. 

Response: HHS is committed to 

transparency in its process of evaluating 

and certifying State alternate 

methodologies. We will publish 

approved State alternate methodologies 

in the annual HHS notice of benefit and 

payment parameters. Because we 

require that States publish their 

alternate methodologies in the State 

notice of benefit and payment 

parameters, we believe that this 

publication is sufficient for public 

access to the methodology itself and 

other supporting information. 

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. In 

the proposed rule, we expanded on this 

approach by designating areas of State 

flexibility within the general approach 

to payment transfers. We received no 

comments on the national method for 

calculating payments and charges or the 

State flexibility within this method. We 

are finalizing this approach as proposed. 

5. Risk Adjustment Data Validation 

We proposed to add a new subsection, 

§ 153.630, which set forth risk 

adjustment data validation standards 

applicable to all issuers of risk 

adjustment covered plans when HHS is 

operating risk adjustment. We proposed 

that, beginning in 2014, HHS will 

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 noted that States are 

not required to adopt this HHS data 

validation methodology. We are 

finalizing these provisions as proposed. 

Comment: We received a comment 

asking that the cost of the audits 

associated with data validation be paid 

for by the Federal government. 

Response: At this time, it is the policy 

of HHS that costs related to the second 

validation audit process be borne by the 

Federal government, while costs 

associated with initial validation audit 

process be borne by the applicable 

issuer. We note that a State may choose 

to allocate the costs of data validation 

differently when operating its own risk 

adjustment program. 

Comment: We received a comment 

requesting that data validation 

requirements be expressed in 

§ 153.710(c), relating to data collection 

standards. 

Response: We are finalizing the data 

validation requirements in § 153.630. 

We believe that the data validation 

requirements should remain 

independent of the data collection 

standards because the data validation 

requirements are specific to the HHSoperated risk adjustment program and 

the data collection standards apply to 

both the risk adjustment and 

reinsurance programs when operated by 

HHS. 

Comment: We received a comment 

expressing concern that the data 

validation process as described will 

extend beyond a year, potentially 

affecting payment transfers. 

Response: We appreciate the concerns 

of the commenter. We intend to 

complete the data validation process 

within one year, in time for payment 

adjustments to be made the following 

benefit year. 

Comment: We received a comment 

asking that States operating risk 

adjustment programs be required to 

follow uniform Federal data validation 

standards, particularly during the first 

few years of the program. 

Response: The risk adjustment 

program is intended to be a State-based 

program. We believe that a State 

operating its own risk adjustment 

program should have the flexibility to 

implement a data validation program 

that best complements its program 

design, including the State’s data 

collection approach and desired level of 

audit complexity. We note, however, 

that States and issuers still must abide 

by the standards for developing a data 

validation program as described in the 

Premium Stabilization Rule. 

Comment: We received a comment 

requesting clarification on how issuers 

that leave a market during the year will 

affect the Statewide data validation 

process. 

Response: We will provide further 

detail on this and other data validation 

issues in future rulemaking and 

guidance. 

a. Data Validation Process When HHS 

Operates Risk Adjustment 

(1) Sample Selection 

In § 153.630 of the proposed rule, we 

discussed some of the guidelines for 

selecting a statistically valid sample for 

data validation. We proposed that HHS 

would choose an adequate sample size 

of enrollees such that the estimated 

payment errors would be statistically 

sound and enrollee-level risk score 

distributions would reflect enrollee 

characteristics for each issuer. 

Additionally, the sample would cover 

applicable subpopulations for each 

issuer, such as enrollees with and 

without risk adjustment diagnoses. 

Comment: We received a comment 

asking for additional information on the 

statistical validity of the expected 

sample size of 300, including the 

confidence interval and expected error 

rate tolerance. We also received 

numerous comments requesting the 

opportunity to comment on a proposed 

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statistical selection methodology in 

future guidance. 

Response: We anticipate providing 

more detailed information on the HHS 

sampling methodology in future 

rulemaking and guidance, including 

sample sizes and expected tolerances 

and confidence intervals. 

Comment: We received a comment 

expressing support for the inclusion of 

enrollees both with and without risk 

adjustment diagnoses in the sample. 

The commenter also suggested that HHS 

conduct more comprehensive audits for 

members without any risk adjustment 

diagnoses, including full medical record 

review during the second validation 

audit. 

Response: Individuals without risk 

adjustment diagnoses will be subject to 

audits of their demographic information 

as well as medical record reviews 

during both the initial and second 

validation audits to determine whether 

any risk adjustment HCCs should have 

been assigned that were not. We 

anticipate revisiting this policy after the 

first year of the program to assess the 

utility of performing medical record 

reviews on enrollees with no HCCs. 

Over time, we anticipate that issuers 

will utilize the front-end HHS-operated 

data submission processes to ensure 

they are providing all relevant risk 

adjustment diagnosis for enrollees as 

opposed to relying on back-end audit 

processes to reveal this information. 

(2) Initial Validation Audit 

In § 153.630(b), we proposed that 

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. In 

§ 153.630(b)(1), we proposed that 

issuers of risk adjustment covered plans 

engage one or more auditors to conduct 

these independent initial validation 

audits. We proposed in § 153.630(b)(2) 

through (4) that issuers ensure that 

initial validation auditors are reasonably 

capable of performing the audit, the 

audit is completed, the auditor is free 

from conflicts of interest, and the 

auditor submits information regarding 

the initial validation audit to HHS in the 

manner and timeframe specified by 

HHS. These proposed requirements 

would ensure the initial validation audit 

is conducted according to minimum 

audit standards, and issuers or auditors 

transmit necessary information to HHS 

for use in the second validation audit. 

We are finalizing these provisions as 

proposed. 

We also proposed that issuers conduct 

data validation in accordance with audit 

standards established by HHS. We 

described three methods for establishing 

these audit standards, and requested 

comment on these approaches. 

Comment: We received multiple 

comments suggesting that auditors 

conduct interim checks of issuer data 

during the plan year before the formal 

validation audit. We received a few 

comments proposing that auditors 

report the findings of the interim checks 

to HHS so that issuers found to have 

outlier results could be subject to greater 

audit scrutiny. 

Response: We believe that requiring 

auditors to perform multiple interim 

checks of issuer data throughout the 

plan year will be burdensome for 

issuers. However, an issuer may 

voluntarily have such checks performed 

if it believes them to be necessary for 

appropriate implementation of risk 

adjustment and compliance. 

Comment: We received a comment 

asking that HHS specify in future 

guidance the common coding and 

documentation standards that issuers 

will be subject to, and provide issuers 

an opportunity to comment on the 

standards. 

Response: We will clarify in future 

rulemaking and guidance the uniform 

audit standards that issuers and auditors 

will be subject to. 

Comment: We received many 

comments supporting a certification 

requirement for auditor firms before 

acting as a validation auditor. A number 

of commenters supported the 

development of audit standards. One 

commenter supported HHS adopting 

both approaches. 

Response: We considered 

prospectively certifying entities prior to 

acting as validation auditors. This 

approach is utilized before performing 

audits on organizations collecting and 

reporting performance measures 

through Health Effectiveness Data and 

Information Set (HEDIS). While this 

approach may ensure that entities 

performing validation audits are capable 

of conducting the audits in accordance 

with HHS standards, we believe at this 

time that issuers will be diligent in 

selecting audit entities capable of 

complying with HHS audit standards, 

and that adequate enforcement remedies 

exist should an audit entity fail to 

comply with the standards. We will 

monitor the performance of validation 

auditors to determine whether such 

certification or additional safeguards are 

necessary in the future. 

(3) Second Validation Audit 

In § 153.630(c), we proposed that HHS 

retain an independent second validation 

auditor to verify the accuracy of the 

findings of the initial validation audit 

using a sub-sample of the initial 

validation audit sample enrollees for 

review. 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. We 

are finalizing these provisions as 

proposed. 

Comment: We received a comment 

suggesting that HHS provide, for both 

the initial and secondary validation 

audits, a comparison of a plan’s 

diagnosis reporting accuracy to the 

calibration data set for the risk 

adjustment models’ diagnosis accuracy 

as reported through MarketScan®. 

Response: We do not have access to 

the underlying medical records 

necessary to perform such an audit for 

the calibration data set. We will 

consider performing similar analyses in 

future years, as more data becomes 

available. 

Comment: We received a comment 

seeking clarity on whether the error 

process would be based exclusively on 

the second validation audit, and 

whether the results of the second 

validation audit would be applied only 

to the subsample under § 153.630(c). 

Response: We anticipate applying any 

error rate determined by the second 

validation audit to the error rate 

calculated by the initial validation 

audit. This reconciled error rate will be 

extrapolated to an issuer’s entire risk 

adjusted population, not just the 

subsample under § 153.630(c). We 

intend to consult with stakeholders on 

the details of the methodology for error 

rate calculation to inform future 

rulemaking. 

Comment: We received a comment 

asking HHS to permit issuers to submit 

additional information to the second 

validation auditor if the initial 

information provided to the initial 

validation auditor does not meet the 

proposed audit standards. 

Response: We do not believe that it is 

appropriate or efficient to permit issuers 

to submit additional information to the 

second validation auditor in the event 

that the initial information provided 

does not meet the proposed audit 

standards. We believe that limiting the 

review of the second validation audit to 

only that information made available 

during the initial validation will help to 

ensure the entire validation process is 

completed in a timely manner and will 

provide incentives for making all 

relevant information available to the 

initial validation auditor. 

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(4) Error Estimation 

In the preamble to the proposed rule, 

we stated that we would estimate risk 

score error rates based on the findings 

from the data validation process. HHS 

plans to conduct further analysis to 

determine the most effective 

methodology for adjusting plan risk 

scores for calculating risk adjustment 

payment transfers. We are finalizing 

these provisions as proposed. 

Comment: We received a few 

comments regarding the error estimation 

process generally. One comment 

proposed a three-tiered approach to 

extrapolating error rates to overall plan 

payment. The commenter suggested that 

sufficiently low error rates within a 

certain range of model accuracy would 

receive no extrapolation to plan 

payment, while high outlier error rates 

would subject an issuer to an additional 

round of audits. All other plans would 

receive an extrapolation of the plan’s 

error rate to its payment rate. Another 

commenter asked that HHS perform an 

outlier analysis on risk scores within a 

State. Another commenter suggested 

that HHS audit all issuers to determine 

a mean or expected error rate, then 

perform appropriate statistical tests to 

compare issuer error rates to this 

expected error rate, and then determine 

the impact on plan payments. We also 

received a comment requesting that 

HHS use a dollar adjustment instead of 

a percent adjustment to the risk score. 

Response: Following additional 

engagement with stakeholders, we 

expect to provide further detail on our 

approach to error estimation and 

payment transfer adjustments in future 

rulemaking and guidance. 

Comment: We received a comment 

requesting clarification on whether error 

adjustments apply if an issuer underreports its risk scores. 

Response: Consistent with the 

approach in Medicare Advantage, we 

intend to apply error adjustments if an 

issuer under-reports its risk scores. We 

will provide further detail on these 

adjustments in future rulemaking and 

guidance. 

(5) Appeals 

Pursuant to § 153.350(d), HHS or a 

State operating risk adjustment must 

provide an administrative process to 

appeal data validation findings. We 

proposed in § 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 charges. We 

anticipate that appeals would be limited 

to instances in which the audit was not 

conducted in accordance with the 

second validation audit standards 

established by HHS. 

Comment: We received a few 

comments expressing support that the 

appeals process be limited to the 

application of audit standards, and not 

the standards themselves. 

Response: We are finalizing this 

provision as proposed. 

(6) Payment Adjustments 

We proposed that HHS would use a 

prospective approach when making 

payment adjustments based on findings 

from the data validation process. 

Specifically, 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 transfer year. 

Additionally, because the credibility of 

the system is important for the success 

of the program, we proposed in 

paragraph § 153.630(e) that HHS may 

also adjust payments and charges for 

issuers that do not comply with the 

initial or second validation audit 

standards set forth in § 153.630(b) and 

(c). 

Comment: We received a comment 

requesting further clarity on what 

impact a prospective approach to 

payment adjustments will have on plan 

pricing assumptions, and how actuarial 

soundness will be maintained if an 

issuer’s risk profile changes 

substantially from year to year. 

Response: We anticipate addressing 

these issues following stakeholder 

consultations prior to further 

rulemaking on data validation. 

b. Proposed HHS-Operated Data 

Validation Process for Benefit Years 

2014 and 2015 

We proposed that issuers of risk 

adjustment covered plans adhere to the 

data validation process beginning with 

data for the 2014 benefit year. However, 

due to the complexity of the risk 

adjustment program and the data 

validation process, and the uncertainty 

in the market that will exist in 2014, 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 

proposed that issuers conduct an initial 

validation audit and that we conduct a 

second validation audit for benefit years 

2014 and 2015, but that we would not 

adjust payments and charges based on 

validation findings during these first 

two years of the program. Although we 

proposed not to adjust payments and 

charges based on error estimates 

discovered, we noted 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 requested 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. 

We also requested comments on the 

possibility of conducting the second 

validation audits at the auditor level as 

opposed to the issuer level in future 

years. As we anticipate that a small 

number of audit firms will perform the 

majority of the initial audits, this 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. 

Comment: A number of commenters 

supported not altering payments and 

charges based on 2014 and 2015 data 

validation results. Numerous other 

commenters requested that HHS apply 

error rates to payment transfers from the 

outset of the program, while another 

commenter supported a one-year 

observation period before effecting data 

validation payment transfers. 

Response: While we appreciate the 

concerns of the commenters, we 

continue to believe that in light of the 

complexity of the data validation 

process, two years of observation 

experience will help HHS refine its data 

validation process by enabling us to 

gather sufficient data on issuer and 

auditor error, and will provide issuers 

and auditors enough time to adjust to 

the audit program. Although we are not 

adjusting payments and charges based 

on error rates, 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 when 

HHS operates risk adjustment on behalf 

of a State. 

Comment: We received multiple 

comments supporting the publishing of 

a report on error rates discovered during 

the first two years of the data validation 

program. One commenter asked for 

additional clarification of the overall 

goal of the report, whether the report 

will identify issuers and providers, and 

if the report will disclose error rates 

attributable to providers. 

Response: The intent of the report is 

to provide issuers and auditors 

information on the level of error in the 

commercial market under the HHSoperated risk adjustment program. 

Additionally, we may study the extent 

to which errors at the auditor level 

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contribute to risk score error rate 

findings during the initial validation 

audits. We do not anticipate that the 

report will identify providers, but it may 

identify issuers. We do anticipate that 

the report will identify the error rates 

attributable to auditors. 

Comment: We received one comment 

requesting further clarification on the 

timeframe in which issuers will be 

directed to provide sample data for a 

benefit year. The commenter also asked 

for further clarification on program 

integrity efforts if payment transfers are 

not altered by data validation audit 

results. 

Response: We will issue further 

guidance and rulemaking on these 

matters. 

c. Data Security and Transmission 

In § 153.630(f), we proposed data 

security and transmission requirements 

for issuers related to the HHS data 

validation process. In § 153.630(f)(1), we 

proposed 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 proposed in 

§ 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 

§ 164.308, § 164.310, and § 164.312. We 

did not receive any comments on these 

provisions, and are finalizing them as 

proposed. 

6. State-Submitted Alternate Risk 

Adjustment Methodology 

HHS received an alternate risk 

adjustment methodology from one State, 

the Commonwealth of Massachusetts. 

We are certifying this methodology as a 

Federally certified methodology for use 

in Massachusetts. A summary of that 

methodology, as prepared by the 

Commonwealth, is provided below. 

More detailed information about this 

methodology can be obtained from the 

Commonwealth of Massachusetts upon 

request. In addition, the Commonwealth 

of Massachusetts must publish a State 

notice of benefit and payment 

parameters, which will contain 

additional detail, within 30 days of the 

publication date of this final rule. 

Issuers and other interested parties 

should consult both of these sources. 

Additional questions may be addressed 

to Jean Yang, Executive Director of the 

Massachusetts Health Connector, at 

(617) 933–3059. 

a. Policy Goals of the Massachusetts 

2014 State Alternate Risk Adjustment 

Methodology 

The Commonwealth of Massachusetts 

shares the same view as the Federal 

government with respect to the 

importance of the risk adjustment 

program and strives to achieve similar 

policy goals through the State-operated 

risk adjustment program powered by an 

alternate methodology. These specific 

goals include the following: 

• The risk adjustment models should 

accurately explain variation in health 

care costs; 

• The clinical classification used in 

the Commonwealth’s alternate risk 

adjustment models should link risk 

factors to daily clinical practice and 

should be clinically meaningful to 

providers; 

• The design of the clinical 

classification and the risk weights in the 

Commonwealth’s alternate risk 

adjustment models should encourage 

favorable behavior from providers and 

health plans and discourage unfavorable 

behavior; 

• The design of the Commonwealth’s 

alternate risk adjustment methodology 

should reflect the Commonwealth’s 

market characteristics, experience with 

risk adjustment, and be supportive of 

other health care reform initiatives in 

the Commonwealth; 

• The Commonwealth’s alternate risk 

adjustment methodology should use 

data that is complete, high quality and 

available in a timely fashion; 

• The Commonwealth’s alternate risk 

adjustment methodology should be easy 

for stakeholders to understand and 

implement; 

• The methodology should account 

for risk selection across metal levels; 

• The risk adjustment models and 

additional adjustment factors should 

provide stable risk scores over time and 

across plans; 

• The operations of the 

Commonwealth’s risk adjustment 

program should minimize 

administrative costs; and 

• There should be reasonable 

alignment among different elements of 

the alternate methodology. 

Starting from the same conceptual 

foundation as the proposed HHS risk 

adjustment methodology, the proposed 

Massachusetts alternate methodology is 

designed to address a number of 

Massachusetts-specific market 

characteristics and leverage existing 

data infrastructures to reduce the 

administrative burden for health plan 

issuers as well as for the Health 

Connector, which will be administering 

the program. 

b. Conceptual Framework for Risk 

Adjustment Funds Transfer 

Massachusetts’s conceptual 

framework for calculating risk 

adjustment funds transfer is consistent 

with the proposed Federal risk 

adjustment methodology in that funds 

transfer is based on State average 

premium and should provide plans with 

payments to help cover excess actuarial 

risk due to risk selection; that is, risk 

exposure beyond the premiums issuers 

can charge reflecting allowable rating 

and their applicable cost factors. 

Massachusetts proposes a single, 

merged risk adjustment pool for metal 

level plans in the small group and nongroup market to be consistent with 

Massachusetts’s merged market rules. 

Consistent with the proposed HHS 

methodology, Massachusetts proposes 

to keep catastrophic plans in their own 

risk adjustment pool, separate from the 

rest of the merged market. 

Massachusetts believes this will help 

ensure the accuracy of the risk 

adjustment calculations as well as the 

affordability of the catastrophic plans 

because funds transfer will take place 

amongst the catastrophic plans only, 

instead of between the catastrophic 

plans and the metal level plans if all 

plans were merged in one risk 

adjustment pool. It should be noted that 

under the current regulations in 

Massachusetts, pricing of the 

catastrophic plans is subject to the same 

merged market rules as the small group 

and non-group plans. Keeping 

catastrophic plans in a separate risk 

adjustment pool does not segment the 

market from a pricing perspective 

because catastrophic plans are still 

subject to single risk pool requirements, 

and risk adjustment is retrospective and 

applies to all non-grandfathered small 

group and non-group health plans, 

including catastrophic plans. 

Due to the lack of empirical data, 

Massachusetts is unable to calibrate a 

separate risk adjustment model for 

catastrophic plans. It proposes to use 

the bronze risk adjustment model and 

an actuarial value adjustment factor of 

0.57 in the funds transfer calculation for 

catastrophic plans in the initial years, 

and revisit this approach in future 

recalibrations when empirical data is 

available. Massachusetts proposes to 

treat student health plans and plans that 

are not subject to the Affordable Care 

Act Market Reform Rules in the same 

manner as the Federal methodology. 

c. Data Used to Develop Risk 

Adjustment Methodology 

Massachusetts used data from three 

different sources to develop the risk 

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15440 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

13Available at: http://www.cms.gov/ResearchStatistics-Data-and-Systems/Research/ 

HealthCareFinancingReview/downloads/ 

04summerpg119.pdf . 

14Massachusetts’s list of HCCs is available in 

Table 16 of this alternate methodology, while HHS’s 

list of HCCs is published elsewhere in this rule. 

Note that the two lists are numbered differently, 

and different ICD–9 codes are associated with 

different HCCs and DxGs. 

adjustment models and additional 

adjustment factors in the 

Commonwealth’s alternate risk 

adjustment methodology: 

• For the non-group and small group 

market, data from the Massachusetts All 

Payer Claims Database (APCD). 

Calendar Year 2010, and 7/1/2011 to 6/ 

30/2012 membership and claims data 

from the Massachusetts APCD. The 

Commonwealth obtained data extracts 

on non-group policy holders and small 

group members for group size up to 100 

with ages 0 to 64 and eligible for 

medical and pharmacy coverage during 

the two observation periods. 

Collectively, Massachusetts thinks they 

are representative of a significant 

portion of the population that is subject 

to the risk adjustment program under 

the Affordable Care Act. About 700,000 

unique individuals were included in the 

model development sample. 

• For enrollees under 300 percent FPL 

who are not eligible for Medicaid, data 

from the Commonwealth Care program. 

Fiscal Years 2010 and 2011 

Commonwealth Care program’s 

membership and claims. More than 

100,000 unique members with ages 0 to 

64 from Commonwealth Care met the 

selection criteria and were included in 

the model development sample. 

Commonwealth Care is a subsidized 

insurance program created as part of the 

2006 Massachusetts health care reform 

law. It is administered by the Health 

Connector, and serves individuals with 

income up to 300 percent FPL who are 

not eligible for Medicaid and generally 

do not have access to employersponsored health insurance. As of 

December 2012, there are close to 

198,000 members enrolled in the 

program. Massachusetts anticipates that, 

effective January 1, 2014, a portion of 

the current Commonwealth Care 

members will enroll in the expanded 

Medicaid program, and the remainder 

will access QHPs with tax credits 

through the Exchange. 

Most health plan issuers that 

participate in the current 

Commonwealth Care program are local 

Medicaid managed care organizations 

(‘‘MMCOs’’) whose provider 

reimbursement level is typically lower 

than that of the commercial payers in 

Massachusetts for the same types of 

services. To normalize plan paid 

amount between the APCD data and the 

Commonwealth Care data, 

Massachusetts re-priced Commonwealth 

Care claims using unit prices derived 

from the APCD data. This was done 

using the Milliman Health Cost 

Guidelines® (‘‘HCG’’) Grouper. The HCG 

categorizes claims into more than 80 

types of services, allowing us to directly 

compare unit prices by service type 

between the Commonwealth Care 

claims and the APCD claims. There 

were service types with very few 

members in either dataset. To obtain 

robust unit cost estimates, 

Massachusetts consolidated them with 

other service types that are similar in 

nature. 

• For additional sample size for 

calibration purposes, Calendar Year 

2010 Truven Health Analytics 

Marketscan® Commercial Claims and 

Encounters database for New England 

States. Massachusetts selected members 

with ages 0 to 64 who were eligible for 

medical and pharmacy coverage in PPO 

or Comprehensive plan type, and resampled them to match the age/gender 

distribution of the APCD data. The 

primary reason for using the 

Marketscan® data was to obtain a larger 

sample size which allowed for 

calibrating more robust risk adjustment 

models and to strengthen the data 

quality of the overall model 

development sample. Massachusetts 

notes that data from Marketscan®

mostly represent large group experience. 

However, Massachusetts thinks that it is 

still a useful additional data source. 

More than 700,000 unique members 

were included from the Marketscan®

New England States. 

The consolidated claims data was 

then processed again through the 

Milliman Health Cost Guidelines®

grouper system. The results from the 

grouper were compared to regional cost 

and utilization benchmarks and checked 

for reasonability. In this process, 

Massachusetts excluded some 

commercial payers in the APCD data, as 

well as certain claim lines in the 

Marketscan® data. 

d. Risk Adjustment Models 

(1) HCC Clinical Classification 

Using claims from clinically valid 

sources (for example, laboratory, 

radiology, durable medical equipment, 

and transportation are not considered 

clinically valid), Massachusetts grouped 

diagnosis codes using the HCC 

classification system. Massachusetts 

referenced the HCC classification 

system in Pope et al. (2000), a Federally 

funded research study that laid the 

foundation for the CMS HCC risk 

adjustment payment system for 

Medicare Advantage.13 The 

classification system in Pope et al. 

(2000) contains approximately 780 

DxGroups which are then aggregated to 

more than 180 condition categories 

(‘‘CC’’s). Clinical hierarchies are then 

applied on the CCs to create HCCs. 

Because the HCC classification system 

was originally designed for the senior 

population, the designs of the condition 

categories may not be fully reflective of 

the characteristics of the commercial 

population. Through an iterative 

process using the model development 

sample, Massachusetts identified 20 

DxGroups that were not very well 

predicted under the original HCC 

grouping and promoted them into their 

own HCCs. 

When determining acceptable types of 

claims for grouping the HCCs, 

Massachusetts modified the approach 

outlined by Pope et al. (2000) to ensure 

that risk adjustment does not create 

unintended consequences with respect 

to how care is accessed in the current 

Massachusetts market environment. For 

example, Massachusetts accepted 

diagnosis codes from visits/encounters 

with nurse practitioners and physician 

assistants, recognizing that in patientcenter medical home and ACO care 

settings, nurse practitioners and 

physician assistants play active and 

important roles in preventive care and 

chronic care management. 

Massachusetts also accepted diagnosis 

codes in claims from skilled nursing 

facilities and ambulatory surgical 

centers if the claims were coded by a 

clinician. 

In the process of revising the original 

HCCs to better reflect the characteristics 

of the commercial population, 

Massachusetts followed the same 10 

principles for designing a risk 

adjustment classification system as 

discussed in the proposed Federal risk 

adjustment methodology. 

Compared with the 127 HHS-defined 

HCCs used by the Federal methodology, 

Massachusetts’s methodology includes 

162 Massachusetts-defined HCCs.14

Below, Massachusetts discusses the key 

considerations with regard to the 

Commonwealth’s decision to apply a 

more expansive set of condition 

categories. 

Risk adjustment is a premium 

redistribution process that equalizes 

actuarial risks amongst a State’s health 

plan issuers and helps stabilize 

premiums under modified community 

rating and individual mandate. 

Conceptually, risk adjustment models 

should be as accurate as possible while 

minimizing the potential for ‘‘gaming’’ 

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and coding creep. A more accurate 

model typically requires a higher 

number of predictive factors, and in the 

case of the HCCs, more HCCs. However, 

having more HCCs may also open up 

more opportunities for coding creep and 

gaming of the system. Therefore, a 

careful balance must be achieved. 

Although Massachusetts acknowledges 

that its higher number of HCCs may 

create some added potential for gaming 

or coding creep, it believes this risk is 

minimal because it will use only certain 

claims types and certain provider types, 

will impose clinical hierarchies, and 

will exclude certain vague diagnoses 

and codes subject to discretionary 

coding. Further, Massachusetts and its 

issuers have experience with the 

necessary best practices of risk 

adjustment and intend to implement an 

effective data validation process. 

The Affordable Care Act risk 

adjustment program is designed to be a 

budget-neutral revenue redistribution 

among issuers. Health insurance issuers 

expect fair and adequate transfer of 

funds; that is, member risk profiles 

should be accurately stratified and 

correctly ranked. 

The complete list of the condition 

categories included in the 

Massachusetts models is provided in 

Table 16. Although Massachusetts 

includes more HCCs than under the 

proposed Federal methodology, the 

Commonwealth notes that most 

commercial risk adjustment models use 

almost twice as many condition 

categories as it includes here. 

(2) HCC Models 

Similar to the HHS approach, 

Massachusetts calibrated models for 

bronze, silver, gold and platinum 

benefit tiers separately based on 

actuarial value. Due to the lack of 

empirical data, Massachusetts is unable 

to apply a separately-calibrated risk 

adjustment model for catastrophic plans 

until a sufficient amount of data 

becomes available in the future. At the 

present time, it plans to apply the risk 

adjustment model developed for bronze 

plans to catastrophic plans, and 

proposes to use the actuarial value 

adjustment factor of 0.57 (as provided 

by the Federal methodology) to account 

for benefit design related utilization 

differences between catastrophic plans 

and other metal level plans. For 

calculating funds transfer, 

Massachusetts plans to keep the 

catastrophic plans in their own risk 

adjustment pool in the initial years, 

which is consistent with the proposed 

Federal methodology. Please also refer 

to the conceptual framework for risk 

adjustment funds transfer above for 

more information on Massachusetts’s 

treatment of catastrophic plans in risk 

adjustment. 

The model dependent variable is total 

plan paid amount, or ‘‘plan liability.’’ 

Factors or explanatory variables 

included in the risk adjustment models 

are—1 constant term, 2 age/gender 

factors, 162 HCCs and 2 disease 

interaction terms. Unlike the proposed 

Federal methodology where there are 3 

sets of risk weights by age cohort for 

each metal level, that is, 15 models in 

total, Massachusetts’s models do not 

contain separate risk weights by age 

cohort. The Massachusetts methodology 

has 4 models, one for each metal level. 

The bronze model will be applicable to 

both the bronze plans and the 

catastrophic plans. 

In risk adjustment modeling work, 

partial-year eligibility is typically 

addressed by annualizing the dependent 

variable and weighting the least squares 

regressions by the fraction of eligibility. 

Massachusetts began modeling using 

this approach and found that the 

predictive accuracy for members with 

short eligibility, especially newborns, 

was low. Upon further analyses, 

Massachusetts believes that this was 

related to annualizing the dependent 

variable and using eligibility duration as 

weight in regressions. As a result 

Massachusetts explored nonlinear 

modeling techniques and developed a 

set of factors to adjust for partial-year 

eligibility. In its risk adjustment models, 

the minimum eligibility duration 

requirement is 1 month. 

Massachusetts’s thinking on this issue 

reflects the Commonwealth’s experience 

with programs that have high turnover 

rates, such as the Commonwealth Care 

program. Massachusetts believes that 

prediction biases associated with 

partial-year eligibility could aggravate 

selection issues if not addressed 

adequately. 

Massachusetts took an iterative 

approach to developing the risk 

adjustment models. In each iteration, 

factors with negative and/or statistically 

insignificant coefficients and factors 

without adequate sample size were 

either excluded or combined with other 

factors. The unique feature of the HCC 

risk adjustment models is clinical 

hierarchy—that is, the coefficient of a 

less severe condition category should 

not exceed the coefficient of a more 

severe condition in the same clinical 

hierarchy. This ensures clinical validity 

and preserves healthcare resource for 

treating more severe medical conditions. 

Massachusetts ensured that all 

coefficients follow the clinical 

hierarchies. Where they did not, it 

forced monotonicity in the regression 

coefficients using restricted regressions. 

Because the models are by metal 

level, one HCC may receive 4 different 

risk weights in the 4 models. Under the 

assumption that an HCC treated in a 

lower metal level plan should not lead 

to higher plan liability than if it were 

treated in a higher metal level plan, 

Massachusetts also forced monotonicity 

by HCC across metal levels. 

In the final models, all factors have 

nonnegative and statistically significant 

coefficients, and have met the 

monotonicity requirements of the HCCs 

and the monotonicity requirements 

Massachusetts imposed by metal level. 

Massachusetts also checked that the 

member-level total predictions are 

monotonic across benefit tiers by age/ 

gender groups. Table 17 provides the 

full set of coefficients. 

Below is an example of how to 

calculate an individual risk score from 

these HCC models. 

Example: Member 001, male, 25 years old, 

is enrolled in a Gold plan for 6 months, and 

has three HCCs-HCC005, HCC032, and 

HCC072. 

Member Risk Score = Constant Term + 

Demographic Factor + Sum (Medical 

Risk Factors)/Duration Adjustment 

Factor 

= 0.108698 + 0 + (4.203378 + 1.093277 + 

4.025404)/0.742262 

= 12.667685 

The Constant Terms, Demographics 

Factor and Medical Risk Factors are 

provided in Table 17. The Duration 

Adjustment Factors are provided in 

Table 18. 

(3) Predictive Accuracy 

The final model R-Squared is 

provided below in Table 12. 

TABLE 12—FINAL MODEL R-SQUARED

Counts of 

Unique 

Members 

Model RSquared for 

Predicting 

Paid $PMPY 

(percent) 

Platinum .... 344,472 48.54 

Gold .......... 171,207 52.91 

Silver ......... 415,245 46.66 

Bronze ...... 193,725 47.58 

These are comparable to the RSquared levels observed in many 

commercial risk adjustment models. 

Massachusetts also validated the models 

using a more recent data extract from 

the Commonwealth’s APCD and 

obtained similar R-Squared values. 

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e. Adjusting for Induced Demand 

(1) Adjusting for Metallic Tier and CostSharing Reduction 

In the proposed rule, a set of induced 

utilization adjustment factors were 

provided to account for the expected 

utilization level differences associated 

with different benefit levels of plans, as 

well as those that result from CSRs 

applied to Silver Variation plans. 

Massachusetts proposes to use the 

HHS proposed induced demand factors 

to adjust for induced utilization tied to 

metallic tiers. In terms of adjusting for 

induced utilization associated with CSR 

through Silver Variation plans, 

however, its methodology must 

appropriately account for 

Massachusetts’s unique circumstance as 

related to the anticipated cost-sharing 

wrap above and beyond the Federal 

CSR. 

As a result, from the perspective of 

induced utilization adjustment, the 

factors supplied in the HHS 

methodology (specifically calibrated for 

target AVs of 73 percent, 87 percent and 

94 percent) may not be adequate for 

Massachusetts. To overcome this 

limitation, Massachusetts constructed a 

continuous induced demand curve by 

fitting a polynomial trend line to the 

HHS proposed induced utilization 

factors by metal level, which 

Massachusetts extended to 100 percent 

AV and validated as described below. 

Using the APCD and Commonwealth 

Care data sets Massachusetts calculated 

an average member-month-weighted 

risk score and an average PMPM claim 

amount for each metallic tier. It then 

backed out the average risk score to 

calculate a risk-neutral PMPM claim 

amount for each metallic tier. 

Massachusetts performed this analysis 

separately for non-group and small 

group after adjusting the non-group 

results for the impact of non-group 

selection. The difference in the risk 

neutral rate by tier is the impact of 

benefit design induced utilization. With 

data from both the APCD and 

Commonwealth Care, Massachusetts 

was able to populate the curve with a 

continuous range of AV values 

including those that are close to 100 

percent. 

The sample size for bronze and silver 

metal levels was too small to be credible 

but for the gold and platinum metal 

levels the results were consistent with 

the HHS factors. Massachusetts 

determined that this validated its 

decision to use the HHS-proposed 

induced demand factors to adjust for 

induced utilization tied to metallic tiers. 

For plans subject to anticipated costsharing wrap subsidies Massachusetts 

intends to use the same induced 

demand curve to determine the 

increased utilization as a result of 

subsidized cost sharing. In Table 13 

below it has listed induced demand 

factors by actuarial value in 2 percent 

increments. 

TABLE 13—INDUCED DEMAND

FACTORS

Plan AV 

Induced 

demand 

factor 

0. 70 ...................................... 1. 000 

0. 72 ...................................... 1. 008 

0. 74 ...................................... 1. 017 

0. 76 ...................................... 1. 027 

0. 78 ...................................... 1. 037 

0. 80 ...................................... 1. 049 

0. 82 ...................................... 1. 061 

0. 84 ...................................... 1. 073 

0. 86 ...................................... 1. 087 

0. 88 ...................................... 1. 101 

0. 90 ...................................... 1. 117 

0. 92 ...................................... 1. 132 

0. 94 ...................................... 1. 149 

0. 96 ...................................... 1. 167 

0. 98 ...................................... 1. 185 

(2) Adjusting for Non-Group Selection 

The proposed Market Reform Rule 

and the proposed HHS notice of benefit 

and payment parameters for 2014 

contemplate separate risk pools for 

individual and small group policies and 

modified community rating to be 

applied separately within each risk 

pool. The Commonwealth has had a 

merged small and non-group market 

since its landmark reform in 2006, 

where small groups and non-group 

plans are subject to the same index rate 

and pricing methodology. 

In order to determine if there is an 

underlying selection dynamic related 

only to members’ group versus nongroup status, Massachusetts applied 

concurrent risk adjustment models 

developed for the Commonwealth to 

merged market membership and claims 

data from the Commonwealth’s APCD. 

The models account for cost variations 

due to demographics, medical 

comorbidities and plan benefit design. 

The risk-adjusted paid amount was 

calculated at the member level. 

Members were grouped by non-group 

versus small group. Groups of 1 were 

treated as non-group policies in its 

analysis. The average actual annual paid 

amount and the average risk-predicted 

annual paid amount were compared in 

total and by metal level. The ratio of 

actual paid to the risk-predicted paid for 

those enrolled in non-group products 

was compared to the same ratio for 

those enrolled in small group products. 

Any meaningful difference between the 

ratios for these two groups would 

indicate that there is a cost difference 

between the types of members—that is, 

non-group versus small group—that is 

not explained by the characteristics 

accounted for in the risk adjustment 

models. 

Massachusetts found a higher average 

ratio for the non-group market segment. 

However, it also found that this 

selection was limited to platinum plans. 

As such, Massachusetts’s methodology 

includes an induced demand factor that 

will only be applied to those enrolled in 

platinum plans. Based on two years’ 

worth of APCD data, Massachusetts 

found that on average the ratio for 

platinum plans was 5.7 percent higher 

for non-group over small group, while 

for gold plans it was broadly consistent 

between non-group and small group. 

The Commonwealth plans to recalibrate this factor periodically based 

on up-to-date experience of the market. 

This factor will be applied to 

individuals who enrolled in platinum 

plans and do not receive premium 

subsidies or CSRs. The individual risk 

score will be multiplied by this factor. 

This adjustment mechanism as part of 

the risk adjustment methodology is 

uniquely relevant to the merged market 

in Massachusetts. In other States where 

there are separate risk pools for 

individual plans and small group plans 

the selection differential is embedded in 

the underlying claims level of each risk 

pool. 

f. Calculation of Funds Transfer 

The funds transfer calculation 

Massachusetts proposes is structurally 

the same as the proposed Federal 

methodology, although some of the 

adjustment factors included in the 

Commonwealth’s calculation are 

defined differently and were developed 

from the Commonwealth’s own data. 

Massachusetts will use the following 

formula to calculate risk adjustment 

funds transfers. 


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(1), where 

Ti = plan i’s risk adjustment transfer amount 

PLRSi = plan i’s plan liability risk score 

PS = average premium for Massachusetts 

AVi = plan i’s metal level AV 

ARFi = allowable rating factor for plan i 

IDFi = plan i’s induced demand factors for 

benefit design and non-group selection 

GCFi = plan i’s geographic cost factor 

si= plan i’s share of the Commonwealth’s 

enrollment 

The first fraction in formula (1) is 

premium with risk selection, and the 

second fraction is premium without risk 

selection. Each component will average 

to 1.0 across all plans in the 

Commonwealth’s merged market. 

Massachusetts will keep catastrophic 

plans in their own risk adjustment pool. 

In this case, formula (1) will apply to 

the catastrophic risk adjustment pool 

and the metal level plans risk 

adjustment pool separately. 

The calculation of PLRSi, plan i’s plan 

liability risk score, is the enrolled 

member month weighted risk scores of 

plan i using the risk adjustment models 

and adjusted by billable member 

months. It is calculated as shown by 

HHS. See the section above on HCC 

models and Tables 17 and 18 below for 

the risk weights and how to calculate 

member level risk scores. Massachusetts 

proposes to use this approach for 

calculating plan liability risk scores 

under the assumption that the proposed 

Federal rule for family rating will be 

replicated by the Commonwealth. 

The calculation of the State average 

premium is as shown by HHS. 

Massachusetts will use the Federal 

adjustment factors for plan AV in the 

Commonwealth’s funds transfer 

calculations. The AV adjustment factors 

(AVi for plan i) are listed in Table 14 

below. 

TABLE 14—AV ADJUSTMENT FACTORS

Metal level AV adjustment 

factor 

Catastrophic .......................... 0.57 

Bronze .................................. 0.60 

Silver ..................................... 0.70 

Gold ...................................... 0.80 

Platinum ................................ 0.90 

Massachusetts’s methodology 

includes two separate induced demand 

factors (IDFi for plan i), one relates to 

benefit design and CSR and one for 

group selection. These two factors are 

multiplicative, except for individuals 

who will receive Federal subsidies and 

additional State subsidies, because their 

cost-sharing level is prescribed rather 

than selected. 

Allowable rating factors (ARFi for 

plan i) will include the State-defined 

uniform age rating curve. Pending final 

State decision on all rating factors 

applicable to 2014, Massachusetts will 

provide additional specifications as 

needed on additional adjustment steps 

to ensure the accuracy of risk 

adjustment. Massachusetts proposes to calculate 

geographic cost factors consistent with 

the HHS methodology, except that it 

plans to use gold plans as the 

benchmark for the calculations because 

gold plans are expected to attract the 

most enrollment in the Massachusetts 

merged market after 2014, whereas 

silver plans will likely have relatively 

low enrollment based on the product 

market in Massachusetts today. Having 

a data sample with sufficient enrollment 

is necessary in order to credibly 

measure regional cost differences. 

Massachusetts has not yet made a final 

decision on the number of rating areas, 

permissible range of the rates by area, or 

the schedule for implementing the 

changes. However, regardless of the 

specific decisions that determine the 

actual factors, the calculations will 

follow the formula shown by HHS. 

g. Data Collection Approach 

Massachusetts proposes an approach 

to risk adjustment data collection that 

leverages the Commonwealth’s existing 

APCD as a resource for data submission 

to support risk adjustment data 

collection. This approach facilitates 

Massachusetts’s policy goals of 

administrative simplicity and 

minimizing the number and types of 

data submissions by health plan issuers. 

Consistent with Federal requirements, it 

also facilitates the use of data that is 

complete, high in quality, and available 

in a timely fashion. Moreover, as 

elaborated below, use of the APCD 

ensures that the Commonwealth does 

not as part of risk adjustment data 

collection store any personally 

identifiable information for use as a 

unique identifier (except as may be 

required for data validation). The APCD is maintained by the 

Massachusetts Center for Health 

Information and Analysis (CHIA) and 

requires data submission from the 

following entities: Public payers, 

commercial insurance issuers, health 

maintenance organizations, third-party 

administrators, and self-insured plans. 

Data submissions must be filed 

monthly. The APCD collects payer data for all 

members living in Massachusetts. 

Health plan issuers and other payers 

submit five files each month: Member 

eligibility, medical claims, pharmacy 

claims, dental claims and provider 

details. Product description files from 

all of the payers are submitted to the 

APCD on a quarterly basis. Detailed data 

submission requirements are in place 

and available for review on CHIA’s Web 

site, http://www.mass.gov/chia/ 

researcher/health-care-delivery/hcfdata-resources/apcd/. Members of a 

Massachusetts employer group who live 

out of State are currently excluded 

unless the payer also holds a contract 

with the Commonwealth’s employee 

health administrator to provide data for 

State-covered non-resident individuals. 

The Commonwealth is working with 

CHIA and the affected data submitters 

actively to have this resolved before 

2014 to ensure the accuracy of risk 

adjustment. It is also working with 

CHIA and issuers in the Commonwealth 

to evaluate additional data elements 

needed to support risk adjustment 

calculations. 

The APCD already collects most of the 

data elements to support risk 

adjustment (see discussion of the data 

extract elements below), and nearly all 

other elements have to this date been 

scheduled to be added as part of APCD 

collection. As part of data intake, 

automated data quality checks are 

performed by CHIA. Once data are 

quality checked the subset required for 

risk adjustment are processed for 

purposes of creating an extract for risk 

adjustment calculations. Creation of the 

extract signifies the beginning of the risk 

adjustment data collection process. The 

extract provides only those data 

elements that are necessary for risk 

adjustment and contains no personally 

identifiable information for use as a 

unique identifier for an enrollee’s data. 

Using the data extract from the APCD, 

the Health Connector will be 

responsible for performing all risk 

adjustment calculations as well as 

facilitating payment and charge 

transactions. The data extracts will be 

maintained in a secure environment that 

meets applicable Federal and State 

security standards. 

Below Massachusetts describes the 

data elements currently submitted to the 

APCD that will be used to create the risk 

adjustment extract. The Commonwealth 

also reviews the Health Connector’s 

authority to use the APCD to support 

risk adjustment data collection, and 

provide additional details on data 

quality monitoring and control, data 

privacy and security standards, and the 

data management plan for risk 

adjustment operations. 

h. Available Data in APCD for Risk 

Adjustment 

As noted, the APCD already collects 

most of the data elements needed for 

risk adjustment. Member files include 

member and subscriber identifiers, 

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relationships, demographics, 

information about the payer, product 

and coverage, and duration of 

enrollment. Claims files include all paid 

claims (including encounter data on 

capitated services) for covered services, 

including but not limited to 

institutional and professional services, 

therapies, durable medical equipment 

(DME), transportation, laboratory 

services, imaging, and skilled nursing. 

Pharmacy files include all prescribed 

and dispensed medications. Dental 

claims files include all treatments and 

services. Provider files support the 

identification of providers by specialty 

and location. Product files provide 

limited information about the different 

insurance products that correspond to 

the Member file. 

On the Commonwealth of 

Massachusetts Web site, http:// 

www.mass.gov/chia/researcher/healthcare-delivery/hcf-data-resources/apcd/ 

submitting-data-to-theapcd.html#regulations, it has made 

available a table of a subset of the data 

elements that are currently collected 

from payers. It will use the identified 

elements as inputs for calculating risk 

adjustment funds transfers and the 

assignment of a member to the correct 

plan. 

There are data elements required to 

calculate risk adjustment funds transfer 

that the APCD currently does not 

collect, such as monthly premium, 

employer zip code, household income 

level, Indian status, and AV or inputs 

used to calculate AV using the Federal 

AV calculator. Massachusetts is 

currently working with CHIA, other 

State agencies, and the issuers in 

Massachusetts to add these data 

elements as part of APCD data 

collection and is working with plans to 

have them submitted by June 1, 2013. 

Some data elements—Indian status and 

household income—will be submitted 

to the APCD via the Exchange. 

In addition, certain plans may not 

have sufficient claims experience 

reported in the APCD. This gap may 

occur because plans may be exempt 

from data submission or are new to the 

Massachusetts market. Current APCD 

regulations exempt small plans with 

less than 1,000 covered lives in 

Massachusetts-based plans from 

submitting regular data files. This 

exemption recognizes the administrative 

cost of programming and providing 

regular data extracts. Health plan issuers 

that are new to the Massachusetts 

market will need to take time to build 

up the capacity to submit data to the 

APCD on a regular basis. As such, 

Massachusetts plans to establish a 

method for small and new-to-market 

plans to submit minimally necessary 

data for risk adjustment through an 

alternate mechanism than the APCD. 

The specifications for this alternate 

submission, the secure data transfer 

methodology, and the communication of 

results to the issuers will be developed 

as part of risk adjustment operations 

and will not use any personally 

identifiable information as a unique 

identifier. 

(1) Legal Authority for the Health 

Connector To Access APCD Data for 

Risk Adjustment 

Massachusetts General Laws (M. G. 

L.) Chapter 118G§ 6 authorized the 

Division of Health Care Finance and 

Policy (DHCFP) to collect uniform 

information from public and private 

health care payers and to operate the 

Commonwealth’s APCD. The 

Commonwealth’s authority to collect, 

analyze and report health care cost and 

utilization was further expanded with 

the passage and subsequent enactment 

of Chapter 224 of the Acts of 2012. 

Section 19 of this law established CHIA 

with broad responsibility for health care 

data collection, analysis and reporting, 

including the APCD. CHIA assumes all 

of the data collection, management and 

analysis tasks previously performed by 

DHCFP. In addition, the statute enables 

CHIA to provide government agencies 

and other parties access to data for the 

purpose of lowering total medical 

expenses, coordinating care, 

benchmarking, quality analysis and 

other research, for administrative or 

planning purposes. CHIA may also 

provide information to and work with 

other State agencies to ‘‘collect and 

disseminate data concerning the cost, 

price and functioning of the health care 

system in the Commonwealth and the 

health status of individuals.’’ 

Massachusetts is currently developing 

an agreement with CHIA to obtain data 

management and analytic support to 

administer the risk adjustment program, 

consistent with M. G. L. ch. 12C which 

gives CHIA the authority to enter into 

interagency service agreements with 

other Massachusetts agencies ‘‘for 

transfer and use of data.’’ 

(2) Data Security and Privacy Protection 

As noted, under existing law and 

regulation, the Commonwealth already 

collects a range of data through its 

APCD and protects this information as 

described below. 

Specifically in relation to data 

collection under risk adjustment and 

Federal requirements, the risk 

adjustment extract created through the 

APCD will not use or store any 

personally identifiable information for 

use as a unique identifier for an 

enrollee’s data. Only those data fields 

that are reasonably necessary as part of 

the risk adjustment methodology will be 

included in the extract. 

For background, the APCD data is 

hosted on servers located at the offices 

of the Commonwealth of Massachusetts 

Executive Office of Health and Human 

Services Center for Health Information 

and Analysis at Two Boylston Street, 

Boston, Massachusetts 02116. CMS has 

approved CHIA’s application to receive 

and hold Medicare data under the 

newly created APCD category. In fact, 

CHIA was the first APCD to apply and 

be approved. CHIA is fully compliant 

with the CMS Data Use Agreement (See 

CMS DUA #20937). 

CHIA is an experienced custodian of 

protected health information. Since 

1982, CHIA (as DHCFP) has served as 

the repository for the State’s Hospital 

Discharge Data, Emergency Room Data 

and Outpatient Observation Data. CHIA 

has extensive claims processing 

experience as the operator of the State’s 

Health Safety Net program. CHIA has 

passed two independent third party 

security audits—a HIPAA security audit 

and a SAS–70 Type 2 audit. In addition, 

PCI security audits are done quarterly 

on CHIA’s web portal. 

As indicated above, the data extract 

produced by the APCD on behalf of the 

Health Connector for calculating risk 

adjustment funds transfer will contain 

no personally identifiable information 

for use as a unique identifier for an 

enrollee’s data. All personal identifiers 

will be replaced with a scrambled 

Unique Member Identification number 

that is created independent of any 

HIPAA Protected Health Information or 

other personally identifiable 

information. This number will be a 

string of letters, numbers and symbols 

that cannot be ‘‘de-encrypted’’ to yield 

decipherable data. 

The risk adjustment data extract will 

be securely transmitted into a secure 

data environment that will be 

established by the Health Connector. 

Calculations of plan actuarial risks and 

funds transfer will take place in this 

secure environment, with no personally 

identifiable information being used as a 

unique identifier. Massachusetts states 

that it has a fully HIPAA-compliant 

facility and data infrastructure in active 

use for operating the risk adjustment 

program for the Commonwealth Care 

program, which can be used for 

administering the Affordable Care Act 

risk adjustment program. Massachusetts 

also states that it is in active discussions 

with CHIA on the possibility of 

establishing a dedicated secure data 

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environment for risk adjustment at 

CHIA’s Data Center. 

Finally, leveraging funding applied 

through the Health Connector’s Level 2 

Exchange Establishment Grant 

(currently under CCIIO review), CHIA 

plans to upgrade its disaster recovery 

program to meet the performance 

requirement necessary for supporting 

risk adjustment. 

(3) Data Quality Control 

The APCD data intake and 

warehousing operation incorporates 

data quality evaluation and monitoring 

processes to ensure the integrity and 

accuracy of downstream files. 

CHIA has published a set of data 

completeness checks containing nearly 

800 unique automated tests that are 

conducted at intake within the secure 

processing environment. These checks 

are used to assess the file’s compliance 

with minimum standards. A full list of 

these checks is available on CHIA’s Web 

site: http://www.mass.gov/chia/ 

researcher/health-care-delivery/hcfdata-resources/apcd/submitting-data-tothe-apcd.html. 

When this evaluation process is 

complete, a report is generated for the 

payer’s review. The report shows the 

test results and whether the file 

‘‘passes’’ and can move forward into the 

next phase of processing. If a file does 

not pass at any point in this process, the 

APCD does not conduct any further 

processing and notifies the payer that 

errors must be corrected and the files 

resubmitted. Full resubmission of a file 

is required in order to maintain file 

integrity. 

CHIA will submit further 

supplemental information detailing its 

plans to collect data from any noncompliant issuers, including additional 

information on alternate data 

submission procedures. 

(4) Data Collection Timeline 

Massachusetts plans to provide 

quarterly funds transfer calculation 

summaries to each issuer that is subject 

to risk adjustment and will be working 

with the issuers to determine the 

appropriate content and level of detail 

for the quarterly report summaries. The 

proposed timeline for processing and 

analyzing APCD data for Calendar Year 

2014 for the purpose of risk adjustment 

is illustrated below. Massachusetts is in 

discussions with CHIA and the issuers 

regarding the timeline and also plan to 

conduct test runs to ensure the 

feasibility of the timeline and quality of 

the data collection process. 

TABLE 15—PROPOSED TIMELINE FOR RISK ADJUSTMENT DATA COLLECTION

Time period Activity 

Each quarter: 

Months 1, 2, 3 .................................... Issuers submit data. Data submitters submit on a monthly basis. 

Month 3 + 1 month (Month 4) ................... Claims run-out period. 

Month 3 + 2 months (Month 5) .................. Quality checks at designated points in current APCD process. 

Member identity resolution and de-identification via removal of personal identifiers. 

CHIA creates extract with minimally necessary data elements and sends to Connector or Connector’s designee to calculate risk adjustment. 

Quality review by the Connector or its designee. The purpose here is to determine whether data 

meets quality standards for risk adjustment purposes. Identified issues and recommended action 

steps will be sent to CHIA and the issuers regarding resubmission. 

Month 3 + 3 months (Month 6) .................. Conducts all calculations relating to risk adjustment. 

Sends a preliminary report to data submitters for review and discusses results and observations 

with issuers. 

January through March of the following 

year.

Claims run-out period. The proposed data submission deadline is March 31 of the following year, 

i.e., 3 months claims runout. 

April of the following year .......................... Filing deadline for claims paid through March 31 of the following year. 

May of the following year .......................... Quality assurance process and creation of the data extract. 

Grouping and review with data submitters. 

June of the following year ......................... Funds transfer settlements calculated and reports generated by June 30 of the following year. 

i. Schedule of Calibration and 

Recalibration 

The risk adjustment models and the 

additional adjustment factors proposed 

will need to be calibrated and 

recalibrated periodically to be reflective 

of current market conditions, the 

evolving insured population, medical 

technology and other secular trends in 

Massachusetts. Massachusetts will 

evaluate the goodness of fit of the risk 

adjustment models and the 

appropriateness of the additional 

adjustment factors on an ongoing basis 

and recalibrate every three years if the 

evaluation justifies. On October 1, 2014, 

the entire country is expected to 

transition to ICD–10–CM coding. 

Massachusetts expects to update the 

current clinical classification system 

such that it can group ICD–10–CM 

diagnosis codes into the existing HCCs 

in 2014. However, it does not plan to 

recalibrate the risk factors in the models 

due to the lack of claims experience 

under the new coding system. 

j. Data Validation 

While not part of the risk adjustment 

methodology, Massachusetts is 

considering a range of potential data 

validation approaches. The Premium 

Stabilization Rule, § 153.350 requires 

States operating a risk adjustment 

program to conduct data validation and 

provide an appeals process. The key 

goal from Massachusetts’s perspective is 

to strike a balance between a data 

validation process that optimizes the 

identification of errors while 

implementing a workable system that is 

not administratively burdensome and 

that recognizes the zero sum nature of 

transfers between health plan issuers. 

Under the Premium Stabilization Rule, 

Massachusetts will be developing its 

approach to data validation and an 

appeals process, and will provide an 

overview of current considerations in its 

State notice of benefit and payment 

parameters. 

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15446 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

TABLE 16—LIST OF HCCS IN MASSACHUSETTS RISK ADJUSTMENT METHODOLOGY FOR 2014 

HCC Description 

HCC001 .............................. HIV/AIDS. 

HCC201 .............................. Bacteremia. 

HCC002 .............................. Septicemia/Shock. 

HCC003 .............................. Central Nervous System Infection. 

HCC004 .............................. Tuberculosis. 

HCC005 .............................. Opportunistic Infections. 

HCC202 .............................. Secondary Cancer Except Lymph Node. 

HCC203 .............................. Secondary Cancer of Lymph Node. 

HCC204 .............................. Cancer of the Brain/Nervous System/Pituitary, Pineal Glands. 

HCC205 .............................. Acute Leukemia. 

HCC008 .............................. Lung, Upper Digestive Tract, and Other Severe Cancers. 

HCC009 .............................. Lymphatic, Head and Neck, Brain, and Other Major Cancers. 

HCC010 .............................. Breast, Prostate, Colorectal and Other Cancers and Tumors. 

HCC011 .............................. Other Respiratory and Heart Neoplasms. 

HCC012 .............................. Other Digestive and Urinary Neoplasms. 

HCC013 .............................. Other Neoplasms. 

HCC015 .............................. Diabetes with Renal Manifestation. 

HCC016 .............................. Diabetes with Neurologic or Peripheral Circulatory Manifestation. 

HCC017 .............................. Diabetes with Acute Complications. 

HCC018 .............................. Diabetes with Ophthalmologic Manifestation. 

HCC019 .............................. Diabetes with No or Unspecified Complications. 

HCC020 .............................. Type I Diabetes Mellitus. 

HCC021 .............................. Protein-Calorie Malnutrition. 

HCC022 .............................. Other Significant Endocrine and Metabolic Disorders. 

HCC023 .............................. Disorders of Fluid/Electrolyte/Acid-Base Balance. 

HCC025 .............................. End-Stage Liver Disease. 

HCC026 .............................. Cirrhosis of Liver. 

HCC027 .............................. Chronic Hepatitis. 

HCC028 .............................. Acute Liver Failure/Disease. 

HCC029 .............................. Other Hepatitis and Liver Disease. 

HCC030 .............................. Gallbladder and Biliary Tract Disorders. 

HCC031 .............................. Intestinal Obstruction/Perforation. 

HCC032 .............................. Pancreatic Disease. 

HCC033 .............................. Inflammatory Bowel Disease. 

HCC034 .............................. Peptic Ulcer, Hemorrhage, Other Specified Gastrointestinal Disorders. 

HCC035 .............................. Appendicitis. 

HCC036 .............................. Other Gastrointestinal Disorders. 

HCC037 .............................. Bone/Joint/Muscle Infections/Necrosis. 

HCC038 .............................. Rheumatoid Arthritis and Inflammatory Connective Tissue Disease. 

HCC206 .............................. Spinal Stenosis. 

HCC039 .............................. Disorders of the Vertebrae and Spinal Discs (See HCC206). 

HCC040 .............................. Osteoarthritis of Hip or Knee. 

HCC041 .............................. Osteoporosis and Other Bone/Cartilage Disorders. 

HCC042 .............................. Congenital/Developmental Skeletal and Connective Tissue Disorders. 

HCC207 .............................. Hemophilia. 

HCC044 .............................. Severe Hematological Disorders (See HCC207). 

HCC045 .............................. Disorders of Immunity. 

HCC208 .............................. Hereditary Hemolytic Anemias and Coagulation Defects. 

HCC209 .............................. Toxic/Unspecified Encephalopathy. 

HCC048 .............................. Delirium and Encephalopathy (See HCC209). 

HCC049 .............................. Dementia. 

HCC050 .............................. Senility, Nonpsychotic Organic Brain Syndromes/Conditions. 

HCC051 .............................. Drug/Alcohol Psychosis. 

HCC052 .............................. Drug/Alcohol Dependence. 

HCC054 .............................. Schizophrenia. 

HCC055 .............................. Major Depressive, Bipolar, and Paranoid Disorders. 

HCC056 .............................. Reactive and Unspecified Psychosis. 

HCC057 .............................. Personality Disorders. 

HCC058 .............................. Depression. 

HCC059 .............................. Anxiety Disorders. 

HCC061 .............................. Profound Mental Retardation/Developmental Disability. 

HCC062 .............................. Severe Mental Retardation/Developmental Disability. 

HCC063 .............................. Moderate Mental Retardation/Developmental Disability. 

HCC064 .............................. Mild/Unspecified Mental Retardation/Developmental Disability. 

HCC065 .............................. Other Developmental Disability. 

HCC066 .............................. Attention Deficit Disorder. 

HCC067 .............................. Quadriplegia, Other Extensive Paralysis. 

HCC068 .............................. Paraplegia. 

HCC069 .............................. Spinal Cord Disorders/Injuries. 

HCC070 .............................. Muscular Dystrophy. 

HCC071 .............................. Polyneuropathy. 

HCC072 .............................. Multiple Sclerosis. 

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TABLE 16—LIST OF HCCS IN MASSACHUSETTS RISK ADJUSTMENT METHODOLOGY FOR 2014—Continued 

HCC Description 

HCC073 .............................. Parkinson’s and Huntington’s Diseases. 

HCC074 .............................. Seizure Disorders and Convulsions. 

HCC075 .............................. Coma, Brain Compression/Anoxic Damage. 

HCC076 .............................. Mononeuropathy, Other Neurological Conditions/Injuries. 

HCC077 .............................. Respirator Dependence/Tracheostomy Status. 

HCC078 .............................. Respiratory Arrest. 

HCC210 .............................. Post Trauma/Surgery Pulmonary Insufficiency, Incl Adult Respir Distress Syndr. 

HCC079 .............................. Cardio-Respiratory Failure and Shock (See HCC210). 

HCC080 .............................. Congestive Heart Failure. 

HCC081 .............................. Acute Myocardial Infarction. 

HCC082 .............................. Unstable Angina and Other Acute Ischemic Heart Disease. 

HCC083 .............................. Angina Pectoris/Old Myocardial Infarction. 

HCC084 .............................. Coronary Atherosclerosis/Other Chronic Ischemic Heart Disease. 

HCC085 .............................. Heart Infection/Inflammation, Except Rheumatic. 

HCC086 .............................. Valvular and Rheumatic Heart Disease. 

HCC087 .............................. Major Congenital Cardiac/Circulatory Defect. 

HCC088 .............................. Other Congenital Heart/Circulatory Disease. 

HCC092 .............................. Specified Heart Arrhythmias. 

HCC093 .............................. Other Heart Rhythm and Conduction Disorders. 

HCC095 .............................. Cerebral Hemorrhage. 

HCC096 .............................. Ischemic or Unspecified Stroke. 

HCC097 .............................. Precerebral Arterial Occlusion and Transient Cerebral Ischemia. 

HCC098 .............................. Cerebral Atherosclerosis and Aneurysm. 

HCC100 .............................. Hemiplegia/Hemiparesis. 

HCC102 .............................. Speech, Language, Cognitive, Perceptual Deficits. 

HCC104 .............................. Vascular Disease with Complications. 

HCC105 .............................. Vascular Disease. 

HCC106 .............................. Other Circulatory Disease. 

HCC107 .............................. Cystic Fibrosis. 

HCC108 .............................. Chronic Obstructive Pulmonary Disease. 

HCC109 .............................. Fibrosis of Lung and Other Chronic Lung Disorders. 

HCC110 .............................. Asthma. 

HCC111 .............................. Aspiration and Specified Bacterial Pneumonias. 

HCC112 .............................. Pneumococcal Pneumonia, Empyema, Lung Abscess. 

HCC113 .............................. Viral and Unspecified Pneumonia, Pleurisy. 

HCC114 .............................. Pleural Effusion/Pneumothorax. 

HCC115 .............................. Other Lung Disorders. 

HCC116 .............................. Legally Blind. 

HCC117 .............................. Major Eye Infections/Inflammations. 

HCC118 .............................. Retinal Detachment. 

HCC119 .............................. Proliferative Diabetic Retinopathy and Vitreous Hemorrhage. 

HCC120 .............................. Diabetic and Other Vascular Retinopathies. 

HCC122 .............................. Glaucoma. 

HCC125 .............................. Significant Ear, Nose, and Throat Disorders. 

HCC126 .............................. Hearing Loss. 

HCC128 .............................. Kidney Transplant Status. 

HCC130 .............................. Dialysis Status. 

HCC211 .............................. Acute Renal Failure. 

HCC131 .............................. Non-Acute Renal Failure (See HCC211). 

HCC132 .............................. Nephritis. 

HCC133 .............................. Urinary Obstruction and Retention. 

HCC134 .............................. Incontinence. 

HCC135 .............................. Urinary Tract Infection. 

HCC136 .............................. Other Urinary Tract Disorders. 

HCC137 .............................. Female Infertility. 

HCC138 .............................. Pelvic Inflammatory Disease and Other Specified Female Genital Disorders. 

HCC141 .............................. Ectopic Pregnancy. 

HCC142 .............................. Miscarriage/Abortion. 

HCC143 .............................. Completed Pregnancy With Major Complications. 

HCC144 .............................. Completed Pregnancy With Complications. 

HCC145 .............................. Completed Pregnancy Without Complications (Normal Delivery). 

HCC146 .............................. Uncompleted Pregnancy With Complications. 

HCC147 .............................. Uncompleted Pregnancy With No or Minor Complications. 

HCC148 .............................. Decubitus Ulcer of Skin. 

HCC150 .............................. Extensive Third-Degree Burns. 

HCC151 .............................. Other Third-Degree and Extensive Burns. 

HCC152 .............................. Cellulitis, Local Skin Infection. 

HCC154 .............................. Severe Head Injury. 

HCC155 .............................. Major Head Injury. 

HCC156 .............................. Concussion or Unspecified Head Injury. 

HCC157 .............................. Vertebral Fractures. 

HCC158 .............................. Hip Fracture/Dislocation. 

mstockstill on DSK4VPTVN1PROD with RULES2

15448 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

TABLE 16—LIST OF HCCS IN MASSACHUSETTS RISK ADJUSTMENT METHODOLOGY FOR 2014—Continued 

HCC Description 

HCC159 .............................. Major Fracture, Except of Skull, Vertebrae, or Hip. 

HCC160 .............................. Internal Injuries. 

HCC161 .............................. Traumatic Amputation. 

HCC164 .............................. Major Complications of Medical Care and Trauma. 

HCC168 .............................. Extremely Low Birthweight Neonates. 

HCC169 .............................. Very Low Birthweight Neonates. 

HCC212 .............................. Low Birthweight (1500–2499 grams) or Unspecified. 

HCC170 .............................. Serious Perinatal Problem Affecting Newborn (See HCC212). 

HCC171 .............................. Other Perinatal Problems Affecting Newborn. 

HCC172 .............................. Normal, Single Birth. 

HCC213 .............................. Bone Marrow Transplant Status/Complications. 

HCC174 .............................. Major Organ Transplant Status (See HCC213). 

HCC175 .............................. Other Organ Transplant/Replacement. 

HCC176 .............................. Artificial Openings for Feeding or Elimination. 

HCC177 .............................. Amputation Status, Lower Limb/Amputation Complications. 

HCC180 .............................. Radiation Therapy. 

HCC181 .............................. Chemotherapy. 

HCC182 .............................. Rehabilitation 

TABLE 17—PROPOSED RISK ADJUSTMENT MODELS FOR MASSACHUSETTS RISK ADJUSTMENT METHODOLOGY FOR 2014 

Factor Platinum Gold Silver Bronze/catastrophic 

Constant Term ................................................................................................. 0. 108698 0. 108698 0. 054613 0. 054613 

Female, 0–1 ..................................................................................................... 0. 120243 0. 120243 0. 120243 0. 076300 

Male, 0–1 ......................................................................................................... 0. 430573 0. 252549 0. 252549 0. 130423 

HCC001 ........................................................................................................... 4. 151453 4. 151453 3. 974417 3. 974417 

HCC201 ........................................................................................................... 5. 439483 5. 439483 5. 439483 5. 439483 

HCC002 ........................................................................................................... 4. 911655 4. 911655 4. 911655 4. 911655 

HCC003 ........................................................................................................... 2. 070673 2. 070673 2. 070673 2. 070673 

HCC004 ........................................................................................................... 1. 458104 0. 580915 0. 580915 0. 580915 

HCC005 ........................................................................................................... 4. 203378 4. 203378 4. 203378 4. 203378 

HCC202 ........................................................................................................... 6. 482786 6. 482786 6. 482786 6. 482786 

HCC203 ........................................................................................................... 6. 482786 6. 482786 5. 475333 5. 475333 

HCC204 ........................................................................................................... 6. 047288 4. 581452 4. 147687 2. 272855 

HCC205 ........................................................................................................... 10. 703344 10. 703344 10. 703344 10. 703344 

HCC008 ........................................................................................................... 2. 272855 2. 272855 2. 272855 2. 272855 

HCC009 ........................................................................................................... 1. 075169 1. 075169 1. 075169 1. 075169 

HCC010 ........................................................................................................... 1. 075169 1. 075169 1. 075169 1. 075169 

HCC011 ........................................................................................................... 1. 075169 1. 075169 1. 075169 1. 075169 

HCC012 ........................................................................................................... 0. 375903 0. 373614 0. 373614 0. 373614 

HCC013 ........................................................................................................... 0. 375903 0. 373614 0. 373614 0. 373614 

HCC015 ........................................................................................................... 0. 921977 0. 921977 0. 921977 0. 921977 

HCC016 ........................................................................................................... 0. 395184 0. 395184 0. 395184 0. 395184 

HCC017 ........................................................................................................... 0. 395184 0. 395184 0. 395184 0. 320869 

HCC018 ........................................................................................................... 0. 320869 0. 320869 0. 320869 0. 320869 

HCC019 ........................................................................................................... 0. 320869 0. 320869 0. 320869 0. 320869 

HCC020 ........................................................................................................... 0. 844671 0. 844671 0. 769198 0. 769198 

HCC021 ........................................................................................................... 8. 780537 8. 780537 8. 780537 8. 780537 

HCC022 ........................................................................................................... 0. 976845 0. 976845 0. 976845 0. 976845 

HCC023 ........................................................................................................... 1. 346099 1. 346099 1. 346099 1. 346099 

HCC025 ........................................................................................................... 1. 601166 1. 601166 1. 346120 1. 346120 

HCC026 ........................................................................................................... 0. 986228 0. 986228 0. 408007 0. 408007 

HCC027 ........................................................................................................... 0. 460726 0. 460726 0. 408007 0. 408007 

HCC028 ........................................................................................................... 1. 601166 1. 601166 1. 346120 1. 346120 

HCC029 ........................................................................................................... 0. 408007 0. 408007 0. 408007 0. 408007 

HCC030 ........................................................................................................... 1. 977590 1. 977590 1. 882379 1. 882379 

HCC031 ........................................................................................................... 3. 749986 3. 749986 3. 749986 3. 749986 

HCC032 ........................................................................................................... 1. 093277 1. 093277 1. 093277 1. 093277 

HCC033 ........................................................................................................... 1. 790188 1. 790188 1. 595541 1. 595541 

HCC034 ........................................................................................................... 0. 940108 0. 940108 0. 940108 0. 940108 

HCC035 ........................................................................................................... 2. 683705 2. 683705 2. 683705 2. 011126 

HCC036 ........................................................................................................... 0. 405518 0. 405518 0. 377057 0. 377057 

HCC037 ........................................................................................................... 2. 952592 2. 952592 2. 952592 2. 952592 

HCC038 ........................................................................................................... 1. 094796 1. 094796 1. 094796 1. 094796 

HCC206 ........................................................................................................... 2. 098343 2. 098343 2. 098343 2. 098343 

HCC039 ........................................................................................................... 0. 569751 0. 569751 0. 569751 0. 569751 

HCC040 ........................................................................................................... 1. 094796 1. 094796 1. 094796 1. 094796 

HCC041 ........................................................................................................... 0. 311993 0. 311993 0. 311993 0. 311993 

HCC042 ........................................................................................................... 1. 125274 1. 125274 1. 125274 1. 125274 

mstockstill on DSK4VPTVN1PROD with RULES2

Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 15449 

TABLE 17—PROPOSED RISK ADJUSTMENT MODELS FOR MASSACHUSETTS RISK ADJUSTMENT METHODOLOGY FOR 2014— 

Continued 

Factor Platinum Gold Silver Bronze/catastrophic 

HCC207 ........................................................................................................... 30. 636640 30. 636640 14. 101544 7. 514115 

HCC044 ........................................................................................................... 5. 694090 5. 694090 5. 694090 5. 694090 

HCC045 ........................................................................................................... 1. 011533 1. 011533 1. 011533 1. 011533 

HCC208 ........................................................................................................... 1. 404092 1. 404092 1. 404092 1. 404092 

HCC209 ........................................................................................................... 2. 918243 2. 918243 2. 918243 2. 918243 

HCC048 ........................................................................................................... 1. 345886 1. 345886 1. 182955 1. 182955 

HCC049 ........................................................................................................... 1. 216549 1. 216549 1. 086774 1. 086774 

HCC050 ........................................................................................................... 1. 019842 1. 019842 1. 019842 1. 019842 

HCC051 ........................................................................................................... 1. 343297 1. 343297 1. 343297 1. 343297 

HCC052 ........................................................................................................... 0. 845301 0. 845301 0. 845301 0. 845301 

HCC054 ........................................................................................................... 2. 625043 2. 625043 2. 161218 2. 161218 

HCC055 ........................................................................................................... 0. 848033 0. 848033 0. 772826 0. 772826 

HCC056 ........................................................................................................... 0. 848033 0. 848033 0. 772826 0. 772826 

HCC057 ........................................................................................................... 0. 338729 0. 338729 0. 338729 0. 338729 

HCC058 ........................................................................................................... 0. 338729 0. 338729 0. 338729 0. 338729 

HCC059 ........................................................................................................... 0. 293976 0. 234661 0. 234661 0. 234661 

HCC061 ........................................................................................................... 2. 234452 0. 911836 0. 911836 0. 416412 

HCC062 ........................................................................................................... 0. 551357 0. 551357 0. 416412 0. 416412 

HCC063 ........................................................................................................... 0. 551357 0. 416412 0. 416412 0. 416412 

HCC064 ........................................................................................................... 0. 416412 0. 416412 0. 416412 0. 206061 

HCC065 ........................................................................................................... 0. 315057 0. 315057 0. 315057 0. 206061 

HCC066 ........................................................................................................... 0. 229744 0. 229744 0. 206061 0. 206061 

HCC067 ........................................................................................................... 5. 447025 5. 447025 5. 447025 5. 447025 

HCC068 ........................................................................................................... 2. 224234 2. 224234 2. 224234 2. 224234 

HCC069 ........................................................................................................... 2. 098343 2. 098343 2. 098343 2. 098343 

HCC070 ........................................................................................................... 1. 390521 1. 390521 1. 390521 1. 390521 

HCC071 ........................................................................................................... 1. 209341 1. 209341 1. 209341 1. 209341 

HCC072 ........................................................................................................... 4. 312296 4. 025404 4. 025404 4. 025404 

HCC073 ........................................................................................................... 1. 217710 1. 217710 1. 217710 1. 217710 

HCC074 ........................................................................................................... 1. 302181 0. 980434 0. 980434 0. 980434 

HCC075 ........................................................................................................... 6. 388482 6. 388482 6. 388482 5. 638247 

HCC076 ........................................................................................................... 0. 382239 0. 382239 0. 382239 0. 382239 

HCC077 ........................................................................................................... 30. 588977 30. 588977 17. 179162 17. 179162 

HCC078 ........................................................................................................... 6. 741034 6. 741034 6. 741034 2. 760821 

HCC210 ........................................................................................................... 14. 638331 14. 638331 14. 638331 14. 638331 

HCC079 ........................................................................................................... 4. 963995 4. 963995 2. 922954 2. 760821 

HCC080 ........................................................................................................... 1. 268543 1. 268543 1. 268543 1. 268543 

HCC081 ........................................................................................................... 5. 873126 5. 873126 5. 873126 5. 873126 

HCC082 ........................................................................................................... 3. 409746 3. 409746 3. 409746 3. 170501 

HCC083 ........................................................................................................... 1. 185868 1. 185868 1. 185868 1. 185868 

HCC084 ........................................................................................................... 0. 518025 0. 518025 0. 518025 0. 518025 

HCC085 ........................................................................................................... 3. 358496 3. 358496 3. 358496 3. 358496 

HCC086 ........................................................................................................... 0. 748725 0. 748725 0. 748725 0. 748725 

HCC087 ........................................................................................................... 4. 962870 4. 456078 2. 859281 2. 119499 

HCC088 ........................................................................................................... 0. 748725 0. 748725 0. 748725 0. 748725 

HCC092 ........................................................................................................... 1. 226834 1. 226834 1. 226834 1. 226834 

HCC093 ........................................................................................................... 1. 005026 1. 005026 1. 005026 1. 005026 

HCC095 ........................................................................................................... 6. 224877 6. 224877 4. 744856 4. 744856 

HCC096 ........................................................................................................... 0. 917154 0. 917154 0. 705810 0. 705810 

HCC097 ........................................................................................................... 0. 065189 0. 065189 0. 065189 0. 065189 

HCC098 ........................................................................................................... 0. 065189 0. 065189 0. 065189 0. 065189 

HCC100 ........................................................................................................... 2. 224234 2. 224234 2. 224234 2. 224234 

HCC102 ........................................................................................................... 2. 941517 2. 941517 2. 941517 2. 941517 

HCC104 ........................................................................................................... 2. 598472 2. 598472 2. 598472 2. 598472 

HCC105 ........................................................................................................... 0. 831150 0. 831150 0. 831150 0. 831150 

HCC106 ........................................................................................................... 0. 685084 0. 685084 0. 685084 0. 685084 

HCC107 ........................................................................................................... 8. 318393 7. 678688 4. 188453 3. 417106 

HCC108 ........................................................................................................... 0. 445827 0. 445827 0. 445827 0. 445827 

HCC109 ........................................................................................................... 0. 445827 0. 445827 0. 445827 0. 445827 

HCC110 ........................................................................................................... 0. 327310 0. 327310 0. 298068 0. 298068 

HCC111 ........................................................................................................... 4. 185448 4. 185448 4. 185448 4. 185448 

HCC112 ........................................................................................................... 2. 487771 2. 487771 2. 487771 2. 487771 

HCC113 ........................................................................................................... 0. 459994 0. 459994 0. 459994 0. 459994 

HCC114 ........................................................................................................... 4. 665050 4. 665050 4. 461861 4. 461861 

HCC115 ........................................................................................................... 0. 245923 0. 245923 0. 174247 0. 174247 

HCC116 ........................................................................................................... 1. 846476 1. 846476 1. 846476 1. 846476 

HCC117 ........................................................................................................... 0. 871167 0. 871167 0. 871167 0. 293138 

HCC118 ........................................................................................................... 0. 425465 0. 303314 0. 303314 0. 303314 

HCC119 ........................................................................................................... 0. 975698 0. 975698 0. 975698 0. 975698 

HCC120 ........................................................................................................... 0. 975698 0. 629335 0. 629335 0. 387584 

mstockstill on DSK4VPTVN1PROD with RULES2

15450 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

TABLE 17—PROPOSED RISK ADJUSTMENT MODELS FOR MASSACHUSETTS RISK ADJUSTMENT METHODOLOGY FOR 2014— 

Continued 

Factor Platinum Gold Silver Bronze/catastrophic 

HCC122 ........................................................................................................... 0. 156864 0. 156864 0. 156864 0. 156864 

HCC125 ........................................................................................................... 0. 441244 0. 441244 0. 441244 0. 441244 

HCC126 ........................................................................................................... 0. 343108 0. 245527 0. 245527 0. 245527 

HCC128 ........................................................................................................... 3. 935445 3. 086230 3. 086230 3. 086230 

HCC130 ........................................................................................................... 25. 095071 25. 095071 25. 095071 25. 095071 

HCC211 ........................................................................................................... 5. 931077 5. 931077 3. 957413 3. 957413 

HCC131 ........................................................................................................... 0. 609381 0. 609381 0. 609381 0. 548312 

HCC132 ........................................................................................................... 0. 609381 0. 609381 0. 548312 0. 548312 

HCC133 ........................................................................................................... 0. 828794 0. 828794 0. 828794 0. 828794 

HCC134 ........................................................................................................... 0. 333109 0. 333109 0. 179712 0. 179712 

HCC135 ........................................................................................................... 0. 186132 0. 186132 0. 186132 0. 186132 

HCC136 ........................................................................................................... 0. 308014 0. 308014 0. 308014 0. 308014 

HCC137 ........................................................................................................... 2. 229861 2. 019901 1. 191632 1. 191632 

HCC138 ........................................................................................................... 0. 587042 0. 587042 0. 587042 0. 587042 

HCC141 ........................................................................................................... 1. 003553 1. 003553 1. 003553 0. 718760 

HCC142 ........................................................................................................... 0. 557164 0. 557164 0. 480684 0. 431174 

HCC143 ........................................................................................................... 4. 184966 4. 184966 3. 619387 3. 002414 

HCC144 ........................................................................................................... 3. 332900 2. 868669 2. 280000 1. 954919 

HCC145 ........................................................................................................... 1. 171729 0. 774339 0. 774339 0. 216043 

HCC146 ........................................................................................................... 0. 557164 0. 557164 0. 480684 0. 216043 

HCC147 ........................................................................................................... 0. 280304 0. 280304 0. 216043 0. 216043 

HCC148 ........................................................................................................... 12. 543259 12. 543259 6. 014584 6. 014584 

HCC150 ........................................................................................................... 2. 424426 2. 424426 2. 424426 2. 424426 

HCC151 ........................................................................................................... 2. 424426 2. 424426 2. 424426 2. 424426 

HCC152 ........................................................................................................... 0. 333411 0. 322440 0. 322440 0. 322440 

HCC154 ........................................................................................................... 15. 385354 15. 385354 10. 060566 10. 060566 

HCC155 ........................................................................................................... 1. 019842 1. 019842 1. 019842 1. 019842 

HCC156 ........................................................................................................... 0. 378295 0. 378295 0. 378295 0. 378295 

HCC157 ........................................................................................................... 2. 098343 2. 098343 2. 098343 2. 098343 

HCC158 ........................................................................................................... 3. 274125 3. 274125 3. 274125 3. 274125 

HCC159 ........................................................................................................... 0. 995242 0. 995242 0. 995242 0. 995242 

HCC160 ........................................................................................................... 1. 169886 1. 169886 1. 169886 1. 169886 

HCC161 ........................................................................................................... 4. 800076 4. 800076 3. 252883 3. 252883 

HCC164 ........................................................................................................... 4. 416936 4. 416936 4. 416936 4. 416936 

HCC168 ........................................................................................................... 50. 030035 31. 846702 8. 770478 1. 517088 

HCC169 ........................................................................................................... 31. 846702 31. 846702 8. 770478 1. 517088 

HCC212 ........................................................................................................... 5. 348103 4. 531656 2. 869468 1. 517088 

HCC170 ........................................................................................................... 5. 118321 3. 980982 2. 713315 1. 517088 

HCC171 ........................................................................................................... 0. 944286 0. 944286 0. 833781 0. 833781 

HCC172 ........................................................................................................... 0. 766750 0. 282812 0. 282812 0. 282812 

HCC213 ........................................................................................................... 26. 085463 26. 085463 22. 031148 22. 031148 

HCC174 ........................................................................................................... 13. 907770 13. 907770 10. 852783 6. 023029 

HCC175 ........................................................................................................... 0. 417558 0. 391105 0. 391105 0. 145153 

HCC176 ........................................................................................................... 5. 768476 5. 768476 5. 768476 5. 768476 

HCC177 ........................................................................................................... 0. 879358 0. 879358 0. 879358 0. 879358 

HCC180 ........................................................................................................... 4. 989476 4. 989476 4. 989476 4. 989476 

HCC181 ........................................................................................................... 13. 774728 13. 774728 13. 774728 13. 774728 

HCC182 ........................................................................................................... 1. 791185 1. 791185 1. 791185 1. 791185 

INT01 ............................................................................................................... 3. 869565 3. 869565 3. 869565 3. 869565 

INT02 ............................................................................................................... 1. 608754 1. 608754 1. 608754 1. 608754 

Definition of the interaction terms: 

INT01 = CANCER*IMMUNE, and INT02 

= CVD*VD, 

Where, 

CANCER = MAX (MAX (of HCC008– 

HCC014), MAX (of HCC202–HCC205)); 

IMMUNE = HCC045; 

CVD = MAX (of HCC095–HCC103); 

VD = MAX (HCC104, HCC105); 

TABLE 18—DURATION ADJUSTMENT IN RISK ADJUSTMENT MODELS IN MASSACHUSETTS RISK ADJUSTMENT

METHODOLOGY FOR 2014 

Month of eligibility Platinum Gold Silver Bronze 

1 ....................................................................................................................... 0.225160 0.343520 0.474510 1.000000 

2 ....................................................................................................................... 0.341279 0.462802 0.584191 1.000000 

3 ....................................................................................................................... 0.435275 0.550953 0.659754 1.000000 

4 ....................................................................................................................... 0.517282 0.623502 0.719223 1.000000 

5 ....................................................................................................................... 0.591389 0.686292 0.769018 1.000000 

6 ....................................................................................................................... 0.659754 0.742262 1.000000 1.000000 

7 ....................................................................................................................... 0.723686 0.793130 1.000000 1.000000 

mstockstill on DSK4VPTVN1PROD with RULES2

Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 15451 

TABLE 18—DURATION ADJUSTMENT IN RISK ADJUSTMENT MODELS IN MASSACHUSETTS RISK ADJUSTMENT

METHODOLOGY FOR 2014—Continued 

Month of eligibility Platinum Gold Silver Bronze 

8 ....................................................................................................................... 1.000000 0.840003 1.000000 1.000000 

9 ....................................................................................................................... 1.000000 1.000000 1.000000 1.000000 

10 ..................................................................................................................... 1.000000 1.000000 1.000000 1.000000 

11 ..................................................................................................................... 1.000000 1.000000 1.000000 1.000000 

12 ..................................................................................................................... 1.000000 1.000000 1.000000 1.000000 

TABLE 19—CLINICAL HIERARCHIES IN MASSACHUSETTS RISK ADJUSTMENT METHODOLOGY FOR 2014 

DISEASE HIERARCHIES Hierarchical Condition Category 

(HCC) 

If the Condition Category is Listed in this column . . . . . . Then drop the HCC(s) listed 

in this column 

Hierarchical Condition Category (HCC) Label 

5 ................................................... Opportunistic Infections ............................................................................... 112, 113, 115 

202 ............................................... Secondary Cancer Except Lymph Node .................................................... 203, 204, 8, 9, 10, 11, 12, 13 

203 ............................................... Secondary Cancer of Lymph Node ............................................................ 204, 8, 9, 10, 11, 12, 13 

204 ............................................... Cancer of the Brain/Nervous System/Pituitary, Pineal Glands .................. 8, 9, 10, 11, 12, 13 

205 ............................................... Acute Leukemia .......................................................................................... 8, 9, 10, 11, 12, 13 

8 ................................................... Lung, Upper Digestive Tract, and Other Severe Cancers ......................... 9, 10, 11, 12, 13 

9 ................................................... Lymphatic, Head and Neck, Brain, and Other Major Cancers ................... 10, 11, 12, 13 

10 ................................................. Breast, Prostate, Colorectal and Other Cancers and Tumors ................... 11, 12, 13 

11 ................................................. Other Respiratory and Heart Neoplasms ................................................... 12, 13 

12 ................................................. Other Digestive and Urinary Neoplasms .................................................... 13 

15 ................................................. Diabetes with Renal Manifestation ............................................................. 16, 17, 18, 19 

16 ................................................. Diabetes with Neurologic or Peripheral Circulatory Manifestation ............. 17, 18, 19 

17 ................................................. Diabetes with Acute Complications ............................................................ 18, 19 

18 ................................................. Diabetes with Ophthalmologic Manifestation .............................................. 19 

25 ................................................. End-Stage Liver Disease ............................................................................ 26, 27, 28, 29, 34, 36 

26 ................................................. Cirrhosis of Liver ......................................................................................... 27, 29 

27 ................................................. Chronic Hepatitis ......................................................................................... 29 

28 ................................................. Acute Liver Failure/Disease ........................................................................ 29 

31 ................................................. Intestinal Obstruction/Perforation ................................................................ 34, 36 

32 ................................................. Pancreatic Disease ..................................................................................... 36 

33 ................................................. Inflammatory Bowel Disease ...................................................................... 34, 36 

34 ................................................. Peptic Ulcer, Hemorrhage, Other Specified Gastrointestinal Disorders ..... 36 

38 ................................................. Rheumatoid Arthritis and Inflammatory Connective Tissue Disease ......... 39, 40 

206 ............................................... Spinal Stenosis ........................................................................................... 39 

207 ............................................... Hemophilia .................................................................................................. 44, 208 

44 ................................................. Severe Hematological Disorders ................................................................ 208 

209 ............................................... Toxic/Unspecified Encephalopathy ............................................................. 48, 50 

48 ................................................. Delirium and Encephalopathy ..................................................................... 50 

49 ................................................. Dementia ..................................................................................................... 50 

51 ................................................. Drug/Alcohol Psychosis .............................................................................. 52 

54 ................................................. Schizophrenia .............................................................................................. 55, 56, 57, 58, 59 

55 ................................................. Major Depressive, Bipolar, and Paranoid Disorders .................................. 56, 57, 58, 59 

56 ................................................. Reactive and Unspecified Psychosis .......................................................... 57, 58, 59 

57 ................................................. Personality Disorders .................................................................................. 58, 59 

58 ................................................. Depression .................................................................................................. 59 

61 ................................................. Profound Mental Retardation/Developmental Disability ............................. 62, 63, 64, 65, 66 

62 ................................................. Severe Mental Retardation/Developmental Disability ................................. 63, 64, 65, 66 

63 ................................................. Moderate Mental Retardation/Developmental Disability ............................. 64, 65, 66 

64 ................................................. Mild/Unspecified Mental Retardation/Developmental Disability .................. 65, 66 

65 ................................................. Other Developmental Disability ................................................................... 66 

67 ................................................. Quadriplegia, Other Extensive Paralysis .................................................... 68, 69, 76, 100, 157 

68 ................................................. Paraplegia ................................................................................................... 69, 76, 100, 157 

69 ................................................. Spinal Cord Disorders/Injuries .................................................................... 39, 76, 157 

70 ................................................. Muscular Dystrophy .................................................................................... 76 

71 ................................................. Polyneuropathy ........................................................................................... 76 

72 ................................................. Multiple Sclerosis ........................................................................................ 76 

73 ................................................. Parkinson’s and Huntington’s Diseases ..................................................... 76 

74 ................................................. Seizure Disorders and Convulsions ............................................................ 76 

75 ................................................. Coma, Brain Compression/Anoxic Damage ............................................... 209, 48, 50, 76 

77 ................................................. Respirator Dependence/Tracheostomy Status ........................................... 78, 210, 79 

210 ............................................... Post Trauma/Surgery Pulmonary Insufficiency, Incl Adult Respir Distress 

Syndrom.

79 

78 ................................................. Respiratory Arrest ....................................................................................... 79 

81 ................................................. Acute Myocardial Infarction ......................................................................... 82, 83, 84 

82 ................................................. Unstable Angina and Other Acute Ischemic Heart Disease ...................... 83, 84 

83 ................................................. Angina Pectoris/Old Myocardial Infarction .................................................. 84 

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15See our discussion of this distributed data 

collection approach in section III.G. of this final 

rule. 

TABLE 19—CLINICAL HIERARCHIES IN MASSACHUSETTS RISK ADJUSTMENT METHODOLOGY FOR 2014—Continued 

DISEASE HIERARCHIES Hierarchical Condition Category 

(HCC) 

If the Condition Category is Listed in this column . . . . . . Then drop the HCC(s) listed 

in this column 

85 ................................................. Heart Infection/Inflammation, Except Rheumatic ........................................ 86, 88 

86 ................................................. Valvular and Rheumatic Heart Disease ...................................................... 88 

87 ................................................. Major Congenital Cardiac/Circulatory Defect .............................................. 88 

92 ................................................. Specified Heart Arrhythmias ....................................................................... 93 

95 ................................................. Cerebral Hemorrhage ................................................................................. 96, 97, 98 

96 ................................................. Ischemic or Unspecified Stroke .................................................................. 97, 98 

97 ................................................. Precerebral Arterial Occlusion and Transient Cerebral Ischemia .............. 98 

104 ............................................... Vascular Disease with Complications ......................................................... 105, 106 

105 ............................................... Vascular Disease ........................................................................................ 106 

107 ............................................... Cystic Fibrosis ............................................................................................. 108, 109, 110, 115 

108 ............................................... Chronic Obstructive Pulmonary Disease .................................................... 109, 110, 115 

109 ............................................... Fibrosis of Lung and Other Chronic Lung Disorders .................................. 110, 115 

110 ............................................... Asthma ........................................................................................................ 115 

111 ............................................... Aspiration and Specified Bacterial Pneumonias ......................................... 112, 113, 115 

112 ............................................... Pneumococcal Pneumonia, Empyema, Lung Abscess .............................. 113, 115 

113 ............................................... Viral and Unspecified Pneumonia, Pleurisy ................................................ 115 

114 ............................................... Pleural Effusion/Pneumothorax ................................................................... 115 

119 ............................................... Proliferative Diabetic Retinopathy and Vitreous Hemorrhage .................... 120 

128 ............................................... Kidney Transplant Status ............................................................................ 130, 131, 132, 136, 175 

130 ............................................... Dialysis Status ............................................................................................. 211, 131, 132, 136 

131 ............................................... Non-Acute Renal Failure ............................................................................. 132, 136 

132 ............................................... Nephritis ...................................................................................................... 136 

137 ............................................... Female Infertility .......................................................................................... 138 

141 ............................................... Ectopic Pregnancy ...................................................................................... 142, 146, 147 

142 ............................................... Miscarriage/Abortion ................................................................................... 146, 147 

143 ............................................... Completed Pregnancy With Major Complications ...................................... 144, 145, 146, 147 

144 ............................................... Completed Pregnancy With Complications ................................................ 145, 146, 147 

145 ............................................... Completed Pregnancy Without Complications (Normal Delivery) .............. 146, 147 

146 ............................................... Uncompleted Pregnancy With Complications ............................................. 147 

150 ............................................... Extensive Third-Degree Burns .................................................................... 151 

154 ............................................... Severe Head Injury ..................................................................................... 209, 48, 50, 75, 76, 155, 156 

155 ............................................... Major Head Injury ........................................................................................ 50, 156 

157 ............................................... Vertebral Fractures ..................................................................................... 206, 39 

161 ............................................... Traumatic Amputation ................................................................................. 177 

168 ............................................... Extremely Low Birthweight Neonates ......................................................... 169, 212, 170, 171, 172 

169 ............................................... Very Low Birthweight Neonates .................................................................. 212, 170, 171, 172 

212 ............................................... Low Birthweight (1500–2499 grams) or Unspecified .................................. 171, 172 

170 ............................................... Serious Perinatal Problem Affecting Newborn ........................................... 171, 172 

171 ............................................... Other Perinatal Problems Affecting Newborn ............................................. 172 

213 ............................................... Bone Marrow Transplant Status/Complications .......................................... 175 

174 ............................................... Major Organ Transplant Status ................................................................... 175 

k. Caveats and Limitations 

In preparing its application 

Massachusetts relied on data from 

Massachusetts APCD, Commonwealth 

Care and Marketscan® New England in 

developing the risk adjustment models 

and additional adjustment factors, and 

as such the results may not apply to 

other States’ risk adjustment programs. 

Additionally, there are limitations in the 

datasets which may affect the accuracy 

and robustness of the models and 

factors presented here. 

C. Provisions and Parameters for the 

Transitional Reinsurance Program 

The Affordable Care Act directs the 

establishment of a transitional 

reinsurance program 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 equitably stabilizing 

premiums in the individual market 

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. 

In the proposed rule, we aimed to 

administer the reinsurance program to 

provide reinsurance payments in an 

efficient, fair, and accurate manner, 

where reinsurance assistance is needed 

most, to effectively stabilize premiums 

nationally. In addition, we stated our 

intent to implement the reinsurance 

program in a manner that minimizes the 

administrative burden of collecting 

contributions and making reinsurance 

payments. For example, we proposed to 

collect contributions from health 

insurance issuers and self-insured group 

health plans in all States, including 

States that elect to operate reinsurance. 

We also stated our intent to simplify 

collections by using a uniform per 

capita contribution rate. In addition, in 

the HHS-operated reinsurance program, 

we proposed to calculate reinsurance 

payments using the same distributed 

approach for data collection that we will 

use when operating the risk adjustment 

program on behalf of States.15 This 

would permit issuers to receive 

reinsurance payments using the same 

systems established for the risk 

adjustment program, resulting in less 

administrative burden and lower costs, 

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while maintaining the security of 

identifiable health information. 

In the proposed rule, we proposed 

uniform reinsurance payment 

parameters to be used across all States, 

regardless of whether the State, or HHS 

on behalf of a State, operates 

reinsurance. In addition, we proposed 

an annual calendar under which 

reinsurance contributions would be 

collected from all contributing entities, 

and reinsurance payments would be 

disbursed to issuers of reinsuranceeligible plans. Furthermore, we 

proposed to distribute reinsurance 

payments based on the need for 

reinsurance payments in each State. We 

believe that allocating contributions in 

this manner better meets States’ 

individual reinsurance needs and 

fulfills HHS’s obligation to provide 

equitable allocation of these funds 

under section 1341(b)(2)(B) of the 

Affordable Care Act, than does a policy 

that limits the disbursement of 

reinsurance payments only to the State 

in which the contributions are collected. 

Comment: One commenter requested 

that HHS consider extending the 

reinsurance program past 2016. 

Response: Section 1341 of the 

Affordable Care Act mandates that the 

transitional reinsurance program 

operate in the three year period 

beginning January 1, 2014, which we 

interpret to mean that the program will 

operate in benefit years 2014, 2015 and 

2016. As a result, we have no statutory 

authority to extend the program. We 

note that, under this final rule, 

reinsurance payments for benefit year 

2016 will be made in 2017, and section 

1341(a)(4)(B) provides that amounts 

remaining unexpended as of December 

2016 may be used to make payments 

under any reinsurance program of a 

State in the individual market in effect 

in the two-year period beginning on 

January 1, 2017. 

1. State Standards Related to the 

Reinsurance Program 

a. State-Operated Reinsurance Programs, 

Generally 

In the proposed rule, we set forth a 

reinsurance contribution and payment 

process, and the uniform contribution 

rate and reinsurance payment 

parameters that would apply to all 

States in the 2014 benefit year. We 

proposed to amend § 153.100(a)(1) to 

delete the reference to State 

modification of data collection 

frequency as set forth in the Premium 

Stabilization Rule. That deletion would 

remove the ability of a State electing to 

operate reinsurance to modify, via a 

State notice of benefit and payment 

parameters, the data collection 

frequency for issuers to receive 

reinsurance payments. Under 

§ 153.100(a)(1), a State establishing a 

reinsurance program may still 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 that specifies those 

modifications. 

In § 153.100(a)(2), we proposed that a 

State electing to collect additional 

reinsurance contributions for purposes 

of making supplemental reinsurance 

payments or using additional funds for 

supplemental reinsurance payments 

under § 153.220(d) publish 

supplemental State reinsurance 

payment parameters in its State notice 

of benefit and payment parameters. To 

create the most effective reinsurance 

program, we proposed 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 proposed 

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 would no longer be able to 

attribute additional funds for 

administrative expenses back to a State. 

We therefore proposed to amend 

§ 153.100(a)(3) of the Premium 

Stabilization Rule to clarify that any 

additional contributions collected for 

administrative expenses must be 

collected by the State operating 

reinsurance. 

Section 1341 of the Affordable Care 

Act provides that States may elect to 

operate reinsurance. Based on HHS’s 

communications with States, as of 

February 25, 2013, Maryland and 

Connecticut are the only States electing 

to operate reinsurance for 2014. 

Pursuant to § 153.100, a State that 

wishes to collect additional reinsurance 

funds pursuant to § 153.220(d) must 

publish the supplemental contribution 

rate and supplemental State reinsurance 

payment parameters in a State notice of 

benefit and payment parameters, which 

for 2014 must be published by the 30th 

day following the publication of this 

final rule. 

We are finalizing these provisions as 

proposed, with a technical amendment 

to § 153.210(a)(2) in which we clarify 

that a State’s obligation to ensure that 

each applicable reinsurance entity 

operates in a distinct geographic area 

applies regardless of whether the State 

contracts with or establishes the 

applicable reinsurance entities. As we 

also clarify below, governmental entities 

may serve as applicable reinsurance 

entities. We are also amending 

§ 153.100(a)(2) by replacing the crossreference to § 153.220(d) with 

§ 153.220(d)(1). We are making 

corresponding revisions in 

§ 153.100(d)(2); and § 153.110(b); 

153.400(a). 

Comment: One commenter requested 

that HHS prohibit States operating 

reinsurance from modifying the data 

requirements for health insurance 

issuers to receive reinsurance payments. 

Response: Although we recognize the 

efficiencies to multi-State issuers of 

having a uniform set of data 

requirements, we believe that a State 

should have the flexibility to collect the 

data it deems necessary, in the manner 

it deems most appropriate, to calculate 

reinsurance payments for issuers of nongrandfathered individual market plans 

in the State. Accordingly, we will 

permit State flexibility regarding data 

requirements. As set forth in 

§ 153.100(a)(1), a State modifying the 

data requirements must describe those 

requirements in its State notice of 

benefit and payment parameters. 

Comment: One commenter asked that 

HHS permit a governmental entity to be 

eligible to serve as an applicable 

reinsurance entity. 

Response: We interpret the definition 

of an applicable reinsurance entity in 

section 1341(c)(1) of the Affordable Care 

Act as a ‘‘not-for-profit organization,’’ 

the purpose of which is to stabilize 

premiums in the first three years of 

Exchange operation and the duties of 

which are to carry out the reinsurance 

program, to be broad enough to include 

a governmental entity. Accordingly, we 

believe that an applicable reinsurance 

entity is a not-for-profit organization 

that is exempt from taxation under 

Chapter 1 of the Internal Revenue Code 

of 1986, including a governmental entity 

and a quasi-governmental entity that 

was not created for and does not operate 

to make a profit, and carries out 

reinsurance functions under this part on 

behalf of the State. 

Comment: One commenter requested 

that HHS permit a State to obtain a 

waiver from the reinsurance program set 

forth in section 1341 of the Affordable 

Care Act. 

Response: HHS has no authority to 

grant such a waiver. As set forth in the 

Premium Stabilization Rule, if a State 

does not elect to operate reinsurance, 

HHS will operate reinsurance on behalf 

of the State. 

Comment: One commenter asked 

whether HHS will implement an 

approval process for States choosing to 

operate reinsurance, similar to the 

process used to approve States choosing 

to operate the risk adjustment program. 

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Response: Unlike the risk adjustment 

program, there will be no formal 

approval process for State-operated 

reinsurance programs. However, HHS 

will establish a consultative preimplementation process to ensure that 

each State operating reinsurance is 

ready to operate beginning in 2014. HHS 

intends to work closely with States 

throughout the duration of the 

reinsurance program to ensure States’ 

operational readiness. 

Comment: One commenter sought 

clarification on the functions that a 

State operating reinsurance must 

perform. 

Response: This final rule sets forth a 

number of functions that a State 

operating reinsurance must perform, 

consistent with the functions of the 

HHS-operated reinsurance program. For 

example, under § 153.240, a State 

operating reinsurance must ensure that 

the State’s applicable reinsurance entity 

collects data required to calculate 

reinsurance payments, makes 

reinsurance payments, and provides a 

process for reinsurance-eligible plans 

that do not generate individual enrollee 

claims in the normal course of business 

to submit claims. In addition, a State 

operating reinsurance must notify 

issuers of requests for reinsurance 

payments made and actual reinsurance 

payments to be provided. In addition to 

performing payment functions, a State 

operating reinsurance may elect to 

collect additional funds or use State 

funds under § 153.220(d)(1)(ii) or 

§ 153.220(d)(2) (proposed as (d)(3) in the 

proposed rule) to fund administrative 

expenses or set up and fund 

supplemental reinsurance payment 

parameters that ‘‘wrap around’’ the 

uniform reinsurance payment 

parameters. 

b. Reporting to HHS 

In § 153.210(e) of the proposed rule, 

we stated that a State establishing the 

reinsurance program would be required 

to provide information to HHS regarding 

all requests for reinsurance payments 

received from all reinsurance-eligible 

plans for each quarter during the benefit 

year in the State. In § 153.240(b)(2), we 

proposed that a State, or HHS on behalf 

of the State, would use the information 

collected by HHS or submitted under 

§ 153.210(e) to provide issuers of 

reinsurance-eligible plans with 

quarterly updates of requests for 

reinsurance payments for the plan 

under both the uniform payment 

parameters and any State supplemental 

payments parameters set forth under 

§ 153.232, as determined by HHS or the 

State’s applicable reinsurance entity, as 

applicable. This information could be 

used by an individual market issuer in 

developing rates in subsequent benefit 

years. We are finalizing these provisions 

as proposed, with modifications in 

§ 153.240(b)(2) to clarify that a State 

must provide to an issuer of a 

reinsurance-eligible plan the calculation 

of the total reinsurance payments 

requested under the national 

reinsurance payment parameters and 

State supplemental reinsurance 

payment parameters, on a quarterly 

basis during the applicable benefit year 

in a timeframe and manner determined 

by HHS. 

Comment: Several commenters 

supported the proposal that HHS or 

States operating reinsurance provide to 

issuers quarterly updates of requests for 

reinsurance payments made under the 

uniform payment parameters and State 

supplemental payment parameters, as 

applicable. Several commenters urged 

HHS not to require a State operating 

reinsurance to provide these quarterly 

estimates. 

Response: Because the purpose of the 

reinsurance program is to help stabilize 

premiums, and because interim 

information on reinsurance claims will 

be useful for issuers in setting rates in 

subsequent benefit years, we are 

finalizing § 153.240(b) as proposed. 

Comment: One commenter requested 

clarification on whether updates of 

reinsurance payment requests made 

would be provided on a rolling basis 

throughout the benefit year, or only after 

all reinsurance payment requests have 

been submitted. Commenters suggested 

that total payment requests across all 

issuers be specified so that issuers can 

estimate whether total payments will 

exceed total contributions. 

Response: A State operating 

reinsurance or HHS, on behalf of the 

State, will issue reports on a quarterly 

basis on the total amount of reinsurance 

requests submitted. We appreciate the 

suggestions for the quarterly reporting 

format, and will take them under 

consideration. We anticipate issuing 

guidance for States and issuers 

regarding quarterly reporting. 

c. Additional State Collections 

In § 153.220(d), we proposed that a 

State operating reinsurance 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 for additional reinsurance 

payments. In addition, under 

§ 153.220(d)(2), we proposed that 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 are finalizing 

these provisions as proposed with the 

following modification: we are deleting 

§ 153.220(d)(2), which required a State 

to 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. 

Comment: We received several 

comments asking HHS to eliminate the 

requirement set forth in § 153.220(d)(2), 

which provided that 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. 

However, one commenter encouraged 

HHS to keep this requirement. 

Response: Because HHS will no 

longer collect additional contributions 

on behalf of a State, and will not 

immediately need this information, we 

are removing § 153.220(d)(2) from this 

final rule. Any State operating 

reinsurance and electing to collect 

additional contributions under 

§ 153.220(d) must set forth any 

additional contribution rate that it elects 

to collect in its State notice of benefit 

and payment parameters. 

Comment: One commenter asked HHS 

to clarify that States may collect 

additional administrative expenses only 

when a State is operating reinsurance. 

Response: Only a State operating 

reinsurance is permitted to collect 

additional administrative expenses 

under § 153.220(d). The State must set 

forth any additional contribution rate in 

its State notice of benefit and payment 

parameters. 

Comment: One commenter asked HHS 

to prohibit States from collecting 

additional funds for administrative 

expenses. 

Response: To allow State flexibility in 

operating reinsurance, a State operating 

reinsurance will be permitted to collect 

additional funds for administrative 

expenses as the State deems necessary. 

Comment: Several commenters 

opposed the collection of additional 

funds by States from self-insured plans, 

and urged HHS to specify in regulatory 

text that States cannot collect from selfinsured plans covered by ERISA. 

Response: We reiterate that nothing in 

section 1341 of the Affordable Care Act 

or 45 CFR part 153 of this final rule 

gives a State the authority to collect any 

funds—whether under the national 

contribution rate or under an additional 

State contribution rate—from selfmstockstill on DSK4VPTVN1PROD with RULES2

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16See section 1341(d) of the Affordable Care Act. 

insured group health plans covered by 

ERISA. 

Comment: One commenter requested 

that HHS specify that the Federal 

Employees Health Benefit Act prohibits 

States from imposing additional State 

reinsurance fund collections on Federal 

Employees Health Benefits Program 

(FEHB) plans. 

Response: Although § 153.220(d) 

provides that a State may elect to collect 

additional reinsurance contributions for 

administrative expenses or reinsurance 

payments, we do not interpret section 

1341 of the Affordable Care Act or 45 

CFR part 153 of this final rule as giving 

States any additional authority to collect 

from contributing entities. Any such 

authority must come from other State or 

Federal law. 

d. State Collections 

In § 153.220(a), we proposed that if a 

State establishes a reinsurance program, 

HHS will collect all reinsurance 

contributions from all contributing 

entities for that State under a national 

contribution rate. In § 153.220(d)(3) of 

the proposed rule (which we now 

renumber as § 153.220(d)(2)), we 

proposed that States may use additional 

funds, which were not collected as 

additional reinsurance contributions, to 

make supplemental reinsurance 

payments under the State supplemental 

reinsurance payment parameters. This 

would allow States to use other revenue 

sources, such as funds collected for 

State high-risk pools. This would also 

ensure that additional State collections 

for reinsurance payments and other 

State funds may be used to reduce 

premiums. We are finalizing these 

provisions as proposed. 

Comment: Several commenters asked 

that HHS permit States to collect 

contributions from health insurance 

issuers. Other commenters supported 

the proposed centralized collection of 

reinsurance contribution under the 

national contribution rate. 

Response: HHS will collect 

contributions from health insurance 

issuers and self-insured group health 

plans in all States, including States that 

elect to operate reinsurance. This will 

allow for a centralized and streamlined 

process for the collection of 

contributions, and will avoid 

inefficiencies resulting from the use of 

different collection processes in 

different States. Federal collections will 

also leverage economies of scale, 

reducing the overall administrative 

costs of the transitional reinsurance 

program. 

e. High-Risk Pools 

Section 1341(d) of the Affordable Care 

Act and § 153.250 of the Premium 

Stabilization Rule provide that 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 § 153.400(a)(2)(iii), we proposed 

that State high-risk pools would be 

excluded from making reinsurance 

contributions and would not receive 

reinsurance payments. 

The Affordable Care Act permits a 

State to coordinate its high-risk pool 

with the reinsurance program ‘‘to the 

extent not inconsistent’’ 16 with the 

statute. We clarify that nothing in the 

Premium Stabilization Rule or this final 

rule prevents a State that establishes the 

reinsurance program from using State 

money designated for the State’s highrisk pool towards the reinsurance 

program. However, a State may not use 

funds collected for the Affordable Care 

Act reinsurance program for its highrisk pool. Finally, a State could 

designate its high-risk pool as its 

applicable reinsurance entity, provided 

that the high-risk pool meets all the 

criteria for being an applicable 

reinsurance entity. 

Comment: Several commenters 

requested that we permit State high-risk 

pools to be eligible for reinsurance 

payments for their high-risk enrollees. 

Commenters stated that the sudden 

termination of high-risk pools in 2014 

would result in high-risk pool enrollees 

flooding the individual market, 

potentially resulting in premium 

increases for all individual market 

enrollees and a loss of access to 

providers currently administering care 

for high-risk pool enrollees. 

Response: Under the definition of a 

reinsurance-eligible plan in § 153.20 of 

the Premium Stabilization Rule, State 

high-risk pools are not eligible to 

receive reinsurance payments for their 

high-risk enrollees because high-risk 

pool coverage is not individual market 

coverage. We note that if a high-risk 

pool were to be structured as individual 

market coverage subject to the market 

reform rules, it would be eligible for 

reinsurance payments and would also, 

therefore, be a contributing entity. 

Comment: Several commenters asked 

that HHS clarify that States can 

continue to operate high-risk pools to 

complement the reinsurance program 

and to provide continuity of coverage to 

risk pool enrollees. 

Response: States have the flexibility 

to decide whether to maintain, phaseout, or eliminate their high-risk pools. 

Because State high-risk pools and the 

reinsurance program both target highcost enrollees, high-risk pools can 

operate alongside reinsurance serving a 

distinct subset of the target population. 

Comment: Several commenters asked 

that the Federal government continue to 

provide funding for the State High Risk 

Pool Grant program. 

Response: Funding for the State High 

Risk Pool Grant Program is not 

addressed in this final rule. 

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. In the proposed rule, 

we stated that, with respect to insured 

coverage, issuers are responsible for 

making reinsurance contributions. With 

respect to a self-insured group health 

plan, the plan is responsible, although 

a third party administrator (TPA) or 

administrative services only (ASO) 

contractor may be utilized to transfer 

reinsurance contributions on behalf of a 

plan. A self-insured, self-administered 

group health plan without a TPA or 

ASO contractor would make its 

reinsurance contributions directly. For 

the reasons described above and in the 

preamble of the proposed rule, we are 

modifying the definition of 

‘‘contributing entity’’ in § 153.20 to 

clarify that a ‘‘contributing entity’’ is a 

health insurance issuer or a self-insured 

group health plan. 

Comment: Several commenters asked 

that HHS amend the definition of 

contributing entity, clarifying the 

liability of TPAs. 

Response: We have amended the 

definition of ‘‘contributing entity’’ in 

§ 153.20 to include the clarification we 

provided in the proposed rule at 77 FR 

73152. This amended definition states 

that a contributing entity is a health 

insurance issuer or a self-insured group 

health plan. Thus, we clarify that a selfinsured group health plan is ultimately 

responsible for the reinsurance 

contributions, even though it may elect 

to use a TPA or ASO contractor to 

transfer the reinsurance contributions. 

Comment: Several commenters sought 

clarification regarding whether selfinsured group health plans may remit 

reinsurance contributions directly to 

HHS even if the plan otherwise 

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15456 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

17See 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. 

contracts with a TPA or ASO contractor 

for administration of benefits. 

Response: A self-insured group health 

plan may elect to make its reinsurance 

contributions directly to HHS or 

through a TPA or an ASO contractor. 

Comment: One commenter suggested 

that requiring issuers to submit a 

separate payment for each insured 

group would add significant 

administrative burden. 

Response: HHS will provide details 

on the process for submission of 

reinsurance contributions in future 

guidance. 

Comment: One commenter stated that 

the proposed rule does not address 

whether a TPA may charge 

administrative fees for the additional 

work it will undertake to collect 

reinsurance fees and forward them to 

HHS. 

Response: Any fee for such services 

would be negotiated between the plan 

and the TPA or ASO contractor. We 

note that the program is designed to 

minimize administrative costs, which 

we expect to be relatively low. 

Comment: Several commenters asked 

that HHS clarify that a plan with several 

TPAs should determine if and which 

TPA will calculate the enrollment count 

and submit reinsurance payments. 

Response: The self-insured group 

health plan is liable for reporting 

enrollment counts and making 

reinsurance contributions. It may utilize 

any TPA or ASO contractor it wishes (or 

none) to perform these functions. 

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 

reinsurance contributions are not 

required for coverage that is not ‘‘major 

medical coverage’’ or for health 

insurance coverage that is noncommercial. We also interpret this 

statutory language to exclude expatriate 

health coverage, as defined by the 

Secretary. HHS plans to define 

expatriate health coverage in the near 

future. 

(1) Major Medical Coverage: In 

§ 153.400(a)(1)(i), we proposed that a 

contributing entity make reinsurance 

contributions for its health coverage 

except to the extent that such coverage 

is not ‘‘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. The preamble to the proposed 

rule at 77 FR 73152 discussed the 

definition that should apply for 

reinsurance purposes. We are finalizing 

the provisions as proposed. 

Comment: One commenter requested 

that we codify in regulation text the 

description of major medical coverage 

that was set forth in preamble. 

Response: We reiterate that for 

purposes of the reinsurance program 

only, our view is that 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. Coverage that is limited in 

scope (for example, dread disease 

coverage, hospital indemnity coverage, 

or stand-alone vision coverage or standalone dental coverage), or extent (for 

example, coverage that is not subject to 

section 2711 of the PHS Act and its 

implementing regulations) would not be 

major medical coverage.17

In the proposed rule, we stated that 

when an individual has both Medicare 

coverage and employer-provided group 

health coverage, the Medicare 

Secondary Payer (MSP) rules under 

section 1862(b) of the Act would apply, 

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 stated that individuals entitled to 

Medicare because of disability or endstage renal disease that have other 

primary coverage under the MSP rules 

would be treated consistently with the 

working aged, as outlined above. 

We are finalizing the proposed 

provisions with the following revisions, 

described below: (a) We are modifying 

the exception in § 153.400(a)(1)(iii) to 

exclude from reinsurance contributions 

expatriate health coverage, as defined by 

the Secretary; (b) we are adding 

§ 153.400(a)(1)(iv) to codify the 

Medicare coordination rule; and (c) we 

are adding § 153.400(a)(2)(xiii) to 

exclude a self-insured group health plan 

or health insurance coverage that is 

limited to prescription drug benefits 

from reinsurance contributions. 

Comment: Several commenters 

supported the proposed treatment of 

group health coverage that is considered 

secondary to Medicare under the MSP 

rules; some requested that the Medicare 

coordination rule contained in the 

preamble of the proposed rule appear in 

regulation text. 

Response: We have added paragraph 

(iv) to § 153.400(a)(1) to codify the rule 

in regulation text. We have included 

this rule at § 153.400(a)(1) to clarify that, 

to the extent a plan or coverage applies 

to individuals with respect to which 

benefits under Title XVIII of the Social 

Security Act (Medicare) are primary 

under the MSP rules, reinsurance 

contributions are not required on behalf 

of those enrollees under that plan or 

coverage. In order for a contributing 

entity to determine its enrollment count 

as required by § 153.405 while taking 

into account enrollees for which the 

employer group health coverage is 

considered secondary to Medicare 

under the MSP rules, we clarify that the 

contributing entity may use any 

reasonable method of estimating the 

number or percentage of its enrollees. 

For example, a contributing entity may 

calculate the percentage of enrollees for 

which the employer group health 

coverage is secondary under the MSP 

rules on the dates it uses when applying 

the snapshot counting method or actual 

count method, or on other periodic 

dates, and reduce the enrollment count 

calculated using one of the methods in 

§ 153.405 by that percentage. A 

contributing entity may also calculate 

the total enrollment of individuals for 

which the employer group health 

coverage is secondary under the MSP 

rules on the last day of the third quarter 

and reduce the enrollment count that 

was calculated using one of the methods 

in § 153.405. 

Comment: Several commenters 

requested that employer-provided 

retiree coverage be excluded from 

reinsurance contributions. 

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Response: We have no statutory 

authority to make the requested change 

under section 1341 of the Affordable 

Care Act. We clarify that employerprovided retiree coverage is subject to 

reinsurance contributions unless one of 

the general exceptions applies (for 

example, the coverage is not major 

medical coverage). 

Comment: One commenter requested 

that we expand the Medicare 

coordination rule to exclude from 

reinsurance contributions any 

employer-provided coverage that is 

secondary to any other coverage. 

Response: We decline to make this 

exclusion because we believe that it 

would be difficult for an individual 

sponsor or issuer to determine and 

verify (and it would be difficult for HHS 

to confirm) without extensive 

coordination with other issuers and 

sponsors which enrollees have another 

source of coverage, whether that other 

source of coverage is major medical 

coverage, and which coverage is 

primary. We also believe that few 

individuals will have two sources of 

primary major medical coverage. 

Comment: Two commenters requested 

additional clarification as to how the 

MSP rules interact with the reinsurance 

program when an individual has 

employer-provided group health 

coverage and is eligible for Medicare 

due to end-stage renal disease or 

disability. 

Response: If an individual is eligible 

for Medicare due to end-stage renal 

disease or disability, then whether 

reinsurance contributions would be 

required on behalf of the individual 

would depend upon whether the 

Medicare coverage is primary, as with 

the working-aged. 

Comment: A few commenters 

requested that the preamble language in 

the proposed rule clarifying that a 

separate plan that provides coverage for 

prescription drugs is excluded from 

reinsurance contributions be codified in 

regulation text. One commenter 

requested clarification that retiree drug 

plans including employer group waiver 

plans and other employer-sponsored 

Part D plans are excluded from 

reinsurance contributions. 

Response: We are amending 

§ 153.400(a)(2) to include a new 

paragraph (xiii) providing that a selfinsured group health plan or health 

insurance coverage that is limited to 

prescription drug benefits is excluded 

from reinsurance contributions. Since 

they only provide coverage for 

prescription drug benefits, these plans 

are not major medical coverage. We also 

note that § 153.400(a)(2)(ii)(A) contains 

an exception for coverage provided by 

an issuer under contract to provide 

benefits under Medicare because these 

private Medicare plans are not part of an 

issuer’s commercial book of business (as 

discussed in the next section of this 

preamble). 

(2) Commercial Book of Business: The 

second general exception at 

§ 153.400(a)(1)(ii) from the reinsurance 

contribution requirement applies to 

health insurance coverage that is not 

part of an issuer’s commercial book of 

business. Section 1341(b)(3)(B)(i) of the 

Affordable Care Act refers to a 

‘‘commercial book of business,’’ which 

we proposed to interpret to refer to large 

and small group health insurance 

policies and individual market health 

insurance 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 are finalizing the provisions as 

proposed. 

Comment: One commenter agreed that 

coverage offered to Federal, State, or 

Tribal employees should be subject to 

reinsurance contributions, and that this 

coverage would be part of an issuer’s 

commercial book of business. Another 

commenter stated that since Federal and 

State employee plans make up a 

significant share of the market’s large 

group enrollment, these plans should be 

included in a carrier’s book of business 

for purposes of the reinsurance 

contribution. 

Response: For reinsurance purposes, 

we agree that insured coverage offered 

to Federal, State or Tribal employees is 

part of an issuer’s commercial book of 

business. As discussed in the preamble 

to the proposed rule, we interpret 

‘‘commercial book of business’’ to refer 

to insured large and small group 

policies and individual market policies. 

(3) Policy filed and approved by a 

State: The third proposed general 

exception from reinsurance 

contributions at § 153.400(a)(1)(iii) was 

for insured coverage not filed or 

approved by a State. As noted in the 

preamble to the proposed rule at 77 FR 

at 73153, this exception was intended 

primarily to address group expatriate 

coverage for individuals whose work 

requires them to spend a substantial 

period of time overseas. We are 

amending § 153.400(a)(1)(iii) so that 

expatriate health coverage, as defined by 

the Secretary, is excluded from 

reinsurance contributions. 

Comment: Some commenters 

requested that all expatriate coverage be 

excluded from reinsurance 

contributions, including coverage filed 

with and approved by a State, as well 

as self-insured expatriate coverage. 

Response: As described above, we are 

amending this provision so that all 

expatriate health coverage, as defined by 

the Secretary, is excluded from 

reinsurance contributions. We plan to 

define expatriate health coverage, as 

well as explain the applicability of the 

Affordable Care Act to such coverage, in 

the near future. 

Comment: A few commenters noted 

considerable variation in filing methods 

for issuers of health insurance coverage 

in the large group market. The 

commenters expressed concern that 

issuers that should make reinsurance 

contributions may be excluded because 

of the different filing and approval 

requirements. For example, some States 

may not require explicit approval of 

certain new policy forms, but instead 

those forms may be deemed approved 

via issuer certification. One commenter 

requested clarification as to whether an 

issuer that is regulated by a State agency 

other than a department of insurance 

would be subject to reinsurance 

contributions under the ‘‘filed and 

approved by a State’’ language. 

Response: We recognize that States 

can and do use different filing methods 

to obtain the information from issuers 

necessary to carry out their regulatory 

responsibilities. However, we are 

amending § 153.400(a)(1)(iii) so that the 

exception from reinsurance 

contributions applies to all expatriate 

health coverage, as defined by the 

Secretary. 

We proposed in § 153.400(a)(2) to 

explicitly exclude the following types of 

plans and coverage from reinsurance 

contributions. We are finalizing these 

provisions as proposed. 

(a) Excepted benefits. We proposed no 

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 

§ 153.400(a)(2)(i) of the Premium 

Stabilization Rule. 

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18See the Fees on Health Insurance Policies and 

Self-Insured Plans for the Patient-Centered 

Outcomes Research Trust final rule (the PCORTF 

Rule) published on December 6, 2012 (77 FR 

72721). 

Comment: A few commenters noted 

that stand-alone dental or vision 

coverage is excluded from reinsurance 

contributions, and requested that other 

dental or vision coverage should be 

excluded as well. One commenter 

suggested that reinsurance contributions 

should not apply to ‘‘carve-out’’ 

arrangements that must be offered 

alongside an employer’s major medical 

coverage that are similar to prescription 

drug carve-outs, for example, behavioral 

health and transplant coverage. 

Response: An employer decides 

whether to offer group health coverage, 

the scope of the coverage, and its 

structure. An employer that provides 

dental or vision coverage may do so on 

a stand-alone basis, in which case the 

benefits may qualify as excepted 

benefits, or may include the coverage 

with the major medical benefits as part 

of a group health plan. Excepted 

benefits are not subject to reinsurance 

contributions. 

(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 clarified in the proposed rule 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. Section 

153.400(a)(2)(v) of the proposed rule 

excluded HRAs that are integrated with 

a group health plan offered in 

conjunction with a major medical plan 

(integrated HRAs) from reinsurance 

contributions. The preamble to the 

proposed rule noted that reinsurance 

contributions generally would be 

required for that group health plan. 

Comment: Several commenters 

requested that stand-alone HRAs be 

excluded from reinsurance 

contributions. Alternatively, some 

commenters requested that the ‘‘one 

covered life’’ rule that the Fees on 

Health Insurance Policies and SelfInsured Plans for the Patient-Centered 

Outcomes Research Trust final rule (the 

PCORTF Rule) 18 applies to stand-alone 

HRAs also apply for purposes of 

reinsurance contributions. Some 

commenters requested clarification on 

when an HRA is ‘‘integrated’’ with a 

traditional group health plan or health 

insurance coverage, on how to classify 

arrangements similar to HRAs that do 

not meet the technical definition of an 

HRA, and regarding the treatment of 

specific types of HRAs (for example, an 

HRA that only may be used to pay 

premiums under a fully insured plan). 

Response: As described above, 

integrated HRAs are excluded from 

reinsurance contributions. We note that 

the Department of Labor, the U.S. 

Treasury and HHS recently issued 

guidance on certain HRA-related issues 

in ‘‘Affordable Care Act Implementation 

FAQs-Set 11,’’ which can be found at 

http://cciio.cms.gov/resources/ 

factsheets/ 

aca_implementation_faqs11.html. 

(d) Health saving accounts (HSAs): 

Section 153.400(a)(2)(vi) of the 

proposed rule excluded HSAs from 

reinsurance contributions. An HSA is an 

individual arrangement that 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 nonmedical purposes, and thus would be 

excluded from reinsurance 

contributions. We note that reinsurance 

contributions generally would be 

required for the high deductible health 

plan because it is major medical 

coverage. 

Comment: Some commenters 

requested clarification on HSAs 

‘‘integrated with a group health plan’’ 

for reinsurance contributions purposes. 

Response: HSAs are excluded from 

reinsurance contributions because they 

consist of a fixed amount of funds that 

are available for both medical and nonmedical purposes and therefore do not 

provide 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 (indexed for inflation), 

we believe that a health FSA is not 

major medical coverage under this final 

rule, and therefore is 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 that are 

additional benefits to employees, 

participants, and beneficiaries. If the 

program (whether self-insured or 

insured) does not provide major medical 

coverage, we proposed to exclude it 

from reinsurance contributions and we 

are finalizing that provision in the final 

rule. We also note that employers that 

provide one or more of these ancillary 

benefits often sponsor major medical 

plans which would be subject to 

reinsurance contributions, absent other 

excluding circumstances. 

(g) Stop-loss and indemnity 

reinsurance policies: For purposes of 

reinsurance, we proposed 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 

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 selfinsure for a set amount of claims costs, 

with the stop-loss insurance covering all 

or most 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 

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(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. 

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. Because we do not consider 

these programs to be part of a 

commercial book of business, such 

military health programs are excluded 

from reinsurance contributions. 

(i) Tribal coverage: Section 

153.400(a)(2)(xi) of the proposed rule 

excluded 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 their 

capacity as Tribal members (and not in 

their capacity as current or former 

employees of the Tribe or their 

dependents). Similarly, we proposed 

that coverage provided to Tribal 

members 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 be 

required to make reinsurance 

contributions. 

Comment: Some commenters asked 

that self-insured Tribal plans that cover 

Tribal employees be excluded from 

reinsurance contributions, in a manner 

similar to Tribal plans that cover Tribal 

members based on their status as Tribal 

members. 

Response: Similar to Federal and 

State-based employment coverage, these 

Tribal plans are based on employment 

relationships. We do not have the 

authority to make this exclusion. 

We received additional comments 

which requested exceptions for other 

types of entities. 

Comment: Several commenters 

requested that plans or coverage 

provided by a voluntary employee 

beneficiary association (VEBA) 

established and maintained under the 

terms of a class action or bankruptcy 

settlement ordered by a court (courtordered VEBA) be excluded from 

reinsurance contributions. A courtordered VEBA provides retiree medical 

benefits to former employees of certain 

companies. The court order specifies the 

funding and the eligible individuals, 

and the former employers have no 

ongoing financial or administrative 

responsibility. A significant percentage 

of existing court-ordered VEBAs are not 

well funded. 

Response: We are unable to 

categorically exclude court-ordered 

VEBAs. We note, however, that many 

VEBAs may be excluded from 

reinsurance contributions because they 

do not provide major medical coverage. 

Comment: Some commenters 

requested that certain jointly 

administered Taft-Hartley plans that 

provide health coverage to collectively 

bargained employees be excluded from 

reinsurance contributions. Generally, 

many of these plans are self-insured and 

self-administered, and include 

multiemployer plans within the 

meaning of section 3(37) of ERISA. 

Response: While we recognize the 

unique nature of these plans, and their 

important role in providing coverage to 

collectively bargained employees and 

covered dependents, we do not have 

authority under the statute to exclude 

them from reinsurance contributions. As 

clarified in the Premium Stabilization 

Rule and in this final rule, we do not 

interpret the application of section 1341 

of the Affordable Care Act to be limited 

to issuers and TPAs on behalf of group 

health plans. We view the plans’ 

coverage as employment-based, and as a 

result subject to reinsurance 

contributions (unless another exclusion 

applies). 

Comment: Several commenters asked 

for clarification as to whether 

individuals with group health coverage 

that elect Consolidated Omnibus Budget 

Reconciliation Act (COBRA) 

continuation coverage or similar 

continuation coverage under State law 

are covered lives for reinsurance 

purposes. 

Response: Our view is that COBRA or 

other continuation coverage is a form of 

employment-based group health 

coverage paid for by the former 

employee. Therefore, to the extent the 

COBRA coverage qualifies as major 

medical coverage (and no other 

exception applies), it is subject to 

reinsurance contributions. 

Comment: A few commenters stated 

that employer-provided coverage for 

part-time employees should be excluded 

from reinsurance contributions. 

Response: Unless the coverage for 

part-time employees is self-insured and 

is not major medical coverage, or is not 

part of an issuer’s commercial book of 

business, it is subject to reinsurance 

contributions (so long as no other 

exception applies). 

3. National Contribution Rate 

a. 2014 Rate 

As specified in § 153.220(c) of the 

Premium Stabilization Rule, HHS plans 

to publish in the annual HHS notice of 

benefit and payment parameters the 

national per capita reinsurance 

contribution rate for the upcoming 

benefit year. Section 1341(b)(3)(B)(iii) of 

the Affordable Care Act specifies the 

total contribution amounts to be 

collected from contributing entities 

(reinsurance pool) as $10 billion for 

2014, $6 billion for 2015, and $4 billion 

for 2016, and sections 1341(b)(3)(B)(iv) 

and 1341(b)(4) of the Affordable Care 

Act direct the collection of funds for 

contribution to the U.S. Treasury in the 

amounts of $2 billion for 2014, $2 

billion for 2015, and $1 billion for 2016. 

We sought comments on whether 

deferring the collection of the $2 billion 

in funds payable to the U.S. Treasury for 

2014 until 2016 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. As an 

illustration, under the Affordable Care 

Act, the 2014 national reinsurance pool 

is $10 billion, and the contribution to 

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the U.S. Treasury is $2 billion. The 

amount to be collected for 

administrative expenses for benefit year 

2014 is $20.3 million (or 0.2 percent of 

the $10 billion dispersed), as 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 an annual 

per capita contribution rate of $63.00 in 

benefit year 2014 or $5.25 per month. 

Section 153.220(c) of the proposed 

rule (previously designated as 

§ 153.220(e) in the Premium 

Stabilization Rule) stated that HHS 

plans to set in the annual HHS notice of 

benefit and payment parameters for the 

applicable benefit year 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 20, 

we specify these proportions (or 

amounts, as applicable): 

TABLE 20—PROPORTION OF CONTRIBUTIONS COLLECTED UNDER THE NATIONAL CONTRIBUTION RATE FOR REINSURANCE

PAYMENTS, PAYMENTS TO THE U.S. TREASURY AND ADMINISTRATIVE EXPENSES

Proportion or amount for: 

If total contribution collections under the national contribution rate are less than or equal 

to $12.02 billion 

If total contribution collections under the national contribution rate are more than $12.02 

billion 

Reinsurance payments ...................................... 83.2 percent ($10 billion/$12.02 billion) ........... The difference between total national collections and those contributions allocated to 

the U.S. Treasury and administrative expenses. 

Payments to the U.S. Treasury ......................... 16.6 percent ($2 billion/$12.02 billion) ............. $2 billion. 

Administrative expenses .................................... 0.2 percent ($20.3 million/$12.02 billion) ......... $20.3 million. 

In light of the comments received, we 

are finalizing these provisions as 

proposed. 

Comment: Many commenters stated 

that a national contribution rate would 

penalize States with lower medical 

costs, and require those States to 

subsidize other States with higher 

medical costs. Some commenters asked 

that HHS vary the contribution rate 

using an index of health care costs by 

State. Conversely, many commenters 

supported a national per capita 

contribution rate. One commenter asked 

that the national contribution rate be 

calculated based on a percentage of 

premium and not on a per capita basis. 

Response: As stated in the Premium 

Stabilization Rule (77 FR 17227), we are 

using a national, per capita contribution 

rate because it is a simpler approach 

that minimizes the administrative 

burden of collections. In addition, 

varying the contribution rate using an 

index of health care costs would not 

capture a State’s reinsurance needs, 

which will also vary based upon the 

relative sizes of the State’s individual, 

group, self-insured markets, and the 

uninsured. 

Comment: Several commenters 

expressed concern about the annual per 

capita national contribution rate of 

$63.00 for benefit year 2014, and 

suggested lowering the rate. Many 

commenters were concerned with the 

expense of the reinsurance contribution 

for employees. 

Response: Section 1341 of the 

Affordable Care Act states that the total 

contribution amounts to be collected 

from contributing entities for 2014 is 

$12 billion plus administrative 

expenses. We estimate that the $63 

annual ($5.25 monthly) per capita 

contribution rate for benefit year 2014 

will lead to collections in the statutory 

amount (plus administrative expenses) 

which we have concluded we have no 

regulatory authority to change. 

Comment: One commenter expressed 

concern that self-insured group health 

plans are excluded from receiving 

reinsurance payments and do not 

benefit proportionally or directly from 

their reinsurance contribution. As such, 

this commenter suggested that HHS 

prorate the contribution rate for selfinsured group health plans, by 

collecting less than the $63 annual per 

capita national contribution rate from 

those plans. 

Response: Section 1341 of the 

Affordable Care Act directs health 

insurance issuers and self-insured group 

health plans to make reinsurance 

contributions. HHS has set forth a 

national per capita contribution rate for 

the 2014 benefit year which applies to 

all contributing entities, including selfinsured group health plans. 

Comment: Several commenters asked 

HHS to defer the collection of the $2 

billion payable to the U.S. Treasury in 

2014 until 2016. 

Response: We considered the 

commenters’ statutory interpretations 

for how such a deferral may be 

permissible under section 1341 of the 

Affordable Care Act and would support 

such a deferral, but concluded that we 

have no statutory authority to defer the 

collection. 

Comment: Several commenters asked 

HHS to eliminate the $20.3 million 

collection for administrative expenses. 

One commenter stated that HHS has no 

authority to collect administrative 

expenses to pay for HHS operating 

reinsurance on behalf of a State. 

Response: We interpret section 

1341(b)(3)(B)(ii) of the Affordable Care 

Act to authorize the collection of 

additional amounts for administrative 

expenses, including for HHS when HHS 

operates reinsurance on behalf of a 

State. We agree with the commenters on 

the need to keep these administrative 

expenses at a minimum, and intend to 

operate the program efficiently. We note 

that our estimate of administrative 

expenses—$20.3 million—represents 

approximately 0.2 percent of the 

reinsurance amounts to be collected for 

2014, and the costs of Federal 

employees are not included in the 

national contribution rate. 

Comment: Several commenters asked 

for clarification regarding whether an 

employer may pass the cost of the 

reinsurance contribution to its enrollees 

in self-insured group health plans. 

Response: This final rule does not 

address how an employer would meet 

the reinsurance contribution 

requirements. 

Comment: One commenter asked how 

the national contribution rate will affect 

premiums or the affordability of 

coverage once implemented. 

Response: As set forth in the 

regulatory impact analysis to this final 

rule, HHS estimates that reinsurance 

payments to issuers will reduce 

premiums in the individual market by 

between 10 to 15 percent. This is an 

HHS estimate for the 2014 benefit year, 

based in part on a 2009 analysis of 

health insurance premiums by the 

Congressional Budget Office. 

Comment: Several commenters asked 

HHS to explain the methodology used to 

develop the national contribution rate 

and the assumptions behind the 

enrollment estimates that were used to 

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calculate the national contribution rate 

for 2014. 

Response: As described in the 

proposed rule, HHS developed the 

Affordable Care Act Health Insurance 

Model (ACAHIM), which estimates 

market enrollment in a manner that 

incorporates the effects of State and 

Federal policy choices and accounts for 

the behavior of individuals and 

employers. We used the ACAHIM, 

which was developed with reference to 

existing models such as those of the 

Congressional Budget Office and the 

Office of the Actuary, to characterize 

medical expenditures and enrollment 

choices across the 2014 marketplace. 

The ACAHIM is made up of integrated 

modules which predict the number and 

characteristics of market entrants and 

medical spending. The outputs of the 

ACAHIM, especially the estimated 

enrollment and expenditure 

distributions, were used to analyze 

estimated enrollment in the 2014 

marketplace. 

The market enrollment module of the 

ACAHIM predicts coverage status of 

individuals in 2014, incorporating the 

effects of State and Federal policy 

choices and accounting for the behavior 

of individuals and employers. Using 

recent Current Population Survey data 

with appropriate population 

adjustments, the ACAHIM assigns 

individuals to a single health insurance 

market as their baseline (pre-Affordable 

Care Act) insurance status. The module 

estimates transitions from coverage 

status in the baseline to individuals’ 

projected status in 2014, taking into 

account factors such as Medicaid 

eligibility, eligibility for advance 

payments of the premium tax credit and 

cost-sharing reductions under the 

Exchange, and current take-up rates of 

insurance. 

Comment: Several commenters sought 

clarification on whether the reinsurance 

contributions may be charged back to an 

ERISA plan as a reasonable plan 

expense. Several commenters asked 

whether IRS had indicated that the 

reinsurance contribution is taxdeductible as an ordinary and necessary 

business expenses. Several commenters 

also asked HHS to clarify that the 

contribution amount will be considered 

a ‘‘plan cost’’ for all purposes. 

Response: The Department of Labor 

advised HHS upon its review of this 

final rule that paying reinsurance 

contributions would constitute a 

permissible expense of the plan for 

purposes of Title I of the ERISA because 

the payment is required by the plan 

under the Affordable Care Act (see, 77 

FR 73198, fn 56). Questions seeking 

clarification regarding particular 

situations should be directed to the 

Department of Labor. See generally 

Advisory Opinion 2001–01A to Mr. Carl 

Stoney, Jr., available at www.dol.gov/ 

ebsa (discussing settlor versus plan 

expenses). For a discussion regarding 

the tax status of reinsurance 

contributions pursuant to the Affordable 

Care Act, see the FAQ issued by the IRS 

(http://www.irs.gov/uac/Newsroom/ 

ACA-Section-1341-TransitionalReinsurance-Program-FAQs). 

b. Federal Administrative Fees 

In the proposed rule, we estimated the 

Federal administrative expenses of 

operating reinsurance for the 2014 

benefit year to be approximately $20.3 

million, or 0.2 percent of the $10 billion 

in reinsurance funds to be distributed 

for the 2014 benefit year. This figure 

reflects the Federal government’s 

significant economies of scale in 

operating the program, and results in a 

national per capita contribution rate of 

$0.11 annually for HHS administrative 

expenses. 

In the proposed rule, we set forth the 

process for apportioning the annual per 

capita amount of $0.11 of administrative 

expenses as follows: $0.055 of the total 

amount collected per capita would be 

allocated to administrative expenses 

incurred in the collection of 

contributions from health insurance 

issuers and self-insured group health 

plans; and $0.055 of the total amount 

collected per capita would be allocated 

to administrative expenses incurred for 

activities supporting the administration 

of payments to issuers of reinsuranceeligible plans. We proposed that if a 

State operates reinsurance, HHS would 

retain $0.055 to offset the costs of 

contributions collection, and would 

allocate $0.055 towards administrative 

expenses for reinsurance payments. The 

total amounts allocated towards 

administrative expenses for reinsurance 

payments would be distributed to States 

operating reinsurance (or retained by 

HHS where HHS is operating 

reinsurance) in proportion to the Stateby-State total requests for reinsurance 

payments made under the uniform 

payment parameters. We are finalizing 

these provisions as proposed. 

Comment: Several commenters sought 

clarification on how administrative 

expenses will be distributed to States 

operating reinsurance. 

Response: The 2014 allocation for 

Federal administrative expenses for 

operating reinsurance totals $20.3 

million. HHS will keep 50 percent to 

cover the administrative expense of 

collecting reinsurance contributions 

from health insurance issuers and selfinsured group health plans. The 50 

percent allocated for reinsurance 

payment activities will be distributed in 

proportion to the State-by-State total 

requests for reinsurance payments (by 

total dollars) made under the uniform 

payment parameters. States operating 

reinsurance will receive that allocation; 

HHS will retain the allocation for States 

not operating reinsurance. 

Comment: Several commenters sought 

clarification on the methodology used to 

develop the Federal administrative 

expenses of implementing the 

reinsurance program in 2014. 

Response: We determined HHS’s total 

costs for administering reinsurance on 

behalf of States by examining HHS’s 

contract costs of operating reinsurance. 

These contracts cover collections, 

payments, account management, data 

collection, program integrity, 

operational and fraud analytics, 

stakeholder training, and operational 

support. We did not include the cost of 

Federal personnel. We divided HHS’s 

projected total costs for administering 

reinsurance on behalf of States by the 

expected enrollment in health insurance 

plans and self-insured group health 

plans. We anticipate that the total cost 

for HHS to operate reinsurance on 

behalf of States for the 2014 benefit year 

will be $20.3 million, or $0.11 per 

capita per year. 

Comment: One commenter expressed 

concern that HHS under-estimated the 

cost to a State of administering 

reinsurance. 

Response: The cost estimates in the 

proposed rule are estimates of HHS’s 

costs of administering the program. HHS 

may benefit from economies of scale not 

available to the States. We understand 

that States operating reinsurance may 

need to collect additional funds for 

administrative expenses. 

4. Calculation and Collection of 

Reinsurance Contributions 

a. Calculation of Reinsurance 

Contribution Amount and Timeframe 

for Collections 

HHS intends to administer the 

reinsurance program in a manner that 

minimizes the administrative burden on 

health insurance issuers and selfinsured group health plans, while 

ensuring that contributions are 

calculated accurately. Thus, we 

proposed in § 153.400(a) and 

§ 153.240(b)(1), respectively, to collect 

and pay out reinsurance funds annually 

to minimize the costs of administering 

the reinsurance program and the burden 

on contributing entities. 

In the Premium Stabilization Rule, we 

stated that we would collect reinsurance 

contributions through a per capita 

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assessment on contributing entities. To 

clarify how this assessment is made, we 

proposed in § 153.405 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. 

In § 153.405(b), we proposed that a 

contributing entity must submit to HHS 

an annual enrollment count of the 

average number of covered lives of 

reinsurance contribution enrollees no 

later than November 15 of benefit year 

2014, 2015, and 2016, as applicable. The 

count must be determined as specified 

in proposed § 153.405(d), (e), (f), or (g), 

as applicable. We proposed to amend 

§ 153.400(a) so that each contributing 

entity would make annual reinsurance 

contributions at the national 

contribution rate, and under any 

additional applicable State 

supplemental contribution rate, if a 

State elects to collect additional 

contributions for administrative 

expenses or supplemental reinsurance 

payments under § 153.220(d). We 

believe that this annual collection 

schedule will ensure a more accurate 

count of a contributing entity’s average 

covered lives, and will avoid the need 

for any initial estimates and subsequent 

reconciliation to account for 

fluctuations in enrollment during the 

course of the benefit year. 

In § 153.405(c)(1), we proposed that 

within 15 days of submission of the 

annual enrollment count or by 

December 15, whichever is later, HHS 

would notify each contributing entity of 

the reinsurance contribution amounts to 

be paid based on the submitted annual 

enrollment count. We specified in 

§ 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 would be based 

upon the notification received under 

§ 153.405(c)(1). 

We are finalizing these provisions as 

proposed, with technical corrections to 

§ 153.400, where we clarify that each 

contributing entity must make 

reinsurance contributions annually at 

the national contribution rate; to 

§ 153.405(c), where we clarify that HHS 

will notify a contributing entity of 

reinsurance contributions amounts to be 

paid for a benefit year by the later of 

December 15 or 30 days after the 

submission of the annual enrollment 

count; and § 153.405(a)(1), § 153.405(b) 

and § 153.405(d), where we delete 

‘‘average’’ to clarify that reinsurance 

contributions are calculated by 

multiplying the number of covered lives 

of reinsurance contribution enrollees 

during the applicable benefit year for all 

contributing entities by the national 

contribution rate, pursuant to 

§ 153.405(a). 

Comment: Several commenters asked 

HHS to collect contributions after all 

reinsurance payment requests are 

submitted and aggregated, emphasizing 

that the reinsurance contributions 

should equal the 2014 requests for 

reinsurance payments. 

Response: Under the Affordable Care 

Act, the total contribution amounts to be 

collected from contributing entities for 

reinsurance payments and payments to 

the U.S. Treasury for 2014 are $12 

billion. We estimate that the $63.00 

($5.25 monthly) annual per capita 

contribution rate for benefit year 2014 

will lead to collections in that amount, 

including the $20.3 million in 

administrative expenses. We recognize 

the possibility that reinsurance payment 

requests for 2014 may be less than 

contributions collected for 2014, but 

section 1341(b)(3)(B)(4)(A) of the 

Affordable Care Act provides that 

unused funds after making the 2014 

reinsurance payments may be used to 

stabilize premiums for the three years of 

the reinsurance program. As set forth in 

§ 153.235(b), any unused funds will be 

used for reinsurance payments under 

the uniform reinsurance payment 

parameters for subsequent benefit years. 

Comment: One comment received 

sought clarification on whether 

contributing entities are required to 

make reinsurance contributions once 

per year. 

Response: As set forth in § 153.400(a), 

a contributing entity makes reinsurance 

contributions at the national 

contribution rate annually. 

Comment: Several commenters 

requested that HHS revise the date by 

which a contributing entity must submit 

the annual enrollment count date to the 

end of the benefit year, so that issuers 

may submit enrollment counts on 12 

months of data. 

Response: Due to operational time 

constraints surrounding the collection 

of reinsurance contributions, HHS must 

receive annual enrollment counts by 

November 15 of the applicable benefit 

year in order to invoice and collect 

contributions in time to aggregate 

payment requests and make payments. 

We do not believe the earlier 

submission will significantly impair the 

accuracy of the enrollment count. 

Counting Methods for Health 

Insurance Issuers: In § 153.405(d), we 

proposed 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 (77 FR 

72721), modified for applicability to the 

transitional reinsurance program so that 

a health insurance issuer may determine 

an annual enrollment count during the 

fourth quarter of the benefit year. Thus, 

under each of these methods, the 

number of covered lives will be 

determined based on the first nine 

months of the benefit year. 

(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 

proposed 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 of the benefit 

year. 

(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 

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19For 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. 

20The preamble to the proposed PCORTF Rule 

published on April 17, 2012 (77 FR 22691) 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.’’ 

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 will be subject to 

large increases in enrollment between 

2014 and 2016. Therefore, we proposed 

a modified counting method based upon 

the ratio of covered lives per policy in 

the NAIC or State form. Specifically, we 

proposed 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 

quarter (or all dates for each quarter), 

and dividing the total by the number of 

dates on which a count was made.19

Counting Methods for Self-Insured 

Group Health Plans: In § 153.405(e), we 

proposed 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 for sponsors of 

self-insured group health plans under 

the PCORTF Rule, modified slightly for 

timing with the reinsurance program, so 

that enrollment counts may be obtained 

on a more current basis. 

(1) Actual Count Method or Snapshot 

Count Method: We proposed that selfinsured 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 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 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 2.35.20 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 the corresponding 

dates for the second and third quarters 

of the benefit year must be within the 

same week of the quarter as the date 

selected for the first quarter. 

(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 proposed 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 final 

rule, suggests that enrollment in selfinsured group health plans is less likely 

to fluctuate than enrollment in the 

individual market. Thus, we proposed 

that a self-insured group health plan 

may calculate the number of lives 

covered for a plan that offers only selfonly 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 Selfinsured 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 § 153.405(f), we proposed 

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, a plan 

sponsor must use one of the methods 

specified in either § 153.405(d)(1) or 

§ 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 proposed in § 153.405(g)(1) 

that if a plan sponsor maintains two or 

more group health plans or health 

insurance plans that collectively 

provide major medical coverage for the 

same covered lives, which we refer to as 

‘‘multiple plans’’ for purposes 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 § 153.405(g)(1), the 

plan sponsor is responsible for paying 

reinsurance contributions. We proposed 

to define ‘‘plan sponsor’’ in proposed 

§ 153.405(g)(2) based on the definition 

of the term in the PCORTF Rule as: 

(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 multiemployer 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); 

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(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 

(F) above, and for which no 

identification or designation of a plan 

sponsor has been made under (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 proposed two 

exceptions to this aggregation rule, in 

§ 153.405(g)(3). A plan sponsor is not 

required to include as part of a single 

group health plan as determined under 

paragraph § 153.405(g)(1): (a) any group 

health plan that consists solely of 

excepted benefits within the meaning of 

section 2791(c) of the PHS Act (such as 

stand-alone dental or vision benefits); or 

(b) benefits related to prescription drug 

coverage. These exceptions were 

designed to reduce the burden on plan 

sponsors who have chosen to structure 

their coverage in that manner. 

Multiple Plans: In § 153.405(g)(4), we 

proposed the counting requirements for 

multiple plans in which at least one of 

the plans is an insured plan 

(§ 153.405(g)(4)(i)), and multiple plans 

not including an insured plan 

(§ 153.405(g)(4)(ii)). First, we anticipate 

that a plan sponsor would 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 proposed that 

a plan sponsor must use one of the 

methods applicable to health insurance 

plans or self-insured group health plans 

under § 153.405(d) and § 153.405(e), 

respectively, applied across the multiple 

plans as a whole. We also proposed to 

require reporting to HHS or the 

applicable reinsurance entity 

concerning multiple plans, as discussed 

in § 153.405(g)(4). Additionally, it is 

important to note that the reinsurance 

program will operate on a benefit year 

basis, which is defined in § 153.20 of 

the proposed rule (by reference to 

§ 155.20) as the calendar year. 

Therefore, the applicable counting 

methods, whether or not a particular 

plan operates on a calendar year basis, 

would not vary. 

Multiple Group Health Plans 

Including an Insured Plan: When one or 

more of the multiple group health plans 

is an insured plan, we proposed that the 

actual count method for health 

insurance issuers in § 153.405(d)(1) or 

the snapshot count method for health 

insurance issuers in § 153.405(d)(2) 

must be used. We proposed 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 proposed 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 described 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 § 153.405(g)(4)(ii). 

There are four counting methods 

available for self-insured plans which 

are set forth in § 153.405(e)(1) through 

§ 153.405(e)(4). Section 153.405(e)(1) 

permits a plan sponsor to use the actual 

count method under § 153.405(d)(1) or 

the snapshot count method under 

§ 153.405(d)(2) that are also available for 

insured plans. Paragraph (e)(2) permits 

an additional method (the snapshot 

factor method) for self-insured plans. 

We proposed not to permit a plan 

sponsor to use the fourth method, the 

‘‘Form 5500 Method’’ as described in 

proposed § 153.405(e)(3) to count 

covered lives across multiple selfinsured 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 proposed three possible 

methods for multiple self-insured plans 

under paragraph § 153.405(g)(4)(ii). We 

further proposed that the plan sponsor 

must report to HHS, in a timeframe and 

manner established by 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 proposed not to require 

consistency in counting methods 

between the count calculated under the 

PCORTF Rule and the count calculated 

for reinsurance purposes. In other 

words, we would allow a contributing 

entity to use, either the counting 

method corresponding to the method 

selected for the PCORTF Rule or a 

different counting method for 

reinsurance purposes. 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) for 

purposes of reinsurance, the same 

counting method would be used across 

all of the multiple plans, because they 

would be treated as a single plan for 

counting purposes. 

We are finalizing these provisions as 

proposed, with the following 

modifications: we updated the footnotes 

that referenced the proposed PCORTF 

Rule with the citation for the final 

POCRTF Rule; we made a number of 

technical adjustments to the aggregation 

rules set forth in § 153.405—we 

provided plan sponsors with the option 

to count any coverage options within a 

single group health plan separately if 

the coverage options are treated as 

offering major medical coverage, we 

provided plan sponsors with the option 

not to aggregate group health plans for 

purposes of counting covered lives if 

each group health plan is treated as 

offering major medical coverage, and we 

included HRAs, HSAs, and FSAs in the 

categories of group health plans that are 

excluded from the counting rules. 

Comment: One commenter asked that 

HHS confirm that the count of covered 

lives for purposes of determining 

reinsurance contributions would be 

members enrolled in the first nine 

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21See http://www.gpo.gov/fdsys/pkg/CFR-2011- 

title26-vol17/pdf/CFR-2011-title26-vol17-sec54- 

4980B-2.pdf. 

months of each year throughout the 

reinsurance program (and will not be 

calculated on a twelve-month basis for 

the second and third years of the 

reinsurance program). 

Response: We intend that the number 

of covered lives will be determined 

based on the first nine months of each 

of the 2014, 2015, and 2016 benefit 

years. 

Comment: Some commenters asked 

HHS to clarify how the counting 

methods apply to plans that have a noncalendar plan year. 

Response: The reinsurance program 

will operate on a calendar year basis. As 

set forth in § 153.405, a contributing 

entity will determine its enrollment 

count by counting the average number 

of covered lives of reinsurance 

contribution enrollees during the first 

nine months of the benefit year (that is, 

calendar year) for all of the contributing 

entity’s plans and coverage that must 

pay reinsurance contributions. 

Comment: Several commenters stated 

that when a TPA or ASO contractor is 

submitting reinsurance contributions on 

behalf of a self-insured group health 

plan, the TPA or ASO contractor should 

be permitted to count members 

consistent with the methodology they 

use for fully insured lives. 

Response: Many of the counting 

methods available to fully insured plans 

are also available to self-insured plans. 

If a self-insured plan’s TPA or ASO 

contractor is an issuer that can easily 

perform such a count, such a choice 

may be the most efficient. However, this 

final rule does not require one specific 

counting method, and provides a selfinsured plan, which is responsible for 

reporting the enrollment count and 

ensuring the payment of the reinsurance 

contribution, with the flexibility to use 

the counting method that it chooses. 

Comment: Several commenters 

generally appreciated the use of 

PCORTF counting methods. Some 

commenters suggested that HHS direct 

plan sponsors or issuers to count 

enrollment on the last day of each 

month and calculate membership based 

on an average across all months. 

Response: In order to relieve the 

administrative burden of submitting the 

annual enrollment count, HHS has 

incorporated, with slight modifications 

for timing, the counting methods set 

forth in the PCORTF Rule. Allowing 

contributing entities to choose from a 

variety of counting methods gives 

contributing entities the flexibility to 

choose a counting method that works 

best for that plan or coverage. 

Comment: Numerous commenters 

stated that it is unreasonable to believe 

that employers are unable to identify the 

States in which their employees reside 

or work. Several commenters supported 

HHS’s proposal to eliminate the need 

for employers to allocate employees by 

State of residence. 

Response: State-based allocation of 

enrollees in a contributing entity’s plans 

or coverage is not necessary because 

reinsurance contributions will be 

collected by HHS and placed into a 

national pool from which reinsurance 

payments will be made in an efficient, 

fair, and accurate manner where they 

are needed most. We believe that this 

will be most effective in helping 

stabilize premiums nationally. 

Comment: One commenter asked HHS 

to revise the snapshot counting methods 

so that issuers would be permitted to 

use the same date in the first month in 

each quarter for counting members, in 

addition to being able to use any date 

within the same week of the quarter. 

Response: Under the ‘‘snapshot count 

method,’’ a health insurance issuer or 

self-insured group health plan would 

add the totals of covered lives 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 fall 

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). Under the ‘‘snapshot 

factor method,’’ 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 benefit year must fall within the 

same week of the quarter as the date 

selected for the first quarter. We believe 

that those counting methods provide 

sufficient flexibility, and intend to keep 

these methods consistent with the 

PCORTF Rule. 

Comment: One commenter asked that 

HHS permit contributing entities to 

submit enrollment counts and 

contributions electronically. One 

commenter encouraged HHS to permit 

contributing entities to submit 

reinsurance contributions electronically 

in a manner similar to that used for 

submissions of collections under the 

PCORTF Rule. 

Response: HHS will provide details 

on the submission of enrollment counts 

and contributions in future guidance. 

Comment: One commenter asked that 

HHS give contributing entities 

flexibility in correcting errors when 

making reinsurance contributions. 

Response: Given the complexities 

related to the first year of the 

reinsurance program, HHS is aware that 

operational difficulties may arise. We 

intend to work closely with contributing 

entities in establishing the operational 

processes for the submission of 

enrollment counts and contributions. 

Comment: One commenter suggested 

that HHS clarify that the enrollee 

counting methods exclude plan 

participants who do not have major 

medical coverage. 

Response: As set forth in 

§ 153.400(a)(1)(i), reinsurance 

contributions are not required for a plan 

or health insurance coverage that is not 

major medical coverage. Consequently, 

enrollees in those plans are not required 

to be included in a count of covered 

lives for purposes of reinsurance 

contributions unless required under 

§ 153.405(f) or (g). 

Comment: One commenter stated that 

in order to apply the enrollee counting 

rules accurately, an employer must be 

able to determine in what circumstances 

different health coverage options 

constitute a single group health plan. 

The commenter suggested that for the 

purposes of reinsurance, group health 

plans be identified by reference to the 

COBRA rules because they are widely 

used. Under the COBRA rules, group 

health arrangements maintained by the 

same employer generally are treated as 

a single group health plan unless the 

instruments governing the arrangements 

designate them as separate plans and 

the employer operates them as separate 

plans. 

Response: Section 1301(b)(3) of the 

Affordable Care Act defines ‘‘group 

health plan’’ by reference to section 

2791(a) of the Public Health Service Act, 

which states that a group health plan is 

an employee welfare benefit plan (as 

defined in section 3(1) of ERISA) to the 

extent that the plan provides medical 

care (as defined in section 2791(a)(2)) to 

employees or their dependents (as 

defined under the terms of the plan), 

directly or through insurance, 

reimbursement, or otherwise. 

However, we note that the IRS has 

promulgated COBRA regulations for 

determining the number of group health 

plans an employer maintains. 26 CFR 

54.4980B–2, QA 6 (2001) 21 states, in 

relevant part, that except as otherwise 

provided in the regulation, all health 

care benefits provided by a corporation, 

partnership or other entity or trade or 

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business shall constitute one group 

health plan unless it is clear from the 

instruments governing the 

arrangement(s) that the benefits are 

being provided under separate plans, 

and the arrangement(s) are operated 

under such instruments as separate 

plans. The COBRA regulations include 

an anti-abuse rule which states that if a 

principal purpose of establishing 

separate plans is to evade any 

requirement of law, the separate plans 

will be considered a single plan to the 

extent necessary to prevent the evasion. 

We clarify that for purposes of counting 

covered lives for reinsurance 

contributions, an employer may count 

its group health plans in accordance 

with these regulations, subject to the 

anti-abuse rule. 

Comment: One commenter suggested 

that HHS revise proposed § 153.405(f) to 

permit employers to disaggregate a 

group health plan that offers both selfinsured and insured coverage options to 

different groups, and to permit an issuer 

with respect to one group health plan 

that contains multiple insured options 

written by more than one issuer to treat 

the insured options as separate group 

health plans for purposes of the 

counting rules. The commenter stated 

that § 153.405(f) as currently drafted is 

not consistent with current plan sponsor 

and issuer practices. 

Response: We are amending 

§ 153.405(f) to permit such 

disaggregation, so long as each coverage 

option is treated as major medical 

coverage, except if a coverage option 

consists solely of excepted benefits as 

defined by section 2791(c) of the PHS 

Act, only provides benefits related to 

prescription drugs, or is an HRA, HSA, 

or FSA. This amendment is designed to 

allow contributing entities flexibility in 

performing enrollment counts, while 

collecting reinsurance contributions for 

all enrollees with major medical 

coverage, without ‘‘double-counting.’’ 

Comment: One commenter suggested 

that the plan aggregation rules be 

permissive rather than mandatory, and 

that it should apply only to overlapping 

simultaneous coverage. 

Response: We agree that the plan 

aggregation rules should only apply to 

overlapping, simultaneous coverage. For 

the reasons set forth in the prior 

response, we are amending § 153.405(f) 

and (g) to permit disaggregation, so long 

as each coverage option or separate 

group health plan is treated as major 

medical coverage, except if a coverage 

option or separate group health plan 

consists solely of excepted benefits as 

defined by section 2791(c) of the PHS 

Act, only provides benefits related to 

prescription drugs, or is a HRA, HSA, or 

FSA. 

Comment: One commenter suggested 

that the plan aggregation rules set forth 

in § 153.405(g) should not apply to any 

plan or health insurance coverage that is 

excluded from making reinsurance 

contributions. 

Response: We have clarified that the 

plan aggregation rules do not apply to 

a plan or health insurance coverage that 

consists solely of excepted benefits as 

defined by section 2791(c) of the PHS 

Act, only provides benefits related to 

prescription drugs, or is an HRA, HSA, 

or FSA. However, we decline to exempt 

other plans or coverage excluded from 

making reinsurance contributions from 

the aggregation rules because the 

aggregation rules are designed in part to 

ensure reinsurance contribution 

collections from arrangements involving 

multiple plans that collectively provide 

major medical coverage, even when 

each component plan does not. Thus, a 

plan providing only hospital benefits 

might have to be aggregated with a plan 

that provides medical coverage other 

than hospital benefits, even though the 

hospital benefit plan on its own would 

be excluded from making reinsurance 

contributions because it is not major 

medical coverage. 

b. State Use of Contributions Attributed 

to Administrative Expenses 

In the proposed rule, HHS provided 

guidance on three restrictions that we 

intend to propose on the use of 

reinsurance contributions for 

administrative expenses, to permit 

States operating the reinsurance 

program to accurately estimate the cost 

of administrative expenses. First, we 

intend to apply the prohibitions 

described in section 1311(d)(5)(B) of the 

Affordable Care Act to the reinsurance 

program which prohibit an Exchange 

from using funds intended for 

administrative and operational expenses 

of the Exchange for such purposes as 

staff retreats, promotional giveaways, 

and excessive executive compensation. 

Second, we intend to propose that 

reinsurance funds intended for 

administrative expenses may not be 

used for any expense not necessary to 

the operation or 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. We received no 

comments on this guidance. We intend 

to issue future rulemaking including 

these provisions. 

5. Eligibility for Reinsurance Payments 

under the Health Insurance Market 

Reform Rules 

We proposed to add § 153.234 to 

clarify that, under either the uniform 

reinsurance payment parameters or the 

State supplemental reinsurance 

payment parameters, a reinsuranceeligible plan’s covered claims costs for 

an enrollee incurred prior to the 

application of 2014 market reform 

rules—§ 147.102 (fair health insurance 

premiums), § 147.104 (guaranteed 

availability of coverage, subject to the 

student health insurance provisions at 

§ 147.145), § 147.106 (guaranteed 

renewability of coverage, subject to the 

student health insurance provisions at 

§ 147.145), § 156.80 (single risk pool), 

and subpart B of part 156 (essential 

health benefits package)—would not 

count toward either the uniform or State 

supplemental attachment points, 

reinsurance caps, or coinsurance rates. 

In other words, those claims would not 

be eligible for reinsurance payments. 

We noted in the preamble of the 

proposed rule that, unlike plans subject 

to the 2014 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 

individuals. (We also noted 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 § 147.145, and we would require that 

the student health plans meet those 

modified requirements to be eligible for 

reinsurance payments.) The market 

reform rules will be effective for the 

individual market for policy years 

beginning on or after January 1, 2014. 

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. 

We believe that providing reinsurance 

payments only to those reinsuranceeligible 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 

individuals. We also proposed that 

State-operated reinsurance programs 

similarly limit eligibility for reinsurance 

payments, although we recognize that 

this policy contrasts with the approach 

proposed for State-operated risk 

adjustment programs, under which 

States are permitted to choose to riskadjust plans not subject to the 2014 

market reform rules. Because some 

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States may have enacted State-specific 

rating and market reforms that they 

believe would justify the inclusion of 

these plans in risk adjustment before 

their 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. Last, we 

proposed to operate the reinsurance 

program on a calendar year basis, which 

we believe to be most feasible from 

policy and administrative standpoints. 

For the reasons described in the 

proposed rule and considering the 

comments received, we are finalizing 

the provisions proposed in § 153.234. 

Comment: Commenters generally 

supported the operation of the 

reinsurance program on a calendar year 

basis. Commenters also requested that 

HHS use a calendar year approach 

versus a plan year approach for 

administrative simplicity. A commenter 

also requested that HHS use the term 

‘‘calendar year’’ instead of ‘‘benefit 

year’’ to avoid confusion among issuers. 

Response: We use the term ‘‘benefit 

year’’ throughout this final rule instead 

of ‘‘calendar year’’ because, under 

§ 155.20 of the Exchange Establishment 

Rule, ‘‘benefit year’’ is defined as a 

calendar year for which a health plan 

provides coverage for health benefits. 

For consistency, HHS will continue to 

use the term ‘‘benefit year.’’ 

6. Reinsurance Payment Parameters 

As described in the Premium 

Stabilization Rule, reinsurance 

payments to eligible issuers would be 

made for a portion of an enrollee’s 

claims costs paid by the issuer that 

exceeds an attachment point, subject to 

a coinsurance rate and a reinsurance 

cap. The coinsurance rate, attachment 

point, and reinsurance cap are the 

reinsurance ‘‘payment parameters.’’ We 

proposed uniform reinsurance payment 

parameters that would be applicable to 

the reinsurance program for each State, 

whether or not operated by a State. We 

believe that using uniform payment 

parameters will result in equitable 

access to the reinsurance funds across 

States and will further the goal of 

premium stabilization across all States 

by disbursing reinsurance contributions 

where they are most needed. 

We noted in the proposed rule that 

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 setting, and 

therefore, premiums, through reductions 

in plan risk, while complementing the 

current commercial reinsurance market. 

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. 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. To that end, the reinsurance 

program is designed to alleviate the 

concern of new high-cost claims from 

newly insured individuals. 

We proposed that the 2014 uniform 

reinsurance payment parameters be 

established at: (a) An attachment point 

of $60,000, when reinsurance payments 

would begin, (b) a national reinsurance 

cap of $250,000, when the reinsurance 

program stops paying claims for a highcost individual, and (c) a uniform 

coinsurance rate of 80 percent, which is 

the reimbursement percentage applied 

to the issuer’s aggregated paid claims 

amounts on behalf of an enrollee while 

giving issuers an incentive to contain 

costs between the attachment point and 

reinsurance cap. These three proposed 

payment parameters would help offset 

high-cost enrollees. The parameters 

would not interfere with traditional 

commercial reinsurance, which 

typically has attachment points in the 

$250,000 range. We estimate that these 

uniform payment parameters will result 

in total requests for reinsurance 

payments of approximately $10 billion 

in the 2014 benefit year. We intend to 

continue to monitor individual market 

enrollment and claims patterns to 

appropriately disburse reinsurance 

payments throughout each of the benefit 

years during which the reinsurance 

program is in effect. 

We are finalizing the proposed 

payment parameters, and the associated 

payment provisions proposed in 

§ 153.230(a) through § 153.230(c), with a 

technical revision in § 153.230(a) 

changing ‘‘non-grandfathered individual 

market plan’’ to ‘‘reinsurance-eligible 

plan’’ and clarifying in § 153.230(c) that 

national reinsurance payments are 

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 in the applicable benefit year. 

Comment: Several commenters 

supported the use of uniform payment 

parameters. Many commenters, 

however, suggested that States should 

be able to set their own payment 

parameters using State contributions to 

better target their local markets. Several 

commenters sought State flexibility and 

autonomy, with some commenters 

stating that they had spent substantial 

time and money preparing a Stateoperated program specific to the State. 

One commenter stated that uniform 

payment parameters and the national 

allocation of reinsurance payments will 

not ensure issuers of the aggregate 

funding available to pay claims in their 

respective markets until well after 

premium setting decisions for the next 

benefit year must be made. 

Response: We believe that these 

uniform payment parameters best meet 

the reinsurance program’s goals to 

promote premium stabilization and 

market stability in all States while 

providing plans incentives to continue 

effective management of enrollee costs. 

We aim to administer the transitional 

reinsurance program in an efficient, fair, 

and accurate manner so that reinsurance 

funds are allocated equitably and can 

maximize downward pressure on 

premiums. To maximize the program’s 

impact on premiums, uniform 

reinsurance payment parameters would 

allow the allocation of reinsurance 

contributions where they are most 

needed, to reimburse issuers with high 

costs in the individual market in 2014, 

2015 and 2016. This policy is consistent 

with the statutory goals of the 

reinsurance program—to stabilize 

premiums in the initial years of 

Exchange implementation and market 

reform. Additionally, as set forth in 

§ 153.240(b)(2), a State, or HHS on 

behalf of the State, will provide each 

reinsurance-eligible plan the expected 

requests for reinsurance payments made 

under the national payment parameters 

and State supplemental parameters, if 

applicable. These reports can provide 

the information necessary for issuers to 

set rates in subsequent benefit years. 

Comment: Several commenters 

requested more detail on the 

methodology used to calculate the 

uniform reinsurance payment 

parameters. One commenter requested 

that HHS detail the methodology used 

to determine the $60,000 attachment 

point. Another commenter requested 

that HHS raise the reinsurance cap to 

$500,000 to account for attachment 

points in commercial reinsurance higher 

than $250,000. Alternately, one 

commenter suggested that HHS use a 

first-dollar approach with no attachment 

point and a lower coinsurance rate to 

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better incentivize issuers to control 

costs from the beginning of an 

individual’s care. Several commenters 

suggested that the proposed 

contribution rate is insufficient to fully 

fund the proposed uniform reinsurance 

payment parameters, and asked HHS to 

set the uniform payment parameters 

such that expected payments would be 

fully funded. 

Response: As described in the 

proposed rule and earlier in this 

preamble, we used the ACAHIM, which 

estimates market enrollment 

incorporating the effects of State and 

Federal policy choices and accounting 

for the behavior of individuals and 

employers. These assumptions and 

projections led to our estimate of the 

2014 individual and employersponsored insurance markets and 

expenditures, and permitted us to 

estimate uniform payment parameters 

that will lead to requests for reinsurance 

payments of approximately $10 billion. 

Comment: One commenter asked HHS 

for guidance on how to account for 

quality improvement costs and attribute 

those to an individual, though they are 

not claims costs. Another commenter 

suggested that HHS use an alternate 

method for reinsurance payments, such 

as a fixed fee schedule or a percentage 

of Medicare reimbursement rates, 

instead of claims costs. 

Response: HHS believes that using 

claims costs most appropriately 

reimburses issuers for costs related to 

higher risk individuals and will most 

effectively stabilize premiums. 

Comment: One commenter suggested 

that HHS synchronize reinsurance 

payments with rules governing claims 

responsibility, such that if a patient 

changes coverage over the course of a 

single claim, the issuer paying the claim 

should be eligible for reinsurance 

payments. 

Response: We believe that using the 

date of discharge for claims payments 

effectively synchronizes reinsurance 

payments with claims responsibility. 

7. Uniform Adjustment to Reinsurance 

Payments 

We proposed in § 153.230(d) that HHS 

would adjust reinsurance payments by a 

uniform, pro rata adjustment rate if HHS 

determines that the total requests for 

reinsurance payments under the 

reinsurance payment parameters will 

exceed the reinsurance contributions 

collected under the national 

contribution rate during a given benefit 

year. In the preamble to the proposed 

rule, we stated that 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. We are 

finalizing § 153.230(d) as proposed. 

Comment: Several commenters 

supported the uniform adjustment to 

reinsurance payments in the event that 

total payment requests exceed 

reinsurance contributions. One 

commenter objected to the lower 

coinsurance rate that will effectively 

result from a uniform adjustment to 

payments, stating that this could lead to 

additional uncertainty for issuers. 

Response: We developed the national 

contribution rate and uniform 

reinsurance payment parameters using 

enrollment and expenditure estimates 

for 2014, based on the ACAHIM. We 

recognize that requests for reinsurance 

payments may be greater than predicted, 

or that collections may be lower than 

predicted. However, we believe that a 

uniform adjustment to payments is the 

most equitable approach in these 

situations. 

Comment: We received a comment 

seeking clarification on when, if 

necessary, the uniform adjustment to 

national reinsurance payments set forth 

in § 153.230(d) would occur, and how 

HHS will disburse reinsurance funds to 

States operating reinsurance, in order 

for the States to make reinsurance 

payments. 

Response: As described in § 153.235, 

HHS plans to allocate and disburse to 

each State operating reinsurance (and 

will distribute directly to issuers if HHS 

is operating reinsurance on behalf of a 

State), reinsurance contributions 

collected from contributing entities 

under the national contribution rate for 

reinsurance payments. The disbursed 

funds would be based on the total 

requests for reinsurance payments made 

under the national reinsurance payment 

parameters by all States and submitted 

under § 153.410, net of any adjustment 

under § 153.230(d). Thus, prior to the 

disbursement, HHS would uniformly 

adjust reinsurance payments, if 

applicable, following the collection of 

contributions and after the receipt of all 

claims for reinsurance payments, which 

must be submitted by April 30 of the 

year following the applicable benefit 

year. Following that adjustment, HHS 

will make reinsurance payments in 

States where HHS is operating 

reinsurance on behalf of the State, and 

will distribute funds to States operating 

reinsurance. 

8. Supplemental State Reinsurance 

Payment Parameters 

In § 153.232(a), we proposed that a 

State establishing the reinsurance 

program may modify the uniform 

reinsurance payment parameters only 

by establishing State supplemental 

payment parameters that cover an 

issuer’s claims costs beyond the uniform 

reinsurance payment parameters. We 

further proposed that reinsurance 

payments under these State 

supplemental payments parameters be 

made only with the additional funds 

that the State collects for reinsurance 

payments under § 153.220(d)(1)(ii) or 

State funds applied to the reinsurance 

program under § 153.220(d)(2) 

(proposed as (d)(3) in the proposed 

rule). We stated our belief 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 

issuers in all States access to the 

reinsurance payments from the 

contributions collected under the 

national reinsurance contribution rate. 

We proposed in § 153.232(a) that a 

State choosing to establish State 

supplemental reinsurance payment 

parameters must set those parameters by 

adjusting the uniform 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. 

We also proposed that a State may not 

alter the uniform reinsurance payment 

parameters in a manner that could result 

in reduced reinsurance payments. 

To provide issuers with greater 

certainty for premium rate setting 

purposes, we proposed that a State must 

ensure that any additional funds for 

reinsurance payments it collects under 

§ 153.220(d)(1)(ii) or State funds under 

§ 153.220(d)(2) (proposed as (d)(3) in the 

proposed rule), as applicable, are 

reasonably calculated to cover 

additional reinsurance payments 

projected to be made under the State’s 

supplemental reinsurance payment 

parameters for a given benefit year. In 

§ 153.232(b), we proposed that 

contributions collected under 

§ 153.220(d)(1)(ii) or additional funds 

collected under § 153.220(d)(2) 

(proposed as (d)(3) in the proposed 

rule), 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 proposed in § 153.232(c) that 

a reinsurance-eligible 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 exceed: (1) 

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The supplemental State attachment 

point; (2) the national reinsurance cap; 

or (3) 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 uniform reinsurance payment 

parameters so that the State could apply 

any additional contributions it collects 

under proposed § 153.220(d) towards 

reinsurance payments beyond the 

uniform reinsurance payment 

parameters. We explained in the 

proposed rule that this approach 

permits HHS to distribute funds under 

the uniform payment formula to where 

they are needed most, while allowing 

States that elect to operate reinsurance 

the flexibility to supplement nationally 

calculated reinsurance payments. As set 

forth in § 153.240(b), States would be 

required to separate in their reporting to 

issuers the reinsurance payments paid 

under the uniform reinsurance payment 

parameters and State supplemental 

reinsurance payment parameters. 

To ensure that reinsurance payments 

under State supplemental payment 

parameters do not overlap with the 

uniform reinsurance payment 

parameters, we proposed the method for 

calculating State supplemental 

reinsurance payments. Specifically, we 

proposed in § 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. 

Similar to payment calculations under 

the uniform reinsurance payment 

parameters, we proposed in § 153.232(e) 

that if all reinsurance payments requests 

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 

§ 153.220(d)(1)(ii) or State funds under 

§ 153.220(d)(2) (proposed as (d)(3) in the 

proposed rule) as applicable, the State 

must determine a uniform pro rata 

adjustment to be applied to all such 

requests for reinsurance payments in the 

State. We proposed that each applicable 

reinsurance entity in the State must 

reduce all requests for reinsurance 

payments under the State supplemental 

reinsurance payment parameters for the 

applicable benefit year by that 

adjustment. 

Finally, in § 153.232(f), we proposed 

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 claims, and any 

remaining additional funds collected 

under § 153.220(d)(1)(ii) must be used 

for reinsurance payments under the 

State supplemental parameters in 

subsequent benefit years. 

We are finalizing these provisions as 

proposed, with a technical correction 

changing ‘‘non-grandfathered individual 

market plan’’ to ‘‘reinsurance-eligible 

plan’’ and clarifying that the incurred 

claims costs for an individual enrollee’s 

covered benefits are those incurred in 

the applicable benefit year in 

§ 153.232(c). We are clarifying in 

§ 153.232(d) that reinsurance payments 

will be calculated with respect to an 

issuer’s incurred claims costs for an 

individual enrollee’s covered benefits 

incurred in the applicable benefit year. 

Comment: Several commenters urged 

HHS to allow additional State flexibility 

for the State supplemental reinsurance 

payment parameters under the 

reinsurance program. In addition, 

several commenters requested flexibility 

for a State to design a program that 

would cover any shortfall in payments 

under the reinsurance program’s 

uniform parameters. 

Response: One of HHS’s goals is to 

provide the greatest amount of 

flexibility to States while ensuring 

consistency with the policy goals of the 

reinsurance program. Therefore, under 

these final rules, we have provided 

States with the flexibility to increase the 

coinsurance rate on reinsurance-eligible 

claims, which would have the effect of 

increasing payouts under the uniform 

parameters. Additionally, nothing in 

these final rules prevents a State from 

establishing a separate program that 

would operate alongside the reinsurance 

program established under section 1341 

of the Affordable Care Act. A State 

establishing such a program is free to 

implement the collections methodology 

and payment formula of its own 

choosing. 

9. Allocation and Distribution of 

Reinsurance Contributions 

Section 153.220(d) of the Premium 

Stabilization Rule provided that HHS 

would distribute reinsurance 

contributions collected for reinsurance 

payments from a State to the applicable 

reinsurance entity for that State. In the 

proposed rule, we proposed to replace 

this section with § 153.235(a), which 

provided that HHS would allocate and 

distribute the reinsurance contributions 

collected under the national 

contribution rate based on the need for 

reinsurance payments, regardless of 

where the contributions are collected. 

HHS would 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 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 

proposed to amend § 153.220(a) to 

clarify that even if a State establishes 

the reinsurance program, HHS would 

directly collect the reinsurance 

contributions for enrollees who reside 

in that State from both health insurance 

issuers and self-insured group health 

plans. 

We are finalizing the provisions as 

proposed in § 153.220(a). We are 

revising § 153.235(a) to provide that 

HHS will allocate and disburse to each 

State operating reinsurance (and will 

distribute directly to issuers if HHS is 

operating reinsurance on behalf of a 

State), reinsurance contributions 

collected from contributing entities 

under the national contribution rate for 

reinsurance payments. The disbursed 

funds would be based on the total 

requests for reinsurance payments made 

under the national reinsurance payment 

parameters in all States and submitted 

under § 153.410, net of any adjustment 

under § 153.230(d). We are amending 

§ 153.410(a) to clarify that an issuer of 

a reinsurance-eligible plan may make 

requests for reinsurance payments when 

an issuer’s claims costs for an enrollee 

of that reinsurance-eligible plan has met 

the criteria for reinsurance payments in 

45 CFR subpart B and this final rule and 

where applicable the State notice of 

benefit and payment parameters. 

Comment: Several commenters stated 

that the proposed allocation of 

reinsurance payments would penalize 

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15470 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

States that effectively and efficiently 

manage health care costs and have fewer 

uninsured individuals. Commenters 

stated that individual markets are 

largely State-based and that reinsurance 

works in conjunction with risk 

adjustment, which is also a State-based 

program. Commenters also stated that 

disbursing reinsurance payments under 

uniform reinsurance payment 

parameters in all States is contrary to 

the intent of the statute for a State-based 

program. We also received comments 

stating that the implementation of the 

reinsurance program as proposed would 

increase the burden for States that wish 

to supplement the reinsurance program. 

One commenter suggested that 

reinsurance payment allocations in 

accordance with need could discourage 

issuers from maintaining grandfathered 

status in order to compete for funds, 

thereby making it difficult for enrollees 

to keep their current plan. 

Response: To maximize the 

reinsurance program’s impact on 

premium rates, an allocation of 

reinsurance payments under uniform 

payment parameters allows for HHS to 

disburse reinsurance contributions 

where they are most needed, to 

reimburse issuers with high cost claims 

in the individual market in 2014, 2015 

and 2016. This policy is consistent with 

the statutory goals of the reinsurance 

program—to stabilize premiums in the 

initial years of Exchange 

implementation and market reform. 

Considering the comments received, we 

are finalizing these provisions as 

proposed. 

Comment: Several commenters asked 

that HHS refund any unused 

contributions collected or use those 

funds to lower the contribution rate for 

subsequent benefit years. 

Response: The purpose of the 

reinsurance program is to stabilize 

premiums in the individual market 

beginning in 2014. If any funds remain 

after all requests for reinsurance 

payments are made for any benefit year, 

as required by the statute, HHS plans to 

use those funds for reinsurance 

payments in subsequent benefit years, 

furthering the goal of section 1341 of the 

Affordable Care Act. 

Comment: Several commenters 

supported HHS’s proposed annual 

payments schedule coupled with 

quarterly reporting estimates. One 

commenter requested clarification on 

whether reinsurance payments would 

be issued on a rolling basis throughout 

the year, or once annually. Several 

commenters requested that HHS 

administer reinsurance payments 

throughout the year instead of annually 

to better accommodate issuers’ cash 

flow. 

Response: Because we are seeking to 

stabilize premiums nationally, an 

annual disbursement of payments 

preserves fairness in making 

reinsurance payments and allows for 

HHS to appropriately adjust payments, 

if needed. To better address 

administrative and operational issues, 

we proposed to make an annual 

reinsurance payment for each benefit 

year. 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. 

Comment: Several commenters sought 

clarification on the process by which 

HHS plans to ensure that reinsurance 

funds will be used to reduce and 

stabilize premiums in the individual 

market. 

Response: We expect that an issuer 

that receives reinsurance payments will 

reduce premiums in the individual 

market accordingly. We note that a 

State, or HHS operating reinsurance on 

behalf of the State, will provide issuers 

the estimated amount of the reinsurance 

payments throughout a benefit year so 

that those issuers can account for 

reinsurance payments in developing 

their premiums for subsequent benefit 

years. We note that under the single risk 

pool requirement of the final Market 

Reform Rule (§ 156.80), issuers of nongrandfathered individual market plans 

must adjust their index rate based on 

the total expected market-wide 

payments and charges under the risk 

adjustment and reinsurance programs in 

the State, and based on Exchange user 

fees. 

Comment: Several commenters asked 

HHS how excess reinsurance funds 

would be distributed after 2016. 

Response: HHS will provide details 

regarding this issue in future 

rulemaking and guidance. 

10. Reinsurance Data Collection 

Standards 

a. Data Collection Standards for 

Reinsurance Payments 

Section 153.240(a) of the Premium 

Stabilization Rule directs a State’s 

applicable reinsurance entity to collect 

data needed to determine reinsurance 

payments as described in § 153.230. We 

proposed to amend § 153.240(a) by 

adding subparagraph (1) which would 

direct a State to ensure that its 

applicable reinsurance entity either 

collects or is provided access to the data 

necessary to determine reinsurance 

payments from an issuer of a 

reinsurance-eligible plan. When HHS 

operates reinsurance on behalf of a 

State, HHS would utilize the same 

distributed data collection approach 

proposed for risk adjustment. This 

proposed amendment was meant to 

clarify that an applicable reinsurance 

entity may either use a distributed data 

collection approach for its reinsurance 

program or directly collect privacyprotected 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 issuers’ secure servers. 

We also proposed to amend 

§ 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 § 153.410. We proposed 

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 reinsurance 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. As set forth in 

§ 153.710(c), a capitated plan would be 

required to use its principal internal 

methodology for pricing encounters for 

reinsurance purposes, such as the 

methodology in use for other State or 

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Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 15471 

22As 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). Available at: 

Federal programs (for example, a 

methodology used for the Medicare 

Advantage market). If a capitated 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 

reinsurance program, would 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 have 

responded to the comments received 

regarding capitated plans in section 

III.G. of this final rule, where capitated 

plans are discussed in § 153.710(c). We 

are finalizing these provisions as 

proposed. 

b. Notification of Reinsurance Payments 

We proposed to add § 153.240(b)(1), 

which would direct 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 

applicable 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 

would 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 

proposed in § 153.240(b)(2) that a State 

provide quarterly notifications of 

estimates to each reinsurance-eligible 

plan of the expected requests for 

reinsurance payments. HHS intends to 

collaborate with issuers and States to 

develop these early notifications. We are 

finalizing these provisions as proposed. 

Comment: Several commenters 

requested that HHS specify a date by 

which HHS will make reinsurance 

payments. 

Response: Under § 153.240(b), HHS 

would notify issuers of reinsurance 

payments to be made under the uniform 

payment parameters by June 30 of the 

year following the applicable benefit 

year. We will make every effort to issue 

payments as quickly as possible. We 

anticipate issuing further guidance 

regarding reinsurance payments. 

Comment: One commenter requested 

that, if a State is operates reinsurance in 

the 2014 benefit year, the deadline for 

issuers to file rates be moved to April 

30 because State supplemental 

reinsurance payment parameters will 

affect premium rate setting. The 

commenter also requested that for the 

2015 and 2016 benefit years, HHS 

require States to publish the State notice 

of benefit and payments parameters no 

later than January 31 of the prior year 

to provide issuers with ample time to 

calculate and submit rates for filing 

approval by March 28. 

Response: We understand the 

challenges posed by various State and 

Federal deadlines, and anticipate that 

all stakeholders will work together with 

both States and HHS to meet those 

deadlines. However, State deadlines for 

submitting rates are within the authority 

of the State. 

c. Privacy and Security Standards 

We proposed in § 153.240(d)(1) that a 

State establishing the reinsurance 

program ensure that the applicable 

reinsurance entity’s collection of 

personally identifiable information 22 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). In 

§ 153.240(d)(2), we proposed 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 § 164.308, 

§ 164.310, and § 164.312. We are 

finalizing these provisions as proposed. 

Comment: We received comments 

supporting the privacy and security 

standards set forth in § 153.240(d) and 

suggesting audits and other safeguards 

to protect personal health information 

from inappropriate disclosure. 

Response: HHS takes seriously its 

responsibility to monitor the 

implementation of these programs, 

including the protection of the privacy 

of consumers. We will provide more 

information on our approach to these 

and other oversight matters in future 

rulemaking. 

d. Data Collection 

We proposed in § 153.420(a) that an 

issuer of a reinsurance-eligible plan 

seeking reinsurance payments submit or 

make accessible data, in accordance 

with the reinsurance data collection 

approach established by the State, or 

HHS on behalf of the State. In 

§ 153.420(b), we proposed 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. Further details 

surrounding the data collection process 

when HHS is operating reinsurance on 

behalf of a State is set forth in subpart 

H of part 153 and section III.G. of this 

final rule. We are finalizing these 

provisions as proposed. 

Comment: Several commenters 

requested clarification on the claims 

run-out period. 

Response: 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 would submit data 

for a benefit year by April 30 of the year 

following the applicable benefit year. 

For example, claims incurred in the 

2014 benefit year must be submitted to 

HHS by April 30, 2015. The submission 

deadline (the latest date by which data 

can be provided for the applicable 

benefit year) will allow issuers the time 

necessary to process claims and submit 

data to their distributed data systems for 

HHS evaluation. The submission 

deadline of April 30 of the year 

following the applicable benefit year 

also permits HHS an appropriate 

timeline for payment calculations. 

However, as described in section III.G. 

of this final rule, claims submitted for 

the reinsurance program and encounter 

data submitted for the risk adjustment 

program must be for claims and 

encounters with discharge dates within 

the applicable benefit year. Use of the 

discharge date best ensures that services 

provided across benefit years will be 

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15472 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

considered in their entirety rather than 

being partially or fully excluded from 

consideration as a result of the data 

submission timing requirements. 

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. 

Therefore, in the proposed rule, we 

proposed to amend § 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 § 158.161(a), and 

Federal and State taxes and assessments 

paid for the QHP as described in 

§ 158.162(a)(1) and § 158.162(b)(1). This 

definition aligns with the regulatory fees 

and taxes and assessments deductible 

from premiums in the MLR calculation. 

We used this definition to define ‘‘aftertax premiums earned,’’ which we 

proposed to mean, with respect to a 

QHP, premiums earned minus ‘‘taxes.’’ 

We also proposed to revise the 

definition of ‘‘administrative costs’’ in 

§ 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 noted that under 

this broader definition, administrative 

costs may also include regulatory fees 

and assessments other than those 

included in ‘‘taxes,’’ as defined above. 

Using the definitions above, we 

proposed to amend § 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 proposed to define profits for a QHP 

through the use of the risk corridors 

equation; however, we provided for a 3 

percent profit margin so that the risk 

corridors program would protect a 

reasonable profit margin (subject to the 

20 percent cap on allowable 

administrative costs as described 

below). 

Finally, using the definition of profits 

discussed above, we proposed to revise 

the definition of ‘‘allowable 

administrative costs’’ in § 153.500 to 

mean, with respect to a QHP, the sum 

of administrative costs other than 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, assessments and regulatory fees 

other than those taxes, assessments and 

regulatory fees defined as deductible 

from premium revenue under the MLR 

rules, a result that is consistent with the 

way they are accounted for by the MLR 

rules. 

The preamble to our proposed rule 

contained an example that illustrated 

the proposed operation of the risk 

corridors calculation. We have included 

a minor correction to the calculation of 

profits in this example: 

• 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. 

• 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 

§ 158.161(a), § 158.162(a)(1), and 

§ 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 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 

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 * $185 = $5.55; 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 $5.55 

• Allowable administrative costs are 

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 sought comments on the 

estimates, data sources, and appropriate 

profit margin to use in the risk corridors 

calculation in the proposed rule. We are 

finalizing these proposed provisions 

with the following modifications. As 

discussed below, in order to conform 

with changes finalized in this rule for 

the MLR program, and in response to 

comments, we are deleting 

§ 153.530(b)(1)(ii) to eliminate the 

adjustment to allowable costs for 

reinsurance contributions made by an 

issuer, and are clarifying the treatment 

of community benefit expenditures 

within the risk corridors calculation. We 

are also modifying our proposed 

definition of ‘‘taxes’’ in § 153.500, by 

replacing the term ‘‘taxes’’ with ‘‘taxes 

and regulatory fees.’’ 

Comment: A few commenters noted 

that, while the proposed rule stated that 

the risk corridors profits calculation was 

based on after-tax premiums, the 

example in the preamble to the 

proposed rule calculated 3 percent of 

profits based on a pre-tax premium 

amount (that is, earned premiums). 

Response: We are finalizing the 

definition of ‘‘profits’’ based on after-tax 

premiums, as proposed. We have 

corrected the profits calculation 

example in the preamble. 

Comment: Two commenters stated 

that the risk corridors formula is 

potentially circular, and asked us to 

reexamine the treatment of profits and 

taxes in the risk corridors calculation. 

Because taxes are a parameter in the risk 

corridors calculation, if risk corridors 

payments are taken into account when 

estimating taxes, the commenters 

believed that it would result in an 

iterative effect that could affect the 

width of the risk corridors. They stated 

that a similar effect would occur with 

respect to profits. 

Response: In response to these 

comments, we are clarifying that, 

similar to the manner in which the MLR 

is calculated, an issuer should not 

consider risk corridors payments and 

charges when estimating taxes under the 

risk corridors formula. As described in 

the preamble to the Premium 

Stabilization Rule, we seek alignment 

between the MLR and risk corridors 

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23Section 3C of the NAIC model regulation, 

available at http://www.naic.org/documents/ 

committees_ex_mlr_reg_asadopted.pdf states, ‘‘[a]ll 

terms defined in this Regulation, whether in this 

Section or elsewhere, shall be construed, and all 

calculations provided for by this Regulation shall be 

performed, as to exclude the financial impact of any 

of the rebates provided for in sections 8, 9, and 10 

[rebate calculation sections].’’ 

programs when practicable so that 

similar concepts in the two programs 

are handled in a similar manner, and 

similar policy goals are reflected. 

Consequently, our treatment of taxes for 

risk corridors purposes follows the 

approach of the MLR program, as 

outlined in section 3C of the model 

MLR regulation published by the 

National Association of Insurance 

Commissioners (NAIC).23 We note that, 

because of the way profits is defined for 

the risk corridors calculation, no such 

circularity will occur with profits. 

Comment: One commenter asked 

whether reinsurance contributions 

could be considered as ‘‘taxes and 

regulatory fees’’ when determining 

‘‘allowable administrative costs’’ in the 

denominator of the risk corridors 

calculation. 

Response: We note that other 

provisions of this final rule amend the 

MLR calculation so that reinsurance 

contributions are included in Federal 

and State licensing and regulatory fees 

paid with respect to the QHP as 

described in § 158.161(a), and are 

deducted from premiums for MLR 

purposes. Our proposed definition of 

‘‘taxes’’ for purposes of the risk 

corridors program cross-referenced 

§ 158.161(a) and similarly included 

reinsurance contributions. Thus, in 

response to these comments, and to 

maintain consistency with the MLR 

calculation and our proposed definition, 

which we are finalizing as proposed, we 

are making a conforming amendment to 

§ 153.530(b)(1). In this final rule, we are 

deleting § 153.530(b)(1)(ii) and 

clarifying that reinsurance contributions 

are included in Federal and State 

licensing and regulatory fees paid with 

respect to the QHP as described in 

§ 158.161(a), and thus are included in 

allowable administrative costs for risk 

corridors purposes. We are also making 

a conforming change to § 153.520(d) to 

remove the requirement that a QHP 

issuer must attribute reinsurance 

contributions to allowable costs for the 

benefit year. In addition, we are making 

a conforming modification to the 

proposed definition of ‘‘taxes’’ in 

§ 153.500, by replacing the term ‘‘taxes’’ 

with ‘‘taxes and regulatory fees.’’ 

Comment: Nearly all those that 

commented on the risk corridors profit 

margin agreed with the 3 percent profit 

margin set in the proposed rule. One 

commenter suggested that a 2 percent 

profit margin would be more 

appropriate. 

Response: Based on the comments 

received and the policy arguments 

outlined in our proposed rule, we are 

finalizing the definition of ‘‘profits’’ in 

§ 153.500 as proposed. 

Comment: One commenter expressed 

concern that an allowance for up to 3 

percent profit could disrupt the budget 

neutrality of the risk corridors program, 

and asked for clarification on HHS’s 

plans for funding risk corridors if 

payments exceed receipts. 

Response: The risk corridors program 

is not statutorily required to be budget 

neutral. Regardless of the balance of 

payments and receipts, HHS will remit 

payments as required under section 

1342 of the Affordable Care Act. 

Comment: One commenter stated that 

the risk corridors calculation does not 

account for the credibility adjustment 

that is part of the MLR formula, and 

recommended setting maximum 

allowable administrative costs at 20 

percent plus the allowed credibility 

adjustment for the carrier’s block of 

business. The commenter believed that 

this change would be consistent with 

the MLR formula and make it more 

viable for carriers to maintain their 

smaller blocks of business, given the 

higher claims volatility that often 

characterizes these smaller blocks of 

business. 

Response: Although we seek 

consistency with MLR where the risk 

corridors and MLR formulas contain 

similar parameters, we believe that the 

credibility adjustment is a unique 

parameter in the MLR formula. The 

MLR statute provides for a credibility 

adjustment through ‘‘methodologies 

* * * designed to take into account the 

special circumstances of smaller plans, 

different types of plans, and newer 

plans’’ at section 2718(c) of the 

Affordable Care Act. No similar 

reference appears in section 1342 of the 

Affordable Care Act. 

Comment: One commenter requested 

clarification on whether community 

benefit expenses would be included in 

the taxes of non-profit entities for the 

purposes of calculating the risk 

corridors target amount. 

Response: We believe that accounting 

for these expenses as taxes when 

calculating the target amount would 

appropriately align the risk corridors 

formula with the MLR calculation. Our 

proposed definition of ‘‘taxes’’ in 

§ 153.500 includes Federal and State 

taxes defined in § 158.162(b), which 

describes payments made by a taxexempt issuer for community benefit 

expenditures. Consequently, we are 

clarifying that non-profit entities may 

account for community benefit 

expenditures as ‘‘taxes and regulatory 

fees’’ in a manner consistent with the 

MLR reporting requirements set forth in 

§ 158.162 for the purposes of calculating 

the risk corridors target amount. 

2. Risk Corridors Establishment and 

Payment Methodology 

We proposed to add paragraph (d) to 

§ 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. By June 30 

of the year following an applicable 

benefit year, under § 153.310(e), QHP 

issuers will have been notified of risk 

adjustment payments and charges for 

the applicable benefit year. By that same 

date, under § 153.240(b)(1), QHP issuers 

also will have been notified of all 

reinsurance payments to be made for the 

applicable benefit year. As such, we 

proposed in § 153.530(d) that the due 

date for QHP issuers to submit all 

information required under § 153.530 of 

the Premium Stabilization Rule is July 

31 of the year following the applicable 

benefit year. We also proposed that the 

MLR reporting deadline be revised to 

align with this schedule. We are 

finalizing this provision as proposed. 

Comment: We received several 

supportive comments on our proposal to 

require issuers to submit risk corridors 

information by July 31 of the year 

following the applicable benefit year. 

Response: We are finalizing 

§ 153.530(d) as proposed, so that the 

due date for QHP issuers to submit all 

risk corridors information is July 31 of 

the year following the applicable benefit 

year. In section III.I.1. of this final rule, 

we also finalize our proposal to align 

the MLR reporting deadline with this 

schedule. 

Comment: One commenter asked how 

payments made under the State 

supplemental reinsurance payment 

parameters are taken into account in the 

risk corridors calculation. Another 

commenter requested that HHS clarify 

the treatment of State ‘‘wrap-around’’ 

reinsurance payments under the risk 

corridors calculation, and asked for 

information on the way in which HHS 

analyzed the impact of the 

administrative burden associated with 

removing these costs. 

Response: Under section 1342(c)(1)(B) 

of the Affordable Care Act, allowable 

costs are to be reduced by any risk 

adjustment and reinsurance payments 

received under sections 1341 and 1343. 

Supplemental reinsurance payments 

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made under State supplemental 

reinsurance payment parameters are 

reinsurance payments received under 

sections 1341 of the Affordable Care 

Act; thus, allowable costs in the risk 

corridors formula are to be reduced by 

the reinsurance payments received both 

under the uniform payment parameters 

and any State supplemental reinsurance 

payment parameters. 

We do not believe that adjusting the 

risk corridors formula to account for this 

parameter will result in any additional 

administrative burden on issuers, 

because issuers will be performing the 

calculations to account for these 

adjustments at the same time they adjust 

for reinsurance payments under the 

uniform payment parameters. 

Comment: One commenter suggested 

that we align the risk corridors 

calculation with their suggestions on the 

MLR calculation, which would entail 

accounting for risk adjustment transfers 

and reinsurance contributions as 

adjustments to premiums, rather than 

claims. Another commenter similarly 

recommended that reinsurance 

payments be treated as an adjustment to 

premiums in the risk corridors 

calculation, noting that such an 

approach would reflect current market 

practices. 

Response: We do not believe we have 

the statutory authority to accommodate 

this request, because section 

1342(c)(1)(B) of the Affordable Care Act 

requires reducing allowable costs for 

reinsurance and risk adjustment 

payments received. 

Comment: A number of commenters 

indicated that risk corridors should be 

calculated at the issuer level as opposed 

to the QHP level. One commenter 

indicated that the current policy of 

calculating risk corridors at the plan 

level is inconsistent with the single risk 

pool requirement in the proposed 

Market Reform Rule (77 FR 70584), and 

other issuers pointed out other policy 

concerns, such as non-alignment with 

MLR and lack of statistical credibility. 

Response: We agree that a plan-level 

risk corridors calculation creates an 

incongruity with the single risk pool 

requirement set forth at § 156.80. Under 

the regulation as written, risk corridors 

would compare allowable costs 

(adjusted claims), which are currently 

plan-specific, and target amount 

(adjusted premiums), which under the 

single risk pool requirement must be 

based on market-wide expected claims. 

After considering comments received on 

the proposed rule, we are publishing an 

interim final rule elsewhere in this issue 

of the Federal Register to address 

alignment of the risk corridors 

calculations with the single risk pool 

requirement. Under the approach 

implemented in the interim final rule, 

an issuer could reasonably allocate, in 

accordance with § 153.520, allowable 

administrative costs across its business 

pro rata by premiums earned, leading to 

an issuer-level risk corridors calculation 

for its QHP business. 

3. Risk Corridors Data Requirements 

In § 153.530 of the Premium 

Stabilization Rule, we stated that to 

support the risk corridors program 

calculations, a QHP issuer 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 that 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, received reinsurance 

payments of $35, and received costsharing reduction payments of $15, the 

QHP issuer’s allowable costs would be 

$125 ($200 allowable costs ¥ $25 risk 

adjustment payments received ¥ $35 

reinsurance payments received ¥ $15 

cost-sharing reduction payments). 

We additionally proposed an 

approach to reimbursement of costsharing reductions that would add an 

additional reimbursement requirement 

for cost-sharing reductions by providers 

with whom the issuer has a fee-forservice compensation arrangement. We 

proposed 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, we 

clarified that 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. 

We also proposed to amend 

§ 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. We received no 

responses to our request for comment on 

this proposal. Therefore, we are 

finalizing this provision as proposed. 

4. Manner of Risk Corridor Data 

Collection 

We also proposed to amend 

§ 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. We received no responses to 

our request for comment on this 

proposal. Therefore, we are finalizing 

this provision as proposed. 

E. Provisions for the Advance Payment 

of the Premium Tax Credit and CostSharing 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 proposed to amend 

§ 155.305(g)(3), currently entitled 

‘‘special rule for multiple tax 

households.’’ Our proposed amendment 

renamed this paragraph ‘‘special rule for 

family policies,’’ added a category for 

qualified individuals who are not 

eligible for any cost-sharing reductions, 

and revised the introductory text to 

address situations in which Indians (as 

defined in § 155.300(a)) and non-Indians 

enroll in a family policy. The proposed 

amendment also extended 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 noted that nothing in this provision 

precludes qualified individuals with 

different levels of eligibility for costsharing reductions from purchasing 

separate policies to secure the highest 

cost-sharing reductions for which they 

are respectively eligible. 

We discuss this policy further with 

regard to Indians eligible for costsharing reductions under section 

1402(d) of the Affordable Care Act in 

section III.E.4.i. of this final rule. We are 

finalizing these provisions as proposed. 

Comment: Several commenters 

supported the proposed policy, noting 

that it would be operationally infeasible 

for QHP issuers to have two family 

members with different cost-sharing 

levels enrolled in the same policy. Other 

commenters stated that families should 

not need to purchase multiple 

individual plans so that each family 

member can receive the full value of the 

cost-sharing reductions for which they 

are eligible. Commenters expressed 

concern that for large families, 

premiums for multiple individual plans 

could offset the value of the cost-sharing 

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Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 15475 

reduction, as well as potentially 

subjecting family members to separate 

out-of-pocket maximums and separate 

deductibles. One commenter suggested 

the option of a family-based plan that 

offers a weighted actuarial value 

reflecting the cost-sharing reductions 

available to individual members. 

Another commenter was concerned 

about the ability of Exchanges to explain 

to consumers the advantages and 

disadvantages of buying multiple 

policies versus one family policy. 

Response: As deductibles and out-ofpocket limits are calculated at the policy 

level, we believe it will be operationally 

difficult to establish separate costsharing requirements for different 

enrollees covered by the same policy at 

this time. HHS will encourage 

Exchanges to provide appropriate 

guidance to consumers on the relative 

costs and benefits of enrolling in one 

family policy versus multiple individual 

policies so that families can best take 

advantage of cost-sharing reductions. 

b. Recalculation of Advance Payments 

of the Premium Tax Credit and CostSharing Reductions 

We proposed to add paragraph (g) to 

§ 155.330 to clarify how an Exchange 

would redetermine the eligibility of an 

enrollee during a benefit year if an 

Exchange receives and verifies new 

information reported by an enrollee or 

identifies updated information through 

data matching that affects eligibility for 

advance payments of the premium tax 

credit and cost-sharing reductions. We 

proposed that when an Exchange 

recalculates the amount of advance 

payments of the premium tax credit 

available after considering such a 

change, an Exchange must account for 

any advance payments already made on 

behalf of the tax filer in that benefit year 

to minimize, to the extent possible, any 

projected discrepancies between the 

advance payments and the tax filer’s 

projected premium tax credit for the 

benefit year. We specified that this 

recalculation will only include months 

for which the tax filer has been 

determined eligible for advance 

payments of the premium tax credit. We 

also proposed 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. Further 

detail and examples of this policy were 

provided in the proposed rule. 

We further noted in the preamble that 

we considered taking a different 

approach if an eligibility 

redetermination during the benefit year 

resulted 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. We solicited comments 

regarding whether we should adopt this 

approach, and if so, how QHP issuers 

should be required to provide the 

retroactive payments to enrollees. 

Several commenters raised concerns 

regarding the operational and 

administrative challenges associated 

with such retroactive payments. 

We are finalizing the policy 

substantially as proposed, with 

modifications to the language in 

paragraph (g) to increase clarity. We are 

not implementing the retroactive 

payment approach. 

Comment: A number of commenters 

expressed their support for the proposed 

approach, though some sought further 

clarification regarding the impact of 

eligibility redeterminations on advance 

payments of the premium tax credit and 

cost-sharing reductions. Several 

commenters also requested that HHS 

modify the proposed approach, by 

placing a limit on the number of 

redeterminations per benefit year to 

reduce administrative burden, or by 

providing that when accounting for 

advance payments of the premium tax 

credit already received by an enrollee 

whose income has since increased, an 

Exchange should never reduce the 

enrollee’s future payments by more than 

the limits on repayment following the 

benefit year as specified in 26 CFR 

1.36B–4(a). Another commenter urged 

that HHS require QHP issuers to 

conduct extensive outreach to enrollees 

to effectively implement this provision. 

Further, although several commenters 

expressed support for how the 

alternative proposal could assist 

enrollees with issues such as past due 

premium amounts, we also received 

several comments raising concerns and 

seeking additional specificity. 

Commenters mentioned the operational 

and administrative challenges that the 

alternative proposal would pose for both 

QHP issuers as well as HHS, and stated 

that the potential advantages for 

enrollees would be minimal. 

Response: We provide additional 

detail on redeterminations during the 

benefit year and their implications for 

cost-sharing reductions in § 156.425. We 

note that redetermining eligibility when 

changes occur is important to the 

accuracy of eligibility determinations 

during the year. We also note that we 

expect that QHP issuers will provide 

guidance to enrollees regarding the 

importance of reporting changes, and 

the avenues through which changes can 

be reported. In finalizing the policy as 

proposed, we do not specify that the 

Exchange will consider the statutory 

limits on repayment, as these limits are 

separate from the premium tax credit 

calculation itself, and are intended to be 

applied at the time of tax filing. 

After considering the comments 

regarding the operational and 

administrative challenges involved with 

the alternative proposal, we decided to 

maintain the approach proposed. We 

believe that the comments received that 

questioned the benefits associated with 

the alternative on which we requested 

comment, combined with the 

operational concerns regarding how 

HHS would provide such retroactive 

payments to QHP issuers and the 

process through which QHP issuers 

would reimburse enrollees, outweigh 

the potential benefit for enrollees. 

c. Administration of Advance Payments 

of the Premium Tax Credit and CostSharing Reductions 

Under our authority to administer the 

payment of cost-sharing reductions and 

advance payments of the premium tax 

credits conferred in section 1412 and 

the rulemaking authority conferred in 

section 1321(a) of the Affordable Care 

Act, we proposed to add two paragraphs 

to § 155.340. First, we proposed to add 

paragraph (e) to § 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 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 would allocate the 

advance payment of the premium tax 

credit(s) in accordance with the 

methodology proposed in 

§ 155.340(e)(1) and (2). Under that 

methodology, 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. 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 

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15476 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

24We note that to simplify operations, even if a 

State establishes a uniform age rating curve as 

allowed under § 147.102(e), we will continue to use 

the default uniform age rating curve with a 3:1 ratio 

established by the Secretary of HHS for purposes of 

allocating advance payments of the premium tax 

credit. 

the adjusted monthly premiums for the 

stand-alone dental policies properly 

allocated to the pediatric dental EHB. 

We provided additional detail on the 

allocation methodology in the proposed 

rule and welcomed comments on this 

proposal. 

As discussed in greater detail below, 

we received a number of comments on 

the allocation of advance payments of 

premium tax credits among QHPs and 

stand-alone dental plans. We also 

received one comment expressing 

concern that the proposed allocation 

methodology was too complicated and 

may prevent consumers from selecting a 

plan or the plans that are in the 

household’s best interest. In particular, 

the proposed pro rata distribution by 

premium delays the calculation of the 

allocation of the advance payments 

until after QHPs have been selected. 

This delay would prevent an Exchange 

from displaying the amount of premium 

that a household would pay out-ofpocket for each plan until all plans have 

been selected. 

We do not want to restrict the way 

that an Exchange develops the 

consumer shopping experience, and 

therefore, considering the comment 

received on this approach, we are 

modifying the proposed rule and 

finalizing a policy to allow Exchanges 

greater flexibility in allocating the 

advance payment of the premium tax 

credit if the individuals in the tax filers’ 

tax household(s) are enrolled in more 

than one QHP or stand-alone dental 

plan. Specifically, as finalized in 

§ 155.340(e), if one or more advance 

payments of the premium tax credit are 

to be made on behalf of a tax filer (or 

two tax filers covered by the same 

plan(s)), and individuals in the tax 

filers’ tax households are enrolled in 

more than one QHP or stand-alone 

dental plan, then the advance payment 

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 

§ 1.36B–3(e), for the QHP policies 

properly allocated to EHB must be 

allocated among the QHP policies in a 

reasonable and consistent manner 

specified by the Exchange; and (2) any 

remaining advance payment of the 

premium tax credit must be allocated 

among the stand-alone dental policies 

(if any) in a reasonable and consistent 

manner specified by the Exchange. We 

do not choose to set specific parameters 

for the allocation approach; however, 

the Exchange must apply the same 

approach to all advance payments of the 

premium tax credit provided during a 

benefit year. We are also making some 

clarifying modifications to the language 

of this provision. 

For Federally-facilitated Exchanges, 

we establish a methodology at 

§ 155.340(f) in which the advance 

payment of the premium tax credit is 

allocated based on the number of 

enrollees covered under the QHP or 

stand-alone dental policy, weighted by 

the age of the enrollees, using the 

default uniform age rating curve 

established by the Secretary of HHS 

under § 147.102(e) of the final Market 

Reform Rule.24 If this methodology 

results in an advance payment of the 

premium tax credit allocation that 

exceeds a QHP’s adjusted monthly 

premium properly allocated to EHB, the 

surplus advance payment of the 

premium tax credit will be allocated 

evenly to any of the other QHP policies, 

up to the applicable adjusted monthly 

premium properly allocated to EHB. 

And, in accordance with the general 

policy, any advance payment of the 

premium tax credit above the aggregate 

adjusted monthly premiums for the 

QHP policies properly allocated to EHB 

must be allocated among the standalone dental policies in a similar 

manner. We provide the following 

example: 

• A family that is eligible for a 

premium tax credit and is made up of 

a child age 18 and two parents age 53 

purchases two QHP policies and a 

stand-alone dental policy on an FFE. 

One parent and the child are enrolled in 

QHP A, with an adjusted monthly 

premium allocable to EHB of $470. The 

other parent is enrolled in QHP B, with 

an adjusted monthly premium allocable 

to EHB of $350. The child is enrolled in 

the stand-alone dental policy, with an 

adjusted monthly premium of $20, with 

all $20 allocable to EHB. The family 

receives a monthly advance payment of 

the premium tax credit equal to $830. 

On an FFE, $820 would be allocated 

between the two QHPs (that is, the 

portion of the advance payment of the 

premium tax credit that is less than or 

equal to the aggregate premiums for the 

QHP policies allocable to EHB), and the 

remainder ($10) would be allocated to 

the stand-alone dental plan. Assuming 

the default uniform age curve requires 

rates for an individual aged 53 to be 

adjusted by 2.04, and rates for an 

individual aged 18 to be adjusted by 

0.635, $465 ((820/(2.04 + 2.04 + 0.635))* 

(2.04 + 0.635)) would be allocated to 

QHP A and $355 (820/(2.04 + 2.04 + 

0.635))*2.04) would be allocated to QHP 

B. However, because $355 exceeds the 

portion of QHP A’s premium allocable 

to EHB, the surplus allocation ($5) is 

shifted from QHP A to QHP B. 

Therefore, $350 will be applied to the 

premium for QHP A, $470 for QHP B, 

and $10 for the stand-alone dental plan. 

This approach will allow an FFE to 

determine the allocation of the advance 

payment of the premium tax credit prior 

to plan selection so that we may display 

the amount of premium that a 

household would pay out-of-pocket for 

each plan during the shopping 

experience. At the same time, this 

approach approximates an allocation 

based on premiums (prioritizing the 

QHP policies over the stand-alone 

dental plan coverage as we proposed). 

State-based Exchanges may choose to 

adopt the Federal methodology or 

another reasonable methodology under 

§ 155.340(e) of this final rule. 

Comment: We received a comment 

stating that the methodology proposed 

in § 155.340(e)(1) and (2) will be too 

complicated for the average consumer to 

understand, particularly for complex 

households. The proposed methodology 

would prevent an Exchange from 

displaying the amount of premium that 

a household would pay out-of-pocket 

for each plan until all plans have been 

selected. If out-of-pocket costs cannot be 

shown at a plan level prior to selection, 

consumers could be dissuaded from 

purchasing coverage or might select a 

single plan for all household members, 

even if doing so is not in the 

household’s best interest. The 

commenter proposed that Exchanges 

allocate the advance payment of the 

premium tax credit(s) equally to each 

household member to allow consumers 

to view the amounts of advance 

payment of the premium tax credit(s) 

allocated to each QHP or stand-alone 

dental plan during the shopping 

experience, and to permit consumers to 

compare more effectively different plan 

options and family member groupings. 

Response: We recognize the 

importance of providing a transparent 

and consumer-friendly shopping 

experience, and are modifying our 

proposal to allow Exchanges the 

flexibility to choose a reasonable 

allocation methodology. This policy 

would allow an Exchange to allocate the 

portion of the advance payment of the 

premium tax credit that is less than or 

equal to the aggregated adjusted 

monthly premiums for the QHP policies 

properly allocated to EHB among the 

QHPs using a per member approach. 

However, the Exchange must still 

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25 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. 

alone dental plan(s), though this portion 

may also be allocated using a per 

member approach. 

The approach that will be used by 

FFEs to allocate the advance payment of 

the premium tax credit will allow the 

FFE to display the amount of premium 

that a household would pay out-ofpocket for each plan during the 

shopping experience. In addition, the 

FFE approach approximates an 

allocation based on premiums 

(prioritizing the QHP policies). 

Comment: We received several 

comments regarding the methodology 

proposed in § 155.340(e)(2). 

Commenters noted that because we 

proposed that advance payments of the 

premium tax credit(s) be allocated first 

to QHP policies, and any remainder be 

allocated to stand-alone dental policies, 

it is unlikely that advance payments of 

the premium tax credit(s) will be 

available to offset the cost of the standalone dental policies. One commenter 

stated that advance payments of the 

premium tax credit(s) should be 

allocated pro rata among QHP policies 

and stand-alone dental policies 

according to premium to assist families 

with purchasing pediatric dental 

coverage, which is one of the essential 

health benefits. Another commenter 

suggested that advance payments of the 

premium tax credit(s) should be 

allocated first to any stand-alone dental 

policy, and the remainder allocated to 

the QHP(s). A third commenter stated 

that the cost to issuers of stand-alone 

dental policies to develop a process to 

accept advance payments of the 

premium tax credit(s) on behalf of 

enrollees outweighs the potential 

benefit, and consequently, advance 

payments of the premium tax credit(s) 

should only be allocated to QHP 

policies. 

Response: We believe that advance 

payments of the premium tax credit(s) 

should first be allocated to QHP 

policies, and any remainder should be 

allocated to stand-alone dental policies. 

This approach will ensure that the 

majority of the tax credit is allocated to 

the most costly portion of an 

individual’s coverage. While we 

understand the burden on stand-alone 

dental plans of implementing a process 

to accept the advance payments of the 

premium tax credit, we believe that 

consumers should not be required to 

wait until tax filing in order to receive 

the full amount of their premium tax 

credit benefit. 

We are finalizing paragraph (e) with 

the changes from the proposed rule 

noted above. The second provision we 

proposed to add to § 155.340 was 

paragraph (f), now relabeled as 

paragraph (g) in this final rule. The 

standards proposed in this paragraph 

are discussed below in section III.E.4.g. 

2. Exchange Functions: Certification of 

Qualified Health Plans 

We proposed to add § 155.1030 to 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 § 156.215 

and described below. We proposed 

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 Act, including the establishment of 

programs for the provision of advance 

payments of the premium tax credit and 

cost-sharing reductions. 

In § 155.1030(a)(1), we proposed 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 § 156.420, for each of its 

health plans proposed to be offered in 

the individual market on the Exchange 

and certify that the submitted plan 

variations meet the requirements of 

§ 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 

§ 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 § 156.420(b). 

We proposed in § 155.1030(a)(2) that the 

Exchange provide the actuarial values of 

the QHPs and silver plan variations to 

HHS. As described in proposed 

§ 156.430, HHS would use this 

information to determine the advance 

payments to QHP issuers for the value 

of the cost-sharing reductions. 

In § 155.1030(b)(1), we proposed the 

Exchange collect and review certain 

information that an issuer must submit 

under § 156.470 that would allow for 

the calculation of the advance payments 

of cost-sharing reductions and the 

premium tax credit; in addition, the 

proposal would direct an Exchange to 

ensure that the allocations provided by 

the issuer are consistent with the 

standards identified in § 156.470(c)–(d). 

Specifically, in § 156.470(a), we 

proposed 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 § 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 § 156.280(d)(1),25

and (2) any other services or benefits 

offered by the health plan not described 

in clause (1). In the preamble to the 

proposed rule, we explained that 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 § 156.430. 

In § 156.470(e), we further proposed 

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 standards proposed 

in § 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 

§ 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 and 

finalized in § 155.170(c) of the final 

EHB/AV Rule, and the allocation 

requirements described in 

§ 156.280(e)(4) for certain services. 

Fourth, the issuer should calculate the 

allocation as if it were a premium under 

the fair health insurance premium 

standards described at § 147.102, the 

single risk pool standards described at 

§ 156.80, and the same premium rate 

standards described at § 156.255. We 

proposed this standard because we 

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15478 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

believe the allocation of rates should be 

performed consistent with the standards 

applicable to the setting of rates. 

In § 156.470(b), we proposed 

somewhat similar standards for the 

allocation of premiums for stand-alone 

dental plans. Specifically, we proposed 

that an issuer provide to the Exchange 

annually for approval, for each standalone 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 the 

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 noted that unlike issuers of 

metal level health plans, issuers of 

stand-alone dental plans would be 

required to submit a dollar allocation of 

the expected premium for the plan. We 

specified this because, unlike QHPs, 

issuers of stand-alone dental plans are 

not required to finalize premiums prior 

to the start of the benefit year. However, 

§ 156.470(b) as proposed and finalized 

here directs stand-alone dental plan 

issuers to finalize the dollar amount of 

the premium allocable to the pediatric 

dental essential health benefit prior to 

the start of the benefit year to allow for 

the calculation of advance payments of 

the premium tax credit. 

In § 156.470(e), we also proposed 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 § 156.470(d). These 

standards were 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. 

Specifically, in § 156.470(d)(1) and (2) 

we proposed 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 

§ 155.170(c). In addition, in 

§ 156.470(d)(3), we proposed that the 

allocation be calculated as if it were a 

premium subject to the fair health 

insurance premium standards at 

§ 147.102 and the single risk pool 

standards at § 156.80, as well as the 

same premium standard described at 

§ 156.255. However, in § 156.470(d)(4) 

we provided a specific standard for ageadjustments to account for the fact that 

the dental essential health benefit only 

applies to the pediatric population. We 

also noted 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 § 156.440(b). 

In § 155.1030(b)(1), we proposed 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, to 

ensure that such allocations meet the 

standards set forth in § 156.470(c) and 

(d). To ensure that the allocations are 

completed appropriately, we explained 

in the preamble to the proposed rule 

that we expect that the Exchange will 

review the allocation information in 

conjunction with the rate and benefit 

information that the issuer submits 

under § 156.210 as finalized in the 

Exchange Establishment Rule. In 

addition, 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 

because the revised reporting 

requirements for issuers seeking to 

increase rates set forth in the Market 

Reform Rule at § 154.215(d)(3)–(4), and 

detailed in the accompanying PRA 

package, include the rate allocation and 

expected allowed claims cost allocation 

information. These reporting 

requirements will reduce the need for 

duplicate submissions by issuers and 

reviews by Exchanges. However, we 

noted 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 seeking to 

increase rates. Therefore, the preamble 

identified our expectation that 

Exchanges will collect the allocation 

information through either securing 

access to the data submission by QHP 

issuers for rate increases under 

§ 154.215, or the QHP certification and 

annual submission process under parts 

155 and 156, as appropriate. 

In § 155.1030(b)(2), we proposed that 

the Exchange submit to HHS the 

approved allocation(s) and actuarial 

memorandum for each QHP and standalone dental plan. In paragraph (b)(4), 

we proposed 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 § 156.430, and 

for the oversight of the advance 

payments of cost-sharing reductions and 

premium tax credit programs. 

In § 155.1030(b)(3), we proposed 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 § 156.430(a). The Exchange 

would then submit the estimates and 

supporting documentation to HHS for 

review. We clarified further that the 

Exchange would not review these 

estimates, and HHS’s review would 

simply ensure that the estimates were 

developed in a manner consistent with 

the methodology established by HHS in 

the preamble to § 156.430(a) of this final 

rule, in keeping with HHS’s obligation 

to safeguard Federal funds. 

We are finalizing the provisions in 

§ 155.1030 as proposed, with technical 

corrections to § 155.1030(a) and (b)(2). 

We replace the phrase, ‘‘The Exchange’’ 

in the beginning of proposed 

§ 155.1030(a) with ‘‘An Exchange,’’ to 

align with other provisions in part 155. 

We also replace the phrase ‘‘[an issuer] 

offers or seeks to offer’’ from the 

proposed rule with the phrase ‘‘[an 

issuer] offers, or intends to offer’’ in the 

final rule, to align with the language in 

§ 156.430(a) requiring issuers to submit 

information for the advance payment of 

cost-sharing reductions; the scope of 

these regulatory requirements is 

intended to be the same. Similarly, we 

are making technical corrections to 

§ 156.470(a), (b) and (e) to standardize 

the phrase describing the issuers who 

must comply with the rule as those 

issuers with plans ‘‘offered, or intended 

to be offered’’ on an Exchange. 

We are also adding paragraph (c) to 

§ 155.1030 and paragraph (f) to 

§ 156.470 to clarify the application of 

these provisions to multi-State plans. 

Section 1334 of the Affordable Care Act 

directs OPM to enter into contracts with 

issuers to offer multi-State plans. 

Accordingly, OPM is responsible for 

ensuring that multi-State plans and their 

issuers comply with various Exchange 

standards, including standards relating 

to cost-sharing reductions and advance 

payments of the premium tax credit. 

We are also finalizing the provisions 

proposed in § 156.470(a), (b), (c), (d)(1), 

and (e). To allow greater flexibility for 

stand-alone dental plan issuers in 

developing the allocation of dental 

premiums to EHB, we are not finalizing 

the allocation standards described in 

paragraphs (d)(2), (3), and (4) of the 

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Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 15479 

proposed rule. We believe the allocation 

standard previously described in 

subparagraph (d)(1), which requires that 

the allocation be performed by a 

member of the American Academy of 

Actuaries in accordance with generally 

accepted actuarial principles and 

methodologies, is a sufficient standard 

for ensuring that stand-alone dental 

plan issuers allocate the premium 

accordingly. We intend to provide 

further details on the reporting process 

for stand-alone dental plan premium 

allocations for the FFE. 

Comment: We received one comment 

in support of the provisions at 

§ 155.1030 that all QHP issuers provide 

the plan variations as part of the 

certification process. We also received a 

comment requesting that HHS provide 

to issuers a good-faith compliance safe 

harbor on the new cost-sharing 

reductions standards and suggesting 

that this safe harbor could be revisited 

prior to the 2016 plan year. 

Response: We will take the comment 

into consideration in future rulemaking 

on oversight functions. 

Comment: In regard to § 156.470, we 

received a comment asking for one set 

of guidance on all actuarial data 

submissions required for QHP 

certification, rate review, and market 

stabilization. The commenter suggested 

that HHS develop a standard template 

for the annual actuarial memorandum 

with specific instructions on what data 

should be included in the actuarial 

memorandum. In addition, we received 

a specific comment asking for guidance 

on how issuers should allocate the cost 

of prescription drug essential health 

benefits. 

Response: As discussed in the 

preamble of the proposed rule, we have 

attempted to streamline actuarial 

reporting requirements. In the Market 

Reform Rule, at § 154.215(d)(3)–(4), and 

detailed in the accompanying PRA 

package, we revised the reporting 

requirements for issuers seeking to 

increase rates to include the rate 

allocation and expected allowed claims 

cost allocation information that issuers 

of metal level health plans would 

submit to an Exchange under 

§ 156.470(a) finalized here. We created a 

unified data template for the 

submission, as well as detailed 

instructions for completing the actuarial 

memorandum. We suggest that 

Exchanges require issuers not seeking 

rate increases, and stand-alone dental 

plan issuers who are not subject to the 

rate review program, to use similar 

reporting processes in order to submit 

the rate and claims cost allocation 

information to the Exchange under 

§ 156.470 as finalized in this final rule. 

In response to the specific comment 

asking for guidance on allocating the 

cost of prescription drug essential 

health benefits, we refer readers to 

§ 156.122 of the final EHB/AV Rule, 

which specifies that for a plan to meet 

the EHB requirements, it must cover at 

least the greater of: (1) One drug in 

every category and class within the 

United States Pharmacopeia’s (USP) 

classification system; or (2) the same 

number of drugs in each category and 

class as the EHB-benchmark plan. We 

do not specify a maximum number of 

drugs that a plan may cover. Therefore, 

when determining the claims costs for 

EHB, QHP issuers should include all 

prescription drug claims costs within 

the USP classification system, except for 

claims costs associated with drugs for 

services described in § 156.280(d)(1). 

Comment: We received several 

comments relating to the provisions at 

§ 156.470(b) and (d) on the allocation of 

premiums for stand-alone dental plans 

for purposes of calculating advance 

payments of the premium tax credit. 

One commenter stated that because 

stand-alone dental plans are exempt 

from the rating standards set forth in the 

final Market Reform Rule, issuers of 

stand-alone dental plans should not be 

required to follow such standards when 

determining the premium allocation. 

Another commenter supported the 

proposed policy because it provides 

equal treatment for the pediatric dental 

essential health benefit with other 

essential health benefits. However, the 

same commenter asked for clarification 

that this policy permits an issuer of a 

stand-alone dental plan to offer adult 

and family dental benefits through an 

Exchange so long as they are offered and 

priced separately. The commenter also 

asked for clarification of the definition 

of pediatric coverage and the standard 

proposed at § 156.470(d)(4), given that 

the final EHB/AV Rule specified that 

states may set alternative age limits for 

pediatric coverage. 

Response: We agree that stand-alone 

dental plans, as defined at § 155.1065, 

are ‘‘excepted benefits’’ under section 

2791(c) of the PHS Act, and clarify that 

issuers of stand-alone dental plans are 

not required to follow the rating 

standards set forth in the final Market 

Reform Rule for purposes of pricing 

stand-alone dental coverage. In 

addition, to allow greater flexibility in 

the implementation of the provisions in 

§ 156.470 related to stand-alone dental 

plans, we are not finalizing the 

allocation standards proposed in 

paragraphs (d)(2), (3), and (4) of 

§ 156.470. We believe the allocation 

standard proposed at § 156.470(d)(1), 

which requires that the allocation be 

performed by a member of the American 

Academy of Actuaries in accordance 

with generally accepted actuarial 

principles and methodologies, is a 

sufficient standard for ensuring that 

issuers allocate the premium 

accordingly, so we are finalizing that 

provision in this final rule. We intend 

to provide further details on the 

reporting process for stand-alone dental 

plan premium allocations for the FFE. 

3. QHP Minimum Certification 

Standards Relating to Advance 

Payments of the Premium Tax Credit 

and Cost-Sharing Reductions 

Under HHS’s rulemaking authority 

under sections 1311(c)(1), 1321(a)(1), 

1402 and 1412 of the Affordable Care 

Act, we proposed to add § 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 proposed to 

add this section to clarify that 

compliance with part 156 subpart E, 

including the standards and submission 

requirements proposed at § 156.420 and 

§ 156.470, is a requirement of QHP 

certification, and therefore, is included 

in the standard described at 

§ 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 

§ 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). We received no comments 

on this provision. For the reasons 

described in the proposed rule, we are 

finalizing these provisions as proposed. 

4. Health Insurance Issuer 

Responsibilities With Respect to 

Advance Payments of the Premium Tax 

Credit and Cost-Sharing Reductions 

a. Definitions 

Under § 156.400, we proposed 

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 

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15480 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

156, including some definitions set forth 

in the final EHB/AV Rule; the terms 

‘‘advance payments of the premium tax 

credit’’ and ‘‘Affordable Care Act’’ were 

proposed as defined by reference to 

§ 155.20, and the term ‘‘maximum 

annual limitation on cost sharing’’ was 

proposed as defined by reference to 

§ 156.130 of the final EHB/AV Rule. The 

terms ‘‘Federal poverty level or FPL’’ 

and ‘‘Indian’’ were proposed to be 

defined by reference to § 155.300(a). The 

term ‘‘de minimis variation’’ was 

proposed to be defined by reference to 

§ 156.140(c)(1) of the final EHB/AV 

Rule. We also proposed to define 

‘‘stand-alone dental plan’’ as a plan 

offered through an Exchange under 

§ 155.1065. 

We proposed to rely on the 

definitions of ‘‘cost sharing’’ and ‘‘costsharing reductions’’ from § 156.20. 

Finally, we noted in the preamble to the 

proposed rule that cost-sharing 

reductions are subject to 

§ 156.280(e)(1)(ii) and do not apply to 

benefits that are not EHB. 

Other definitions were proposed to 

effectuate the regulations proposed in 

subpart E. These definitions were 

described in detail in the proposed rule 

and listed below for reference: 

• We proposed to define ‘‘standard 

plan’’ as a QHP offered at one of the four 

levels of coverage, defined at § 156.140, 

with an annual limitation on cost 

sharing that conforms to the 

requirements of § 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 proposed to define ‘‘silver plan 

variation’’ as, with respect to a standard 

silver plan, any of the variations of that 

standard silver plan described in 

§ 156.420(a). 

• We proposed to define ‘‘zero cost 

sharing plan variation’’ as, with respect 

to a QHP at any level of coverage, the 

variation of such QHP described in 

§ 156.420(b)(1), which provides for the 

elimination of cost sharing for Indians 

based on household income level. 

• We proposed to define ‘‘limited cost 

sharing variation’’ as, with respect to a 

QHP at any level of coverage, the 

variation of such QHP described in 

§ 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 proposed to define ‘‘plan 

variation’’ as a zero cost sharing plan 

variation, limited cost sharing plan 

variation, or silver plan variation. We 

emphasized 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 proposed these definitions to 

administer and implement the costsharing reductions established under 

section 1402 of the Affordable Care Act. 

Although an issuer will only offer one 

actual QHP (for example, a standard 

silver plan) with one standard costsharing structure, we proposed the 

concept of plan variations to describe 

how certain eligible individuals will 

pay only a 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 costsharing reductions, we proposed that 

each plan variation would reflect the 

enrollee’s portion of the cost sharing 

requirements for the QHP. We referred 

to ‘‘assigning’’ enrollees to the 

applicable plan variation to describe 

how the enrollees will receive the 

benefits described in section 1402 of the 

Affordable Care Act. We reiterated that 

these variations are not different QHPs 

and that a change in eligibility for costsharing reductions simply changes the 

enrollee’s responsibility for part of the 

total cost sharing under the same QHP. 

In addition, we also proposed to 

define ‘‘de minimis variation for a silver 

plan variation’’ as a single percentage 

point. That is, we proposed that a 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 noted that this proposal differed 

from the 2 percentage point de minimis 

variation standard for health plans 

finalized in § 156.140(c) of the final 

EHB/AV Rule. 

We proposed 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 § 155.305(g)(3). 

We proposed 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 

noted that this definition refers to the 

plan-specific cost-sharing parameters, 

while the defined term ‘‘maximum 

annual limitation on cost sharing’’ was 

proposed to refer to the uniform 

maximum that would apply to all QHPs 

(other than QHPs with cost-sharing 

reductions) for a particular year under 

standards at § 156.130. Finally, we 

proposed 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 was proposed in the preamble for 

§ 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. See § 156.20 

(defining cost sharing) and § 156.130(c). 

We are finalizing these provisions, 

with the following modification: we are 

amending the reference for the 

definition of the term ‘‘de minimis 

variation’’ to § 156.140(c) instead of 

§ 156.140(c)(1), in alignment with the 

final EHB/AV rule. The reduced 

maximum limitation on cost sharing for 

each silver plan variation is finalized in 

section III.E.4.c. below. 

Comment: Several commenters 

recommended that the de minimis 

variation for silver plan variations be 

increased to +/-2 percent as proposed in 

the AV/CSR Bulletin and proposed for 

standard plans under the final EHB/AV 

rule. Other commenters supported the 

+/-1 percent de minimis variation for 

silver plan variations. 

Response: We believe that a narrower 

de minimis variation for plan variations 

prevents differences in cost sharing 

between plan variations and ensures 

that low- and moderate-income 

enrollees receive the cost-sharing 

reductions for which they are eligible. 

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 their 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. 

Comment: One commenter suggested 

we define ‘‘de minimis’’ variation to 

mean the allowable variation in the AV 

of a health plan such that the proportion 

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of EHB paid by the health plan is within 

the range established in § 156.140(c). 

Response: The definition of de 

minimis variation is incorporated by 

reference to § 156.140(c) of the final 

EHB/AV rule. We do not believe that a 

separate definition of the term ‘‘de 

minimis’’ itself for the purpose of plan 

variations is warranted. 

Comment: We received a number of 

comments requesting that cost-sharing 

reductions be limited to in-network 

services. One commenter opposed 

excluding out-of-network services from 

counting towards the annual limitation 

on cost sharing. 

Response: As provided in § 156.130(c) 

of the final EHB/AV rule, in the case of 

a plan using a network of providers, cost 

sharing for services provided out of 

network do not count toward the annual 

limitation on cost sharing. We reference 

this definition and we note that costsharing requirements for out-ofnetworks services will similarly not 

count towards a reduced annual 

limitation on cost sharing. We note, 

however, that section 1402(c)(2) of the 

Affordable Care Act does not specify 

how any additional reductions should 

be achieved for individuals eligible for 

cost-sharing reductions. We therefore 

clarify that in developing silver plan 

variations, issuers have the flexibility to 

reduce cost sharing only for in-network 

services as long as the required AV 

levels are achieved and the plan design 

does not violate the standards set forth 

in §§ 156.420(c)–(f). 

b. Cost-Sharing Reductions for Enrollees 

In § 156.410(a), we proposed 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. We also proposed in this 

paragraph that the enrollee receive this 

reduction in cost sharing when the cost 

sharing is collected, which might occur 

when the enrollee visits the emergency 

room for care. This proposal would 

apply to all forms of cost sharing, 

including copayments, coinsurance, and 

deductibles. Under our proposal, the 

QHP issuer would ensure that the 

enrollee is not charged any type of cost 

sharing after the applicable annual 

limitation on cost sharing has been met. 

Furthermore, we explained in the 

preamble that for services subject to cost 

sharing, an individual eligible for costsharing reductions would not be eligible 

for a reduced copayment or coinsurance 

rate until any applicable (potentially 

reduced) deductible has been paid. For 

the reasons described in the proposed 

rule and considering the comments 

received, we are finalizing these 

provisions as proposed. 

Comment: Several commenters 

supported this policy. One commenter 

was concerned that the reduced 

deductible must be applied before an 

enrollee becomes eligible for the costsharing reductions. Another commenter 

was concerned there could be confusion 

among providers about the amount of 

cost sharing to collect and suggested 

that HHS require QHP issuers to issue 

membership cards to enrollees that 

clearly explain the enrollee’s costsharing obligations. 

Response: We believe it is appropriate 

for enrollees eligible for cost-sharing 

reductions to continue to be required to 

pay any applicable deductibles before 

taking advantage of other cost-sharing 

reductions. We recognize that QHP 

issuers will be required to supply 

providers with the necessary costsharing information to meet the 

obligation under § 156.410(a) of this 

final rule to ensure that the cost-sharing 

reductions are provided when the cost 

sharing is collected. 

In § 156.410(b), we proposed that after 

a qualified individual makes a plan 

selection, a QHP issuer would assign the 

individual to the applicable plan 

variation based on the eligibility 

determination sent to the QHP issuer by 

the Exchange. We noted in preamble 

that the QHP issuer is entitled to rely 

upon the eligibility determination sent 

to the QHP issuer by the Exchange. 

In § 156.410(b)(1), we proposed 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. Comments on § 156.410(b)(2) 

and (3) are discussed below in the 

section of this final rule related to the 

special cost-sharing reduction rules for 

Indians. In § 156.410(b)(4), we proposed 

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. We are finalizing these 

provisions without modification. 

Comment: Commenters generally 

supported requiring QHP issuers to 

assign enrollees to the plan variation for 

which they are eligible. One commenter 

specifically suggested that Exchanges 

only display the plan variation of each 

QHP for which the consumer is eligible 

to avoid confusion. 

Response: The standards set forth in 

§ 156.420 ensure that consumers will be 

best served by being assigned to the 

most generous plan variation for which 

they are eligible. Therefore, we 

encourage Exchanges to only display the 

variation of each QHP plan for which 

the consumer is eligible. As noted in the 

proposed rule, if an individual does not 

wish to receive cost-sharing reductions, 

the individual may elect to decline to 

apply for cost-sharing reductions. 

c. Plan Variations 

In § 156.420, we proposed 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 clarified that under our 

proposal, multi-State plans, as defined 

in § 155.1000(a), and CO–OP QHPs, as 

defined in § 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 

insureds 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 costsharing 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. 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. 

For individuals with household 

incomes of 250 to 400 percent of the 

FPL, we noted 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, we proposed 

not to reduce the maximum annual 

limitation on cost sharing for 

individuals with household incomes 

between 250 and 400 percent of the 

FPL. We are finalizing this policy as 

proposed, with the following 

modifications. We are adding a new 

paragraph (g) to clarify that OPM, rather 

than the Exchange, will determine the 

time and manner for multi-State plans 

to submit silver plan variations and zero 

and limited cost sharing plan variations 

for the purpose of certification. 

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26The methodology is discussed in detail at 77 

FR 73171–73172 of the proposed rule. 

Additionally, we note a technical 

correction with regard to the submission 

of plan variations under § 156.420(a); 

we replace the phrase ‘‘[an issuer] seeks 

to offer or to continue to offer’’ with the 

phrase ‘‘[an issuer] offers, or intends to 

offer,’’ to align with the language in 

§ 156.430(a). 

Comment: Two commenters 

recommended that HHS require plans to 

provide individuals with incomes 

between 250 percent and 400 percent of 

FPL the option of enrolling in a plan 

variation with a lower annual limitation 

on cost sharing and higher deductibles, 

copayments, and coinsurance in order 

to reach the statutorily required AV. 

Another commenter recommended that 

HHS rebate excess cost sharing for 

individuals between 250 percent and 

400 percent of the FPL or work with IRS 

to issue a tax credit. 

Response: As noted in the proposed 

rule, a reduction in the maximum 

annual limitation on cost sharing could 

require corresponding increases in other 

forms of cost sharing to maintain the 

statutorily required AV levels for 

individuals between 250–400 percent of 

FPL. Since we anticipate that most 

individuals would not be expected to 

reach the annual limitation on cost 

sharing, most individuals would be 

required to pay more up-front costs 

under such a cost-sharing structure. 

Furthermore, given the additional 

administrative burden required in 

designing and operating additional 

silver plan variations, we do not modify 

the proposed policy in this final rule. In 

addition, we do not believe we have the 

authority to provide individuals in this 

income range with an additional tax 

credit (beyond that provided for in 

sections 1401 and 1411 of the 

Affordable Care Act and section 36B of 

the Code). 

For individuals with a household 

income of 100 to 250 percent of the FPL, 

we proposed 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 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. 

Maximum Annual Limitation on Cost 

Sharing for Benefit Year 2014: As 

discussed in § 156.130(a) of the final 

EHB/AV Rule, the maximum annual 

limitation on cost sharing for 2014 is the 

dollar limit on cost sharing for high 

deductible health plans set by the IRS 

under section 223(c)(2)(A)(ii) of the 

Code 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 

proposed to estimate the dollar limit for 

2014. Based on the proposed 

methodology, we estimated 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).26 This estimate was developed 

and proposed 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, as defined in § 156.20, in 2014 

cannot exceed the limit set by the IRS 

under section 223(c)(2)(A)(ii)(I) and (II) 

of the Code for the 2014 plan year. 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. 

Step 2. In the second step, we 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 may 

adjust the reduction in the maximum 

annual limitation on cost sharing, if 

necessary, to ensure that the actuarial 

values of the applicable silver plan 

variations do not exceed the actuarial 

values specified in section 

1402(c)(1)(B)(i). We proposed to 

describe these analyses and the reduced 

annual limitations on cost sharing for 

the three income categories in the 

annual HHS notice of benefit and 

payment parameters. 

Reduced Maximum Annual 

Limitation on Cost Sharing for Benefit 

Year 2014. 

As described in the proposed rule, for 

the 2014 benefit year, we analyzed the 

impact on the actuarial values of three 

model silver level QHPs 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). 

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. 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. 

As described in the preamble to the 

proposed rule, we determined that a 

reduction in the maximum annual 

limitation on cost sharing specified in 

the Affordable Care Act for enrollees 

with household incomes between 100 

and 150 percent of the FPL (2⁄3

reduction), and 150 and 200 percent of 

the FPL (2⁄3 reduction), would not cause 

the AVs of any of the model QHPs to 

exceed the statutorily specified AV 

levels (94 and 87, respectively). In 

contrast, the reduction in the maximum 

annual limitation on cost sharing 

specified in the Affordable Care Act for 

enrollees with household incomes 

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 

proposed that QHP issuers only be 

required to reduce their annual 

limitation on cost sharing for enrollees 

in the 2014 benefit year with household 

incomes between 200 and 250 percent 

of FPL by approximately 1⁄5, rather than 1⁄2. We further proposed to moderate the 

reductions in the maximum annual 

limitation on cost sharing for all three 

income categories, as shown in Table 

21, 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. Based on this 

analysis, in Table 21, we proposed the 

following reduced maximum annual 

limitations on cost sharing for benefit 

year 2014: 

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TABLE 21—REDUCTIONS IN MAXIMUM ANNUAL LIMITATION ON COST SHARING FOR 2014 

Eligibility category 

Reduced maximum 

annual limitation on cost 

sharing for 

self-only coverage for 

2014 

Reduced maximum 

annual limitation on cost 

sharing for other than 

self-only coverage for 

2014 

Individuals eligible for cost-sharing reductions under § 155.305(g)(2)(i) (that is, 100–150 

percent of FPL) .................................................................................................................... $2,250 $4,500 

Individuals eligible for cost-sharing reductions under § 155.305(g)(2)(ii) (that is, 150–200 

percent of FPL) .................................................................................................................... 2,250 4,500 

Individuals eligible for cost-sharing reductions under § 155.305(g)(2)(iii) (that is, 200–250 

percent of FPL) .................................................................................................................... 5,200 10,400 

We proposed 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. 

Step 3. In the proposed third step of 

the process for structuring cost sharing 

in the silver plan variations, a QHP 

issuer offering coverage in the 

individual market on an Exchange 

would be required to 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 § 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. 

We proposed specifications in 

§ 156.420(a)(1) through (3) for the three 

silver plan variations, and proposed that 

they may deviate from the required AV 

levels by the de minimis variation for 

silver plan variations that is, 1 

percentage point. We further proposed 

that issuers submit these silver plan 

variations annually to the Exchange for 

certification, prior to the benefit year. 

Under our proposal, silver plan 

variations would 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. For the reasons 

described in the proposed rule and 

considering the comments received and 

discussed below, we are finalizing these 

provisions, including the reductions in 

the maximum limitation on cost sharing 

for silver plan variations offered in the 

2014, as proposed with certain 

clarifications. 

Comment: One commenter noted that 

the IRS does not release the dollar limit 

on cost sharing until late spring and this 

would be too late for issuers to adjust 

their product designs to be compliant 

with the IRS limit and also meet State 

and Federal filing deadlines. The 

commenter suggested that HHS develop 

an estimate of the maximum annual 

limit on cost sharing that can be used as 

a safe harbor. 

Response: We are finalizing the 

proposal to permit QHP issuers to 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 plan to provide 

separate guidance on the maximum 

annual limitation on cost sharing for 

standard plans to QHP issuers seeking 

to participate in a Federally-facilitated 

Exchange consistent with the approach 

finalized in this Payment Notice. 

Comment: One commenter 

recommended that the maximum 

annual limitation on cost sharing should 

be published no later than July 1 of the 

year prior to open enrollment, with a 

45-day comment period. 

Response: We understand the need for 

issuers and stakeholders to have 

adequate time to consider how the 

maximum annual limitation on costsharing should be applied in the 

development of plan variations. We note 

that in later benefit years, the maximum 

annual limitation on cost sharing will be 

established under a premium 

adjustment percentage established by 

HHS in the annual notice of benefit and 

payment parameters for the applicable 

plan year. 

Comment: One commenter suggested 

that HHS should not adjust the 

reductions in the maximum annual 

limitation on cost sharing, as these 

adjustments could affect other costsharing requirements that a State-based 

Exchange might put in place under its 

authority to develop certification 

standards, as described at 

§ 155.1000(c)(2). 

Response: We believe it is important 

to make these adjustments to ensure that 

issuers have flexibility when developing 

their plan designs. Without these 

adjustments, it could be difficult for 

issuers to achieve the required actuarial 

value levels for certain plan variations, 

while complying with other applicable 

rules on cost-sharing structures, such as 

the provision at § 156.420(e). 

Additionally, we anticipate working 

with States and Exchanges individually 

to address the interaction between the 

standards in the Payment Notice and 

any additional Exchange-specific 

certification standards. 

Comment: One commenter suggested 

that when silver plan variations cannot 

be accommodated by the AV calculator, 

HHS should require that the AV 

determinations be certified by a member 

of the American Academy of Actuaries. 

Response: We clarify that the 

definition of and standards for 

determining actuarial value in § 156.20 

and § 156.135 of the final EHB/AV Rule 

apply to both standard plans and plan 

variations. Accordingly, if a health 

plan’s design for plan variation is not 

compatible with the AV calculator, the 

issuer would be required to follow the 

processes specified in § 156.135(b) of 

the final EHB/AV Rule. 

Comment: One commenter requested 

that HHS clarify which ‘‘desired metal 

tier’’ should be inputted into the AV 

calculator to determine the AV for the 

silver plan variations. 

Response: We have designed the AV 

Calculator such that users may select 

the option to determine whether the 

plan design satisfies the plan variations 

standards finalized here. To use the AV 

Calculator to verify the AV of a plan 

variation, users should select the 

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sharing reduction standard, and select 

the desired metal tier. In the below 

table, we provide guidance on which 

metal tier should be chosen to align 

with the expected utilization for each 

plan variation. Additional information 

on the AV Calculator can be found at 

http://cciio.cms.gov/resources/ 

regulations/index.html#pm. 

TABLE 22—DESIRED METAL TIER FOR SILVER PLAN VARIATION AV 

Household income Silver plan variation AV Desired 

metal tier 

100–150 percent of FPL .............................. Plan Variation 94 percent ................................................................................................. Platinum. 

150–200 percent of FPL .............................. Plan Variation 87 percent ................................................................................................. Gold. 

200–250 percent of FPL .............................. Plan Variation 73 percent ................................................................................................. Silver. 

Comment: One commenter asked HHS 

to clarify how silver plan variations 

could be designed to be compatible with 

HSAs. 

Response: We are considering this 

issue and will provide future guidance. 

Comment: One commenter asked if 

HHS could make public its modeling 

regarding the expected rate of change in 

cost-sharing reduction eligibility within 

a plan year. 

Response: HHS does not have such an 

analysis to share at this time. 

Comment: Another commenter was 

concerned about the ability of States to 

supplement cost-sharing reductions 

under the proposed policy, and 

requested HHS give States that wish to 

supplement cost sharing the flexibility 

to determine whether issuers must offer 

all plan variations. 

Response: We intend to work with 

States to assess how the requirements 

regarding plan variations would interact 

with any supplemental cost-sharing 

reductions a State intends to provide. 

Comment: Several commenters 

recommended that HHS establish 

parameters for deductibles in silver plan 

variations. One commenter suggested 

that cost-sharing reductions to reach the 

required AV levels identified in 

§ 156.420(a) should first be used to 

lower the deductible and then reduce 

coinsurance or copayments, and that 

enrollees should receive negotiated 

pharmacy prices during the deductible 

phase. The same commenter suggested 

waiving or reducing the deductible for 

outpatient pharmacy for individuals 

eligible for cost-sharing reductions and 

making cost-sharing reductions in the 

forms of lower coinsurance and 

copayments available to enrollees 

assigned to plan variations immediately. 

One commenter asked for allowances to 

be made to permit issuers to develop 

innovative plan designs. 

Response: We believe that the 

standards we are finalizing strike the 

appropriate balance between protecting 

consumers and preserving QHP issuer 

flexibility. The standard in § 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 

protects low-income populations who 

are assigned to plan variations. We also 

clarify that, for purposes of the plan 

variations, any cost sharing that an 

enrollee would have been required to 

pay under the standard plan, but was 

not required to pay under the plan 

variation, should not be applied to the 

annual limitation on cost sharing. 

Comment: Several commenters sought 

clarification on whether issuers must 

submit a silver plan variation for every 

plan offered on the individual market. 

Response: We clarify that for each 

silver health plan that an issuer offers, 

or intends to offer in the individual 

market on an Exchange, the issuer must 

submit the three silver plan variations. 

This policy will ensure that low-income 

individuals can receive cost-sharing 

reductions while enrolled in any silver 

level QHP offered through the 

Exchange, consistent with section 1402 

of the Affordable Care Act. 

Sections 156.420(b) and (d) are 

discussed below in section III.E.4.i. 

related to the special cost-sharing 

reduction rules for Indians. 

In § 156.420(c) and (e), we proposed 

additional coverage standards for silver 

plan variations as part of implementing 

section 1402. In § 156.420(c), we 

proposed that silver plan variations 

cover the same benefits and include the 

same providers as the standard silver 

plan. We further proposed that silver 

plan variations must require the same 

out-of-pocket spending for benefits 

other than EHB. Lastly, we proposed 

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 § 156.140(b)(2) of the final 

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 proposed these 

requirements explicitly as regulatory 

standards to ensure that QHP issuers 

develop appropriate plan variations. 

In § 156.420(e), we proposed a 

standard to govern the design of costsharing 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. 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 in higher 

AV silver plan variations. For the 

reasons described in the proposed rule 

and considering the comments received, 

we are finalizing these provisions in 

paragraphs (c) and (e) as proposed. 

Comment: A number of commenters 

supported the requirement that silver 

plan variations cover the same benefits 

and include the same providers as the 

standard silver plan. Several 

commenters also generally supported 

the proposal that 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. One 

commenter supported allowing QHP 

issuers to have greater flexibility to vary 

cost-sharing structures across plan 

variations, and asked for clarification on 

whether QHP issuers can continue to 

use medical management policies for 

silver plan variations. Another 

commenter asked whether issuers may 

switch between copayments and 

coinsurance for silver plan variations as 

long as the cost sharing in aggregate 

does not exceed that of plans with lower 

actuarial values. 

Response: We are finalizing the policy 

as proposed at § 156.420(e). We intend 

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to interpret and enforce this provision 

such that a QHP issuer may not switch 

between copayments and coinsurance 

for silver plan variations for the same 

benefit. We believe that allowing this 

type of substitution could result in an 

enrollee being subject to greater cost 

sharing under a plan variation with a 

higher AV, which § 156.420(e) is 

intended to prohibit. However, this 

provision does not limit an issuer’s 

ability to appropriately use reasonable 

medical management techniques in 

managing costs consistently in its silver 

plan variations. We also direct the 

commenter’s attention to § 156.125(c) of 

the final EHB/AV Rule, which codifies 

this protection in connection with antidiscrimination requirements, and 

section 1563(d) of the Affordable Care 

Act. 

In § 156.420(f), we proposed 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. We are 

finalizing the provision as proposed. 

Comment: Several commenters 

supported this requirement. Another 

commenter was concerned about the 

ability of issuers to create a viable 73 

percent plan variation given the number 

of plan design constraints. 

Response: We believe that a 2 

percentage point differential will ensure 

that a difference in cost-sharing 

reductions provided to each income 

category is maintained, while providing 

issuers the flexibility to adjust costsharing requirements within these 

standards. 

d. Changes in Eligibility for CostSharing Reductions 

In § 156.425(a), we proposed 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 proposed that the 

QHP issuer effectuate the change in 

eligibility in accordance with the 

effective date of eligibility provided by 

the Exchange. We explained in 

preamble that an Exchange would 

establish such dates under § 155.330(f). 

We noted 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 § 156.410(b). 

We are finalizing these provisions as 

proposed. 

Comment: Commenters generally 

supported the policy, but several stated 

that a change in an enrollee’s eligibility 

for cost-sharing reductions should only 

be applied prospectively. One 

commenter requested that HHS clarify 

that cost-sharing reductions would not 

be available until the first day of the 

following month, to eliminate the need 

to re-adjudicate claims. Another 

commenter suggested that if retroactive 

changes in eligibility for cost-sharing 

reductions are permitted, only claims 

the issuer receives after the effective 

date of the new assignment should be 

processed under the new cost-sharing 

requirements. 

Response: We are finalizing the policy 

as proposed. This policy aligns with the 

eligibility standards and effective dates 

proposed for the amendment at 

§ 155.330(f) of the proposed Medicaid 

and Exchange Eligibility Appeals and 

Notices Rule, which aim to reduce the 

need for retroactive eligibility changes 

for cost-sharing reductions, except in 

certain limited scenarios, discussed in 

that rule. 

Comment: One commenter 

recommended that HHS ensure that 

individuals who are not assigned to the 

applicable plan variation in a timely 

manner should be refunded any cost 

sharing they should not have been 

responsible for after the effective date of 

the eligibility change. 

Response: We believe that it is 

important that eligible individuals 

receive the appropriate cost-sharing 

reductions as of the effective date 

required by the Exchange. As noted in 

the proposed rule, an individual would 

not be penalized based on changes in 

eligibility for cost-sharing reductions 

during the benefit year, although he or 

she 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. 

Comment: We received a comment 

seeking clarification that the QHP issuer 

be held harmless for any cost-sharing 

reductions provided beyond the 

enrollee’s actual eligibility level so long 

as the QHP issuer makes assignments 

and reassignments in accordance with 

Exchange instructions. 

Response: We reiterate that our final 

rule requires a QHP issuer to follow the 

eligibility instructions from an 

Exchange in ensuring the provision of 

cost-sharing reductions and plan 

variation assignments under 

§ 156.410(a) and § 156.425. Therefore, a 

QHP issuer may rely upon the eligibility 

determination sent by the Exchange. If 

a QHP issuer does not receive 

notification of an eligibility 

redetermination, the QHP issuer would 

not be permitted to re-assign the 

enrollee to a different plan variation or 

standard plan. 

In § 156.425(b), we proposed 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 reenrollment 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 newly assigned plan 

variation (or standard plan without cost 

sharing) for the remainder of the benefit 

year. As discussed above, we noted in 

the preamble that a change from or to 

an individual or family policy of a QHP 

due to the addition or removal of a 

family member does not constitute a 

change in plan for the family members 

originally on the individual or family 

policy. We are finalizing these 

provisions as proposed. 

Comment: One commenter suggested 

that enrollees not be permitted to switch 

QHPs as a result of a mid-year change 

in eligibility for cost-sharing reductions, 

because an enrollee could mistakenly 

forfeit credit for previously paid cost 

sharing. Another commenter suggested 

that Exchanges be required to explain to 

consumers the policy relating to 

continuity of deductibles and annual 

limitations on cost sharing and the 

implications of switching QHPs midyear. 

Response: Prohibiting enrollees from 

switching QHPs would conflict with 

§ 155.420(d)(6) of the Exchange 

Establishment Rule, which allows an 

individual who has a change in 

eligibility for cost-sharing reductions to 

enroll in or change from one QHP to 

another during a special enrollment 

period. We note that enrollees may 

choose a plan variation of the same QHP 

in order to ensure that any cost sharing 

previously paid by the individual is 

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27We noted that these payments (both advance 

and reconciled), and the estimated or actual costsharing reductions underlying them, are subject to 

45 CFR 156.280(e)(1)(ii). 

taken into account. We encourage 

Exchanges to provide information to 

consumers on this topic. 

Comment: One commenter asked HHS 

to consider instituting safe harbors if the 

enrollee already met the annual limit on 

cost sharing, but due to lags in data the 

QHP is not informed. 

Response: We appreciate the 

difficulties caused by lags in data, and 

anticipate consulting with stakeholders 

to provide guidance on these sorts of 

operational issues. 

Comment: One commenter requested 

an example to illustrate whether an 

individual will be required to satisfy the 

additional deductible amount when 

moving to a plan with a higher 

deductible. Another commenter 

recommended that deductible amounts 

carried forward to a policy with a lower 

deductible be counted towards the 

annual limitation on cost sharing. 

Response: In accordance with the rule 

finalized here at § 156.425(b), as long as 

the change of assignment is to a 

different plan variation of the same 

QHP, any cost sharing paid by the 

applicable individual under the 

previous plan variation must be taken 

into account. This requirement would 

also apply to Indians who change plan 

variations within the same QHP as a 

result of a change in income, such as an 

Indian who moves from a limited cost 

sharing plan variation to a zero cost 

sharing plan variation, and then returns 

to the limited cost sharing plan 

variation of the same QHP. 

Furthermore, as noted in the proposed 

rule, an individual eligible for costsharing reductions would not be eligible 

for a reduced copayment or coinsurance 

until the applicable deductible has been 

met. For example, if the individual 

satisfies a $500 deductible and pays 

$100 in co-payments in one plan 

variation, then moves to a different plan 

variation of the same QHP with a $750 

deductible as a result of a change in 

eligibility, the plan would apply $600 

towards the new deductible and the 

individual would need to satisfy the 

remaining $150 of the new deductible to 

be eligible for the reduced co-payment 

or coinsurance. Conversely, if an 

enrollee satisfies a $900 deductible in a 

standard plan and then moves to a plan 

variation of the same QHP with a $750 

deductible as a result of a change in 

eligibility, the additional $150 the 

individual already paid must be applied 

towards the reduced annual limitation 

on cost sharing of the new plan 

variation. However, as we explained in 

connection with this proposal, the 

enrollee would not receive a rebate for 

the amount already paid above the 

deductible for the new plan variation. 

Comment: One commenter sought 

clarification on how the requirements 

for continuity of deductibles and the 

annual limitation on cost sharing would 

apply if a QHP enrollee becomes eligible 

for Medicaid, and then later, re-enrolls 

in the QHP. The same commenter asked 

how the policy would apply if the 

individual switches to a different QHP. 

Response: As noted in the proposed 

rule, the requirement regarding the 

continuity of deductibles and out-ofpocket maximums would apply as long 

as the change in assignment is to a 

different plan variation of the same 

QHP. We interpret this to include reenrollment into the QHP following 

enrollment in a different QHP or 

another type of coverage such as 

Medicaid within the coverage year. As 

we also noted in the proposed rule, the 

QHP issuer is not prohibited from or 

required to extend the continuity of 

deductibles and annual limitations on 

cost sharing policy to situations in 

which the individual changes QHPs, but 

is permitted to extend this policy, 

provided that this extension of the 

policy is applied across all enrollees in 

a uniform manner. 

Comment: One commenter sought 

clarification on how the proposed 

policy will affect the reconciliation of 

advance payments of cost-sharing 

reductions with actual payments. 

Response: Under the reconciliation 

policy finalized in this rule, cost-sharing 

reductions properly provided in 

accordance with this rule will be 

reimbursed. Thus, if an enrollee changes 

plan variations mid-year and is properly 

credited with amounts previously 

accumulated towards a deductible, then 

cost-sharing reductions on copayments 

and coinsurance that are provided 

because the deductible under the new 

plan variation is reached more quickly 

are reimbursable as part of 

reconciliation. 

e. Payment for Cost-Sharing Reductions 

We proposed 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.27 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. We expect that this 

approach would not require issuers to 

fund the value of any cost-sharing 

reductions prior to reimbursement. This 

approach is similar to the one employed 

for the low-income subsidy under 

Medicare Part D. 

We are finalizing our payment 

approach as proposed with five specific 

modifications. The first two 

modifications relate to reimbursement 

for cost-sharing reductions for Indians, 

which are discussed in section III.E.4.i. 

of this final rule. The third modification 

is the addition of paragraph 

§ 156.430(a)(4), clarifying that issuers of 

multi-State plans must provide the 

estimates described in paragraphs (1) 

and (2) of § 156.430(a) to OPM, rather 

than the Exchange, in the time and 

manner established by OPM. The fourth 

modification authorizes HHS to adjust 

the advance payments for cost-sharing 

reductions during the benefit year. As 

we acknowledged in the proposed rule, 

QHP issuers will have access to limited 

data on its expected enrollees prior to 

2014, which could reduce the accuracy 

of the estimates used to develop the 

advance payment amounts. Because we 

wish to use the advance payment 

process to protect QHP issuers from 

being required to bear the entire 

financial burden of providing costsharing reductions over the benefit year, 

we are finalizing a change from the 

proposed rule to authorize HHS to 

adjust the advance payments if the QHP 

issuer provides evidence, certified by a 

member of the American Academy of 

Actuaries in accordance with generally 

accepted actuarial principles and 

methodologies, that the advance 

payments for a particular QHP are likely 

to be substantially different than the 

cost-sharing reduction amounts 

provided by the issuer that will be 

reimbursed by HHS after the end of the 

year during the reconciliation process. 

We discuss this policy further below in 

relation to § 156.430(b). 

The fifth modification is to 

§ 156.430(c). As discussed below, we are 

preserving the intent of the provisions 

proposed at § 156.430(c)(1) and (2) in 

finalized paragraphs (c)(1), (2) and (5). 

This restructuring allows for the 

addition of paragraphs (c)(3), and (4), 

which are established in an interim final 

rule with comment published elsewhere 

in this issue of the Federal Register. In 

that interim final rule with comment, 

we describe an approach that would 

permit a QHP issuer to calculate the 

value of the cost-sharing reductions 

provided under the methodology 

described in this final rule at 

§ 156.430(c)(2), or to use an alternative, 

simplified methodology, under which 

the QHP issuer would calculate the 

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28Based on the definition of ‘‘cost sharing’’ in 45 

CFR 156.20 and limits on cost-sharing reductions in 

section 1402(c)(4) of the Affordable Care Act, costsharing reductions are only provided on EHB. In 

addition, § 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. 

29http://cciio.cms.gov/resources/regulations/ 

index.html#pm. 

value of the cost-sharing reductions 

provided using certain summary costsharing parameters. As discussed below 

and in that interim final rule with 

comment, we believe this flexibility to 

use an alternative methodology will 

reduce the administrative burden on 

QHP issuers. 

Comment: We received several 

comments on our proposed payment 

approach. One commenter supported 

our proposal to provide advance 

payments and then reconcile those 

advance payments at the end of the 

benefit year to the actual cost-sharing 

reduction amounts. Another commenter 

suggested that the advance payment and 

reconciliation process would be too 

cumbersome and instead, HHS should 

simply reimburse issuers at the end of 

the year for the actual value of costsharing reductions provided. A third 

commenter agreed that an annual 

reconciliation process would be 

burdensome, and suggested that in the 

initial years the submission of data on 

the amount of cost-sharing reductions 

provided and the reconciliation of 

payments should be optional. These 

commenters urged that in future years, 

HHS should reimburse based on 

monthly estimates of the amount of 

cost-sharing reductions provided. 

Response: We discuss below, in 

relation to § 156.430(c) and (d), our 

approach for addressing commenters’ 

concerns regarding the submission of 

the amount of cost-sharing reductions 

provided and the reconciliation process. 

To implement our proposed payment 

approach, in § 156.430(a)(1)(i) through 

(iv), we proposed 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 

§ 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 

as required by § 156.1030(b)(3) finalized 

under this rule. Sections 

156.430(a)(1)(ii) and 156.430(a)(2) are 

further described in section III.E.4.i. of 

this final rule. 

We further proposed that issuers 

develop the estimates using the 

methodology specified by HHS in the 

applicable annual HHS notice of benefit 

and payment parameters. In 

§ 156.430(a)(3), we proposed that HHS 

approve estimates that follow this 

methodology. For the 2014 benefit year, 

we proposed that issuers use a 

methodology that utilizes the data that 

issuers submit under § 156.420 and 

§ 156.470. As a result, issuers would not 

be required under this proposal 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. 

Methodology for Developing Estimate 

of Value of Cost-Sharing Reductions for 

Silver Plan Variations for 2014 Benefit 

Year. 

For the 2014 benefit year, we 

proposed that advance payments be 

estimated on a per enrollee per month 

basis using the following formula: 

Per Enrollee Per Month Advance 

Payment = Monthly Expected 

Allowed Claims Costs for Silver 

Plan Variation × (Silver Plan 

Variation AV ¥ Standard Plan AV) 

In this formula, the monthly expected 

allowed claims cost for a silver plan 

variation would equal one-twelfth of the 

annual expected allowed claims costs 

allocated to EHB, other than services 

described in § 156.280(d)(1),28 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 

proposed in § 156.470, the QHP issuer 

would submit the expected allowed 

claims cost information to the Exchange 

annually. The Exchange would then 

review this estimate, and submit the 

approved information to HHS, as 

described in § 155.1030(b)(2) above, for 

use in the advance payment calculation. 

HHS would 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 proposed 

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 

2010.29

TABLE 23—INDUCED UTILIZATION FACTORS FOR PURPOSES OF COST-SHARING REDUCTION ADVANCE PAYMENTS

Household income Silver plan AV Induced utilization factor 

100–150 percent of FPL ............................................................. Plan Variation 94 percent ........................................................... 1.12 

150–200 percent of FPL ............................................................. Plan Variation 87 percent ........................................................... 1.12 

200–250 percent of FPL ............................................................. Plan Variation 73 percent ........................................................... 1.00 

In the second half of the formula, we 

proposed 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. We 

proposed to use the actuarial values of 

the QHPs and silver plan variations that 

the Exchange will submit to HHS under 

§ 155.1030(a)(2). 

We are finalizing the methodology for 

determining advance payments for the 

2014 benefit year as proposed. As noted 

above, we are also adding paragraph (4) 

to § 156.430(a), clarifying that issuers of 

multi-State plans must provide the 

estimates described in paragraphs (1) 

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15488 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

and (2) of § 156.430(a) to OPM, in the 

time and manner established by OPM. 

In § 156.430(b), we proposed making 

periodic advance payments to issuers 

based on the approved advance 

estimates provided under § 156.430(a) 

and the actual enrollment information. 

We proposed to use the methodology 

described above to determine the 

amount of these advance payments. We 

are finalizing the provisions at 

§ 156.430(a) and (b) relating to the 

advance payments as proposed, with the 

following modification. In response to 

comments discussed below, we are 

adding subparagraph (b)(2) in the final 

rule to authorize HHS to adjust the 

advance payment amount for a 

particular QHP during the benefit year 

if the QHP issuer provides evidence, 

certified by a member of the American 

Academy of Actuaries in accordance 

with generally accepted actuarial 

principles and methodologies, that the 

advance payments for a particular QHP 

are likely to be substantially different 

than the cost-sharing reduction amounts 

that the QHP provides that will be 

reimbursed by HHS. Although QHP 

issuers will be made whole for the value 

of all cost-sharing reductions provided 

through the reconciliation process after 

the close of the benefit year, we 

recognize that in certain situations, QHP 

issuers may require adjustments to the 

advance payments during the benefit 

year. We do not include in this final 

rule a formal process for the submission 

of information for the adjustment of 

advance payments because we believe 

the need for an adjustment will be rare, 

and the circumstances necessitating the 

adjustment will likely be unique to each 

QHP issuer. HHS is also considering 

other mechanisms for mid-year 

adjustments to advance payments to 

ensure that QHP issuers are provided 

sufficient advance payments and to 

safeguard Federal funds. We anticipate 

providing further details on such 

mechanisms in future rulemaking. We 

also anticipate working closely with 

QHP issuers in order to monitor 

whether the advance payments are 

likely to be significantly greater than or 

less than the reconciled cost-sharing 

reduction amounts. 

Comment: We received several 

comments on the methodology for 

developing estimates of the value of 

cost-sharing reductions for advance 

payments. One commenter stated that 

the formula appeared to be appropriate 

and will likely result in accurate 

estimates. However, the commenter was 

concerned that the formula could 

produce results that vary based on 

member rating factors. 

Response: As discussed in the 

proposed Payment Notice in regard to 

the submission of the expected allowed 

claims costs under § 156.470(a) and (c), 

which is the basis of the proposed 

methodology for estimating the value of 

cost-sharing reductions, we expect 

issuers to calculate the expected 

allowed claims cost for a plan based on 

the cost of the EHB for all enrollees in 

all plans in the relevant risk pool under 

§ 156.80 of the final Market Reform 

Rule, and not across a standardized 

population or a plan-specific 

population. This approach should 

average the effects of the allowable 

rating factors on plan liability. 

Therefore, we believe the results of the 

formula will be appropriately adjusted 

for the allowable rating factors. 

Comment: Although commenters 

generally supported adjusting the 

expected allowed claims costs by an 

induced utilization factor, one 

commenter stated that the proposed 

factors do not adequately account for 

changes in utilization as enrollees in 

plan variations may also use more highcost services. 

Response: We recognize that 

additional adjustments are necessary to 

account for the expected increased 

utilization of enrollees in plan 

variations, and as a result created a costsharing reduction adjustment for the 

HHS risk adjustment model. As 

described in section III.B.3.b. of this 

final rule, this factor will help 

compensate QHP issuers with a high 

number of enrollees that qualify for 

cost-sharing reductions. 

Comment: We received comments 

asking for additional detail on the 

process that HHS will use to approve 

the advance payment amounts. One 

commenter asked that issuers be 

permitted to make adjustments to the 

advance payment amounts to account 

for enrollment fluctuations or changing 

demographics of their enrolled 

population. Another commenter 

suggested that a process be developed to 

handle discrepancies in the advance 

payments on a prospective basis. 

Response: Section 156.430(a)(3) as 

finalized here states that HHS’s 

approval of the advance payment 

amounts will be based on whether the 

estimate is made consistent with the 

methodology specified in the HHS 

notice of benefit and payment 

parameters. 

In addition, as discussed above, in 

response to the comments received, we 

are finalizing an additional provision to 

allow HHS to adjust the advance 

payment amount for a particular QHP 

during the benefit year if the QHP issuer 

provides evidence that meets certain 

standards. The addition of subparagraph 

(b)(2) aligns with our goal to reduce the 

financial burden resulting from costsharing reductions on QHP issuers 

during the benefit year, our proposal to 

perform periodic reconciliations, and 

the comments received. 

In § 156.430(c), we proposed that a 

QHP issuer report to HHS the actual 

amount of cost-sharing reductions 

provided for use by HHS under 

§ 156.430(d) in performing periodic 

reconciliations of the advance payments 

to the cost-sharing reductions actually 

provided. We noted that additional 

specifications regarding the submission 

of actual cost-sharing reduction 

amounts will be provided in future 

guidance; however, the preamble 

indicated our expectation that QHP 

issuers will submit the actual amount of 

cost-sharing reductions provided after 

the close of the benefit year. In 

§ 156.430(c)(1) and (c)(2), we proposed 

specific standards for the reporting of 

cost-sharing reduction amounts. In 

§ 156.430(c)(1), we proposed that in the 

case of a benefit for which the QHP 

issuer compensates the applicable 

provider in whole or in part on a feefor-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 

§ 156.430(c)(2), we proposed 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 referred to 

compensation made on a capitated basis 

in this context, we meant 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 noted that a nonfee-for-service provider is not required 

to be reimbursed by the issuer. 

However, we indicated that we expected 

that issuers and providers in non-feefor-service arrangements would make 

available to providers compensation for 

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Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 15489 

cost-sharing reductions through their 

negotiated capitation payments. We 

sought comments on this assumption 

and other payment approaches for QHPs 

that use a capitated system to pay 

providers. 

In § 156.430(d), we proposed to 

periodically reconcile advance 

payments to issuers against the actual 

cost-sharing reduction amounts reported 

under § 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 are finalizing paragraph (d) as 

proposed. However, as noted before, we 

are modifying § 156.430(c). We are 

preserving the intent of the provisions 

proposed at § 156.430(c)(1) and (2), but 

restructuring the provisions into 

finalized paragraphs (c)(1), (2) and (5). 

This restructuring allows for the 

addition of paragraphs (c)(3) and (4), 

which are established in an interim final 

rule with comment published elsewhere 

in this issue of the Federal Register, and 

discussed below. 

In this final rule, we simplify the 

language proposed at § 156.430(c)(1) so 

that it applies to all benefits, including 

those for which the QHP issuer 

compensates the applicable provider in 

a manner other than fee-for-service. 

Specifically, we establish that a QHP 

issuer, for each plan variation that it 

offers on the Exchange, submit to HHS, 

in the manner and timeframe 

established by HHS, for each policy, the 

total allowed costs for EHB charged for 

the policy for the benefit year, broken 

down by: (i) The amount the issuer 

paid; (ii) the amount the enrollee(s) 

paid; and (iii) the amount the enrollee(s) 

would have paid under the standard 

plan without cost-sharing reductions. In 

paragraph (c)(2), we codify in regulation 

text the methodology discussed in the 

preamble of the proposed rule for 

calculating the amount the enrollee(s) 

would have paid under the standard 

plan without cost-sharing reductions. 

We specify that QHP issuers must apply 

the actual cost-sharing requirements for 

the standard plan to the allowed costs 

for EHB under the enrollee’s policy for 

the benefit year. 

Lastly, we establish in paragraph 

(c)(5) that in the case of a benefit for 

which the QHP issuer compensates an 

applicable provider in whole or in part 

on a fee-for-service basis, allowed costs 

associated with the benefit may be 

included in the calculation of the 

amount that an enrollee(s) would have 

paid under the standard plan without 

cost-sharing reductions only to the 

extent the amount was either payable by 

the enrollee(s) as cost sharing under the 

plan variation or was reimbursed to the 

provider by the QHP issuer. This 

provision has the same effect as the 

language in § 156.430(c)(1) of the 

proposed rule. Although we do not 

specify a similar provision for issuers 

and providers in non-fee-for-service 

arrangements, we expect that those 

issuers will compensate providers for 

cost-sharing reductions through other 

payment processes. 

Comment: We received a number of 

comments stating that the reporting 

requirements under § 156.430(c) are too 

burdensome. Commenters noted that 

although the reporting and 

reconciliation process is appropriate for 

the Medicare Part D Low-Income 

Subsidy Program, medical benefits are 

more complex than pharmaceutical 

benefits and often have a longer lag 

between submission and adjudication. 

Commenters stated that to meet the 

reporting requirements under 

§ 156.430(c), QHP issuers would need to 

re-adjudicate each claim for enrollees 

receiving cost-sharing reductions in 

order to determine the difference in cost 

sharing between the applicable plan 

variation and the standard plan. This 

process could require the development 

of new information systems in a short 

period of time. One commenter stated 

that QHP issuers could provide HHS 

with access to member-level claims data 

for enrollees receiving cost-sharing 

reductions through a distributed data 

model, similar to the approach used for 

the risk adjustment program. The 

commenter stated that this would 

simplify administrative processes and 

provide issuers with more time to 

modify their IT systems. We also 

received several comments suggesting 

that HHS should allow QHP issuers to 

calculate an estimate of the value of 

cost-sharing reductions at the end of the 

year using a formula similar to that used 

for the advance payments, but based on 

the actual claims experience of the 

enrollees. These calculated amounts 

could be used for a reconciliation 

process, and would place less of a 

reporting burden on issuers. 

Commenters also offered another 

alternative approach under which 

issuers would file with the appropriate 

State department of insurance an 

adjusted net claims rate for each of their 

plan variations. HHS would then 

reimburse QHP issuers for cost-sharing 

reductions by multiplying the number 

of enrollees in each plan variation by 

the difference in net claims for the plan 

variation and the standard plan. 

Commenters also requested additional 

guidance on the reporting and 

reconciliation process. 

Response: In the initial years of the 

Exchanges, before adequate data is 

available on the costs that will be 

associated with QHPs and their plan 

variations, we believe it is necessary to 

balance the need to safeguard Federal 

funds and the need to minimize burden 

on issuers. Therefore, as noted above, 

we are restructuring § 156.430(c) to 

allow for the addition of paragraphs 

(c)(3) and (4), which are established in 

an interim final rule with comment 

published elsewhere in this issue of the 

Federal Register. Paragraph (c)(3) 

permits QHP issuers to choose to 

calculate the amounts that would have 

been paid under the standard plan 

without cost-sharing reductions using a 

simplified methodology. Under this 

simplified methodology, as described in 

paragraph (c)(4), a QHP issuer may 

calculate the value of the cost-sharing 

reductions provided by using a formula 

based on certain summary cost-sharing 

parameters of the standard plan, applied 

to the total allowed costs for each 

policy. We believe this amendment will 

allow QHP issuers to choose the 

methodology that best aligns with their 

operational practices, which should 

reduce the administrative burden on 

issuers in the initial years of the 

Exchanges. 

Comment: We received several 

comments stating that both the advance 

payments and the reconciliation process 

should account for the full cost of any 

induced utilization resulting from the 

cost-sharing reductions. 

Response: Section 1402(c)(3) provides 

for the Secretary of HHS to make 

payments to QHP issuers equal to the 

value of the cost-sharing reductions. We 

interpret this provision to require the 

Secretary to reimburse QHP issuers for 

the reduction in cost sharing associated 

with any induced utilization; however, 

we do not believe this provision 

provides for the reimbursement of the 

remaining plan liability resulting from 

any induced utilization. Therefore, we 

finalize the payment methodology as 

proposed. 

Comment: In response to the 

provisions proposed in § 156.430(c) 

under which QHP issuers would submit 

to HHS the portion of the total allowed 

costs for EHB paid by the enrollee, one 

commenter noted that issuers cannot 

report this amount with certainty since 

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the provider ultimately collects this 

amount from the enrollee. 

Response: We clarify that QHP issuers 

should report the amount that a 

provider could charge to an enrollee, 

accounting for the cost-sharing 

reduction. We also clarify that the 

amount reported as paid by the enrollee 

should include any cost sharing paid by 

a third party, including a State, on 

behalf of the enrollee. 

Comment: We received several 

comments that the reporting 

requirements under § 156.430(c) will be 

difficult for issuers to meet that do not 

use fee-for-service reimbursement 

methods. Commenters suggested that 

such issuers should receive capitated 

payments and be exempt from the 

reconciliation process. 

Response: We support the use of such 

payment methods by issuers to pay 

providers; therefore, the restriction 

finalized at § 156.430(c)(5) does not 

apply to issuers that do not use fee-forservice reimbursement methods. 

However, we believe that these plans 

must still reconcile the advance costsharing reductions payments they 

receive from the Federal government. 

Comment: Another commenter 

proposed that QHP issuers make 

available to providers the amounts 

reported under § 156.430(c). The 

commenter stated that this information 

would allow providers to verify that 

enrollees received the correct costsharing reductions and to identify any 

inappropriate payments from QHP 

issuers. 

Response: At this time, we are not 

addressing this issue, but encourage 

QHP issuers and providers to develop 

processes to support the provision of 

cost-sharing reductions. 

We proposed in § 156.430(e) that if 

the actual amounts of cost-sharing 

reductions exceed the advance payment 

amounts provided to the issuer, HHS 

would reimburse the issuer for the 

shortfall, assuming that the issuer has 

submitted its actual cost-sharing 

reduction amounts to HHS in 

accordance with § 156.430(c). If the 

actual amounts of cost-sharing 

reductions are less than the advance 

payment amounts provided to the 

issuer, we proposed that the QHP issuer 

must repay the difference to HHS. 

In § 156.430(f), we proposed 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 costsharing reductions provided during 

grace periods following non-payment of 

premium. In § 156.430(f)(1), we 

proposed that a QHP issuer will be 

eligible for reimbursement of costsharing 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 

§ 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 § 155.430(c)(2). 

The QHP issuer would be required to 

repay any advance payments of costsharing reductions made with respect to 

any month after any termination of 

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. This 

proposed policy aligns with the 

approach for advance payments of the 

premium tax credit described in 

§ 156.270(e). 

We proposed in § 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 costsharing reductions provided during 

such period. 

In § 156.430(f)(4), we proposed 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 § 155.315(f). 

We are finalizing these provisions as 

proposed. 

Comment: In general, commenters 

expressed their support for the policies 

set forth at § 156.430(f), but asked for 

clarification on the application of the 

grace period in relation to cost-sharing 

reductions. Commenters noted that in 

many states, issuers are not permitted to 

pend claims, and that pharmaceutical 

claims in particular are typically 

processed at the time and place of 

service. Other commenters stated that 

QHP issuers should not be permitted to 

pend claims because it shifts the 

collection burden to health care 

providers. Commenters also requested 

clarification on whether QHP issuers 

may pend cost-sharing reductions 

during the second and third months of 

a grace period. 

Response: The Exchange 

Establishment Final Rule, at 

§ 156.270(d), authorizes QHP issuers to 

pend or pay claims during the second 

and third month of a grace period in 

accordance with company policy and 

State laws. However, as provided in 

§ 156.270(d)(3), QHP issuers must notify 

providers of the possibility for denied 

claims when an enrollee is in the 

second and third months of the grace 

period. We continue to believe this 

policy appropriately balances these 

financial risks, while protecting 

enrollees. We clarify that we expect 

QHP issuers to ensure throughout the 

grace period that cost-sharing 

reductions are applied at the point of 

collection for eligible enrollees, as 

required by § 156.410(a) as finalized 

here. If an enrollee’s coverage is 

terminated, QHP issuers may deny any 

claims that were pending, including the 

reimbursement to the provider for the 

value of the cost-sharing reductions. 

Providers could then seek payment 

directly from the enrollee for any 

services provided after the termination 

of coverage, including a refund for the 

cost-sharing reduction. For a discussion 

of the standards finalized at 

§ 156.430(b), (d) and (g) in relation to 

cost-sharing reductions for Indians, 

please refer to section III.E.4.i below. 

f. Plans Eligible for Advance Payments 

of the Premium Tax Credit and CostSharing Reductions 

In § 156.440, we clarified the 

applicability of advance payments of the 

premium tax credit and cost-sharing 

reductions to certain QHPs. We 

proposed that the provisions of part 156 

subpart E generally apply to qualified 

health plans offered in the individual 

market on the Exchange. 

However, we proposed in § 156.440(a) 

that the provisions not apply to 

catastrophic plans because 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 

proposed that enrollment in a 

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catastrophic plan precludes eligibility 

for cost-sharing reductions. 

We proposed in § 156.440(b) that the 

provisions of subpart E, to the extent 

related 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. The Exchange 

Establishment Rule, at § 155.1065, 

implements these provisions. 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. Thus, 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 standalone dental plan. 

In § 156.440(b), we also proposed that 

the provisions of subpart E, to the extent 

relating to advance payments of the 

premium tax credit, apply to standalone dental plans because section 

36B(b)(3)(E) of the Code provides for the 

portion of the premium for such plans 

that is allocable to EHB coverage be 

taken into account in calculating the 

premium tax credit. 

We proposed to clarify in § 156.440(c) 

that the provisions of this subpart E 

apply to child-only plans. Section 

1302(f) of the Affordable Care Act and 

§ 156.200(c)(2) provide 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 subpart E. We are 

finalizing these provisions as proposed 

with minor technical corrections in 

paragraphs (a) and (c) to clarify the 

cross-references. 

Comment: One commenter was 

concerned with the exclusion of standalone dental plans from the cost-sharing 

reduction program. The commenter 

stated that, because pediatric dental 

coverage is a required essential health 

benefit and the statute guarantees costsharing reductions for eligible 

individuals for essential health benefits, 

cost-sharing reductions should apply to 

stand-alone dental plans. 

Response: We read section 1402(c)(5) 

of the Affordable Care Act to provide 

that cost-sharing reductions are not 

payable with respect to pediatric dental 

benefits offered by a stand-alone dental 

plan. Additionally, requiring payment 

of cost-sharing reductions on pediatric 

dental benefits offered by a stand-alone 

dental plan would create significant 

operational complexities. However, 

cost-sharing reductions will be provided 

for pediatric dental benefits if they are 

offered by a QHP (that is not a standalone dental plan). 

g. Reduction of Enrollee’s Share of 

Premium To Account for Advance 

Payments of the Premium Tax Credit 

In § 156.460(a), we proposed to codify 

QHP issuer requirements set forth in 

section 1412(c)(2)(B) (i)—(iii) of the 

Affordable Care Act. The law authorizes 

the payment of advance tax credits to 

QHP issuers on behalf of certain eligible 

enrollees. The advance payment must 

be used to reduce the portion of the 

premium charged to enrollees. In 

§ 156.460(a)(1), we proposed 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 § 156.460(a)(2), we proposed 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 

§ 156.265(g). That information would 

then be submitted to the Secretary via 

enrollment information sent from the 

Exchange to HHS under § 155.340(a)(1). 

In § 156.460(a)(3), we proposed 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. 

Further, in § 156.460(b), we proposed 

to prohibit QHP issuers from 

terminating or refusing to commence 

coverage on account of any delay in 

payment of an advance premium tax 

credit on behalf of an enrollee if the 

issuer has been notified by the Exchange 

under § 155.340(a) that it will receive 

such advance payment. We stated that 

we expect that monthly advance 

payments of the premium tax credit will 

be paid in the middle of the month, and 

proposed to prohibit QHP issuers from 

declining or terminating coverage when 

the enrollee’s payments have been 

timely but the advance payments of the 

premium tax credit are not made before 

the due date for the premium. 

We also proposed to add paragraph (f) 

to § 155.340 (which we designated as 

§ 155.340(g) in this final rule), 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 

§ 155.240(c). Consistent with 

§ 156.460(a), proposed § 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). Proposed § 155.340(f)(2) 

directs an Exchange to display the 

amount of the advance payment of the 

premium tax credit for the applicable 

month(s) on an enrollee’s billing 

statement. Collectively, proposed 

§ 155.340(f) and § 156.460 as proposed 

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. The goals of these 

provisions are to promote transparency 

between Exchanges or QHP issuers and 

consumers, accurate application of 

advance payments of the premium tax 

credit, and continuity of coverage for 

individuals. For the reasons described 

in the proposed rule and considering 

the comments received, we are 

finalizing § 156.460 as proposed, and 

are finalizing proposed § 155.340(f) as 

§ 155.340(g). 

Comment: A number of commenters 

stated their support for these provisions 

directing QHP issuers and Exchanges 

facilitating the collection and payment 

of premiums to reduce premiums 

collected from enrollees by the amount 

of the advance payments of the 

premium tax credit. The commenters 

also supported having QHP issuers and 

Exchanges display the advance payment 

of the premium tax credit on enrollees’ 

billing statements. One commenter 

urged HHS to test the format of the 

billing statement to ensure it is clear to 

consumers. Several commenters also 

supported the proposed prohibition on 

a QHP issuer terminating coverage 

following a delay in the issuer’s receipt 

of advance payments of the premium 

tax credit if the issuer has been notified 

by the Exchange that it will receive the 

payment. One commenter stated that 

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HHS should implement a process to 

ensure that individuals prematurely 

terminated in violation of such a 

provision have coverage reinstated 

quickly. 

Response: Although at this time we 

do not intend to propose additional 

requirements related to the format of 

billing statements, we encourage 

Exchanges and QHP issuers to test 

billing statement formats with 

consumers to ensure that the purpose of 

the document is clear. We appreciate 

the comment that we implement a 

process to quickly correct instances of 

premature termination. We will take 

this into consideration in future 

rulemaking. 

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 

final rule, we proposed in § 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. Under the 

proposal, issuers would 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 would use this memorandum 

to verify that these allocations meet the 

standards set forth in paragraphs (c) and 

(d) of § 156.470. 

The comments on the provisions at 

§ 156.470, and our response, are 

discussed in section III.E.2. of this final 

rule. We are finalizing the provisions 

proposed in § 156.470, with a 

modification to paragraph (d), and 

technical modifications to 

§ 156.470(a),(b), and (e). We are also 

adding paragraph (f) to § 156.470 to 

clarify the application of these 

provisions to multi-State plans. 

i. Special Cost-Sharing Reduction Rules 

for Indians 

In this section, we address certain 

provisions throughout proposed subpart 

E governing cost-sharing reductions for 

Indians. 

Interpretation of section 1402(d)(2) of 

the Affordable Care Act: In the proposed 

rule, we discussed in detail our 

interpretation of sections 1402(d)(1), 

1402(d)(2), and 1402(f)(2) of the 

Affordable Care Act. The implication of 

these interpretations is that cost-sharing 

reductions under sections 1402(a) and 

1402(d)(1) of the Affordable Care Act are 

only available to individuals who are 

eligible for premium tax credits. 

However, we stated that under our 

interpretation, 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. 

We also noted 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 proposed 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) and because we believe that 

Congress did not intend for reductions 

in cost sharing to be available outside 

the individual market Exchanges. We 

are finalizing this interpretation of the 

statute, which underlies the provisions 

implementing cost-sharing reductions 

for Indians. 

Comment: Several commenters 

recommended that HHS issue uniform 

operational guidance on the 

identification of Indians for use by 

Exchanges and by the IRS that is 

consistent with the existing HHS 

regulations under 42 CFR 447.50. 

Commenters expressed concern that the 

lack of uniform operational guidance 

will impede Exchange, Medicaid, and 

IRS staff in efficiently making accurate 

and consistent determinations of 

eligibility and will result in delayed or 

denied access for some Indians to 

specific benefits afforded them under 

the Affordable Care Act. 

Response: The definition proposed for 

Indian in § 156.400 has the meaning 

given the term in § 155.330(a). We also 

note that § 155.350 of the Exchange 

Establishment Rule currently provides 

guidance on the verification of Indian 

status. Further guidance on this issue is 

outside the scope of this Payment 

Notice. 

Proposed provisions of part 156 

relating to Indians: Similar to costsharing reductions for non-Indians, we 

proposed to use the concept of plan 

variations to describe how Indians 

would pay only limited, or as 

appropriate, none of the total cost 

sharing required under that QHP, with 

the Federal government bearing the 

remaining cost-sharing obligation. Our 

proposed regulations cross-referenced 

the eligibility regulations at 

§ 155.305(g), as finalized here, and 

§ 155.350(b), finalized in the Exchange 

Establishment Rule. In § 156.410(b)(2), 

we proposed 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 § 156.410(b)(3), we 

proposed 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 

§ 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. In the 

preamble, we also discussed 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 waive the costsharing requirements, as appropriate. 

We proposed the approach first 

described above, but sought comments 

on which approach HHS should adopt 

beginning January 1, 2016. For the 

reasons described in the proposed rule, 

and considering the comments we 

received, we are finalizing the policy as 

proposed, though we continue to 

welcome comments on what approach 

HHS should adopt for benefit year 

beginning on or after January 1, 2016. 

Comment: Several commenters 

expressed their support for the proposed 

policy at § 155.305(g)(3), noting that the 

alternative approach would be difficult 

to administer and would require QHP 

issuers to make significant changes to 

their claims systems because issuers 

today are not able to administer 

member-based cost-sharing rules. One 

commenter was concerned that it would 

be difficult for issuers to waive cost 

sharing for Indians at or below 300 

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percent of FPL at the point of service 

under the alternate approach. 

Other commenters, however, 

expressed concern that the proposed 

approach would require families with 

Indian members and non-Indian 

members to purchase multiple plans in 

order for each family member to receive 

the full value of the cost-sharing 

reductions to which they are entitled. 

Commenters stated that under this 

policy, the cost savings available to 

Indians could be negated by shifting the 

liability to other non-eligible family 

members. 

A number of commenters 

recommended a different approach to 

address the potential increase in costs to 

be paid by Indian and non-Indian 

members who elect to enroll in different 

plans in order to take full advantage of 

the cost-sharing reductions available to 

them. These commenters recommended 

that if family members are enrolled in 

separate plan variations, the 

combination of the premiums be 

required to be no greater than the 

premium the family would pay if all 

members were enrolled in the same plan 

variation. They also recommended that 

the maximum out-of-pocket liability for 

the plan variation in which the nonIndians enrolled be set at a proportion 

of the maximum liability of a single 

family plan. These commenters also 

suggested that HHS should implement 

the alternative approach sooner than 

2016. 

Response: We will consider adopting 

the approach recommended by 

commenters for future benefit years; 

however, given the current timeframe 

and operational concerns, we believe 

that for the 2014 benefit year it is 

infeasible to require issuers to submit 

plan variations that take into account 

cost-sharing obligations for Indian and 

non-Indian family members covered 

under a single QHP policy. Therefore, in 

accordance with the policy in the 

proposed rule that we are finalizing 

here, the assignment of Indians to plan 

variations would be subject to 

§ 155.305(g)(3). If we propose to change 

the policy for years beginning in 2016, 

we will provide issuers with sufficient 

notice and opportunity to comment to 

effectuate the required operational 

change. 

In § 156.420(b), we proposed that 

QHP issuers submit to the Exchange the 

zero cost sharing plan variation and 

limited cost sharing plan variation 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 

§ 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 

§ 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 noted that unlike 

silver plan variations, zero cost sharing 

plan variations and limited cost sharing 

plan variations must only be submitted 

for certification when the standard plan 

is submitted for QHP certification. 

In § 156.420(d), we proposed language 

similar to that proposed in § 156.420(c) 

for silver plan variations—that the zero 

cost sharing plan variations 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 

proposed 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 § 156.420(b)(2) 

as the QHP with no cost-sharing 

reductions. 

Lastly, we proposed that zero cost 

sharing plan variations 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 are finalizing these 

provisions as proposed with two 

modifications. With regard to the 

submission of plan variations under 

§ 156.420(b), we are revising the 

language to align with the language in 

§ 156.420(a), and § 156.470(a) and (b) as 

finalized. We are also adding paragraph 

(g) to § 156.420 to clarify the 

applicability of these provisions to 

multi-State plans. 

Comment: We received a comment 

stating that QHP issuers should not be 

required to count the cost sharing that 

an enrollee in a zero cost sharing plan 

variation would have paid towards the 

annual limitation on cost sharing, 

stating that this would require a manual 

process which would be resourceintensive and result in errors. 

Response: We clarify that for purposes 

of administering the plan variations and 

providing cost-sharing reductions, QHP 

issuers are not required to apply any 

cost sharing that an enrollee would have 

been required to pay under the standard 

plan but was not required to pay under 

the plan variation to the annual 

limitation on cost sharing. However, any 

cost sharing that an enrollee is required 

to pay (for example, for those in the 

limited cost sharing plan variation, cost 

sharing for services provided by nonIHS or related providers), would count 

towards the annual limitation on cost 

sharing. This would also apply to silver 

health plans when there is no cost 

sharing for a benefit or service. 

Comment: We received a comment in 

relation to the policy proposed at 

§ 156.410(a), requiring QHP issuers to 

ensure than an individual eligible for 

cost-sharing reductions pay only the 

cost sharing required of an eligible 

individual when the cost sharing is 

collected. The commenter suggested 

that this language might be confusing 

since in many cases, individuals 

assigned to a zero cost sharing plan 

variation or a limited cost sharing plan 

variation will have no cost sharing. The 

commenter also suggested that QHP 

issuers should provide information 

electronically to providers concerning 

an individual’s cost-sharing protections. 

Response: We are finalizing the 

regulation as proposed without 

modification, though we clarify that a 

QHP issuer would be required to ensure 

that an individual assigned to a zero 

cost sharing plan variation must not be 

required to pay any cost sharing at the 

time when cost sharing would normally 

be collected. Similarly, a QHP issuer 

must ensure that an individual assigned 

to a limited cost sharing plan variation 

must not be required to pay any cost 

sharing at the time when cost sharing 

would normally be collected if the 

individual receives services or items 

from IHS or a related provider. 

Comment: Several commenters stated 

that cost-sharing reductions for Indians 

should not be limited to EHB. 

Commenters stated that the cost-sharing 

exemptions for Indians in section 

1402(d) of the Affordable Care Act were 

enacted as distinct, special provisions 

for Indians and are not subject to the 

general cost sharing limitation to EHB in 

section 1402(c)(4) of the Affordable Care 

Act. 

Response: We interpreted and 

implemented section 1301(c) of the 

Affordable Care Act to limit the 

definition of cost sharing to EHB when 

finalizing § 155.20 of the Exchange 

Establishment Rule. The regulation 

defines ‘‘cost sharing’’ as any 

expenditure required by or on behalf of 

an enrollee with respect to EHB. 

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Further, section 1402(c)(4) of the 

Affordable Care Act provides that all 

cost-sharing reductions under that 

section are applicable only to costsharing for EHB and not for additional 

benefits. 

Comment: Several commenters raised 

concerns that providers would be 

confused regarding the payment they 

can expect from QHP issuers when an 

Indian is referred through the contract 

health services program to an out-ofnetwork provider, or when an Indian is 

not enrolled in a QHP. Some 

commenters requested further 

clarification on the definition of 

‘‘contract health services.’’ 

Response: We are working to ensure 

that referrals through the contract health 

services program are processed in 

accordance with the standards in this 

final rule in a manner that is clear to 

providers and QHP issuers. In addition, 

we note that ‘‘contract health services’’ 

is defined under 25 U.S.C. section 1603, 

and we do not propose to codify this 

definition in the final rule. 

In addition, we note that the proposed 

Medicaid and Exchange Eligibility 

Appeals and Notices Rule proposes to 

codify a prohibition in section 1916(j) of 

the Social Security Act on imposing 

premiums or cost sharing on an Indian 

who is eligible to receive or has received 

and item or service furnished directly 

by the Indian Health Service, an Indian 

Tribe, Tribal Organization, or Urban 

Indian Organization, or through referral 

under contract health services. We note 

the similarity in the statutory language, 

but note the different income levels and 

benefits provided under the respective 

statutes. We intend to continue to 

review this issue and anticipate issuing 

guidance to address the operational 

concerns raised by the commenters. 

Comment: Several commenters 

suggested that issuers should be 

permitted to submit zero cost sharing 

plan variations at only one metal level, 

unless there are significant differences 

in plan design such as prescription drug 

formularies, provider networks or 

covered benefits between metal levels. 

These commenters noted that it is 

unlikely that an individual will choose 

a higher cost plan in that situation 

because the lower metal level plan will 

provide the same benefits and networks, 

at a lower premium and with no cost 

sharing. One commenter suggested that 

QHP issuers could administer costsharing reductions for Indians 

regardless of income on a case-by-case 

basis. 

Response: We recognize that there is 

no practical need to ensure that eligible 

Indians have access to higher metal 

level plans if a lower metal level plan 

offers identical benefits and networks, at 

a lower premium and with no cost 

sharing. We also recognize the burden 

on QHP issuers of developing plan 

variations that provide no additional 

benefit to enrollees. Finally, we do not 

wish to unnecessarily task Exchanges 

with certifying such plan variations. 

Therefore, we clarify that HHS will 

deem an Exchange to be adequately 

enforcing the requirements of 

§ 156.420(b)(1) if, within a set of 

standard plans offered by an issuer that 

differ only by the cost sharing or 

premium (that is, the benefits, networks, 

and all other aspects of the standard 

plans are exactly the same), the 

Exchange allows the issuer to submit 

one zero cost sharing plan variation for 

only the standard plan within the set 

with the lowest premium. If an issuer 

offers standard plans with different 

benefits or networks, each set of 

standard plans must have a zero cost 

sharing plan variation. We do not 

propose to extend this interpretation to 

the submission of limited cost sharing 

plan variations because these variations 

may still have cost sharing, which could 

vary among standard plans. We note 

that for 2014, for operational reasons, 

the FFE will still require QHP issuers to 

submit a zero cost sharing plan variation 

for any level of coverage that the QHP 

issuer seeks certification. While this 

operational limitation for 2014 does 

present additional data inputs, we do 

not expect it to require additional 

analysis by issuers because the content 

of the submissions would be identical 

except for cost sharing, which would be 

eliminated for the zero cost sharing plan 

variation. We will consider changing 

this approach in later benefit years 

through future rulemaking. 

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 

required by reason of the changes in 

cost sharing for Indians under section 

1402(d) of the Affordable Care Act. We 

proposed to use the same payment 

approach to reimburse cost-sharing 

reductions for Indians under section 

1402(d) of the Affordable Care Act as we 

proposed 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 proposed 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 in order to receive 

advance payments, and then reconcile 

the advance payments to the actual costsharing 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. We are 

finalizing the payment approach as 

proposed, with one amendment at 

§ 156.430(g) relating to compensation 

for items and services provided directly 

by the Indian Health Service, an Indian 

Tribe, Tribal Organization, or Urban 

Indian Organization, or through referral 

under contract health services. 

In § 156.430(a)(1)(ii), we proposed 

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 proposed 

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 § 156.420 and 

§ 156.470. As a result, QHP issuers 

would not be required under the 

proposal 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: 

Per Enrollee Per Month Advance 

Payment 

= Monthly Expected Allowed Claims 

Costs for Zero Cost Sharing Plan 

Variation 

× (Zero Cost Sharing Plan Variation 

AV—Standard Plan AV) 

In this formula, the monthly expected 

allowed claims cost for the zero cost 

sharing plan variation would equal onetwelfth of the expected allowed claims 

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costs allocated to EHB, other than 

services described in § 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 proposed at § 156.470, 

the QHP issuer would 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 

§ 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 proposed 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 24—INDUCED UTILIZATION FACTORS FOR ADVANCE PAYMENTS OF COST-SHARING REDUCTIONS FOR INDIANS

Zero cost sharing plan variation Induced 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 

proposed 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 are finalizing these provisions 

as proposed. 

Comment: One commenter requested 

clarification on the induced utilization 

factors for cost-sharing reductions for 

Indians, and whether these factors 

would ensure that QHP issuers are 

‘‘made whole’’ for the value of the costsharing reductions. 

Response: As in the case of the silver 

plan variations, we incorporated an 

induced utilization factor into the 

advance payment formula to ensure that 

QHP issuers are compensated for the 

elimination of cost sharing for any 

increase in utilization resulting from the 

modification of the cost-sharing 

requirements. In addition, we developed 

an induced utilization adjustment for 

the risk adjustment model, to further 

offset the higher costs that enrollees 

eligible for cost-sharing reductions 

might incur, as described in section 

III.B.3.b. of this final rule. We believe 

this approach ensures that issuers are 

appropriately compensated for the value 

of the cost-sharing reductions. 

In § 156.430(a)(2), we proposed the 

process for estimating the value of costsharing reductions to be provided under 

the limited cost sharing plan variation 

open to Indians regardless of household 

income. We proposed that QHP issuers 

have the option to forgo submitting an 

estimate of the value of these costsharing reductions if they believe the 

operational cost of developing the 

estimate is not worth the value of the 

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 

§ 156.430(c). If a QHP issuer does seek 

advance payments for the these costsharing reductions, the issuer would 

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. 

Under our proposal, the estimate would 

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 proposed 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 did 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. 

We are finalizing both our proposal 

for annual rulemaking in the notice of 

benefits and payment provisions to 

establish a methodology for advance 

payments for cost-sharing reductions 

under the limited cost sharing plan 

variation, and our proposal of a specific 

methodology for the 2014 benefit year. 

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, 

and future notices of benefits and 

payment parameters may include 

different methodologies. We welcome 

comments to consider as part of this 

process. We are also clarifying the 

language at § 156.430(a)(2) by replacing 

the phrase ‘‘[an issuer] offers or seeks to 

offer’’ from the proposed rule with the 

phrase ‘‘[an issuer] offers, or intends to 

offer’’ in the final rule, to align with the 

language in § 156.430(a)(1). 

As described above, the Exchange will 

collect the estimate and supporting 

documentation, and submit the estimate 

and supporting documentation to HHS 

for review, as finalized under 

§ 155.1030. If HHS finds the estimate to 

be reasonable, HHS will make advance 

payments to a QHP issuer following the 

same procedure as for the other plan 

variations, under § 156.430(b), as 

finalized in this rule. 

In § 156.430(c) through (e), we 

proposed that QHP issuers submit to 

HHS the amount of cost-sharing 

reductions provided under each plan 

variation. These amounts would then be 

reconciled against any advance 

payments. As explained in more detail 

in section III.E.4.e, we are modifying the 

reporting provisions described in 

§ 156.430(c), and finalizing as proposed 

the reconciliation process described in 

§ 156.430(d) and (e). We are also 

publishing an interim final rule with 

comment elsewhere in this issue of the 

Federal Register providing an 

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alternative methodology for reporting 

the value of the cost-sharing reductions 

provided. We expect that QHP issuers 

would be able to use this alternative 

methodology, if they so choose, for 

reporting the value of cost-sharing 

reductions provided under the zero cost 

sharing plan variation and the limited 

cost sharing plan variation. 

Comment: In general, commenters 

supported HHS’s proposal to use the 

same payment approach to reimburse 

cost-sharing reductions for Indians 

under section 1402(d) as we proposed 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. One commenter, 

however, stated that due to 

demographics, very few individuals will 

be assigned to the limited cost sharing 

plan variation, and as a result, QHP 

issuers should simply receive a 

capitated payment for the value of these 

cost-sharing reductions, and not be 

required to submit information for the 

reconciliation of payments. 

Response: At this time, we believe it 

would be difficult for issuers and HHS 

to accurately estimate the ‘‘increase in 

AV of the plan’’ resulting from the costsharing reductions provided under 

section 1402(d)(2) of the Affordable Care 

Act. 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. Therefore, we 

finalize the approach set forth in the 

proposed rule for QHP issuers to submit 

data on the dollar value of cost-sharing 

reductions provided to eligible Indians 

under zero cost sharing and limited cost 

sharing plan variations, which will be 

reconciled against any advance 

payments. 

Comment: Another commenter was 

concerned about the prohibition on cost 

sharing under the limited cost sharing 

plan variation for services or items 

provided through referral under the 

contract health services program. The 

commenter suggested that until an 

accurate, online verification system for 

contract health services referrals can be 

established, QHP issuers should be able 

to rely on the information they receive 

from providers, and be held harmless 

for these cost-sharing reductions in the 

reconciliation process. 

Response: We recognize issuers’ 

concerns about this provision, and plan 

to issue guidance on this topic in the 

future. 

In the proposed rule, we noted that 

section 1402(d)(2)(B) of the Affordable 

Care Act states that QHP issuers cannot 

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 proposed not to codify this 

provision in regulation because we 

believed 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 

noted 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. 

Comment: Commenters asserted that 

regulation text is needed to ensure there 

are no reductions in 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. 

Response: We have codified this 

provision by adding § 156.430(g) to the 

final rule. Regardless of the contracting 

relationship between a QHP issuer and 

the Indian health provider, the issuer 

may not reduce payments to the 

provider by the amount of any cost 

sharing that would be due from the 

Indian under this final rule. 

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 does not elect 

to operate an Exchange or does not have 

an approved Exchange, section 

1321(c)(1) of the statute directs HHS to 

operate an Exchange within the State. In 

addition, 31 U.S.C. 9701 permits a 

Federal 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 of 

special benefits derived from Federal 

activities beyond those received by the 

general public. We proposed to revise 

§ 156.50(b) and to add paragraph (c) to 

provide for a user fee from participating 

issuers (as defined in § 156.50(a)) to 

support the operation of FFEs under 

these authorities. 

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 FFE). However, Circular No. 

A–25R also allows for exceptions to this 

policy, if approved by OMB. Because we 

wish to encourage issuers to offer plans 

on FFEs and to align with the 

administrative cost structure of Statebased Exchanges, and because we 

believe that growing enrollment is likely 

to increase user fee receipts in future 

years, we are seeking an exception to 

the policy for 2014. 

We proposed to revise § 156.50(b) so 

that it would apply only to user fees to 

support State-based Exchanges. In 

§ 156.50(c), we proposed that a 

participating issuer offering a plan 

through a FFE 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 the 2014 benefit year, 

we proposed 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 

note that this user fee would apply to 

plans offered through FF–SHOPs, as 

well as individual market FFEs. We 

noted that additional guidance on user 

fee collection processes would be 

provided in the future. We anticipate 

collecting user fees by deducting the 

user fee from Federally-administered 

Exchange-related program payments. If 

a QHP issuer does not receive any 

Exchange-related program payments, 

the issuer would be invoiced for the 

user fee on a monthly basis. 

In addition, we welcomed comments 

on a policy that we were considering 

that would provide for the pooling of 

Exchange user fees, distribution costs, 

or all administrative costs across a 

particular market (in the case of the 

FFE, however, the user fee would be 

collected only from issuers participating 

in the FFE). We note that our proposed 

rule, ‘‘Coverage of Certain Preventive 

Services under the Affordable Care Act’’ 

(78 FR 8457), contemplates a proposal 

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30See 78 FR 8474. 

to reduce the amount of the FFE user fee 

for QHP issuers that provide coverage 

for contraceptive services for 

participants of a self-insured plan that is 

established or maintained by an eligible 

organization (or have an affiliated issuer 

that does so).30 Comments are separately 

welcome on that proposed regulation on 

or before April 8, 2013. 

Based on the comments we received, 

we are finalizing the proposal and the 

regulation text with the following 

modification: we are clarifying the 

calculation of the user fee so that the 

user fee rate is applied directly to the 

premium set by the issuer for a policy 

and is charged on each policy with 

enrollment through the FFE. 

Comment: A number commenters 

expressed concern that our proposed 

FFE user fee would increase coverage 

costs for consumers; however, other 

commenters expressed support for the 

proposed FFE user fee. 

Response: We do not believe that the 

FFE user fee rate, set at 3.5 percent of 

premiums, would increase the cost of 

coverage or discourage consumers from 

purchasing health insurance through an 

FFE. We anticipate that the user fee will 

account for the cost of many of the 

Exchange-related administrative 

functions that issuers would otherwise 

have to perform, such as consumer 

assistance and enrollment support, and 

that the cost of the user fee will be 

outweighed by the many benefits that 

result from participation in an 

Exchange. The Exchanges are expected 

to enhance competition among issuers 

in the non-group market, which should 

lower premiums due to the elimination 

of medical underwriting and the 

associated issuer administrative costs. 

Exchanges will also create larger 

purchasing pools, which should create 

economies of scale, lowering 

administrative costs for QHP issuers, 

and further reducing premiums. 

Comment: Several commenters 

requested that we provide more details 

regarding our user fee calculations and 

a breakdown of costs by jurisdiction. 

Several commenters suggested that we 

calculate the FFE user fee amount on a 

per capita basis rather than as a percent 

of premiums, and a few other 

commenters supported the percent of 

premium approach. 

Response: We are finalizing our 

policy to calculate the FFE user fee as 

a percentage of premium; however, we 

are modifying the proposed rule to 

clarify that the FFE user fee amount is 

set as a percent of premium, without 

regard to the number of billable 

members on a policy. This clarification 

does not change the value of the user 

fee. We appreciate commenters’ 

concerns that FFE operating costs be 

minimized and transparent, and will 

take those comments into consideration 

in our approach to FFE operating costs. 

Comment: One commenter noted that 

basing the user fee amount on a percent 

of premium for a particular policy was 

confusing. 

Response: We are clarifying that an 

issuer’s monthly user fee amount is 

equal to the product of the monthly user 

fee rate specified in the annual HHS 

notice of benefit and payment 

parameters for the applicable benefit 

year—which for 2014 is 3.5 percent— 

and the monthly premium charged by 

the issuer for each policy offered 

through a Federally-facilitated 

Exchange. 

Comment: One commenter expressed 

concern about HHS’s proposal to align 

the FFE user fee rate with the user fee 

rate assessed by State-based Exchanges. 

Other commenters urged HHS to ensure 

that the overall amount of the FFE user 

fee reflected only HHS’s actual costs 

related to FFE operations. 

Response: We are clarifying that we 

are establishing the FFE user fee rate for 

2014 only, with the intent of keeping 

the user fee as low as possible. 

Independent of final SBE user fee rates, 

we clarify that we are not considering 

raising the FFE user fee beyond our 

operating costs in the future. 

Comment: We received several 

comments on our proposal to pool user 

fees across all plans in a market within 

a State. Some commenters suggested 

that this policy would unfairly increase 

costs for members that are not enrolled 

on an Exchange. However, other 

commenters supported the pooling 

Exchange user fees. A few commenters 

requested clarification on how issuers 

would be permitted to account for user 

fees on their members’ bills, specifically 

whether issuers would be able to 

account for user fees in their premium 

amounts or whether user fees would be 

billed separately. 

Response: We believe that including 

Exchange user fees in the single risk 

pool requirement will help prevent 

adverse selection against QHPs on 

Exchanges. In the final Market Reform 

Rule at § 156.80, we require issuers to 

pool all user fee costs across their 

applicable market in a State. We refer 

readers to the discussion associated 

with § 156.80 of the Market Reform Rule 

for additional details on this policy. 

G. Distributed Data Collection for the 

HHS-operated Risk Adjustment and 

Reinsurance Programs 

1. Background 

In the proposed rule, we proposed to 

amend 45 CFR part 153 by adding 

subpart H, entitled ‘‘Distributed Data 

Collection for HHS-Operated Programs,’’ 

which set forth the data collection 

process that HHS would use when 

operating a risk adjustment or 

reinsurance program on behalf of a 

State. We proposed to use a distributed 

approach to data collection for the risk 

adjustment and reinsurance programs 

when HHS operates those programs on 

behalf of a State. In the proposed rule, 

we described a distributed approach as 

one in which each issuer formats its 

own data in a manner consistent with 

the applicable database, and then passes 

the relevant information to the entity 

responsible for making payments and 

charges for the program. We believe that 

this approach minimizes issuer burden 

while protecting enrollees’ privacy. We 

received a number of comments 

supporting the proposed distributed 

data approach, and are finalizing the 

provisions as proposed. 

2. Issuer Data Collection and 

Submission Requirements 

Under the HHS-operated risk 

adjustment and reinsurance programs, 

we proposed to 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 requires 

close technological coordination 

between issuers and HHS. 

a. Distributed Data Environments 

In § 153.700(a), we proposed 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 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 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 

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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. Except for 

purposes of data validation and audit, 

HHS will not store any personally 

identifiable enrollee information or 

individual claim-level information. 

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. 

Comment: Several commenters 

expressed concern that the distributed 

approach would have limited use 

because it would not track the same 

enrollee across multiple years. 

Response: The distributed data 

approach would not constrain the risk 

adjustment methodology when HHS 

operates risk adjustment because the 

concurrent model does not require 

tracking of enrollees over multiple years 

Comment: We received a few 

comments requesting clarification as to 

what information from the distributed 

data environments would be shared 

with States. A few commenters asked 

for States to have access to data on the 

distributed data environments. 

Response: We are considering ways to 

provide States with information about 

HHS-operated programs, and welcome 

feedback about the types of summary 

information would be most useful to 

States. In doing so, we must balance 

program transparency with protection of 

potentially sensitive information, 

including consumer health information. 

We will provide further information in 

subsequent guidance, as appropriate. 

Comment: A number of commenters 

requested technical details about the 

distributed data environment. Several 

commenters requested the specific 

requirements for the necessary 

enrollment, claims and encounter data, 

applicable software and testing schedule 

for risk adjustment data submissions. 

One commenter asked that issuers be 

permitted to provide two separate data 

sets on the distributed data 

environment—one for risk adjustment 

in the individual and small group 

markets, and a second for the 

reinsurance that will only include data 

for the individual market. One 

commenter asked for further details on 

the types of accepted information and 

recommended that chart reviews be 

considered acceptable data. 

Response: HHS has provided a list of 

required data for the HHS-operated 

distributed data approach in the PRA 

package approved under OMB Control 

Number 0938–1155. HHS will make 

available the data formats, definitions, 

and technical standards applicable to 

the HHS-operated distributed data 

approach in future guidance, including 

standards relating to data from chart 

reviews. 

Comment: We received comments 

requesting further clarification about the 

uses of data collected through the 

distributed data approach. 

Response: We intend to provide 

further guidance on this issue. We do 

note that data use will be consistent 

with HHS’s commitment to protecting 

the privacy and security of enrollees. As 

a result, we would not store any 

personally identifiable enrollee 

information or individual claim-level 

information in connection with this data 

collection, except for the purposes of 

data validation and audit. We believe 

that this approach minimizes issuer 

burden while protecting enrollees’ 

privacy. 

Comment: One commenter requested 

that the recalibrations of the risk 

adjustment models not be based on data 

from the distributed data environment, 

but asked that HHS conduct a separate 

data collection designed specifically for 

the recalibration of the risk adjustment 

models. 

Response: We are exploring using 

data from the distributed data 

environment for future recalibration of 

the HHS risk adjustment models. We 

will provide further details on model 

recalibration in future rulemaking and 

guidance. 

b. Timeline 

We proposed in § 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. 

Comment: A few commenters sought 

clarification on when HHS would 

conduct testing of the distributed data 

environment in order to develop the 

distributed data environment for full 

operation. 

Response: To ensure accuracy in the 

application of the distributed data 

approach, HHS will work with issuers 

to establish robust systems. Issuers will 

have the opportunity to submit data 

files to a test environment. HHS will 

provide support for issuers who conduct 

such testing as well as provide ongoing 

support for the duration of the 

programs. As testing and 

implementation will be ongoing, we 

note that 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 

full operation, that is, three months 

prior to the first date the plan could 

accrue claims for risk adjustment and 

reinsurance purposes. Even after an 

issuer’s dedicated data environment is 

fully operational, further testing and 

modifications may be necessary. Further 

details and specifications for such 

testing will be provided in future 

guidance. 

c. Enrollment, Claims and Encounter 

Data 

In § 153.710(a), we proposed 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, 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. 

Comment: Several commenters sought 

clarification on whether claims will be 

dated by the date of admission or the 

date of discharge. One commentator 

requested clarification on how claims 

that straddle the benefit year would be 

handled. Several commenters requested 

that claims be dated by date of 

admission rather than date of discharge, 

to address the issue of claims that 

straddle multiple years. Another 

commenter recommended that risk 

adjustment scores be based on claims 

with dates of service from January 1 

through December 31. 

Response: The proposed rule stated 

that data should be submitted for the 

applicable benefit year by April 30 of 

the year following the end of the 

applicable benefit year. The discharge 

date would be used to date claims, 

because we believe that the discharge 

date best ensures that services provided 

across benefit years will be considered 

in their entirety rather than being 

partially or fully excluded from 

consideration as a result of the data 

submission timing requirements. For 

example, if an individual is admitted to 

a hospital in December 2014 and is 

discharged in January 2015, the 

incurred costs that occurred in both 

December 2014 and January 2015 would 

be considered in the 2015 benefit year 

for both reinsurance payments and 

calculation of enrollee risk scores for 

risk adjustment when HHS operates 

either of those programs. 

Comment: We received several 

comments requesting clarification on 

HHS’ data storage requirements. 

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Response: Under § 153.620(b), an 

issuer that offers risk adjustment 

covered plans would be required to 

retain any information requested to 

support risk adjustment data validation 

for a period of at least ten years after the 

date of the report. We will provide 

further guidance on the data storage 

requirements for reinsurance-eligible 

plans and risk adjustment covered plans 

in forthcoming rulemaking and 

guidance. 

d. Data Requirements 

In the proposed rule, we described the 

types of data that would be acceptable 

for the reinsurance and risk adjustment 

programs when HHS operates these 

programs on behalf of a State. 

When HHS is operating reinsurance 

on behalf of a State, we proposed that 

medical and pharmacy claims with 

discharge dates or through dates of 

service (when no discharge date is 

applicable, as is often the case for 

professional services) that fall in the 

applicable benefit year would be eligible 

for reinsurance payments for that 

benefit year. 

When HHS is operating risk 

adjustment on behalf of a State, we 

proposed that institutional and medical 

claims and encounter data with 

discharge dates or through dates of 

service that fall in the applicable benefit 

year would be eligible for risk 

adjustment payments and charges for 

that benefit year. The data to calculate 

enrollee risk scores for purposes of risk 

adjustment would include diagnoses 

reported on institutional and medical 

claims that result in final payment 

action or encounters that result in final 

accepted status. Only the diagnoses 

reported on certain hospital inpatient 

facility, hospital outpatient, and 

physician provider claims will be 

acceptable when HHS operates risk 

adjustment. The risk adjustment model 

discussed earlier in this preamble 

provides a description of HHS’s criteria 

for identifying and excluding claims 

from providers. 

Comment: We received a comment 

requesting clarification on the 

acceptable provider types. 

Response: Diagnoses will only be 

acceptable for risk adjustment enrollee 

risk score calculations if they meet 

criteria that are acceptable for HHS risk 

adjustment data collection. Generally, 

for both inpatient and outpatient 

services, diagnoses are acceptable if 

from a qualified provider, but only if the 

procedure code was not for diagnostic 

laboratory or diagnostic radiology 

services. HHS will release the full list of 

acceptable provider types and criteria in 

forthcoming guidance. 

Comment: One commenter 

recommended that unpaid claims be 

included in the calculation of enrollee 

risk scores. 

Response: While there may be some 

advantages to inclusion of unpaid 

claims, we do not plan to accept claims 

where services were denied or not 

covered because HHS risk adjustment 

models were calibrated on paid claims. 

However, if services were approved and 

an issuer incurred no expenses because 

the claim was fully paid through cost 

sharing, then those claims would be 

acceptable for consideration (for 

example, if the allowable cost of a 

service provided was $15 and the 

enrollee’s co-pay was $15). 

e. Claims Data 

We proposed in § 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 (payment of cost 

sharing by the enrollee). The enrolleelevel 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 

data must be provided at the level of 

aggregation specified by HHS. 

Comment: Several commenters asked 

HHS to notify issuers when HHS 

identifies errors with data submitted to 

distributed data environments. One 

commenter requested that HHS flag 

claims with derived costs that have not 

been accepted for payment. 

Response: We intend to provide each 

issuer with a periodic report on data 

functions performed in each issuer’s 

distributed data environment, and to 

identify reinsurance-eligible claims. The 

reports would indicate whether HHS 

accepted or rejected submitted files and 

data, and would identify 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 

reinsurance processing. Timeframes for 

the processing and reporting of these 

reports, including for receipt of 

corrected files and discrepancy 

resolution, will be provided in future 

guidance. 

Comment: Several commenters 

requested that HHS provide interim 

estimates for reinsurance payments and 

risk adjustment scores. These comments 

noted that interim estimates will assist 

issuers in completing financial 

statements and developing rates for the 

next calendar year. 

Response: We recognize that both the 

risk adjustment and reinsurance 

programs are important programs in 

stabilizing premiums in the individual 

and small group markets. We will 

provide further detail on our approach 

to interim reporting in forthcoming 

guidance. 

f. Claims Data From Capitated Plans 

In § 153.710(c), we proposed that an 

issuer that does not generate claims in 

the normal course of business must 

derive costs on all applicable provider 

encounters using their principal internal 

methodology for pricing those 

encounters. If a plan has no such 

methodology, or has an incomplete 

methodology, we proposed that the plan 

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. 

Comment: Commenters generally 

supported HHS’s inclusion of capitated 

plans’ data in the reinsurance and risk 

adjustment programs. We received 

many comments asking HHS to provide 

additional guidance on deriving claims 

costs or methodological examples of 

how different types of capitation 

arrangements would derive their costs, 

including deriving costs for value-based 

strategies. Commenters also requested 

that the State and HHS approve fee 

schedules to ensure compliance with 

the reinsurance program. 

Response: The proposed approach 

allows capitated plans the flexibility to 

use current pricing methodologies, if 

applicable. Many capitated plans have 

methods in place for deriving the costs 

of encounters for participation in other 

State and Federal programs. If a plan 

has no such methodology, or has an 

incomplete methodology, the plan 

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. We believe that permitting 

flexibility, rather than setting forth 

specific methodologies or fee schedules, 

better enables issuers to determine 

methodologies which are reasonable for 

the issuer’s market. 

Comment: One commenter stated that 

some health plans that sub-capitate 

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payments to providers may face 

difficulty in collecting comprehensive 

and accurate data on a timely basis. 

Response: HHS initially considered a 

claims submission deadline of March 31 

but extended the deadline to April 30 to 

allow issuers more time to submit the 

necessary enrollment and claim data. 

The claims submission deadline of 

April 30 of the year following the 

applicable benefit year is the latest 

possible date for HHS to meet our 

payment processing and reporting 

obligations codified in the Premium 

Stabilization Rule. Reinsurance and risk 

adjustment payment reporting 

obligations must be completed before 

the calculations for the risk corridors 

and MLR programs, and consequently 

require claims to be submitted by April 

30. 

Comment: Commenters requested that 

HHS set forth in regulatory text that 

capitated plans’ derived cost claims will 

be subject to audit. 

Response: Capitated plans, like all 

plans that submit reinsurance payment 

requests, or data to be considered for 

reinsurance payments or risk 

adjustment, would be subject to 

validation and audit. We have included 

data validation language in 

§ 153.240(a)(3) for State-operated 

reinsurance programs, and in § 153.350 

and § 153.630 for State- and HHSoperated risk adjustment programs, 

respectively. We will issue further 

rulemaking with regard to HHSoperated reinsurance program oversight 

for all claims, including those from 

capitated plans. 

g. Establishment and Usage of Masked 

Enrollee Identification Numbers 

We proposed in § 153.720(a) that an 

issuer of a risk adjustment covered plan 

or reinsurance-eligible plan in a State in 

which HHS operates risk adjustment or 

reinsurance, as applicable, must 

establish a 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 § 153.720(b), 

we proposed that an issuer of a risk 

adjustment covered plan or reinsuranceeligible 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. As discussed in OMB 

Memorandum M–07–16, 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).31

Comment: We received several 

comments in support of using a masked 

enrollee number. However one 

commenter expressed concern that the 

provisions may not be sufficiently 

protective. 

Response: HHS has taken several 

steps to ensure robust privacy and 

security standards. A distributed data 

approach protects consumer health data 

in a number of ways. First, a distributed 

data approach eliminates the need to 

transmit sensitive data. Data can be 

particularly vulnerable during 

transmission, so this approach 

eliminates this risk. HHS expects that 

information provided to HHS will be 

limited to information reasonably 

necessary for use in the risk adjustment 

and reinsurance programs. Also, with 

this approach, we are better able to limit 

the amount of data needed for program 

operations. We will be releasing, in 

forthcoming rulemaking, compliance 

standards for privacy and security 

standards, as applicable. 

h. Deadline for Submission of Data 

We proposed in § 153.730 that an 

issuer of a risk adjustment covered plan 

or reinsurance-eligible plan in a State in 

which HHS operates risk adjustment or 

reinsurance, 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. In 

order for HHS to provide periodic 

reports on data functions performed in 

each issuer’s distributed data 

environment, HHS recommends issuers 

submit data at least quarterly 

throughout the benefit year to support 

the calculation of reinsurance payments 

and risk adjustment payments and 

charges. 

Comment: We received a comment 

requesting clarification on the penalty 

for non-compliant data submission. 

Response: Compliance requirements 

will be forthcoming. We note, however, 

that one consequence of an issuer failing 

to timely submit claims and enrollment 

data would be that the information 

needed to calculate risk scores and 

reinsurance allowable amounts would 

not be available, potentially resulting in 

a loss of risk adjustment or reinsurance 

payments for the issuer. 

Comment: Several commenters 

requested clarification on the claims run 

out period. 

Response: An issuer of a risk 

adjustment covered plan or reinsurance 

eligible plan in a State in which HHS 

operates risk adjustment or reinsurance 

should submit data by April 30 of the 

year following the applicable benefit 

year. For example, claims incurred in 

the 2014 benefit year must be submitted 

to HHS by April 30, 2015. The 

submission deadline will allow issuers 

time to process claims and submit data 

to their distributed data systems for 

HHS evaluation, and will provide HHS 

adequate time to calculate payments 

and charges. 

H. Small Business Health Options 

Program 

1. Employee Choice in the FederallyFacilitated SHOP (FF–SHOP) 

In our proposed rule, we proposed 

that qualified employers in FF–SHOPs 

will choose a level of coverage (bronze, 

silver, gold, or platinum) and a 

contribution, and employees can then 

choose any QHP at that level. 

In stakeholder consultations following 

the publication of the Exchange 

Establishment Rule, 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. We sought 

comments on whether FF–SHOPs 

should offer an additional employer 

option 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 also sought comments on a 

transitional policy in which a Federallyfacilitated SHOP (FF–SHOP) would 

allow or direct employers to choose a 

single QHP from those offered through 

the FF–SHOP. We received the 

following comments regarding the 

proposed provisions of choice in the 

Federally-facilitated SHOP: 

Comment: A few commenters 

opposed offering employers the single 

QHP option, suggesting that each SHOP 

should focus on providing employee 

choice. Most commenters on this issue 

supported offering a single QHP option 

for employers, either as an additional 

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32See 77 FR 73184–85. 

option or as the only option in the 

initial years of each SHOP. The 

commenters who supported allowing a 

qualified employer only the option of 

offering a single QHP in the initial years 

of SHOP operation cited several 

concerns, including whether issuers 

could complete enrollment and 

accounting system changes required to 

interact with the SHOP enrollment and 

premium aggregation systems required 

by employee choice; and whether there 

would be adequate time to educate 

employers, employees, brokers about 

the employer and employee choices 

available in the SHOP. They further 

suggested that tying Exchange 

participation to SHOP participation 

could lead some issuers to participate in 

neither the Exchange nor the SHOP. 

Response: Each SHOP has the option 

to allow employers to offer employees a 

single QHP. We have concluded for the 

reasons identified by the commenters 

that, as a transition to broader employer 

adoption of employee choice models, 

each FF–SHOP should exercise this 

option, providing employers the option 

of offering a single QHP to employees, 

as the small group market customarily 

does today. This employer option will 

allow employers who prefer to offer 

employees a single QHP to participate 

in an FF–SHOP and retain potential 

eligibility for the small business tax 

credit, which is only available through 

a SHOP Exchange beginning in 2014. 

We have also concluded that effective 

implementation of employee choice in 

the federally-facilitated SHOP will not 

be possible in 2014 because of 

operational challenges noted by the 

commenters. Therefore, we are 

proposing in the Small Business Health 

Options Program proposed rule issued 

simultaneously with this final rule and 

published elsewhere in this issue of the 

Federal Register that: (1) The effective 

date of the employee choice 

requirements (§ 155.705(b)(2)) and the 

premium aggregation requirements 

(§ 155.705(b)(4)) will be January 1, 2015; 

(2) SHOP Exchanges may offer 

employee choice and perform premium 

aggregation for plan years beginning on 

or after January 1, 2014; and (3) an FF– 

SHOP will not offer employee choice 

and premium aggregation until plan 

years beginning on or after January 1, 

2015. 

Comment: A few commenters 

supported a single QHP option but only 

if linked to the required use of 

composite premiums. 

Response: We believe the decision 

about the use of calculated composite 

premiums should remain an employer 

decision, unless State law requires that 

premiums be presented to employers as 

composite premiums, and have not 

adopted the linkage suggested by the 

commenters. 

Comment: The employer option of 

broader, two-level plan choice was 

supported by a number of commenters, 

either as proposed or as two-level plan 

choice among all plans at those levels, 

without the QHP issuer’s choice 

whether to offer as a buy-up. Several 

commenters characterized employee 

choice as a key distinguishing feature of 

the SHOP, and one suggested 

considering full employee choice. Many 

commenters, however, cited the adverse 

selection that may occur with choices 

across levels of coverage and 

recommended restricting employee 

choice to a single level of coverage 

chosen by the employer. One 

commenter noted the operational 

complexity of a buy-up option. 

Response: We are not finalizing the 

rule with provisions for the FF–SHOPs 

to accommodate the two-level plan 

choice because of concerns about 

adverse selection in the first year of 

SHOP operation. We note that broader 

employee choice is a desirable feature of 

a FF–SHOP that will be explored in 

subsequent years. Further, the final rule 

at § 155.705(b)(3)(i) permits each SHOP 

the flexibility to offer qualified 

employers choices beyond making one 

metal level available to employees. 

Although we are not exercising this 

flexibility for the FF–SHOPs, we 

anticipate that some State-based SHOPs 

may do so. 

Comment: One commenter asked that 

the final notice reflect that employer 

offerings may also be subject to 

collective bargaining agreements. 

Response: We concur with that 

comment and note here that employer 

offers of benefits may be subject to the 

provisions of collective bargaining 

agreements. 

We are finalizing the rule for the FF– 

SHOPs with some modifications from 

the proposal. Under § 155.705(b)(3) as 

finalized, each FF–SHOP will allow 

qualified employers the choice of 

offering employees either all QHPs at a 

single level of coverage selected by the 

employer or a single QHP selected by 

the employer. However, we are 

proposing elsewhere in this issue of the 

Federal Register that, as a matter of 

transition, each SHOP have the option 

to choose whether to implement 

employee choice and premium 

aggregation beginning January 1, 2014 or 

January 1, 2015, with each FF–SHOP 

exercising the January 1, 2015 

implementation option. 

2. Methods for Employer Contributions 

in an FF–SHOP 

Employers may elect a variety of ways 

to contribute toward health coverage 

that are consistent with Federal law. 

Because employees in the SHOP may be 

choosing their own coverage and will 

need to know the net cost to them after 

the employer’s contribution, each 

employer will need to choose a 

contribution method before its 

employees select their qualified health 

plans. To facilitate this, we proposed in 

§ 155.705 (b)(11)(i) that each SHOP 

could define a standard method by 

which employers would contribute 

toward the employee coverage. We also 

proposed in § 155.705 (b)(11)(ii) a 

specific, standardized method for the 

FF–SHOPs—a method that reflects a 

meaningful employer choice and that 

conforms to existing Federal law.32

Comment: A broad range of 

commenters supported our proposal. 

One commenter expressed concern 

about the effect on older employees, but 

recognized the need to match the 

outside market options. Two 

commenters suggested requiring a 

calculated composite premium as the 

only allowable method. 

Response: The choice of contribution 

method offered in each FF–SHOP 

reflects a meaningful choice available to 

employers in 2014, absent a provision in 

State law to the contrary. We note that 

the premium differential effect on older 

employees is limited by the maximum 

3:1 ratio for adults. As noted in the 

proposal, we believe the decision about 

whether to use a calculated composite 

premium is best made by the employer 

so long as that choice is consistent with 

applicable State law. 

Comment: One commenter suggested 

addressing the contribution method by 

allowing employers to offer only a 

single QHP as a transition, which would 

also give issuers time to adopt SHOP per 

member rating rules. 

Response: Whether an employer offers 

a single QHP or all QHPs at a given level 

of coverage, an FF–SHOP will still need 

to adopt an approach to employer 

contributions. The approach proposed 

in the draft Notice and finalized in this 

rule will allow employers options 

regarding how they and their employees 

contribute toward coverage that applies 

to both single QHP and single level of 

coverage offers. 

Comment: One commenter stated that 

an issuer should not be involved in 

employer decisions about allocation of 

premium between employer and 

employee. 

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Response: We do not believe that 

either the proposed rule or the final rule 

involves the QHP issuer in employer 

decisions about the employer 

contribution toward the premium. The 

FF–SHOP standard contribution 

method, as proposed and finalized, does 

establish a method by which the 

employer can contribute in a 

standardized, non-discriminatory way. 

The QHP issuer is not involved in the 

FF–SHOP policy nor is the issuer 

involved in employer decisions about 

the allocation of premium between 

employer and employee. 

Comment: One commenter asked for 

clarification about how mid-year 

turnover would be handled with a 

calculated composite premium method. 

Response: In future guidance, we will 

discuss mid-year changes in group 

composition and how a SHOP might 

address the resulting changes in the 

average premium for the group. 

We proposed at § 155.705(b)(11)(ii)(D) 

to permit a qualified employer 

participating in an FF–SHOP to 

establish, to the extent allowed by 

Federal and State law, different 

contribution percentages for different 

employee categories. We have 

concluded that this provision is 

inconsistent with the uniformity 

provisions established in Internal 

Revenue Service Notice 2010–82, which 

require employers to contribute a 

uniform percentage to all employees in 

order to claim a small business tax 

credit for health insurance premiums 

paid. Although the provisions in Notice 

2010–82 apply only to employers 

claiming the tax credit in tax years 

through December 31, 2013, the use of 

a uniform percentage for all employees 

helps assure that the employer 

contributions do not violate other antidiscrimination provisions. We therefore 

are not finalizing the proposal at 

§ 155.705(b)(11)(ii)(D) and the final rule 

redesignates the proposed paragraphs 

(b)(11)(ii)(E) and (F) as paragraphs 

(b)(11)(ii)(D) and (E). We are otherwise 

finalizing the rule as proposed. 

3. Linking Issuer Participation in an FFE 

to Participation in an FF–SHOP 

We proposed standards that we 

believe will help ensure that qualified 

employers and qualified employees 

enrolling through an 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 

proposed in § 156.200(g) to leverage 

issuers’ participation in an FFE to 

ensure participation in the 

corresponding FF–SHOP, provided that 

no issuer would be required to begin 

offering small group market products as 

a result of this provision. We sought 

comments on this issue and whether or 

not the policy meets three intended 

goals: Enhancing employer and 

employee choice, assuring similar 

effects on single issuers and issuer 

groups, and not requiring any issuer to 

begin offering coverage in the small 

group market in order to meet this 

provision. 

Comment: A substantial number of 

commenters supported the tying 

provision and the issuer group 

definition, concluding that the 

provision would enhance consumer 

choice in FF–SHOPs. 

Many commenters opposed the tying 

provision, arguing that plans should 

have full choice about participation and 

that requiring participation may make it 

harder to meet the timeline for QHP 

submission in the individual market 

FFE. Several commenters specifically 

suggested that the tying provision might 

result in decreased issuer participation 

in the individual market FFE in some 

states. Several commenters noted the 

extensive efforts that would be required 

to offer plans in the SHOP, even if the 

issuer were already participating in the 

State’s small group market. 

Response: We have considered the 

concerns about the tying provision and 

conclude that adopting the provision 

will help assure that small group market 

QHPs are available to employers and 

employees. We have also considered 

comments that tying would lead to 

issuers declining participation in both 

the FFE and the FF–SHOP, and 

concluded that it is more likely to result 

in that outcome among issuers with 

relatively low market shares for whom 

the administrative costs to modify 

systems to enable SHOP participation 

may outweigh the value of increased 

enrollment. Finally, we considered how 

these issuer concerns about tying might 

relate to issuer concerns about the 

effects of employee choice, and whether 

those concerns might be reduced by our 

concurrent proposal to allow SHOPs to 

delay the implementation of employee 

choice by a year. 

Adoption of a tying standard that 

applies only to issuers with more than 

a threshold market share will serve the 

goal of assuring that QHPs are available 

in each FF–SHOP in 2014 without 

unduly burdening issuers. We examined 

small group market share data based on 

earned premiums reported to HHS in 

conjunction with evaluations of issuer 

minimum loss ratios and have 

concluded that using a 20 percent 

market share to determine whether a 

small group market issuer is subject to 

the tying provision will result in 

sufficient competition and the ability to 

offer a robust set of QHPs in the FF– 

SHOPs, while minimizing the burden 

on small issuers. We are finalizing the 

rule accordingly. 

Comment: One commenter objected 

because OPM does not require multiState plans to offer SHOP products until 

2017, and CO–OPs are not subject to a 

similar provision. 

Response: In a final rule published 

elsewhere in this issue of the Federal 

Register, OPM establishes a similar 

tying provision for multi-State plans 

based on market share. CO–OPs operate 

under a different tying provision. We 

direct the commenter’s attention to 

§ 156.515(c)(2), which requires CO–OPs 

to comply with a strict tying provision 

with no market share exception. If a 

CO–OP participates in a State’s small 

group market, it must offer silver and 

gold plans on the SHOP. 

Comment: One commenter suggested 

implementing the tying provision but 

reevaluating the policy in two years. A 

second commenter suggested the 

possibility of delaying introduction of 

the tying provision. 

Response: We will be evaluating on 

an ongoing basis the effectiveness of the 

tying provision in enhancing employer 

and employee choice in FF–SHOPs 

without adversely affecting 

participation in the FFEs. 

We are finalizing these provisions as 

proposed, with a modification to limit 

the tying rule to at the applicant issuer 

itself or an issuer member of the same 

issuer group that has a 20 percent share 

of the small group market in the State, 

based on the most recent earned 

premium data reported under § 158.110 

to fulfill minimum loss ratio reporting 

requirements. 

4. Broker Compensation for Coverage 

Sold Through an FFE or FF–SHOP 

In a new paragraph § 156.200(f), we 

proposed that QHP certification by an 

FFE and an FF–SHOP be conditioned on 

the QHP issuer paying similar broker 

compensation for QHPs offered through 

an FFE or FF–SHOP that it would pay 

for similar health plans offered outside 

an FFE and an FF–SHOP. We requested 

comments on whether ‘‘similar health 

plans’’ is a sufficient standard and if 

not, which factors should be considered 

in identifying ‘‘similar health plans.’’ 

We also requested comments on how 

this standard might apply when small 

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group market product commissions are 

calculated on a basis other than an 

amount per employee or covered life or 

a percentage of premium. 

Comment: Multiple commenters 

representing both consumer groups and 

issuers supported the compensation 

proposal, with several recommending 

that ‘‘similar’’ be more clearly defined. 

One commenter proposed that ‘‘similar’’ 

be defined by the issuer. One 

commenter opposed the proposal, 

recommending that the issuer be 

allowed to set different compensation 

on and off the Exchange. 

Response: For the reasons outlined in 

the preamble to the proposed rule, we 

are finalizing these provisions as 

proposed. We do not at this time 

propose a specific definition of 

‘‘similar.’’ We expect to issue further 

guidance at a later date. 

5. Minimum Participation Rate in FF– 

SHOPs 

As discussed the preamble to the 

proposed rule, we aim to minimize the 

potential for risk selection in the small 

group market and in SHOPs. In the final 

Market Reform Rule, we discussed this 

issue in connection with section 2702 of 

the PHS Act, which requires issuers in 

the individual and group markets to 

accept every employer and individual 

that applies for such coverage but 

permits issuers to limit enrollment in 

coverage to only open and special 

enrollment periods. That final rule 

implements this provision by permitting 

an issuer offering health insurance 

coverage in the small group market to 

limit its offering of coverage to the 

limited open enrollment periods 

described in § 147.104(b)(1) in the case 

of an employer that fails to meet 

contribution or minimum participation 

requirements. In connection with the 

SHOP, the Exchange Establishment final 

rule permits a SHOP to authorize 

minimum participation requirements for 

qualified employers participating in the 

SHOP so long as the participation is 

measured at the SHOP level and not 

based on enrollment in a single QHP. 

We proposed a minimum 

participation rate for an FF–SHOP of 70 

percent, calculated at the level of the 

participation of the employees of the 

qualified employer in the FF–SHOP and 

not enrollment in a single QHP. We 

based the proposed rate on 

consultations with issuer organizations 

and regulators about customary 

minimum participation rates and 

proposed that it 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 proposed an 

option for an 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, we proposed to 

exclude employees with certain types of 

alternative coverage 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. The 

preamble, and the proposed regulation 

text, also acknowledged that imposition 

of any minimum participation rate 

would have to be subject to the 

exception to the guaranteed issue 

requirements of section 2702 of the PHS 

Act and the then-pending proposed rule 

implementing guaranteed issue. 

We sought comments 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. 

Comment: Many commenters were 

supportive of both setting a default and 

allowing flexibility to adapt to different 

states. 

Response: We are retaining both the 

default and the flexibility, as proposed. 

Comment: One commenter questioned 

the necessity of a minimum 

participation rate given market reforms 

and suggested using minimum 

contribution instead. 

Response: While the degree of risk 

segmentation is substantially reduced 

by market reform, we conclude that a 

minimum participation rate should be 

applied, at least in the early years of an 

FF–SHOP. We have no authority under 

the Exchange Establishment Rule to set 

a minimum contribution rate for an FF– 

SHOP. We note, however, that a 

minimum participation rate encourages 

employers to set their contributions 

toward coverage high enough that the 

minimum participation rate is achieved. 

We are finalizing the provisions as 

proposed, with minor revisions to the 

text consistent with the discussion in 

the preamble. The introductory text at 

§ 155.705(b)(10), as well as the text at 

subparagraph (b)(10)(i), is amended to 

include the phrase ‘‘Subject to § 147.104 

of this title’’ to clarify when and how a 

minimum participation rate may be 

imposed under applicable law. Under 

this final rule, when an FF–SHOP 

makes the employee choice model 

available to qualified employers, it will 

use a consistent minimum participation 

rate across issuers. 

6. Determining Employer Size for 

Purposes of SHOP Participation 

We proposed to amend the definitions 

of ‘‘small employer’’ and ‘‘large 

employer’’ in § 155.20 to specify the 

method for determining employer size 

for Exchange purposes and to add the 

definition of large employer to § 157.20. 

In determining whether an employer is 

a small employer for purposes related to 

the SHOP, we proposed that the fulltime 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 sought comments on the 

proposed definition. 

Comment: Some commenters 

suggested that each SHOP, including 

FF–SHOPs, should use State counting 

methods permanently. Other 

commenters supported an immediate 

move to a federal standard counting 

method that takes all employees into 

account. One commenter noted that the 

more comprehensive reference for the 

counting method used in the IRC would 

be Section 4980H(c)(2), which includes 

a provision to exclude certain seasonal 

employees when determining whether 

an employer is subject to the shared 

responsibility provisions. 

Response: We believe that the 

Affordable Care Act requires the use of 

a counting method that takes part time 

employees into account, and that the 

full-time equivalent method used in 

section 4980H(c)(2)(e) of the IRC is a 

reasonable method to apply with regard 

to Exchanges. We have changed the IRC 

reference from section 4980H(c)(2)(e) to 

4980H(c)(2) in response to the comment. 

We believe that the broader crossreference is appropriate because it 

brings here the limit in 

§ 49080H(c)(2)(B) on how certain 

seasonal employees are counted. We 

believe that excluding certain seasonal 

employees when determining whether 

an employer has more than 50 

employees would be closer to counting 

provisions used in many states and that 

employers should be able to use the 

same method to determine SHOP 

eligibility that they will use to 

determine whether they will be subject 

to section 4980H. This method of 

determining SHOP eligibility will be 

reevaluated before 2016, when the small 

group market in all states will consist of 

employers with from 1 to 100 

employees rather than 1 to 50 

employees. 

Comment: Several commenters 

recommended that any counting method 

used to define employer size and thus 

the corresponding group market should 

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apply for all ACA purposes, not just for 

purposes relating to Exchanges. 

Response: Based on the scope of the 

proposed regulations, we are unable to 

adopt definitions in this Notice that 

apply beyond the Exchange regulations. 

We are finalizing the provisions as 

proposed, changing the reference to 

section 4980H(c)(2) of the IRC. 

7. Definition of a Full-Time Employee 

for Purposes of Exchanges and SHOPs 

We proposed to add to § 155.20 a 

definition of full-time employee that 

cross-references section 4980H(c)(4) of 

the Code, which provides that a fulltime 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. 

Comment: Only one commenter 

addressed the definition of full time 

employee, suggested that full-time 

employee be defined as an employee 

working more than 1300 hours in the 

past year. 

Response: We find no rationale for 

adopting that definition of a full time 

employee, and retain instead the 

definition based on 30 hours a week 

used elsewhere in the Affordable Care 

Act. 

We are finalizing the definition as 

proposed. 

8. Transitional Policies 

With our proposed definitions of large 

and small employer and full-time 

employee, for purposes of Exchange and 

SHOP administration, we proposed 

policies to provide for a transition from 

different, existing State law. With 

respect to State-operated SHOPs for 

2014 and 2015 only, we proposed that 

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. 

Our proposal did not address 

application of State-specific definitions 

or counting rules that would exclude a 

small group health plan from 

protections provided under federal law. 

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. 

Under our proposal, however, each 

FF–SHOP would use a counting method 

that takes part-time employees into 

account. We proposed that these 

definitions will be effective October 1, 

2013 for each FF–SHOP. We requested 

comments on the proposed definitions 

and on the proposed transition policies. 

Comment: Most commenters 

supported using State methods, either 

long term or as a transitional method in 

2014–2015. Two commenters supported 

an immediate move to a federal 

standard counting method that takes all 

employees into account. 

Response: We conclude that, for 

purposes relating to the Exchange 

regulations, the definition of ‘‘full-time 

employee’’ and the definitions of ‘‘small 

employer’’ and ‘‘large employer’’ and 

their associated counting methods using 

a full-time equivalent (FTE) 

methodology should be effective for 

plan years beginning on or after January 

1, 2016. During 2014 and 2015, when 

states have the discretion to choose 

whether the upper limit of small 

employer size is 50 or 100, we will 

exercise enforcement discretion, relying 

on State methods of determining group 

size and status as a full-time employee. 

However, in operating the FF–SHOPs, 

we do not have the same discretion; for 

plan years beginning on or after January 

1, 2014 and in connection with open 

enrollment activities beginning October 

1, 2013, we will use definitions of fulltime employee, small employer, and 

large employer based on the FTE 

method of determining group size. 

Thus, prior to 2016, an FF–SHOP will 

use the State’s choice of 50 or 100 

employees, but will count those 

employees using the full-time 

equivalent method referenced in the 

definitions. 

We are finalizing the effective dates of 

the definitions of ‘‘full-time employee,’’ 

‘‘small employer,’’ and ‘‘large 

employer’’ as proposed, with a minor 

modification to clarify that the 

definitions will apply to plan years 

beginning on or after January 1, 2014 

and in connection with open enrollment 

activities beginning October 1, 2013. As 

the SHOP, including FF–SHOPs, will 

not provide access to coverage until 

January 1, 2014, we believe the 

proposed text may have been subject to 

unintended ambiguity and are finalizing 

revised text to eliminate that concern. 

9. Web Site Disclosures Relating to 

Agents and Brokers 

We proposed modifications to the 

Web site disclosure standards relating to 

brokers in § 155.220(b). Specifically, we 

proposed 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 believed 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 welcomed comments on 

these proposals. 

Comment: Several commenters 

expressed strong support for the 

authority to list only registered brokers. 

One suggested the broader authority to 

list only those actually selling exchange 

QHPs. None opposed the proposal. 

Response: We are finalizing the 

regulation as proposed. At this time, we 

do not propose further limiting the 

listing based on actual sales. 

10. QHP Issuer Standards Specific to 

SHOP 

We proposed modifications to the 

QHP issuer standards specific to SHOP 

for enrollment in § 156.285. 

Specifically, we proposed a technical 

correction in paragraph (c)(7) such that 

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. 

Comment: One commenter supported 

the proposed regulation. No other 

comments were received. 

Response: We are finalizing the 

regulation as proposed. 

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 

In the December 2012 HHS Notice of 

Benefit and Payment Parameters for 

2014 proposed rule (77 FR 73187), we 

proposed to modify the definition of 

premium revenue in § 158.130, the 

formula in § 158.221(c) for calculating 

an issuer’s MLR, and the formula in 

§ 158.240(c) for calculating an issuer’s 

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33CCIIO Technical Guidance (CCIIO 2012–002): 

Questions and Answers Regarding the Medical Loss 

Ratio Regulation, Q&A #34 (Apr. 20, 2012), 

available at http://cciio.cms.gov/resources/files/ 

mlr-qna-04202012.pdf. 

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. Specifically, we proposed to 

account for all premium stabilization 

amounts in a way that would not have 

a net impact on the adjusted earned 

premium used in calculating the MLR 

denominator and rebates. Additionally, 

we proposed to amend § 158.140(b) to 

include all premium stabilization 

amounts (positive or negative) as 

adjustments to incurred claims in 

calculating the MLR numerator as 

provided in § 158.221. We invited 

comment on this approach. We also 

indicated in the proposed rule that we 

considered adopting a methodology 

under which premium stabilization 

amounts would have a net impact on 

the MLR denominator, and invited 

public comment on that approach as 

well. 

In addition, as discussed in the 

proposed rule, we proposed to amend 

§ 158.110(b), § 158.240(d), and 

§ 158.241(a)(2) to 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. Comments on 

the proposed timeline were welcomed. 

Comment: Most commenters 

supported our proposal to include risk 

corridors amounts and reinsurance 

payments as adjustments to the MLR 

numerator, but many commenters 

suggested a change in our proposed 

approach with respect to reinsurance 

contributions and all risk adjustment 

amounts, which these commenters 

recommended be applied as 

adjustments to the MLR denominator. 

With respect to the reinsurance 

contributions, most commenters 

expressed the view that these are 

assessments on issuers that are more 

properly regarded as assessments or 

regulatory fees, and consequently 

should be deducted from premium in 

MLR and rebate calculations. With 

respect to risk adjustment, several 

commenters asserted that because State 

average premium is used to calculate 

risk adjustment amounts, MLR and 

rebate calculations should treat these 

transfer amounts as adjustments to 

premium. Two commenters expressed 

concern that including any premium 

stabilization amounts in the MLR 

numerator would reduce rebates. One 

commenter also suggested that we 

clarify the rebate calculation example in 

§ 158.240(c)(2) to make it clear that the 

rebate calculations account for premium 

stabilization amounts at the aggregation 

level, rather than at an individual 

enrollee level. 

Response: We recognize commenters’ 

concerns regarding inclusion of risk 

adjustment amounts in the MLR 

numerator. However, as noted in the 

proposed rule, while PHS Act section 

2718 provides that premium revenue 

should ‘‘account for’’ collections or 

receipts for the premium stabilization 

programs, section 1342(c) of the 

Affordable Care Act requires that risk 

corridors calculations treat reinsurance 

and risk adjustment payments as 

adjustments to allowable cost. Because 

the MLR and the risk corridors programs 

are closely related and rely on the same 

definitions, there should be consistency 

between these two programs. Proper 

functioning of the MLR and premium 

stabilization programs will be especially 

important in 2014–2016, the initial 

years the health insurance market will 

undergo significant changes. Thus, with 

respect to premium stabilization 

amounts other than reinsurance 

contributions (that is, risk adjustment 

amounts, risk corridors amounts, and 

reinsurance payments), we are adopting 

our proposed approach that these 

adjustments have a net impact on the 

MLR numerator. However, we agree 

with those commenters that stated that 

reinsurance contributions could 

reasonably be characterized as fees or 

assessments deductible from premium 

in MLR and rebate calculations, and this 

final rule amends § 158.161(a) 

accordingly. Additionally, we are 

making clarifying changes to the rebate 

calculation example in § 158.240(c)(2) 

in response to comments. 

In sum, this final rule amends the 

formula for calculating the MLR as 

follows: 

MLR = [(i + q ¥ s + n ¥ r)/{(p + s ¥ 

n + r) ¥ t ¥ f ¥ (s ¥ n + r)}] + 

c 

Where, 

i = incurred claims 

q = expenditures on quality improving 

activities 

p = earned premiums 

t = Federal and State taxes and assessments 

f = licensing and regulatory fees, including 

transitional reinsurance contributions 

s = issuer’s transitional reinsurance receipts 

n = issuer’s risk corridors and risk 

adjustment related payments 

r = issuer’s 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 MLR falls below the minimum 

MLR standard in a given State market 

will be calculated using the following 

amended formula: 

Rebates = (m¥a) * [(p + s ¥ n + r) ¥ 

t ¥ f ¥ (s ¥ n + r)] 

Where, 

m = the applicable minimum MLR standard 

for a particular State and market 

a = issuer’s MLR for a particular State and 

market. 

The amendments made by this final 

rule will be effective for MLR reporting 

years beginning in 2014. 

Comment: Three commenters 

recommended that HHS include the 

Federally-facilitated Exchange user fees 

and user fees assessed on issuers 

participating in the HHS-operated risk 

adjustment programs as regulatory fees 

deductible from premium in MLR and 

rebate calculations. Two commenters 

recommended that issuer costs 

associated with operating risk 

adjustment data validation systems also 

be deducted for MLR purposes, either as 

an addition or offset to the payments or 

receipts related to the premium 

stabilization programs, or as regulatory 

fees or assessments deducted from 

premium. Three commenters further 

suggested that fees and/or operational 

costs related to the premium 

stabilization programs and Exchanges, 

that are priced into premium for policy 

years spanning 2013–2014, and 

consequently will be partially reflected 

in 2013 premium, be either deducted or 

excluded from 2013 premium. 

Response: We have previously 

addressed the deductibility of State and 

Federal Exchange user fees in subregulatory guidance issued on April 20, 

2012.33 We agree with the commenters’ 

suggestion regarding the deductibility of 

the risk adjustment user fees, and we 

interpret § 158.161(a) as allowing these 

user fees to be deducted from premium 

in MLR and rebate calculations. 

However, we do not agree with 

commenters that issuer expenditures on 

risk adjustment data validation systems, 

or any other operational costs related to 

the premium stabilization programs, 

constitute a regulatory fee or assessment 

or a transfer under the premium 

stabilization programs. We do not think 

that these types of expenditures can be 

distinguished from issuers’ other 

administrative costs involved in 

compliance with laws and regulations. 

We also do not agree with comments 

suggesting that it would be appropriate 

to reduce rebates to 2013 enrollees by 

applying estimated 2014 regulatory fees 

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15506 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

priced into 2013 premium to 2013 MLR 

and rebate calculations. PHS Act section 

2718 does not provide for estimated 

regulatory fees for future years to be 

deducted from premium used in MLR 

and rebate calculations for the reporting 

year. 

Comment: We received several 

comments supporting our proposal to 

extend the MLR and rebate deadlines. 

Two commenters opposed extending the 

rebate deadline. 

Response: We appreciate the 

comments regarding the proposed 

deadlines. As noted in the proposed 

rule, we recognize both 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, as well as issuers’ interests 

in having the necessary data to submit 

their annual MLR reports and having 

sufficient time to disburse any rebates. 

We believe that the proposed deadlines 

strike a balance between these 

competing interests. Therefore, this final 

rule extends the MLR and rebate 

deadlines in § 158.110(b), § 158.240(d), 

and § 158.241(a)(2) as proposed in the 

December 2012 HHS Notice of Benefit 

and Payment Parameters for 2014 

proposed rule (77 FR 73187). 

2. Deduction of Community Benefit 

Expenditures 

In the December 2012 HHS Notice of 

Benefit and Payment Parameters for 

2014 proposed rule (77 FR 73187), we 

proposed to amend § 158.162(b)(1)(vii) 

to allow an issuer exempt from Federal 

income tax to deduct both State 

premium taxes and community benefit 

expenditures from earned premium in 

MLR and rebate calculations. The 

proposal limited the community benefit 

expenditure deduction available to a tax 

exempt issuer to the higher of (1) the 

highest premium tax rate in the State; or 

(2) 3 percent of premium, ensuring a 

level playing field. The proposed 

amendment 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. 

Comment: Several commenters 

suggested that the proposed treatment is 

unnecessary and would give Federal 

income tax exempt entities a 

competitive advantage. These 

commenters suggested that tax-exempt 

entities have sufficient advantages 

stemming from their favored tax 

treatment. These commenters further 

asserted that the deduction of 

community benefit expenditures should 

not depend on an issuer’s tax status 

because such funds are not available to 

be used on subscribers’ claims. The 

commenters proposed either allowing 

any issuer to deduct all taxes and 

community benefit expenditures, or 

eliminating the community benefit 

expenditure deduction. 

In contrast, most other commenters 

agreed that a Federal income tax exempt 

issuer is required to make community 

benefit expenditures to maintain its 

Federal income tax exempt status and 

supported the deduction of both State 

premium taxes and community benefit 

expenditures from earned premium for 

such issuers. These commenters agreed 

that the proposed treatment levels the 

MLR playing field and 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. 

Response: We agree that, because an 

issuer that is exempt from Federal 

income taxes must make community 

benefit expenditures, such an issuer 

should be allowed to deduct community 

benefit expenditures and State premium 

taxes. This final rule allows a Federal 

income tax exempt issuer to deduct its 

community benefit expenditures in the 

same manner that another issuer is 

allowed to deduct its Federal income 

taxes. This rule does not alter the 

community benefit expenditure 

deduction currently available to an 

issuer that is not exempt from Federal 

income taxes. Such issuers are allowed 

to deduct the higher of (1) their State 

premium taxes or (2) their community 

benefit expenditures limited to the 

highest premium tax rate charged to an 

issuer in the State. This final rule 

accordingly amends § 158.162(b)(1)(vii) 

as proposed in the December 2012 HHS 

Notice of Benefit and Payment 

Parameters for 2014 proposed rule (77 

FR 73187). We note that the amount of 

community benefit expenditures 

deducted is not allowed to exceed the 

amount of actual community benefit 

expenditures in the reporting year. 

Comment: One commenter suggested 

that the proposed community benefit 

expenditure deduction could lead to 

abuse, while another suggested that the 

deduction limit was speculative. 

However, most commenters agreed with 

the proposed community benefit 

expenditure limit. 

Response: In its MLR model rule, the 

National Association of Insurance 

Commissioners (NAIC) adopted and 

limited the community benefit 

deduction to the State premium tax rate. 

We adopted the NAIC methodology in 

the December 1, 2010 interim final rule 

(75 FR 74864, as amended), and 

comments in response to it noted that 

some States do not subject every type of 

issuer to State premium taxes and the 

community benefit deduction might not 

be available to those tax exempt issuers. 

In balancing the availability of the 

deduction and the potential for abuse, 

this final rule implements the 

community benefit expenditure 

deduction cap of the highest of (1) 3 

percent of premium, or (2) the highest 

premium tax rate charged in the State, 

as proposed in the December 2012 HHS 

Notice of Benefit and Payment 

Parameters for 2014 proposed rule (77 

FR 73187). 

3. Summary of Errors in the MLR 

Regulation 

In the December 2012 HHS Notice of 

Benefit and Payment Parameters for 

2014 proposed rule (77 FR 73187), we 

proposed to correct three errors in the 

December 1, 2010 interim final rule (75 

FR 74864, as amended): the date by 

which issuers must define the formula 

they use for the blended rate 

adjustment, described in 

§ 158.140(b)(5)(i); the date after which 

partially-credible issuers that 

consistently fail to meet the MLR 

standard will not be allowed to use a 

credibility adjustment, described in 

§ 158.232(d); and the calculation of the 

per-person deductible described in 

§ 158.232(c)(1)(i). 

Comment: We received one comment 

regarding our proposed correction to 

§ 158.232(d). The commenter 

recommended that an issuer that fails to 

meet the MLR standard for four or more 

consecutive years be penalized only 

once every three years. The commenter 

stated that after an issuer fails to meet 

the MLR standard for three consecutive 

years (the statistical probability of 

which is generally 50 percent x 50 

percent x 50 percent, or 12.5 percent), 

the probability of it failing to meet the 

MLR standard for the fourth consecutive 

year is 50 percent. 

Response: We disagree with the 

commenter’s calculation. The 

commenter is correct that the statistical 

probability of an issuer failing to meet 

the MLR standard in any given year may 

be 50 percent. However, the probability 

of an issuer failing to meet the MLR 

standard for a number of consecutive 

years is 50 percent ¥ n, where n is the 

number of years. Consequently, the 

probability of an issuer failing to meet 

the MLR standard for four consecutive 

years is 6.25 percent, and for five 

consecutive years it is 3.125 percent. 

With each additional year, the 

probability of an issuer failing to meet 

the MLR standard due to statistical 

fluctuations continues to shrink, 

increasingly indicating an intentional 

pricing below the MLR standard. 

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This final rule therefore implements 

the technical corrections to 

§ 158.140(b)(5)(i), § 158.232(d), and 

§ 158.232(c)(1)(i) as proposed in the 

December 2012 HHS Notice of Benefit 

and Payment Parameters for 2014 

proposed rule (77 FR 73187). 

Comment: We received several 

comments suggesting that HHS clarify 

the MLR treatment of State high-risk 

pool assessments, events occurring after 

MLR reporting deadlines, and costsharing reductions. We also received 

one comment suggesting a larger 

adjustment for fraud prevention 

activities, an extension of allowable 

ICD–10 costs to the 2013 reporting year, 

and inclusion of all-payer claims 

databases in quality improving 

activities. 

Response: The matters discussed in 

these comments are not within the 

scope of this final rule. However, we 

will continue to consider the need to 

issue clarifying guidance regarding the 

various accounting and actuarial 

elements affecting MLR and rebate 

calculations. 

IV. Provisions of the Final Regulations 

For the most part, this final rule 

incorporates the provisions of the 

proposed rule. Those provisions of this 

final rule that differ from the proposed 

rule are as follows: 

A. Provisions for the State Notice of 

Benefit and Payment Parameters 

• We are not amending § 153.100(c) 

to provide that, if a State is required to 

publish an annual State notice of benefit 

and payment parameters for benefit year 

2014, it must do so by the 30th day 

following the publication of the final 

HHS notice of benefit and payment 

parameters. 

B. Provisions and Parameters for the 

Permanent Risk Adjustment Program 

• We are modifying the requirement 

at § 153.360 to clarify that small group 

market plans will be risk adjusted in the 

State in which the employer’s policy 

was filed and approved. 

• We are adding § 153.610(f) to 

describe the risk adjustment user fees. 

C. Provisions and Parameters for the 

Transitional Reinsurance Program 

• We are amending the definition of 

‘‘contributing entity’’ in § 153.20 to 

include clarifying language that a 

contributing entity is a health insurance 

issuer or a self-insured group health 

plan. 

• We are amending § 153.100(a)(2) by 

replacing the cross-reference to 

§ 153.220(d) with § 153.220(d)(1). We 

are making corresponding revisions in 

§ 153.100(d)(2); and § 153.110(b); 

153.400(a). 

• We are deleting § 153.220(d)(2), 

which required a State to 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 are revising § 153.230(a) by 

replacing non-grandfathered individual 

market plan with reinsurance-eligible 

plan. 

• We are revising § 153.230(c) to 

clarify that national reinsurance 

payments are 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 in the 

applicable benefit year. 

• We are revising § 153.232(c) by 

replacing non-grandfathered individual 

market plan with reinsurance-eligible 

plan and clarifying that the incurred 

claims costs for an individual enrollee’s 

covered benefits are those incurred in 

the applicable benefit year. 

• We are revising § 153.232(d) by 

clarifying that reinsurance payments 

will be calculated with respect to an 

issuer’s incurred claims costs for an 

individual enrollee’s covered benefits 

incurred in the applicable benefit year. 

• We are revising § 153.235(a) to 

provide that HHS will allocate and 

disburse to each State operating 

reinsurance (and will distribute directly 

to issuers if HHS is operating 

reinsurance on behalf of a State), 

reinsurance contributions collected 

from contributing entities under the 

national contribution rate for 

reinsurance payments. The disbursed 

funds would be based on the total 

requests for reinsurance payments made 

under the national reinsurance payment 

parameters in all States and submitted 

under § 153.410, net of any adjustment 

under § 153.230(d). 

• We are amending § 153.240(b)(2) to 

clarify that a State must provide to an 

issuer of a reinsurance-eligible plan the 

calculation of the total reinsurance 

payments requested, on a quarterly basis 

during the applicable benefit year in a 

timeframe and manner determined by 

HHS, made under the national 

reinsurance payment parameters and 

State supplemental reinsurance 

payment parameters. 

• We are amending § 153.400 to 

clarify that each contributing entity 

must make reinsurance contributions 

annually at the national contribution 

rate for all reinsurance contribution 

enrollees, in a manner specified by 

HHS. 

• We are amending § 153.400(a)(1)(iii) 

to exclude from reinsurance 

contributions expatriate health 

coverage, as defined by the Secretary. 

• We are amending § 153.400(a)(1) by 

adding paragraph (iv) to exempt 

employer-provided health coverage, 

when such coverage applies to 

individuals with respect to which 

benefits under Title XVIII of the Social 

Security Act (Medicare) are primary 

under the Medicare Secondary Payor 

rules under section 1862(b) of the Social 

Security Act. 

• We are amending § 153.400(a)(2) by 

adding paragraph (xiii) to exempt a selfinsured group health plan or health 

insurance coverage that is limited to 

prescription drug benefits from 

reinsurance contributions. 

• We are revising § 153.405(a)(1), 

§ 153.405(b) and § 153.405(d) by 

deleting ‘‘average’’ to clarify that 

reinsurance contributions are calculated 

by multiplying the number of covered 

lives of reinsurance contribution 

enrollees during the applicable benefit 

year for all contributing entities by the 

national contribution rate, pursuant to 

§ 153.405(a). 

• We are amending § 153.405(c) to 

provide that HHS will notify 

contributing entities of the reinsurance 

contribution amount to be paid for the 

applicable benefit year within 30 days 

of submission of the annual enrollment 

count. 

• We are amending § 153.405(f) to 

revise the procedures for counting 

covered lives for group health plans 

with a self-insured coverage option and 

an insured coverage option. 

• We are amending § 153.405(g) to 

revise the aggregation of multiple group 

health plans maintained by the same 

plan sponsor. 

• We are amending § 153.405(g)(3) to 

clarify that a plan sponsor is not 

required to include as part of a single 

group health plan any group health plan 

that consists solely of excepted benefits, 

that only provide prescription drugs 

benefits, or that is an HRA, HSA, or 

FSA. 

• We are amending § 153.410(a) to 

clarify that an issuer of a reinsuranceeligible plan may make requests for 

reinsurance payments when an issuer’s 

claims costs for an enrollee of that 

reinsurance-eligible plan has met the 

criteria for reinsurance payments in 45 

CFR subpart B and this final rule and 

where applicable the State notice of 

benefit and payment parameters. 

D. Provisions for the Temporary Risk 

Corridors Program 

• We are modifying our proposed 

definition of ‘‘taxes’’ in § 153.500, by 

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15508 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

replacing the term ‘‘taxes’’ with the term 

‘‘taxes and regulatory fees.’’ We are 

clarifying that reinsurance contributions 

are included within the definition of 

‘‘taxes and regulatory fees’’ in § 153.500. 

• We are amending § 153.520 to 

remove references to reinsurance 

contributions in paragraph (d). 

• We are also deleting 

§ 153.530(b)(1)(ii) and amending 

§ 153.530(b)(1) to eliminate the 

adjustment to allowable costs for 

reinsurance contributions made by an 

issuer, and are clarifying the treatment 

of community benefit expenditures 

within the risk corridors calculation. 

E. Provisions for the Advance Payment 

of the Premium Tax Credit and CostSharing Reduction Programs 

• We are finalizing the provisions in 

§ 155.330(g) substantially as proposed, 

with modifications to the language to 

increase clarity. 

• We are adding additional language 

at § 155.340(e) to allow Exchanges 

greater flexibility in allocating the 

advance payment of the premium tax 

credit if one or more individuals in a tax 

household enroll in more than one 

policy through the Exchange. We also 

clarify our language in regard to tax 

filers covered by the same plan(s). In 

addition, we are adding paragraph (f) in 

which we specify the methodology that 

will be used for allocating advance 

payments of the premium tax credit 

provided through Federally-facilitated 

Exchanges. 

• We are relabeling § 155.340(f) as 

§ 155.340(g). 

• We are making a minor technical 

correction at § 155.1030(a). 

• We are making clarifying revisions 

to the provisions at § 155.1030(a) and 

(b)(2), § 156.420(a) and (b), 

§ 156.430(a)(2), and 156.470(a), (b), and 

(e) to standardize language across the 

final rule. 

• We are adding paragraph (c) to 

§ 155.1030, paragraph (g) to § 156.420, 

paragraph (a)(4) to § 156.430, and 

paragraph (f) to § 156.470 to clarify the 

application of these provisions to 

issuers of multi-State plans. 

• We are substituting § 156.140(c) for 

§ 156.140(c)(1) as the cross-reference for 

the term ‘‘de minimis variation’’ in 

§ 156.400. 

• We are making a clarifying revision 

to the provision at § 156.410(a). 

• We are modifying the provisions at 

§ 156.430(b) to permit HHS to adjust the 

cost-sharing reduction advance 

payments if the QHP issuer 

demonstrates that the cost-sharing 

reductions provided are likely to differ 

significantly from the advance payment 

amounts. 

• We are modifying paragraph (c)(1) 

and (2) of § 156.430, reserving 

paragraphs (c)(3) and (4), and adding 

paragraph (c)(5). The modified structure 

of § 156.430(c) will allow for the 

amendments established in the interim 

final rule with comment published 

elsewhere in this issue of the Federal 

Register. 

• We are adding paragraph (g) to 

§ 156.430 to provide that if an Indian is 

enrolled in a QHP in the individual 

market through an Exchange and is 

furnished an item or service directly by 

the Indian Health Service, an Indian 

Tribe, Tribal Organization, or Urban 

Indian Organization, or through referral 

under contract health services, the QHP 

issuer may not reduce the payment to 

any such entity for such item or service 

by the amount of any cost sharing that 

would be due from the Indian but for 

the prohibitions on cost sharing set forth 

in § 156.410(b)(2) and (3). 

• We are making minor technical 

corrections to paragraphs (a) and (c) of 

§ 156.440 to clarify the cross-references. 

• We are deleting paragraphs (d)(2) 

through (4) of § 156.470, relating to 

certain allocation standards for standalone dental plans. 

F. Provisions on User Fees for a 

Federally-Facilitated Exchange (FFE) 

• We are removing the reference to 

billable enrollees, so that the user fee 

rate is applied directly to the premium 

set by the issuer. 

G. Distributed Data Collection for the 

HHS-Operated Risk Adjustment and 

Reinsurance Programs 

• We are finalizing the proposed 

provisions. 

H. Small Business Health Options 

Program 

• In § 155.20, the definitions of ‘‘fulltime employee,’’ ‘‘small employer,’’ and 

‘‘large employer,’’ we are clarifying the 

effective date for use of these 

definitions. In addition, in the 

definition of ‘‘large employer,’’ we are 

correcting the word ‘‘larger’’ to ‘‘large.’’ 

• In § 155.705(b)(3)(ii), we are adding 

a provision requiring each FF–SHOP to 

allow qualified employers the choice of 

offering employees either all QHPs at a 

single level of coverage selected by the 

employer or, as a transition policy, a 

single QHP selected by the employer. 

• We are revising § 155.705(b)(10) to 

include language limiting authority to 

impose a minimum participation rate 

subject to 45 CFR 147.104. 

• In § 155.705(b)(11)(ii), we are 

deleting a provision at subparagraph (D) 

requiring each FF–SHOP to allow 

employers to define different 

contribution percentages for different 

employee categories and relabeling the 

remaining subparagraphs accordingly. 

• We are finalizing § 156.200(g) with 

modifications in new subparagraph 

(g)(3) so that the QHP certification 

standard relating to participation in the 

FFE and FF–SHOP does not apply if 

neither the issuer nor any other issuer 

in the issuer group has a market share 

of the State’s small group market greater 

than 20 percent, as determined using 

information submitted pursuant to 45 

CFR 158.110. 

I. Medical Loss Ratio Requirements 

Under the Patient Protection and 

Affordable Care Act 

• We are amending the MLR formula 

to subtract reinsurance contributions 

from earned premium as regulatory fees, 

instead of treating them as an addition 

to incurred claims. 

V. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995 (PRA), we are required to 

provide 30-day notice in the Federal 

Register and solicit public comment 

before a 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 estimates of 

paperwork burden; however, not all of 

these estimates are subject to the 

information collection requirements 

(ICRs) under the PRA for the reasons 

noted. 

A. Collections Related to State 

Operation of Reinsurance & Risk 

Adjustment Programs (§ 153.210 

Through § 153.240, § 153.310) 

In sections § 153.210 through 

§ 153.240 and § 153.310 of the proposed 

rule, we estimated the cost of collecting 

data for State-operated reinsurance and 

risk adjustment. Fewer than 10 States 

have told HHS that they will operate 

reinsurance or risk adjustment for the 

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34We use an estimate of self-insured entities 

published by the Department of Labor in the April 

2012 ‘‘Report to Congress: Annual Report of Selfinsured Group Health Plans,’’ which reflects only 

those self-insured health plans (including 14,800 

self-insured plans and 6,300 plans that mixed selfinsurance and insurance) that are required to file a 

Form 5500 with the Department of Labor. 

2014 benefit year. Since collections 

from fewer than 10 persons are exempt 

from the PRA under 44 U.S.C. 

3502(3)(A)(i), we are not seeking PRA 

approval for these information 

collection requirements. However, if 

more than nine States elect to operate 

risk adjustment in the future, we will 

seek PRA approval for these information 

collections. 

Comment: One commenter stated that 

our administrative cost estimates for 

these provisions were too low to be 

credible. Another commenter stated that 

we underestimated the cost to States of 

administering supplemental reinsurance 

payment parameters and monitoring 

fund balances. In particular, the 

commenter stated that establishing a 

governing board, engaging with 

stakeholders, and hiring independent 

actuaries would be expensive. One 

commenter believed that the cost to 

submit a report should include the 

State’s costs for executive-level review 

to determine whether to operate 

reinsurance, and that HHS was 

confusing regulatory cost with the 

PRA’s information collection burden. 

Response: We limited our estimates in 

the proposed rule to the incremental 

information collection associated with 

the requirements of these provisions. In 

the ‘‘Supporting Statement for 

Paperwork Reduction Act submissions: 

Standards related to Reinsurance, Risk 

Corridors, and Risk Adjustment’’ 

(Premium Stabilization Rule Supporting 

Statement), we estimated a baseline cost 

for the development of the State notice 

of benefit and payment. Therefore, we 

believe that there will only be a small 

incremental cost to States as a result of 

the reporting requirements at § 153.210 

through § 153.240, § 153.310. However, 

for reasons described earlier in this 

Collection of Information section, we 

are not seeking PRA approval for these 

collections. We have moved our 

discussion of the administrative costs 

associated with these provisions to the 

Regulatory Impact Analysis section of 

this final rule. 

B. ICRs Regarding Calculation of 

Reinsurance Contributions (§ 153.405) 

In § 153.405, we finalize the rules 

related to an annual enrollment count of 

covered lives by contributing entities 

using counting methods derived from 

the PCORTF Rule. We are requiring 

contributing entities to provide annual 

counts of their enrollment and remit 

reinsurance contributions to HHS based 

on that enrollment count. The work 

associated with this requirement is the 

time and effort required by an issuer or 

self-insured group health plan to derive 

an annual enrollment count. Because 

issuers or self-insured group health 

plans will already be obligated to 

determine a count of covered lives using 

a PCORTF counting method, the cost 

associated with this requirement is 

conducting these counts using the 

slightly modified counting methods 

specified in this final rule. In this final 

rule, we are modifying our estimate of 

the number of contributing entities from 

the proposed rule. We estimate that 

22,900 contributing entities will be 

subject to this requirement, based on the 

Department of Labor’s estimated count 

of self-insured plans and the number of 

fully insured issuers that we estimate 

will make reinsurance contributions.34

On average, we estimate it will take 

each issuer or self-insured group health 

plan 1 hour (at a wage rate of $55 for 

an operations analyst) to calculate and 

submit final enrollment counts to HHS. 

Therefore, we estimate an aggregate cost 

of $1,259,500 for 22,900 reinsurance 

contributing entities as a result of this 

requirement. We will revise the 

Premium Stabilization Rule Supporting 

Statement to include the required data 

elements that issuers or self-insured 

group health plans will need to submit 

their annual enrollment counts in 

accordance with the counting 

methodology established in this final 

rule. 

C. Requests for Reinsurance Payment 

(§ 153.410) 

As described in § 153.410, issuers of 

reinsurance-eligible plans seeking 

reinsurance payments must make 

requests in accordance with the 

requirements of this final 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 to HHS or the State, 

as applicable, all necessary data to be 

considered for reinsurance payments for 

the applicable benefit year. 

To minimize burden on issuers, HHS 

intends to collect data in an identical 

manner for HHS-operated reinsurance 

programs and HHS-operated risk 

adjustment. Although we clarified 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 the 

Premium Stabilization Rule Supporting 

Statement with an October 31, 2015 

expiration date, and we will update it to 

reflect these clarified data elements. 

D. Upload of Risk Adjustment and 

Reinsurance Data (§ 153.420, § 153.700, 

§ 153.710, § 153.720) 

Under the HHS-operated risk 

adjustment and reinsurance programs, 

HHS will use a distributed data 

collection approach for enrollee-level 

enrollment, claims and encounter data 

that reside on an issuer’s dedicated data 

environment. Under § 153.710(a), 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 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 § 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 § 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 

§ 153.720(a), we require 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 cost 

associated with this requirement is the 

time and effort to ensure that 

information in the dedicated data 

environment complies with HHS 

requirements. We estimate this will 

affect 1,800 issuers and will cost each 

issuer approximately $178 per year, 

reflecting three hours of work by a 

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35 ‘‘Health Plans’ Estimated Costs of Compliance 

with Expanded Federal Rate Review and with Data 

Collection for Risk Adjustment and Reinsurance,’’ 

Center for Policy Research, America’s Health 

Insurance Plans, December 2012. 

technical employee at $59.39 per hour. 

Therefore, we estimate an aggregate cost 

of $320,706 for all issuers as a result of 

these provisions. 

In addition, we discussed in the 

proposed rule an updating amendment 

to the Premium Stabilization Rule 

Supporting Statement that was 

approved with an October 31, 2015 

expiration date reflecting updated cost 

estimates for implementing the 

distributed data approach. We are 

making a slight modification to the labor 

estimate we assumed in our proposed 

rule by assuming Federal holidays and 

two weeks of vacation time for full time 

employees. In this final rule, we 

estimate that this data submission 

requirement will affect 1,800 issuers, 

and will cost each issuer approximately 

$342,086 in total labor costs. This cost 

reflects an estimate of three full-time 

equivalent employees (5,760 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 (at an average cost of 

$15,000), and these servers will process 

approximately 9 billion claims and 

enrollment files. Therefore, we estimate 

an aggregate cost that includes labor and 

capital of $621,754,800 for all issuers as 

a result of these provisions. Although 

we had previously accounted for this 

estimate as a new administrative cost to 

issuers in the proposed rule, we are not 

doing so in this final rule because it is 

not an incremental cost that issuers will 

incur as a result of the provisions in this 

final rule. We had previously estimated 

the costs associated with these risk 

adjustment and reinsurance enrollment 

data submission requirements in the 

Premium Stabilization Rule Supporting 

Statement that was approved with an 

October 31, 2015 expiration date. We 

will revise that supporting statement to 

reflect our updated estimate. We are 

also amending the tables in the 

Collection of Information section and 

Regulatory Impact Analysis section of 

this final rule so that the tables reflect 

only those incremental costs that result 

from provisions of this final rule. 

Comment: One commenter stated that 

there was no basis for the proposed 

estimate and that the values seemed low 

considering the importance and 

complexity of the tasks involved. The 

commenter also believed that the 

estimate did not account for costs 

associated with overhead, 

administrative tasks, and employee 

benefits. 

Response: We believe that our 

proposed estimate is reasonable for first 

year operations. The estimate reflects 

average labor and capital costs 

associated with standing up a dedicated 

data environment, as well as average 

claims volume. Some issuers will have 

appropriate staff and infrastructure in 

place to support the data collection and 

other issuers will need to acquire 

resources. While we anticipate an initial 

concentrated effort for set-up of the 

dedicated data environment, we believe 

that three full-time equivalents would 

cover the number of hours needed (on 

average) for set-up and maintenance in 

the first year of operations. The average 

hourly rate of $59.39 is based on the 

Bureau of Labor Statistics, U.S. 

Department of Labor, National 

Compensation Survey: Occupational 

Earnings in the United States, 2011. We 

note that it approximates the lower 

range of hourly wages, $60, estimated by 

respondents to a recent industry 

survey,35 and that industry respondents’ 

cost estimates ranged widely to reflect 

different pricing and conditions. Our 

aggregate cost estimate also includes 

costs associated with capital purchases, 

overhead, and fringe benefits. 

E. ICR Regarding User Fee When HHS 

Operates Risk Adjustment (§ 153.610) 

Under § 153.610(f), we establish a 

user fee to support Federal operation of 

risk adjustment. This per capita 

monthly fee will be charged to issuers 

of risk adjustment covered plans based 

on enrollment estimates provided to 

HHS in the distributed data 

environment. HHS will calculate user 

fees owed, and issuers will remit the fee 

owed only once, in June of the year 

following the benefit year, in connection 

with processing of payments and 

charges for risk adjustment. 

We estimate that 1,800 issuers will be 

required to pay risk adjustment user 

fees, and the additional cost associated 

with this requirement is the time and 

effort for an issuer to provide monthly 

enrollment data and remit fees. Because 

HHS will utilize existing data collection 

and payments and charges processing, 

we do not anticipate that this provision 

will alter the collection cost that is 

already approved in the Premium 

Stabilization Rule Supporting Statement 

under OMB control number 0938–1155 

with an October 31, 2015 expiration 

date. 

F. ICRs Regarding Data Validation 

Requirements When HHS Operates Risk 

Adjustment (§ 153.630) 

Under § 153.630(b), 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 cost 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 

approximately two-thirds of the sample 

consisting of enrollees with HCCs. We 

anticipate that this audit will affect 

approximately 1,800 issuers. 

Based on Truven Health Analytics 

2010 MarketScan® 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 will cost approximately $180 ($90 

per hour for two hours) for an auditor 

to review the medical record 

documentation for one enrollee with 

two HCCs. In the proposed rule, we did 

not estimate the cost of reviewing 

medical records for enrollees without 

HCCs. HHS intends to require the 

review of medical records for all sample 

enrollees in the initial validation audit. 

Therefore, we are revising our estimate 

to align with the policy finalized in this 

rule. We expect that it may cost 

approximately $60 per enrollee ($90 per 

hour for 40 minutes) to validate 

demographic information and review 

medical records for all enrollees in the 

audit sample, totaling approximately 

$210 per enrollee with HCCs ($90 per 

hour for two hours and 20 minutes) and 

$60 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. Based on the information 

above, we estimate that the total cost per 

issuer to retain initial validation 

auditors to perform the initial validation 

would cost approximately $48,000. 

Therefore, for 1,800 issuers, the total 

cost of conducting initial validation 

audits will be $86.4 million. We will 

revise the information collection 

currently approved OMB Control 

Number 0938–1155 with an October 31, 

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2015 expiration date to account for this 

additional burden. 

Under § 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 

information collection requirements 

established under § 153.630(d) at a 

future date. 

G. ICRs Regarding QHP Certification 

Standards Related to Advance 

Payments of the Premium Tax Credit 

and Cost-Sharing Reductions 

(§ 155.1030) 

In § 155.1030(a)(1) of this final rule, 

we establish that the Exchange must 

ensure that each issuer that offers or 

intends to offer a QHP in the individual 

market on the Exchange submit the 

required plan variations, as set forth in 

§ 156.420, for each of its health plans 

proposed to be offered as a QHP in the 

individual market on the Exchange. 

Further, the Exchange must certify that 

the plan variations meet the 

requirements detailed in § 156.420. We 

expect that an Exchange will collect 

prior to each benefit year the 

information necessary to validate that 

the issuer meets the requirements for 

silver plan variations, as detailed in 

§ 156.420(a), and collect as part of QHP 

certification the information necessary 

to validate that the issuer meets the 

requirements for zero and limited cost 

sharing plan variations, as detailed in 

§ 156.420(b). We expect that this data 

collection would include the costsharing 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 

will collect or calculate the actuarial 

values of each QHP and silver plan 

variation, calculated under § 156.135 of 

the final EHB/AV Rule. We proposed in 

§ 155.1030(a)(2) that the Exchange 

provide the actuarial values of the QHPs 

and silver plan variations to HHS. As set 

forth in § 155.1030(b)(4), HHS may use 

this information in connection with 

approving estimates for advance 

payment of cost-sharing reductions 

submitted by issuers under § 156.430 

finalized here. Because HHS will 

already have this information for 

Federally-facilitated Exchanges, the 

burden associated with this requirement 

is the time and effort for a State 

participating in each State Partnership 

and for a State-based Exchange to 

submit this information to HHS. We 

estimate that the submission from each 

of these entities will take approximately 

3.5 hours to collect, validate, and 

submit 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 submitting entity 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 

established 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 § 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 § 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 § 156.210 or the rate information 

that the QHP issuers submits through 

the Effective Rate Review program. 

Therefore, we believe that the cost for 

Partnership Exchanges or State-based 

Exchanges to submit to HHS this 

information collected from QHPs is 

generally part of the cost that is 

accounted for in the PRA approved 

under OMB Control Number 0938–1141 

or the cost that is accounted for in the 

supporting statement published under 

CMS form number 10433, which is 

pending OMB approval. We estimate 

that Partnership and State-based 

Exchanges will incur additional cost 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 cost 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 establish 

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 § 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 provision will 

impose minimal burden, and that it will 

take an insurance analyst five 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 cost 

of $3.21 for each Partnership or Statebased Exchange as a result of this 

requirement. 

H. ICRs Regarding Plan Variations 

(§ 156.420) 

In § 156.420, we set forth standards 

for issuers to 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 the required 

levels of cost-sharing reductions. We 

provide an overview of the submission 

process associated with this 

requirement in this final rule. In 

paragraph (a), we establish that, for each 

silver health plan that an issuer offers or 

intends 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 establish 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. However, in this final 

rule, we clarify that an Exchange is 

adequately enforcing this requirement 

if, within a set of standard plans offered 

by an issuer that differ only by the cost 

sharing or premium, it allows an issuer 

to submit one zero cost sharing plan 

variation for only the standard plan 

with the lowest premium within the set. 

Although this approach will likely 

reduce the burden on issuers and 

Exchanges, it is unclear how many 

Exchanges will adopt this approach, and 

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15512 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

as a result, we have not adjusted our 

burden estimates below. 

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 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). Based 

on the figures above, we estimate it will 

cost each issuer approximately $866 to 

submit 11 plan variations annually, for 

an aggregate cost of $1,039,698 for all 

issuers participating in the Exchanges. 

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. 

I. ICRs Regarding Payment of CostSharing Reductions (§ 156.430) 

In § 156.430(a)(1), we establish 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, as 

described in the preamble to this final 

rule, we are finalizing 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 § 156.420 and § 156.470. As a 

result, there will be no additional 

burden associated with this requirement 

for QHP issuers. 

In § 156.430(a)(2), we discuss the 

process for estimating the value of costsharing reductions to be provided under 

the limited cost sharing plan variation 

open to Indians with a household 

income above 300 percent of the FPL, 

described in § 156.420(b)(2). If a QHP 

issuer seeks advance payments for 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 one hour 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 cost to submit 

responses for four 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 § 156.430(c)(1), (c)(2), and (c)(5), 

we finalize a standard that directs a 

QHP issuer to 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 the actual 

cost-sharing reduction amounts. Based 

upon preliminary discussions with the 

issuer and vendor community regarding 

the costs associated with implementing 

the standard methodology, we assume 

that the information technology 

necessary to implement the standard 

methodology will be developed by three 

vendors at a cost of approximately $6 

million per vendor, for total costs of 

approximately $18 million. We also 

expect that each issuer will need to 

spend approximately $100,000 to 

customize the vendor solution 

technology and/or modify their claims 

system. Therefore, we estimate total 

administrative costs of approximately 

$138 million. 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. We note that we 

have not included our initial cost 

estimate of this approach in Table 25 or 

Table 26. 

As discussed in section III.E.4.e, we 

are issuing an interim final rule with 

comment elsewhere in this issue of the 

Federal Register to provide QHP issuers 

with the option to submit data about the 

actual amount of cost-sharing 

reductions using an alternate 

methodology for purposes of payment 

reconciliation. We address the burden 

associated with this alternate approach 

in the Collection of Information section 

of the interim final rule with comment. 

J. ICRs Regarding Reduction of an 

Enrollee’s Share of Premium To 

Account for Advance Payment of the 

Premium Tax Credit (§ 156.460) 

Under § 156.460(a)(2), 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 § 156.265(g). Because 

this notification will occur through the 

enrollment acknowledgment process 

that already exists under the final 

Exchange Establishment Rule (77 FR 

18310), at § 156.265(g), we believe that 

this requirement will impose minimal 

burden on QHP issuers, and that it will 

take an insurance analyst five minutes 

(at an hourly wage of $38.49), to collect 

and submit this information to each 

Exchange. Therefore, we estimate a cost 

of approximately $3.21 for each QHP 

issuer, and an aggregate cost of 

approximately $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 CostSharing Reductions (§ 156.470) 

In § 156.470(a), we establish that an 

issuer provide to the Exchange annually 

for approval, for each metal level health 

plan offered or intended 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 § 156.280(d)(1), and any 

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other services or benefits offered by a 

health plan that do not meet the 

definition of EHB. In § 156.470(b), we 

establish that an issuer of a stand-alone 

dental plan provide to the Exchange for 

approval a dollar allocation required by 

the expected premium for the plan to 

the pediatric dental essential health 

benefit. In § 156.470(c), we are finalizing 

standards for QHP issuers for 

calculating the allocation required by 

paragraph (a). As discussed above, we 

are modifying § 156.470(d) and 

finalizing one standard for issuers of 

stand-alone dental plans for calculating 

the allocation in paragraph (b). Lastly, 

in § 156.470(e), we are finalizing the 

requirement that an issuer of a metal 

level health plan or stand-alone dental 

plan offered, or intended 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 (as 

finalized in the Market Reform Rule at 

§ 154.215(d)(3)–(4), and detailed in the 

accompanying PRA package with OMB 

Control Number 0938–1141) or directly 

to the Exchange if the issuer is not 

required to submit rates to the Effective 

Rate Review program. The Rate Increase 

Disclosure and Review Rule establishes 

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 also revising the 

supporting statement of the information 

collection 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 five hours to 

prepare and submit this information to 

the Exchange. We assumed that this 

requirement will require three hours of 

labor by an insurance analyst (at an 

hourly wage rate of $38.49) and two 

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 cost 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 QHP Participation 

Standards in SHOP (§ 156.200) 

In § 156.200(g)(1), we establish a QHP 

certification standard for the FFE. 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 a FF–SHOP 

serving that State. We also propose that, 

if neither the issuer nor any issuer in the 

same issuer group has a share of the 

State’s small group market greater than 

20 percent, 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). 

The market share determination is based 

on earned premiums already submitted 

by all issuers in the State’s small group 

market under § 158.110, and thus poses 

no additional reporting burden. 

M. ICRs Regarding Medical Loss Ratio 

Reporting (§ 158.130, § 158.140, 

§ 158.162, § 158.221, § 158.240) 

This final rule directs 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 25—ESTIMATED FISCAL YEAR REPORTING RECORDKEEPING AND COST BURDENS

Regulation sections OMB Control No./CMS Form No. Respondents Responses 

Burden per 

response 

(hours) 

Total 

annual 

burden 

(hours) 

Hourly 

labor 

cost of 

reporting 36

($) 

Total labor 

cost 

($) 

Total 

capital/ 

maintenance 

costs 

($) 

Total cost 

($) 

§ 153.405 .................... 0938–1155 ..................................................................... 22,900 22,900 1 .00 22,900 55.00 1,259,500 0 1,259,500 

§ 153.630(b) ................ 0938–1155 ..................................................................... 1,800 540,000 1 .78 960,000 90.00 86,400,000 0 86,400,000 

§ 153.720(a) ................ 0938–1155 ..................................................................... 1,800 1,800 3 .00 5,400 59.39 320,706 0 320,706 

§ 155.1030(a) .............. 0938–NEW/CMS–10433 ................................................ 51 51 3 .50 179 51.62 9,240 0 9,240 

§ 155.1030(b)(2) .......... 0938–NEW/CMS–10433 ................................................ 20 20 0 .50 10 38.49 385 0 385 

§ 155.1030(b)(3) .......... 0938–NEW/CMS–10433 ................................................ 51 51 0 .08 4.25 38.49 164 0 164 

§ 156.420 .................... 0938–NEW/CMS–10433 ................................................ 1,200 13,200 1 .50 19,800 52.51 1,039,698 0 1,039,698 

§ 156.430(a)(2) ............ 0938–NEW/CMS–10433 ................................................ 1,200 4,800 1 .00 4,800 47.69 228,912 0 228,912 

§ 156.460(a)(2) ............ 0938–NEW/CMS 10433 ................................................ 1,200 1,200 0 .08 100 38.49 3,849 0 3,849 

§ 156.470 .................... 0938–NEW/CMS–10433 ................................................ 20 20 5 100 45.85 4,585 0 4,585 

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15514 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

36Bureau 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. 

37Sommers, Ben et al ‘‘Mortality and Access to 

Care among Adults after State Medicaid 

Expansions’’ New England Journal of Medicine 

No: 367 20121025–1034. 

38Finkelstein, A et al. ‘‘The Oregon Health 

Insurance Experiment: Evidence from the First 

Year.’’ NBER Working Paper No. 17190, July 2011. 

TABLE 25—ESTIMATED FISCAL YEAR REPORTING RECORDKEEPING AND COST BURDENS—Continued 

Regulation sections OMB Control No./CMS Form No. Respondents Responses 

Burden per 

response 

(hours) 

Total 

annual 

burden 

(hours) 

Hourly 

labor 

cost of 

reporting 36

($) 

Total labor cost 

($) 

Total 

capital/ 

maintenance 

costs 

($) 

Total cost ($) 

Total ..................... ........................................................................................ 24,171 .................. .................... .................. .................. 89,267,039 0 89,267,039 

VI. Regulatory Impact Statement (or 

Analysis) 

A. Statement of Need 

This final rule implements standards 

related to premium stabilization 

programs (reinsurance, risk adjustment, 

and risk corridors), consistent with the 

Affordable Care Act. This final rule also 

includes provisions governing the costsharing 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. 

The purpose of the three premium 

stabilization programs is to prevent 

adverse selection and to protect 

consumers from increases in premiums 

due to issuer uncertainty. The Premium 

Stabilization Rule explained that further 

details on the implementation of these 

programs, including the specific 

parameters applicable to these 

programs, would be included in this 

rule. 

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 at least one 

year. Accordingly, we have prepared a 

regulatory impact analysis that presents 

the costs and benefits of this final rule. 

The overarching goal of the premium 

stabilization and Exchange-related 

provisions and policies in the 

Affordable Care Act is to make 

affordable health insurance available to 

individuals who do not have access to 

affordable employer-sponsored 

coverage. The provisions within this 

final 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. The costsharing reductions program and 

advance 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 consumers, 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 37 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: 

• Significant reduction in mortality 

(19.6 deaths per 100,000) during the 

period of study; 

• 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 38 of 

the importance of health coverage in 

improving health and delaying 

mortality. 

There are administrative costs to 

States to administer these programs, 

although Federal grants are available 

through 2014 for States seeking to 

establish State-based Exchanges, and to 

support certain State activities related to 

the establishment of FFEs or State 

Partnership Exchanges. 

Issuers making reinsurance 

contributions but not receiving 

reinsurance payments may receive 

indirect benefits in the form of lower 

uncompensated care costs. There are 

also reporting costs for issuers to submit 

data and financial information. This 

regulatory impact analysis discusses the 

benefits and costs of the provisions in 

this final rule. 

In this analysis, we discuss programs 

and standards newly implemented by 

the final 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 Federallyfacilitated Exchange, as well as new 

regulatory provisions for the three 

premium stabilization programs 

(reinsurance, risk adjustment, and risk 

corridors) which were introduced in the 

Premium Stabilization Rule (77 FR 

17220). In addition to building on the 

regulatory impact analysis for that 

earlier rule, we are able, for the analysis 

of much of the final rule, to use the 

Congressional Budget Office’s estimates 

of the Affordable Care Act’s impact on 

Federal spending, revenue collection, 

and insurance enrollment. 

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Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 15515 

Comment: Two commenters urged 

further analysis of the costs and benefits 

of the rule. Specifically, one commenter 

asked HHS to provide analysis showing 

how this rule would affect consumer 

premiums, employer costs, and taxpayer 

subsidies. The commenter asked HHS to 

project how increased use of health care 

would impact employers and wages for 

lower-income workers. 

Response: While we cannot precisely 

predict the price of insurance, the 

premium stabilization programs are 

designed to mitigate premium increases 

for all consumers. In the individual and 

small group markets, the advance 

payment of the premium tax credit and 

cost-sharing reduction programs are 

intended to make health insurance 

affordable for low-income individuals. 

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. Table 

26 shows accounting projections on the 

costs and transfers of this rule. We are 

unable to project either the potential 

economic and social benefit from a more 

productive workforce that could result 

from access to health care or the 

potential economic and social cost 

when more people use health care. HHS 

relied on the Bureau of Labor Statistics, 

U.S. Department of Labor, National 

Compensation Survey Occupational 

Earnings in the United States, 2011, for 

estimates of most job descriptions and 

wages. We believe that our analysis 

reflects our best estimate of the costs 

associated with the proposed rule. 

Therefore, we are not modifying the 

proposed estimates of regulatory impact 

in this final rule. 

C. Impact Estimates of the Payment 

Notice Provisions and Accounting Table 

In accordance with OMB Circular A– 

4, Table 26 below depicts an accounting 

statement summarizing HHS’s 

assessment of the benefits, costs, and 

transfers associated with this rule. 

This final 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 

the benefits of the final rule, such as 

improved health, longevity, and 

national productivity due to increased 

insurance enrollment, and some of its 

costs, such as the cost of providing 

additional medical services to newlyenrolled individuals. Direct costs in the 

Table 26 below reflect administrative 

costs to States (including those costs 

associated with operating risk 

adjustment and reinsurance), health 

insurance issuers, and Exchanges, but 

do not include administrative costs 

incurred by the Federal government. As 

discussed earlier, we estimate costs 

associated with establishing a dedicated 

data environment in the Premium 

Stabilization Rule Supporting 

Statement, and do not include those 

costs in Table 26. The effects in Table 

26 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 five-year period 

from fiscal years (FYs) 2013 through 

2017. Estimated transfers do not reflect 

any user fees paid by insurance issuers 

for the Federally-facilitated Exchange. 

Estimated transfers from health 

insurance issuers resulting from risk 

adjustment user fees are included in the 

table below. 

TABLE 26—ACCOUNTING TABLE

Category Estimates 

Units 

Year 

dollar 

Discount 

rate (percent) 

Period 

covered 

Benefits 

Annualized Monetized ($millions/year) ............................................................................ Not Estimated 

Not Estimated 

Costs 

Annualized Monetized ($millions/year) ............................................................................ $68.95 2013 7 2013–2017 

$70.37 2013 3 2013–2017 

Transfers 

Federal Annualized Monetized ($millions/year) .............................................................. $6,529.29 2013 7 2013–2017 

$6,803.02 2013 3 2013–2017 

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 final 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 by CBO 

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 regulatory impact analysis, 

we are shifting the estimates for the 

reinsurance and risk adjustment 

programs to reflect the four-year period 

from FYs 2014 through 2017. Table 27 

includes the CBO estimates for outlays 

and receipts for the reinsurance and risk 

adjustment programs from FYs 2014 

through 2017. These estimates for 

reinsurance and risk adjustment reflect 

CBO’s scoring of these provisions. CBO 

assumed risk adjustment payments and 

charges would begin to be made in 

2014, when in fact these payments and 

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15516 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

39For purposes of Table 26, we assume that one 

State will operate risk adjustment. 

charges will begin in 2015, as discussed 

in section III.B. of this final rule; 

therefore, the estimates are assigned one 

year later in Table 27 than they were in 

the original CBO report. 

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 27 

summarizes the effects of the risk 

adjustment and reinsurance programs 

on the Federal budget, with the 

additional, societal effects of this rule 

discussed in this regulatory impact 

analysis. We note that transfers 

associated with risk adjustment and 

reinsurance were previously estimated 

in the Premium Stabilization Rule; 

therefore, to avoid double-counting, we 

do not include them in the accounting 

statement for this rule (Table 26). 

TABLE 27—ESTIMATED FEDERAL GOVERNMENT OUTLAYS AND RECEIPTS FOR THE REINSURANCE AND RISK ADJUSTMENT

PROGRAMS FROM FYS 2014–2017 

[In billions of dollars] 

Year 2014 2015 2016 2017 2014– 

2017 

Reinsurance and Risk Adjustment Program Payments * ........................ .................... 11 18 18 47 

Reinsurance and Risk Adjustment Program Receipts * .......................... .................... 12 16 18 46 

* Risk adjustment program payments and receipts lag by one quarter. Receipt will fully offset payments over time. The CBO estimates do not 

reflect the $5 billion in reinsurance contributions that are submitted to the U.S. Treasury. 

Source: Congressional Budget Office. 2011. Letter to Hon. Nancy Pelosi. March 20, 2010. 

Risk Adjustment 

Risk adjustment is a permanent 

program that may be administrated by 

States that operate an HHS-approved 

Exchange. States have 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. 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 transfers do not occur between 

States 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 final rule, we 

establish a risk adjustment State 

approval process. 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 

administrative costs of approximately 

$9,612 for each entity, as a result of 

these approval requirements.39

The details of the HHS-developed risk 

adjustment methodology are specified 

in this final 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 final 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 annually in the 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 final 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 § 146.145(c) of 

this subchapter, individual health 

insurance coverage described in 

§ 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 final 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. 

Under Section 1312(c)(3) of the 

Affordable Care Act, States have the 

flexibility to merge the individual and 

small group markets into a single risk 

pool, or keep them separate. In this final 

rule, we clarify that HHS will merge 

markets when operating risk adjustment 

on behalf of a State if the State elects to 

do the same for single risk pool 

purposes. 

Developing the technology 

infrastructure required for data 

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 

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Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 15517 

40Congressional Budget Office. 2011. Letter to 

Hon. Nancy Pelosi. March 20, 2010. We note that 

these estimates include only risk adjustment 

transfers whereas Table 27 shows transfer estimates 

for risk adjustment and reinsurance. 

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 cost for risk 

adjustment. Additionally, some States 

risk-adjust their Medicaid Managed Care 

programs. States with all-payer or multipayer 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. 

In this final 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 final 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 contractlevel payments to recoup overpayment 

amounts. 

In this final rule, we establish data 

validation standards for when HHS 

operates risk adjustment on behalf of a 

State. HHS will 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 

will engage independent initial auditors 

to conduct an initial audit of an HHSselected sample of risk adjustment data. 

HHS will retain a second validation 

auditor to verify the findings of the 

initial validation audit and provide 

error estimates. However, in this final 

rule we note that there will 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 final rule. We also describe 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. In addition, 

HHS will collect approximately $20 

million in user fees to support the 

Federally operated risk adjustment 

program. 

Risk adjustment transfers dollars from 

health plans with lower-risk enrollees to 

health plans with higher-risk enrollees. 

We are updating the cost estimates for 

this RIA to include 2017, using CBO 

estimates.40 From 2014 through 2017, 

we estimated that there will be $45 

billion transferred among issuers. 

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 

non-grandfathered individual and small 

group plans inside and outside of the 

Exchange. This mitigates the potential 

for excessive premium growth within 

the Exchange due to anticipated adverse 

selection. 

Comment: One commenter disagreed 

with the $600 million in aggregate 

administrative costs estimated in the 

Collection of Information section of the 

proposed rule, and reflected in this 

regulatory impact analysis. The 

commenter stated that the cost 

associated with this rule would be much 

higher than the $600 million estimated 

in the proposed rule. 

Response: The cost to States of 

developing their own risk adjustment 

and reinsurance programs was 

addressed in the Premium Stabilization 

Rule, Standards Related to Reinsurance, 

Risk Corridors, and Risk Adjustment, 

published March 23, 2012. We 

recognize States may require significant 

analysis to assess whether to operate 

risk adjustment or reinsurance 

programs. Many states received grants 

available under the Affordable Care Act 

to underwrite such analyses (although 

we note that these grants would affect 

who bears the cost of the rule, not the 

amount incurred by society as a whole). 

States choosing in the future to operate 

risk adjustment may benefit from 

methodologies developed by other 

States and approved by HHS. The cost 

of reporting data to HHS should decline 

once systems are in place. 

We have limited our estimate to the 

incremental information collection 

associated with the requirements of the 

proposed rule. HHS relied on the 

Bureau of Labor Statistics, U.S. 

Department of Labor, National 

Compensation Survey Occupational 

Earnings in the United States, 2011, for 

estimates of most job descriptions and 

wages. We believe that our analysis 

reflects our best estimate of the costs 

associated with the proposed rule. We 

also note we have modified some 

estimates from our proposed rule to 

better reflect the most current agency 

estimates. 

Reinsurance 

The Affordable Care Act creates a 

transitional reinsurance program for 

benefit years 2014, 2015, and 2016. Each 

State is eligible to operate reinsurance. 

If a State operates reinsurance, the State 

must enter into a contract with an 

applicable reinsurance entity to carry 

out the program. If a State does not elect 

to operate reinsurance, HHS will carry 

out reinsurance 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 payable 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 selfinsured 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. In this final rule, 

HHS establishes a national per capita 

contribution rate designed to collect the 

$12.02 billion in 2014 to cover the 

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15518 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

41The Department of Labor has reviewed this 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 rule. 

(See generally, Advisory Opinion 2001–01A to Mr. 

Carl Stoney, Jr., available at www.dol.gov/ebsa 

discussing settlor versus plan expenses.) 

42For purposes of Table 26, we assume that two 

States will operate reinsurance. 

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 

reinsurance in 2014. We estimate that 

we will collect these authorized 

amounts from 2014 through 2016. 

HHS will collect the required 

contributions under the national 

contribution rate from health insurance 

issuers and self-insured group health 

plans.41 States operating reinsurance 

may collect additional contributions for 

administrative costs, reinsurance 

payments, or both. Section 1341(a)(3)(B) 

of the Affordable Care Act requires that 

the reinsurance contribution amount for 

each issuer reflect each issuer’s fully 

insured commercial book of business for 

all major medical products. In this final 

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. 

A State that establishes the 

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 final rule, we 

establish that HHS will collect 

administrative expenses for HHSoperated reinsurance programs. A State 

that operates the reinsurance program 

bears the administrative costs of the 

applicable reinsurance entity, and must 

ensure that the applicable 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 reinsurance, HHS would 

retain $0.055 per capita per year to 

offset the costs of contributions 

collection, and would allocate $0.055 

per capita per year towards 

administrative expenses for reinsurance 

payments. The total amounts allocated 

towards administrative expenses for 

reinsurance payments would be 

distributed to States operating 

reinsurance (or retained by HHS where 

HHS is operating the reinsurance 

program) in proportion to the State-byState total requests for reinsurance 

payments made under the uniform 

payment parameters. A State may have 

more than one applicable reinsurance 

entity, and two or more States may 

jointly enter into an agreement with the 

same applicable reinsurance entity to 

carry out reinsurance functions in their 

State. Administrative costs will likely 

increase if multiple applicable 

reinsurance entities are established 

within a State, whereas administrative 

efficiencies may be found if multiple 

States contract with one applicable 

reinsurance entity. 

We also finalize an annual collections 

and payment cycle in this final rule. We 

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. Additionally, 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, issuers would receive only 

limited benefits from a quarterly 

payment cycle. 

Under § 153.100(a), a State operating 

reinsurance must 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 § 153.220(d); or 

(iii) use more than one applicable 

reinsurance entity. 

States that establish the reinsurance 

program will also maintain any records 

associated with the reinsurance 

program, as set forth in § 153.240(c) of 

the Premium Stabilization Rule. The 

Premium Stabilization Rule established 

that reinsurance contributions will be 

based on a per capita amount. The per 

capita approach will 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 will be 

permitted to collect additional 

contributions towards supplemental 

reinsurance payments. 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 

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 

believe that it will cost each State 

choosing to collect additional 

contributions approximately $594 to 

comply with this requirement. 

Additionally, under § 153.232(e), if all 

requested reinsurance payments under 

the State supplemental reinsurance 

parameters 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 supplemental 

reinsurance payments. The State or the 

applicable reinsurance entity must 

reduce all such requests for 

supplemental 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.42

In this final rule, we establish the 

methodology to be used for counting 

covered lives for purposes of calculating 

reinsurance contributions. This 

methodology offers contributing entities 

a choice similar to 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 final rule, we describe the 

administrative costs for issuers 

associated with the data requirements in 

§ 153.400(b) for all contributing entities 

both inside and outside the Exchange. 

The contributing entities will provide 

enrollment data to HHS to substantiate 

contribution amounts. 

Reinsurance payments will be made 

to issuers of individual market 

insurance coverage for high claims costs 

for enrollees. In this final rule, we 

establish 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 

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Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 15519 

43Swartz, K. ‘‘Health New York: Making 

Insurance More Affordable for Low-Income 

Workers.’’ The Commonwealth Fund. November 

2001. 

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 cost sharing above the attachment 

point and below the cap, is designed to 

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. 

A State operating reinsurance may 

supplement the reinsurance payment 

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. We estimate that it 

will take an operations analyst 2 hours 

(at $55 an hour) to gather the relevant 

information, for a total burden of $110 

per State electing to run reinsurance. 

Note that a State may develop a separate 

reinsurance program using entirely its 

own design. 

In this final rule, we require States to 

provide a process through which a 

reinsurance-eligible plan that does not 

generate individual enrollee claims in 

its normal course of business may 

derive costs to request reinsurance 

payments. In addition, we clarify that 

when HHS operates the reinsurance 

program on behalf of a State that these 

plans may price encounters in 

accordance with their existing principal, 

internal encounter pricing methodology. 

Additionally, in § 153.240(b) of this 

final rule, States operating the 

reinsurance program must notify issuers 

annually of reinsurance payments to be 

made, as well as provide reinsuranceeligible plans quarterly estimates of 

requests for reinsurance payments. 

Moreover, we establish that for both 

State- and HHS-operated reinsurance 

programs, only plans subject to the 2014 

market reform rules are eligible for 

reinsurance payment. 

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 also believe that these provisions 

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 these requirements. 

In this final 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 § 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 finalized in this 

rule are reflected in these cost estimates. 

A wide range of health insurance 

issuers and self-insured group health 

plans contribute to the reinsurance pool 

because successful implementation of 

this rule, in combination with the range 

of Affordable Care Act reforms starting 

in 2014, benefit all of their enrollees; for 

example, those reforms should lead to 

fewer unreimbursed health costs, 

lowering the costs for issuers and group 

health plans. Providing reinsurance 

payments to health insurance issuers 

with plans in the individual market 

serves to stabilize premiums in the 

individual market. Reinsurance will put 

downward pressure on individual 

market rates as new enrollees with 

unknown risk join the market. 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 1 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 43 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. 

Comment: One commenter asked how 

HHS derived the estimate that 

reinsurance contributions would 

increase total market premiums paid by 

1 percent, and that reinsurance 

payments to issuers would reduce 

premiums in the individual market by 

between 10 percent and 15 percent. 

Response: This is an HHS estimate for 

the effects of reinsurance in 2014 that 

relied in part on a 2009 analysis of 

health insurance premiums by the 

Congressional Budget Office. 

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 

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15520 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

44Brook, et al. 45 ‘‘Updated Estimates for the Insurance Coverage 

Provisions of the Affordable Care Act,’’ 

Congressional Budget Office, March 2012. 46Congressional 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. 

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 markets 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 subject to 

adjustments for health care quality, 

health IT, risk adjustment payments and 

charges and reinsurance payments) and 

the target amount—the difference 

between a plan’s earned premiums and 

allowable administrative costs. In this 

final 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, a QHP with allowable costs 

that exceed its target amount by at least 

3 percent will receive payments. 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 final rule, HHS also specifies 

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 final 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 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.44

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 

§ 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 

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.45 Participation rates are 

expected to be lower in the first few 

years of Exchange availability as 

employers and individuals adjust to the 

features of the Exchanges.46

In this final rule, we provide 

additional details for Exchanges and 

QHP 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 eligible individuals who 

purchase a family policy. We also 

establish standards applicable to 

Exchanges when 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 final 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 costsharing reductions, and we set forth 

standards relating to advance payments 

of cost-sharing reductions and 

reconciliation of those advance 

payments against actual cost-sharing 

reduction provided. In addition, we 

establish standards for QHP issuers to 

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 final rule. 

The cost-sharing reductions and 

advance payments 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 and advance payments of the 

premium tax credit. 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 

those individuals who qualify for those 

programs. 

User Fees 

To support certain Federal operations 

of Federally-facilitated Exchanges, we 

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47Available at: http://cciio.cms.gov/resources/ 

files/Files2/03162012/hie3r-ria-032012.pdf. 

48 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. 

49 Issuers represent companies (for example, 

NAIC company code). These estimates do not 

Continued 

establish in this final 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 must 

remit a user fee to HHS each month 

equal to the product of the monthly user 

fee rate specified in the annual HHS 

notice of benefit and payment 

parameters for the applicable benefit 

year and the monthly premium charged 

by the issuer for each policy under the 

plan offered through a Federallyfacilitated Exchange. For the 2014 

benefit year, we establish a monthly 

user fee rate equal to 3.5 percent. 

SHOP 

The 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 regulatory impact analysis 

published in conjunction with the 

Exchange Establishment Rule.47 This 

impact analysis addresses the additional 

costs and benefits of the proposed 

modifications in this rule to the SHOP 

sections of the Exchange Establishment 

Rule. 

In this final rule, we implement 

policies for FF–SHOPs designed to 

prevent significant adverse selection 

while promoting QHP 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. 

Section 1312 of 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. Permitting employers to 

choose a single level of coverage 

reduces potential adverse selection 

within the group and therefore any 

additional cost due to expanded choice. 

In the Exchanges Establishment final 

rule, we provided each SHOP the 

flexibility to choose additional means 

by which a qualified employer could 

make QHPs available to qualified 

employees. In this final rule, we add an 

FF–SHOP option to allow qualified 

employers to offer qualified employees 

only a single QHP. This employer 

option is designed to further reduce 

adverse selection, although it may 

reduce the benefit to the employee 

resulting from broader 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, and we do not quantify the 

reduction in risk premium or consumer 

benefit resulting from this change. 

The Exchange Final Rule permits a 

SHOP to set a minimum participation 

rate; such authority is limited to the 

extent a 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 

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 final rule establishes, 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 final rule establishes that health 

insurance issuers with shares of a 

State’s small group market greater than 

20 percent will participate in the FF– 

SHOP if they also seek to participate in 

the FFE in the State. This policy 

promotes robust issuer participation in 

the FF–SHOP which will help qualified 

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 value to consumers 

(‘‘consumer surplus’’) of 20 percent of 

the premium cost of coverage.48 Some of 

this benefit is due to expanded choice 

in plan type and health insurance 

issuer. There are two additional impacts 

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 transfer associated with 

user fees for additional enrollees in 

QHPs in the FF–SHOP. 

Medical Loss Ratio 

This final rule amends the MLR and 

rebate calculation methodologies to 

include payments and receipts related 

to the premium stabilization programs. 

The definition of premium revenue is 

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 will be considered a part of 

gross earned premium reported to the 

Secretary, similar to other elements 

involved in the derivation of earned 

premium. Gross earned premium will 

not be reduced by the amount of 

contributions under the transitional 

reinsurance program. The MLR annual 

reporting form will then account for 

premium stabilization payment and 

receipt amounts other than the 

reinsurance contributions 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. Contributions 

under the transitional reinsurance 

program will be included with the 

Federal assessments that are deducted 

from earned premium in MLR and 

rebate calculations. Additionally, this 

final rule amends the MLR calculation 

methodology to add or subtract 

premium stabilization payment and 

receipt amounts, other than reinsurance 

contributions, 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 § 153.530. 

Based on HHS’s experience with the 

2011 MLR reporting year, there are 466 

health insurance issuers 49 offering 

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15522 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

include issuers of plans with total annual limits of 

$250,000 or less (sometimes referred to as ‘‘minimed’’ plans) or expatriate plans. 

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. 

This final rule also changes 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, this final rule 

changes 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 

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 previous MLR calculation 

methodology allowed 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 

final rule amends the MLR methodology 

to 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 will continue to 

use the previous methodology. This will 

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 will 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 amendment. In the 

absence of data on tax exempt not-forprofit 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 in 2012 issuers 

will maintain the level of community 

benefit expenditures as reported in their 

MLR annual reports for the 2011 MLR 

reporting year. Therefore, we estimate 

that under the current policy, in the 

2012 MLR reporting year, 17 not-forprofit issuers will owe approximately 

$182 million in rebates to 

approximately 1.5 million enrollees, 

which is the same as the experience in 

the 2011 MLR reporting year. The 

adopted 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 will need 

to send fewer rebate notices, and 

therefore, will have lower 

administrative costs related to rebates 

and rebate notices. 

D. Alternatives Considered 

Risk Adjustment 

We considered State flexibility for 

risk adjustment. This option would have 

allowed States to develop State-specific 

characteristics but it would have 

resulted in few Federal standards by 

which to compensate for risk. This final 

rule describes a HHS risk adjustment 

methodology but allows States to seek 

HHS approval for alternate 

methodologies based on criteria 

established in this final rule. This 

compromise gives States some 

flexibility but also reduces the burden 

on multi-State issuers and the Federal 

government. 

Reinsurance 

We proposed State flexibility to 

establish the reinsurance program in the 

Premium Stabilization Rule. This option 

would have allowed for State 

innovation, but it would have greatly 

increased the administrative burden on 

self-insured group health plans, multiState issuers and the Federal 

government. A national approach is 

more efficient and less expensive. 

Moreover, we believe that uniform 

reinsurance payment parameters deliver 

payments where they are most needed— 

to issuers with high cost claims in the 

individual market. Centralized 

collection of contributions, an annual 

contribution and payment schedule, as 

well as a national contribution rate 

provide a more effective approach to 

stabilize premiums, while decreasing 

administrative burden. 

Risk Corridors 

Elsewhere in this issue of the Federal 

Register, we are implementing an 

alternative to our current policy, under 

which the risk corridor calculation 

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Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 15523 

methodology compares plan-specific 

allowable costs (adjusted claims) to a 

target amount (adjusted premiums). In 

order to align the risk corridor 

calculation methodology with the single 

risk pool requirements finalized at 

§ 156.80, we are modifying the 

definition of ‘‘allowable costs’’ for the 

risk corridors calculation at § 153.500 

such that ‘‘allowable costs’’ are 

calculated in a manner consistent with 

the single risk pool requirement for 

premiums. We believe that this 

approach will better align risk sharing 

under the program with how issuers 

will be required to set rates. We address 

the burden associated with this 

approach in the Collection of 

Information Section of the interim final 

rule with comment ‘‘Amendments to the 

HHS Notice of Benefit and Payment 

Parameters for 2014’’, published 

elsewhere in this issue of the Federal 

Register. 

Advance Payments of the Premium Tax 

Credit and Cost-Sharing Reductions 

As discussed in section III.E.4.i, we 

considered requiring QHP issuers to 

provide cost-sharing reductions to 

Indians by waiving the cost sharing as 

appropriate, rather than assigning the 

eligible Indian to a particular plan 

variation. However, we believe this 

alternative approach would be too 

burdensome for issuers to implement in 

the short term. As discussed in section 

III.E.4.e, we are issuing an interim final 

rule with comment to provide QHP 

issuers with the option to submit data 

about the actual amount of cost-sharing 

reductions using an alternate 

methodology for purposes of payment 

reconciliation. This alternative will 

provide greater flexibility to issuers and 

may reduce the reporting burden for 

some issuers. We describe the burden 

associated with this alternative in the 

Collection of Information Section of the 

interim final rule with comment 

‘‘Amendments to the HHS Notice of 

Benefit and Payment Parameters for 

2014’’, published elsewhere in this issue 

of the Federal Register. 

User Fees 

We considered calculating user fees 

on a per capita basis, but that approach 

fails to adjust for premium variation and 

geographic wage differences, and 

commenters suggest that most issuers 

and stakeholders prefer that such costs 

be calculated as a percentage of 

premium. 

SHOP 

We considered making no change to 

the employer options in the FF–SHOP, 

but concluded that allowing employers 

the option of offering a single QHP to 

employees would simplify the transition 

from current market practices to the 

SHOP. We will be proposing further 

rulemaking to ease the transition from 

the current market to the SHOP. 

We considered a range of threshold 

values for determining which issuers 

would be subject to the QHP 

certification requirement linking FFE 

and FF–SHOP participation and chose a 

threshold (20 percent market share) that 

minimized the number of issuers 

affected by the certification requirement 

while still ensuring that at least one 

large issuer in each State would offer 

QHPs in the FF–SHOP. 

E. Regulatory Flexibility Act 

The Regulatory Flexibility Act (5 

U.S.C. 601 et seq.) (RFA) requires 

agencies to prepare a final 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-forprofit 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 final rule contains rules for 

premium stabilization programs 

required of health plan issuers and selfinsured group health plans. These 

programs include the risk adjustment 

program, the transitional reinsurance 

program and the 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 a final 

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 final rule: (1) Health 

insurance issuers; (2) health insurance 

plan sponsors; (3) applicable 

reinsurance entities; (4) risk adjustment 

entities; (5) self-insured group health 

plans and (6) 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); applicable 

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. 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. 

We believe that a number of sponsors 

of self-insured group health plans could 

qualify as ‘‘small entities.’’ This final 

rule specifies that third-party 

administrators may incur the 

operational costs associated with 

submitting reinsurance contributions to 

HHS. We do not believe that the 

reinsurance contribution amount or the 

operational cost associated with 

submitting the contribution are likely to 

result in a change in revenues of more 

than 3 to 5 percent for a substantial 

number of self-insured group health 

plans or third-party administrators that 

meet the definition of a small entity. We 

requested comment on whether the 

small entities affected by the proposed 

rule have been fully identified. We also 

requested comment and information on 

potential costs for these entities and on 

any alternatives that we should 

consider. 

Comment: We received no comments 

on whether the small entities described 

in this rule have been fully identified or 

on potential costs to them. However, 

one State expressed concern that the 

number of small self-insured entities is 

expected to grow and could cause an 

uneven playing field if not included in 

reinsurance contribution assessments. 

The State said maintaining a level 

playing field is desirable so as not to 

provide additional incentive to selfinsure and thereby deny employees the 

consumer protection applicable to 

insured products on the Exchange. 

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15524 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

Response: We are aware that a 

growing number of small entities may 

consider self-insuring since self-insured 

groups are exempt from community 

ratings and minimum health care 

benefits. HHS will collect reinsurance 

contributions on a per enrollee basis 

from all self-insured group health plans 

regardless of their size. This will help 

ensure that entities are not incentivized 

to self-insure in order to avoid making 

reinsurance contributions. Because 

these contributions will be calculated 

on a per capita basis, we believe that is 

it unlikely that the amount of these 

contributions (or the operational costs 

associated with making these 

contributions) will result in a significant 

change in revenue for a substantial 

number of small entities. 

In this final rule, we establish 

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 employer-sponsored coverage. 

For example, the FF–SHOP will 

generally match existing minimum 

participation rates in the outside 

market. Additionally, as discussed in 

the regulatory impact analysis, we 

believe the employee choice option will 

ultimately provide greater choice for the 

employee among QHPs and issuers, 

benefitting both employer and employee 

and simplifying the process for the 

employer of administering multiple 

health benefit plans while allowing a 

SHOP to let an employer choose one 

plan eases the transition from the 

current marketplace. 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. 

F. 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 2013, that 

threshold is approximately $141 

million. Although we have not been 

able to quantify the user fees that will 

be associated with this rule, the 

combined administrative cost and user 

fee impact on State, local, or Tribal 

governments and the private sector may 

be above the threshold. Earlier portions 

of this RIA constitute our UMRA 

analysis. 

G. 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 risk 

adjustment, reinsurance, and Exchangerelated programs, State decisions will 

ultimately influence both administrative 

expenses and overall premiums. States 

are not required to establish a risk 

adjustment or reinsurance program, or 

an Exchange. 

In HHS’s view, while this final 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 a risk 

adjustment or reinsurance program or 

an Exchange must adopt the Federal 

standards contained in the Affordable 

Care Act and in this final rule, 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 these programs. Additionally, the 

Affordable Care Act does not require 

States to establish these programs; if a 

State elects not to establish these 

programs (or the State’s risk adjustment 

program or Exchange is not approved), 

HHS must establish and operate these 

programs 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 final 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. 

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, 

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Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 15525 

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 amends 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. 1311, 1321, 1341–1343, 

Pub. L. 111–148, 24 Stat. 119. 

■ 2. Section 153.20 is amended by 

revising the definitions of ‘‘Contributing 

entity’’, ‘‘Risk adjustment covered plan’’ 

and ‘‘Risk adjustment data collection 

approach’’ to read as follows: 

§ 153.20 Definitions. 

* * * * * 

Contributing entity means a health 

insurance issuer or self-insured group 

health plan. A self-insured group health 

plan is responsible for the reinsurance 

contributions, though it may elect to use 

a third party administrator or 

administrative services only contractor 

for transfer of the reinsurance 

contributions. 

* * * * * 

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 

§ 146.145(c) of this subchapter, 

individual health insurance coverage 

described in § 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. 

* * * * * 

■ 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 (d)(1). 

■ G. Removing paragraph (d)(2). 

■ H. Redesignating paragraphs (d)(3) 

and (4) as paragraphs (d)(2) and (3). 

■ I. Revising newly designated 

paragraph (d)(2). 

■ J. Removing paragraph (d)(5). 

■ K. Redesignating paragraph (d)(6) as 

paragraph (d)(4). 

■ The revisions read as follows: 

§ 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 § 153.220(d)(1) or 

use additional funds for reinsurance 

payments under § 153.220(d)(2); or 

* * * * * 

(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 

§ 153.220(d)(1) and the use of additional 

funds for reinsurance payments under 

§ 153.220(d)(2); 

* * * * * 

■ 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. Redesignating paragraph (c)(3) as 

paragraph (c)(2). 

■ G. Removing newly designated 

paragraph (c)(4). 

■ H. Removing newly designated 

paragraph (c)(5). 

■ I. Redesignating paragraph (c)(6) as 

paragraph (c)(3). 

■ J. Removing paragraph (e). 

■ K. Redesignating paragraph (f) as 

paragraph (d). 

The revisions read as follows: 

§ 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 

§ 153.220(d)(1) or use additional funds 

for reinsurance payments under 

§ 153.220(d)(2), 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 § 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 § 153.220(d)(2)), the 

State supplemental reinsurance 

payment parameters required under 

§ 153.232. 

* * * * * 

■ 5. Section 153.210 is amended by 

revising paragraph (a)(2) and adding 

paragraph (e) to read as follows: 

§ 153.210 State establishment of a 

reinsurance program. 

(a) * * * 

(2) If a State contracts with or 

establishes 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 § 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). 

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15526 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

■ 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: 

§ 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) if 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) 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 § 153.232. 

* * * * * 

■ 7. Section 153.230 is revised to read 

as follows: 

§ 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 reinsuranceeligible 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 benefit 

year commencing in 2014 and ending in 

2016 set forth in the annual HHS notice 

of benefit and payment parameters for 

each 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 in the applicable benefit year 

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: 

§ 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 § 153.220(d)(1)(ii) or use 

additional funds for reinsurance 

payments under § 153.220(d)(2), 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 § 153.220(d)(1)(ii) and 

§ 153.220(d)(2), as applicable, for any 

applicable benefit year are reasonably 

calculated to cover additional 

reinsurance payments that are projected 

to be made only under the State 

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 § 153.220(d)(1)(ii) or funds under 

§ 153.220(d)(2), 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 State supplemental 

reinsurance payment parameters under 

§ 153.232(a)(1), a reinsurance-eligible 

plan becomes eligible for reinsurance 

payments from contributions under 

§ 153.220(d)(1)(ii) or funds under 

§ 153.220(d)(2), as applicable, if its 

incurred claims costs for an individual 

enrollee’s covered benefits in the 

applicable benefit year: 

(1) Exceed the State supplemental 

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 

§ 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 State supplemental 

reinsurance cap under 

§ 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 § 153.232(a)(1)(iii). 

(d) Payments under State 

supplemental reinsurance parameters. 

Each reinsurance payment made from 

contributions received under 

§ 153.220(d)(1)(ii) or funds under 

§ 153.220(d)(2), as applicable, will be 

calculated with respect to an issuer’s 

incurred claims costs for an individual 

enrollee’s covered benefits in the 

applicable benefit year as the sum of the 

following: 

(1) If the State has established a State 

supplemental attachment point, to the 

extent the issuer’s incurred claims costs 

for such benefits in the applicable 

benefit year exceed the State 

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Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 15527 

supplemental attachment point but do 

not exceed the national attachment 

point, the product of such claims costs 

between the State supplemental 

attachment point and the national 

attachment point multiplied by the 

national coinsurance rate (or, if the State 

has established a State supplemental 

coinsurance rate, the State supplemental 

coinsurance rate); 

(2) If the State has established a State 

supplemental reinsurance cap, to the 

extent the issuer’s incurred claims costs 

for such benefits in the applicable 

benefit year exceed the national 

reinsurance cap but do not exceed the 

State supplemental reinsurance cap, the 

product of such claims costs between 

the national reinsurance cap and the 

State supplemental reinsurance cap 

multiplied by the national coinsurance 

rate (or, if the State has established a 

State supplemental coinsurance rate, the 

State supplemental coinsurance rate); 

and 

(3) If the State has established a State 

supplemental coinsurance rate, the 

product of the issuer’s incurred claims 

costs for such benefits in the applicable 

benefit year 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. 

(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 § 153.220(d)(1)(ii) or funds under 

§ 153.220(d)(2) 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 

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 § 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: 

§ 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 payment 

parameters or the State supplemental 

reinsurance payment 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: 

§ 153.235 Allocation and distribution of 

reinsurance contributions 

(a) Allocation of reinsurance 

contributions. HHS will allocate and 

disburse to each State operating 

reinsurance (and will distribute directly 

to issuers if HHS is operating 

reinsurance on behalf of a State), 

reinsurance contributions collected 

from contributing entities under the 

national contribution rate for 

reinsurance payments. The disbursed 

funds would be based on the total 

requests for reinsurance payments made 

under the national reinsurance payment 

parameters in all States and submitted 

under § 153.410, net of any adjustment 

under § 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: 

§ 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 

§ 153.230 and § 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 

§ 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 § 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 

issuer of a reinsurance-eligible plan the 

calculation of total reinsurance payment 

requests, on a quarterly basis during the 

applicable benefit year in a timeframe 

and manner specified by HHS, made 

under: 

(i) The national reinsurance payment 

parameters, and 

(ii) State supplemental reinsurance 

payments parameters if applicable. 

* * * * * 

(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). 

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The additions read as follows: 

§ 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: 

§ 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 § 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: 

§ 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: 

§ 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: 

§ 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 

employer’s policy was filed and 

approved. 

■ 17. Section 153.400 is revised to read 

as follows: 

§ 153.400 Reinsurance contribution funds. 

(a) General requirement. Each 

contributing entity must make 

reinsurance contributions annually: at 

the national contribution rate 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 

§ 153.220(d)(1), in a manner specified 

by the State. 

(1) A contributing entity must make 

reinsurance contributions for its selfinsured 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) Such plan or coverage is 

expatriate health coverage, as defined by 

the Secretary; or 

(iv) In the case of employer-provided 

health coverage, such coverage applies 

to individuals with respect to which 

benefits under Title XVIII of the Act 

(Medicare) are primary under the 

Medicare Secondary Payor rules under 

section 1862(b) of the Act and the 

regulations issued thereunder. 

(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 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; 

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(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); 

(xii) Health programs operated under 

the authority of the Indian Health 

Service; or 

(xiii) A self-insured group health plan 

or health insurance coverage that 

consists solely of benefits for 

prescription drugs. 

(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: 

§ 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 number of covered lives of 

reinsurance contribution enrollees 

during the applicable benefit year for all 

plans and coverage described in 

§ 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 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 30 days of the submission of the 

annual enrollment count described in 

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 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); or 

(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 selfonly 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. 

(f) Procedures for counting covered 

lives for group health plans with a selfinsured coverage option and an insured 

coverage option. 

(1) 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. 

(2) Notwithstanding paragraph (f)(1), a 

plan with multiple coverage options 

may use any of the counting methods 

specified for self-insured coverage or 

insured coverage, as applicable to each 

option, if it determines the number of 

covered lives under each option 

separately as if each coverage option 

provided major medical coverage (not 

including any coverage option that 

consists solely of excepted benefits as 

defined by section 2791(c) of the PHS 

Act, that only provides benefits related 

to prescription drugs, or that is a health 

reimbursement arrangement, health 

savings account, or health flexible 

spending arrangement). 

(g) Multiple group health plans 

maintained by the same plan sponsor. 

(1) General rule. If a plan sponsor 

maintains two or more 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 simultaneously, then 

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15530 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

those multiple plans must be treated as 

a single group health plan for purposes 

of calculating any reinsurance 

contribution amount due under this 

section. However, a plan sponsor may 

treat the multiple plans as separate 

group health plans for purposes of 

calculating any reinsurance contribution 

due under this section if it determines 

the number of covered lives under each 

separate group health plan as if the 

separate group health plan provided 

major medical coverage. 

(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 

group health plan as determined under 

paragraph (g)(1) of this section any 

group health plan that consists solely of 

excepted benefits as defined by section 

2791(c) of the PHS Act, that only 

provides benefits related to prescription 

drugs, or that is a health reimbursement 

arrangement, health savings account, or 

health flexible spending arrangement. 

(4) Procedures for counting covered 

lives for multiple group health plans 

treated as a single group health plan. 

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: 

§ 153.410 Requests for reinsurance 

payments. 

(a) General requirement. An issuer of 

a reinsurance-eligible plan may make a 

request for payment when that issuer’s 

claims costs for 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: 

§ 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 and regulatory fees’’ in 

alphabetical order. 

The revisions and additions read as 

follows: 

§ 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 and regulatory fees. 

After-tax premiums earned mean, 

with respect to a QHP, premiums earned 

with respect to the QHP minus taxes 

and regulatory fees. 

Allowable administrative costs mean, 

with respect to a QHP, the sum of 

administrative costs of the QHP, other 

than taxes and regulatory fees, plus 

profits earned by the QHP, which sum 

is limited to 20 percent of after-tax 

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premiums earned with respect to the 

QHP (including any premium tax credit 

under any governmental program), plus 

taxes and regulatory fees. 

* * * * * 

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 and regulatory fees mean, with 

respect to a QHP, Federal and State 

licensing and regulatory fees paid with 

respect to the QHP as described in 

§ 158.161(a) of this subchapter, and 

Federal and State taxes and assessments 

paid with respect to the QHP as 

described in § 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: 

§ 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 153.520 is amended by 

revising paragraph (d) to read as 

follows: 

§ 153.520 Attribution and allocation of 

revenue and expense items. 

* * * * * 

(d) Attribution of reinsurance and risk 

adjustment to benefit year. A QHP 

issuer must attribute reinsurance 

payments and risk adjustment payments 

and charges to allowable costs for the 

benefit year with respect to which the 

reinsurance payments or risk 

adjustment calculations apply. 

* * * * * 

■ 24. Section 153.530 is amended by— 

■ A. Revising paragraphs (a), (b) 

introductory text, (b)(1), (b)(2)(iii), and 

(c). 

■ B. Adding new paragraph (d). 

The revisions and additions read as 

follows: 

§ 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— 

(1) Increased by any risk adjustment 

charges paid by the issuer for the QHP 

under the risk adjustment program 

established under subpart D of this part. 

(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. 

■ 25. Section 153.610 is amended by 

adding paragraph (f) to read as follows: 

§ 153.610 Risk adjustment issuer 

requirements. 

* * * * * 

(f) Assessment and collection of user 

fees for HHS risk adjustment operations. 

Where HHS is operating risk adjustment 

on behalf of a State, an issuer of a risk 

adjustment covered plan (other than a 

student health plan or a plan not subject 

to 45 CFR 147.102, 147.104, 147.106, 

156.80, and subpart B of part 156) must, 

for each benefit year— 

(1) Submit or make accessible to HHS 

its monthly enrollment for the risk 

adjustment covered plan for the benefit 

year through the risk adjustment data 

collection approach established at 

§ 153.610(a), in a manner and timeframe 

specified by HHS; and 

(2) Remit to HHS an amount equal to 

the product of its monthly enrollment in 

the risk adjustment covered plan 

multiplied by the per-enrollee-permonth risk adjustment user fee specified 

in the annual HHS notice of benefit and 

payment parameters for the applicable 

benefit year. 

■ 26. Section 153.630 is added to 

subpart G to read as follows: 

§ 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 

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 paragraphs (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. 

■ 27. Subpart H is added to read as 

follows: 

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15532 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

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 

§ 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. 

§ 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 (or payment of 

cost sharing by the enrollee). 

(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. 

§ 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. 

§ 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 

■ 28. 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. 

■ 29. Section 155.20 is amended by— 

■ A. Revising the definitions of ‘‘Large 

employer’’ and ‘‘Small employer.’’ 

■ B. Adding definitions of ‘‘Federallyfacilitated Exchange,’’ ‘‘Federallyfacilitated SHOP,’’ and ‘‘Full-time 

employee’’ in alphabetical order. 

The revisions and additions read as 

follows: 

§ 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 

SHOP for which it is effective for plan 

years beginning on or after January 1, 

2014 and in connection with open 

enrollment activities beginning 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 large 

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) 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 

January 1, 2014 and in connection with 

open enrollment activities beginning 

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) 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 

January 1, 2014 and in connection with 

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open enrollment activities beginning 

October 1, 2013. 

* * * * * 

■ 30. Section 155.220 is amended by 

revising paragraph (b) to read as 

follows— 

§ 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. 

* * * * * 

■ 31. Section 155.305 is amended by 

revising paragraph (g)(3) to read as 

follows: 

§ 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 

§ 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 

§ 155.350(a) (the cost-sharing rule for 

Indians with household incomes under 

300 percent of the FPL). 

* * * * * 

■ 32. Section 155.330 is amended by 

adding paragraph (g) to read as follows: 

§ 155.330 Eligibility redetermination during 

a benefit year. 

* * * * * 

(g) Recalculation of advance 

payments of the premium tax credit and 

cost-sharing reductions. (1) When an 

eligibility redetermination in 

accordance with this section results in 

a change in the amount of advance 

payments of the premium tax credit for 

the benefit year, the Exchange must 

recalculate the amount of advance 

payments of the premium tax credit in 

such a manner as to— 

(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 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). 

(2) When an eligibility 

redetermination in accordance with this 

section results in a change in costsharing reductions, 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 

§ 155.305(g)(3)). 

■ 33. Section 155.340 is amended by 

adding paragraphs (e), (f), and (g) to read 

as follows: 

§ 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 among policies. 

If one or more advance payments of the 

premium tax credit are to be made on 

behalf of a tax filer (or two tax filers 

covered by the same plan(s)), and 

individuals in the tax filers’ tax 

households are enrolled in more than 

one QHP or stand-alone dental plan, 

then the advance payment 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 1.36B–3(e), for the QHP 

policies properly allocated to EHB must 

be allocated among the QHP policies in 

a reasonable and consistent manner 

specified by the Exchange; and 

(2) Any remaining advance payment 

of the premium tax credit must be 

allocated among the stand-alone dental 

policies in a reasonable and consistent 

manner specified by the Exchange. 

(f) Allocation of advance payments of 

the premium tax credit among policies 

offered through a Federally-facilitated 

Exchange. If one or more advance 

payments of the premium tax credit are 

to be made on behalf of a tax filer (or 

two tax filers covered by the same 

plan(s)), and individuals in the tax 

filers’ tax households are enrolled in 

more than one QHP or stand-alone 

dental plan offered through a Federallyfacilitated Exchange, then 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 1.36B–3(e), 

properly allocated to EHB for the QHP 

policies, will be allocated among the 

QHP policies, as described in 

§ 155.340(f)(1); and any remaining 

advance payment of the premium tax 

credit will be allocated among the 

stand-alone dental policies based on the 

methodology described in 

§ 155.340(f)(2). 

(1) That portion of the advance 

payment(s) of the premium tax credit to 

be allocated among QHP policies will be 

allocated based on the number of 

enrollees covered under the QHP, 

weighted by the age of the enrollees, 

using the default uniform age rating 

curve established by the Secretary of 

HHS under 45 CFR 147.102(e), with the 

portion allocated to any single QHP 

policy not to exceed the portion of the 

QHP’s adjusted monthly premium 

properly allocated to EHB. If the portion 

of the advance payment(s) of the 

premium tax credit allocated to a QHP 

under this subparagraph exceeds the 

portion of the same QHP’s adjusted 

monthly premium properly allocated to 

EHB, the remainder will be allocated 

evenly among all other QHPs in which 

individuals in the tax filers’ tax 

households are enrolled. 

(2) That portion of the advance 

payment(s) of the premium tax credit to 

be allocated among stand-alone dental 

policies will be allocated based on the 

number of enrollees covered under the 

stand-alone dental policy, weighted by 

the age of the enrollees, using the 

default uniform age rating curve 

established by the Secretary of HHS 

under 45 CFR 147.102(e), with the 

portion allocated to any single standalone dental policy not to exceed the 

portion of the stand-alone dental policy 

premium properly allocated to EHB. If 

the portion of the advance payment(s) of 

the premium tax credit allocated to a 

stand-alone dental policy under this 

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15534 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

subparagraph exceeds the portion of the 

same policy’s premium properly 

allocated to EHB, the remainder will be 

allocated evenly among all other standalone dental policies in which 

individuals in the tax filers’ tax 

households are enrolled. 

(g) 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 § 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— 

(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. 

■ 34. Section 155.705 is amended by 

revising paragraph (b)(3), (b)(10), and 

(b)(11) to read as follows: 

§ 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 

either: 

(A) All QHPs at the level of coverage 

selected by the employer as described in 

paragraph (b)(2) of this section, or 

(B) A single QHP. 

* * * * * 

(10) Participation rules. Subject to 

§ 147.104 of this subchapter, the SHOP 

may authorize uniform group 

participation rules for the offering of 

health insurance coverage in the SHOP. 

If the SHOP authorizes a minimum 

participation rate, such rate must be 

based on the rate of employee 

participation in the SHOP, not on the 

rate of employee participation in any 

particular QHP or QHPs of any 

particular issuer. 

(i) Subject to § 147.104 of this 

subchapter, 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 Federallyfacilitated 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) Premium calculator. In the 

SHOP, the premium calculator 

described in § 155.205(b)(6) must 

facilitate the comparison of available 

QHPs after the application of any 

applicable employer contribution in lieu 

of any advance payment of the premium 

tax credit and any cost sharing 

reductions. 

(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 serve 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) 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. 

(E) The resulting contribution 

amounts for each employee’s coverage 

may then be applied toward the QHP 

selected by the employee. 

■ 35. Section 155.1030 is added to read 

as follows: 

§ 155.1030 QHP certification standards 

related to advance payments of the 

premium tax credit and cost-sharing 

reductions. 

(a) Review of plan variations for costsharing reductions. (1) An Exchange 

must ensure that each issuer that offers, 

or intends 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 § 156.420 of this 

subchapter. The Exchange must certify 

that the plan variations meet the 

requirements of § 156.420. 

(2) The Exchange must provide to 

HHS the actuarial values of each QHP 

and silver plan variation, calculated 

under § 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 costsharing 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 § 156.470 of this 

subchapter, to ensure that such 

allocations meet the standards set forth 

in § 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 standalone dental plan offered, or intended 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 

§ 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 § 156.430 of 

this subchapter, and the oversight of the 

advance payments of cost-sharing 

reductions and premium tax credits 

programs. 

(c) Multi-State plans. The U.S. Office 

of Personnel Management will ensure 

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Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 15535 

compliance with the standards 

referenced in this section for multi-State 

plans, as defined in § 155.1000(a). 

PART 156—HEALTH INSURANCE 

ISSUER STANDARDS UNDER THE 

AFFORDABLE CARE ACT, INCLUDING 

STANDARDS RELATED TO 

EXCHANGES 

■ 36. 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). 

■ 37. Section 156.20 is amended by 

adding definitions for ‘‘Federallyfacilitated SHOP’’ and ‘‘Issuer group’’ in 

alphabetical order to read as follows: 

§ 156.20 Definitions. 

* * * * * 

Federally-facilitated SHOP has the 

meaning given to the term in § 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. 

* * * * * 

■ 38. Section 156.50 is amended by 

revising paragraph (b) and by adding 

paragraph (c) to read as follows: 

§ 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 § 155.160 of this subchapter. 

(c) Requirement for Federallyfacilitated Exchange user fee. To 

support the functions of Federallyfacilitated 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 

monthly user fee rate specified in the 

annual HHS notice of benefit and 

payment parameters for the applicable 

benefit year and the monthly premium 

charged by the issuer for each policy 

under the plan where enrollment is 

through a Federally-facilitated 

Exchange. 

■ 39. Section 156.200 is amended by 

adding paragraphs (f) and (g) to read as 

follows: 

§ 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 Federallyfacilitated 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 Federallyfacilitated 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 has a 

share of the small group market, as 

determined by HHS, greater than 20 

percent, based on the earned premiums 

submitted by all issuers in the State’s 

small group market, under § 158.110 of 

this subchapter, on the reporting date 

immediately preceding the due date of 

the application for QHP certification. 

■ 40. Section 156.215 is added to read 

as follows: 

§ 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] 

■ 41. Section 156.285 is amended by 

adding paragraph (c)(7) to read as 

follows: 

§ 156.285 Additional standards specific to 

SHOP. 

* * * * * 

(c) * * * 

(7) A QHP issuer must enroll a 

qualified employee only if the SHOP — 

(i) Notifies the QHP issuer that the 

employee is a qualified employee; and 

(ii) Transmits information to the QHP 

issuer as provided in § 155.400(a) of this 

subchapter. 

* * * * * 

■ 42. 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 costsharing 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 

§ 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 § 155.20 of this subchapter. 

Affordable Care Act has the meaning 

given to the term in § 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 

§ 156.140(c). 

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 

§ 155.300(a) of this subchapter. 

Indian has the meaning given to the 

term in § 155.300(a) of this subchapter. 

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Limited cost sharing plan variation 

means, with respect to a QHP at any 

level of coverage, the variation of such 

QHP described in § 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 § 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 § 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. 

Silver plan variation means, with 

respect to a standard silver plan, any of 

the variations of that standard silver 

plan described in § 156.420(a). 

Stand-alone dental plan means a plan 

offered through an Exchange under 

§ 155.1065 of this subchapter. 

Standard plan means a QHP offered 

at one of the four levels of coverage, 

defined at § 156.140, with an annual 

limitation on cost sharing that conforms 

to the requirements of § 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 § 156.420(b)(1). 

§ 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, pays 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 § 155.305(g)(2)(i), (ii), 

or (iii) of this subchapter (subject to the 

special rule for family policies set forth 

in § 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 § 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 § 155.350(a) of 

this subchapter (subject to the special 

rule for family policies set forth in 

§ 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 § 156.420(b)(1). 

(3) If the individual is determined by 

the Exchange to be eligible for costsharing reductions for Indians 

regardless of household income under 

§ 155.350(b) of this subchapter (subject 

to the special rule for family policies set 

forth in § 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 § 156.420(b)(2). 

(4) If the individual is determined by 

the Exchange not to be eligible for costsharing reductions (including eligibility 

under the special rule for family 

policies set forth in § 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. 

§ 156.420 Plan variations. 

(a) Submission of silver plan 

variations. For each of its silver health 

plans that an issuer offers, or intends 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 costsharing reductions under 

§ 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 costsharing reductions under 

§ 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 costsharing reductions under 

§ 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 § 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 offers, or intends to offer 

in 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 costsharing reductions under § 155.350(a) of 

this subchapter, a variation of the health 

plan with all cost sharing eliminated; 

and 

(2) For individuals eligible for costsharing reductions under § 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 

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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 outof-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 

§ 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 § 156.140(b)). 

(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. 

(g) Multi-state plans. The U.S. Office 

of Personnel Management will 

determine the time and manner for 

multi-State plans, as defined in 

§ 155.1000(a) of this subchapter, to 

submit silver plan variations, zero cost 

sharing plan variations, and limited cost 

sharing plan variations. 

§ 156.425 Changes in eligibility for costsharing 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 

§ 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 § 156.410(b) as 

of the effective date of eligibility 

required by the Exchange. 

(b) Continuity of deductible and outof-pocket amounts. In the case of a 

change in assignment to a different plan 

variation (or standard plan without costsharing 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. 

§ 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 

§ 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 intends 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. 

(4) Issuers of multi-State plans, as 

defined in § 155.1000(a) of this 

subchapter, must provide the estimates 

described in paragraphs (a)(1) and (2) of 

this section to the U.S. Office of 

Personnel Management, in the time and 

manner established by the U.S. Office of 

Personnel Management. 

(b) Advance payments for costsharing reductions. (1) 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. 

(2) HHS may adjust the advance 

payment amount for a particular QHP 

during the benefit year if the QHP issuer 

provides evidence, certified by a 

member of the American Academy of 

Actuaries in accordance with generally 

accepted actuarial principles and 

methodologies, that the advance 

payments for a particular QHP are likely 

to be substantially different than the 

cost-sharing reduction amounts that the 

QHP provides that will be reimbursed 

by HHS. 

(c) Submission of actual amounts. (1) 

General. For each plan variation that a 

QHP issuer offers on the Exchange, it 

must submit to HHS, in the manner and 

timeframe established by HHS, for each 

policy, the total allowed costs for 

essential health benefits charged for the 

policy for the benefit year, broken down 

by all of the following: 

(i) The amount the issuer paid. 

(ii) The amount the enrollee(s) paid. 

(iii) The amount the enrollee(s) would 

have paid under the standard plan 

without cost-sharing reductions. 

(2) Standard methodology. A QHP 

issuer must calculate the value of the 

amount the enrollee(s) would have paid 

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under the standard plan without costsharing reductions by applying the 

actual cost-sharing requirements for the 

standard plan to the allowed costs for 

essential health benefits under the 

enrollee’s policy for the benefit year. 

(3) [Reserved] 

(4) [Reserved] 

(5) Reimbursement of providers. In 

the case of a benefit for which the QHP 

issuer compensates an applicable 

provider in whole or in part on a feefor-service basis, allowed costs 

associated with the benefit may be 

included in the calculation of the 

amount that an enrollee(s) would have 

paid under the standard plan without 

cost-sharing reductions only to the 

extent the amount was either payable by 

the enrollee(s) as cost sharing under the 

plan variation or was reimbursed to the 

provider by the QHP issuer. 

(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 feefor-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 

cost-sharing reduction 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 

§ 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 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 cost-sharing 

reduction 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 

cost-sharing reduction 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 costsharing reductions provided during 

such period. 

(4) Subject to the requirements of the 

cost-sharing reduction 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 § 155.315(f) of this subchapter. 

(g) Prohibition on reduction in 

payments to Indian health providers. If 

an Indian is enrolled in a QHP in the 

individual market through an Exchange 

and is furnished an item or service 

directly by the Indian Health Service, an 

Indian Tribe, Tribal Organization, or 

Urban Indian Organization, or through 

referral under contract health services, 

the QHP issuer may not reduce the 

payment to any such entity for such 

item or service by the amount of any 

cost sharing that would be due from the 

Indian but for the prohibitions on cost 

sharing set forth in § 156.410(b)(2) and 

(3). 

§ 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 described in 

§ 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 standalone dental plans. 

(c) Child-only plans. The provisions 

of this subpart apply to child-only 

QHPs, described in § 156.200(c)(2). 

§ 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 § 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 § 155.340(a) of this 

subchapter that the QHP issuer will 

receive such advance payment. 

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§ 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 

intended 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 § 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 

intended 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 standalone 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 § 156.280(d)(1)); 

(3) Is consistent with the allocation 

applicable to State-required benefits to 

be submitted by the issuer under 

§ 155.170(c) of this subchapter, and the 

allocation requirements described in 

§ 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 standalone dental plans. The issuer must 

ensure that the dollar allocation 

described in paragraph (b) of this 

section is performed by a member of the 

American Academy of Actuaries in 

accordance with generally accepted 

actuarial principles and methodologies. 

(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 

intended to be offered, in the individual 

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. 

(f) Multi-State plans. Issuers of multiState plans, as defined in § 155.1000(a) 

of this subchapter, must submit the 

allocations and actuarial memorandum 

described in this section to the U.S. 

Office of Personnel Management, in the 

time and manner established by the U.S. 

Office of Personnel Management. 

PART 157—EMPLOYER 

INTERACTIONS WITH EXCHANGES 

AND SHOP PARTICIPATION 

■ 43. 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. 

■ 44. Section 157.20 is amended by 

adding the definitions for ‘‘Federallyfacilitated SHOP,’’ ‘‘Full-time 

employee,’’ and ‘‘Large employer’’ in 

alphabetical order to read as follows: 

§ 157.20 Definitions. 

* * * * * 

Federally-facilitated SHOP has the 

meaning given to the term in § 155.20 of 

this subchapter. 

Full-time employee has the meaning 

given to the term in § 155.20 of this 

subchapter. 

Large employer has the meaning given 

to the term in § 155.20 of this 

subchapter. 

* * * * * 

PART 158—ISSUER USE OF PREMIUM 

REVENUE: REPORTING AND REBATE 

REQUIREMENTS 

■ 45. 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. 

■ 46. Section 158.110 is amended by 

revising paragraph (b) to read as follows: 

§ 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. 

* * * * * 

■ 47. Section 158.130 is amended by 

adding paragraph (b)(5) to read as 

follows: 

§ 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. 

■ 48. Section 158.140 is amended by 

adding paragraph (b)(4)(ii) and revising 

paragraph (b)(5)(i) to read as follows: 

§ 158.140 Requirements for clinical 

services provided to enrollees. 

* * * * * 

(b) * * * 

(4) * * * 

(ii) Receipts related to the transitional 

reinsurance program and net payments 

or receipts related to risk adjustment 

and risk corridors 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. 

* * * * * 

■ 49. Section 158.161 is amended by 

revising paragraph (a) to read as follows: 

§ 158.161 Reporting of Federal and State 

licensing and regulatory fees. 

(a) Licensing and regulatory fees 

included. The report required in 

§ 158.110 must include statutory 

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15540 Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 

assessments to defray operating 

expenses of any State or Federal 

department, transitional reinsurance 

contributions assessed under section 

1341 of the Patient Protection and 

Affordable Care Act, 42 U.S.C. 18061, 

and examination fees in lieu of 

premium taxes as specified by State law. 

* * * * * 

■ 50. Section 158.162 is amended by 

revising paragraph (b)(1)(vii) and adding 

paragraph (b)(1)(viii) to read as follows: 

§ 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. 

* * * * * 

■ 51. Section 158.221 is amended by 

revising paragraph (c) to read as follows: 

§ 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 

§ 158.130, excluding the issuer’s Federal 

and State taxes and licensing and 

regulatory fees, described in 

§§ 158.161(a) and 158.162(a)(1) and 

(b)(1), and after accounting for payments 

or receipts related to risk adjustment, 

risk corridors, and reinsurance, 

described in § 158.130(b)(5). 

■ 52. Section 158.232 is amended by 

revising paragraph (c)(1)(i) and 

paragraph (d) introductory text to read 

as follows: 

§ 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: 

* * * * * 

■ 53. Section 158.240 is amended by 

revising paragraphs (c) and (d) to read 

as follows: 

§ 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 

issuer must rebate to the enrollee the 

total amount of premium revenue, as 

defined in § 158.130, received by the 

issuer from the enrollee, after 

subtracting Federal and State taxes and 

licensing and regulatory fees as 

provided in §§ 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 

§ 158.130(b)(5), multiplied by the 

difference between the MLR required by 

§ 158.210 or § 158.211, and the issuer’s 

MLR as calculated under § 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 a pro rata portion of taxes 

and fees and accounting for payments or 

receipts related to reinsurance, risk 

adjustment and risk corridors. If the 

issuer’s total earned premium for the 

MLR reporting year in the individual 

market in the State is $200,000, the 

issuer received transitional reinsurance 

payments of $2,500, and made net 

payments related to risk adjustment and 

risk corridors of $20,000, the issuer’s 

gross earned premium in the individual 

market in the State would be $200,000 

plus $2,500 minus $20,000, for a total of 

$182,500. If the issuer’s Federal and 

State taxes and licensing and regulatory 

fees, including reinsurance 

contributions, that may be excluded 

from premium revenue as described in 

§§ 158.161(a), 158.162(a)(1) and 

158.162(b)(1), allocated to the 

individual market in the State are 

$15,000, and the net payments related to 

risk adjustment and risk corridors, 

reduced by reinsurance receipts, that 

must be accounted for in premium 

revenue as described in 

§§ 158.130(b)(5), 158.221 and 158.240, 

are $17,500 ($20,000 reduced by 

$2,500), then the issuer would subtract 

$15,000 and add $17,500 to gross 

premium revenue of $182,500, for a base 

of $185,000 in premium. The issuer 

would owe rebates of 5 percent of 

$185,000, or $9,250 in the individual 

market in the State. In this example, if 

an enrollee of the issuer in the 

individual market in the State paid 

$2,000 in premiums for the MLR 

reporting year, or 1/100 of the issuer’s 

total premium in that State market, then 

the enrollee would be entitled to 1/100 

of the total rebates owed by the issuer, 

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. 

* * * * * 

■ 54. Section 158.241 is amended by 

revising paragraph (a)(2) to read as 

follows: 

§ 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 

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Federal Register / Vol. 78, No. 47 / Monday, March 11, 2013 / Rules and Regulations 15541 

applied to succeeding premium 

payments until the full amount of the 

rebate has been credited. 

* * * * * 

Dated: February 25, 2013. 

Marilyn Tavenner, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Approved: February 27, 2013. 

Kathleen Sebelius, 

Secretary, Department of Health and Human 

Services. 

[FR Doc. 2013–04902 Filed 3–1–13; 11:15 am] 

BILLING CODE 4120–01–P 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

45 CFR Parts 153 and 156 

[CMS–9964–IFC] 

RIN 0938–AR74 

Patient Protection and Affordable Care 

Act; Amendments to the HHS Notice of 

Benefit and Payment Parameters for 

2014 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), Department 

of Health and Human Services (HHS). 

ACTION: Interim final rule with 

comment. 

SUMMARY: This interim final rule with 

comment builds upon standards set 

forth in the HHS Notice of Benefit and 

Payment Parameters for 2014, published 

elsewhere in this issue of the Federal 

Register. This document will adjust risk 

corridors calculations that would align 

the calculations with the single risk 

pool provision, and set standards 

permitting issuers of qualified health 

plans the option of using an alternate 

methodology for calculating the value of 

cost-sharing reductions provided for the 

purpose of reconciliation of advance 

payments of cost-sharing reductions. 

DATES: Effective date: These regulations 

are effective on April 30, 2013. 

Comment date: To be assured 

consideration, comments must be 

received at one of the addresses 

provided below, no later than 5 p.m. on 

April 30, 2013. 

ADDRESSES: In commenting, please refer 

to file code CMS–9964–IFC. 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–IFC, 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–IFC, 

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, (301) 492–4286; Laurie 

McWright, (301) 492–4311; or Jeff Wu, 

(301) 492–4305, for general information. 

Jaya Ghildiyal, (301) 492–5149 for 

matters relating to risk corridors. 

Johanna Lauer, (301) 492–4397 for 

matters relating to cost-sharing 

reductions. 

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 be 

also 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 

A. Purpose 

B. Summary of Provisions 

C. Costs and Benefits 

II. Background 

III. Provisions of the Interim Final Rule 

A. Calculation of Allowable Costs for the 

Risk Corridors Program 

B. Submission of Actual Amounts of CostSharing Reductions 

IV. Waiver of Proposed Rulemaking 

V. Collection of Information Requirements 

VI. Response to Comments 

VII. Regulatory Impact Analysis 

I. Executive Summary 

A. Purpose 

Beginning in 2014, individuals and 

small businesses will be able to 

purchase private health insurance— 

qualified health plans—through 

competitive marketplaces, called 

Affordable Insurance Exchanges, 

‘‘Exchanges,’’ or ‘‘Marketplaces.’’ 

Section 1342 of the Affordable Care Act 

provides for a temporary risk corridors 

program. The program, which is 

Federally administered and in effect 

from 2014 through 2016, is intended to 

protect against uncertainty in rate 

setting for qualified health plans (QHPs) 

by limiting the extent of issuer losses 

and gains. In the rule entitled 

‘‘Standards Related to Reinsurance, Risk 

Adjustment and Risk Corridors’’ (77 FR 

17220) (Premium Stabilization Rule), we 

set forth a regulatory framework for this 

program. In the HHS Notice of Benefit 

and Payment Parameters for 2014 (2014 

Payment Notice) published elsewhere in 

this issue of the Federal Register, we 

expanded upon these standards, and 

stated that we are publishing this 

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