###### Editorial Note on [Part 422](/current/title-42/part-422?toc=1)

#### Editorial Note:

Nomenclature changes to part 422 appear at [70 FR 4741](https://www.federalregister.gov/citation/70-FR-4741), Jan. 28, 2005.

#### § 422.2440 Credibility adjustment.

(a) An MA organization may add the credibility adjustment specified under [paragraph (e)](/on/2024-09-17/title-42/section-422.2440#p-422.2440(e)) of this section to a contract's MLR if the contract's experience is partially credible, as defined in [paragraph (d)(1)](/on/2024-09-17/title-42/section-422.2440#p-422.2440(d)(1)) of this section.

(b) An MA organization may not add a credibility adjustment to a contract's MLR if the contract's experience is fully credible, as defined in [paragraph (d)(2)](/on/2024-09-17/title-42/section-422.2440#p-422.2440(d)(2)) of this section.

(c) For those contract years for which a contract has non-credible experience, as defined in [paragraph (d)(3)](/on/2024-09-17/title-42/section-422.2440#p-422.2440(d)(3)) of this section, sanctions under [§ 422.2410(b)](/on/2024-09-17/title-42/section-422.2410#p-422.2410(b)) through [(d)](/on/2024-09-17/title-42/section-422.2410#p-422.2410(d)) will not apply.

(d)

(1) A contract's experience is partially credible if it is based on the experience of at least 2,400 member months and fewer than or equal to 180,000 member months.

(2) A contract's experience is fully credible if it is based on the experience of more than 180,000 member months.

(3) A contract's experience is non-credible if it is based on the experience of fewer than 2,400 member months.

(e)

(1) The credibility adjustment for a partially credible MA contract, other than an MSA contract, is equal to the base credibility factor determined under [paragraph (f)](/on/2024-09-17/title-42/section-422.2440#p-422.2440(f)) of this section.

(2) The credibility adjustment for a partially credible MA MSA contract is the product of the base credibility factor, as determined under [paragraph (f)](/on/2024-09-17/title-42/section-422.2440#p-422.2440(f)) of this section, multiplied by the deductible factor, as determined under [paragraph (g)](/on/2024-09-17/title-42/section-422.2440#p-422.2440(g)) of this section.

(f) The base credibility factor for partially credible experience is determined based on the number of member months for all enrollees under the contract and the factors shown in Table 1 of this section. When the number of member months used to determine credibility exactly matches a member month category listed in Table 1 of this section, the value associated with that number of member months is the base credibility factor. The base credibility factor for a number of member months between the values shown in Table 1 of this section is determined by linear interpolation.

(g) The deductible factor is based on the enrollment-weighted average deductible for all MSA plans under the MA MSA contract, where the deductible for each plan under the contract is weighted by the plan's portion of the total number of member months for all plans under the contract. When the weighted average deductible exactly matches a deductible category listed in Table 2 of this section, the value associated with that deductible is the deductible factor. The deductible factor for a weighted average deductible between the values shown in Table 2 of section is determined by linear interpolation.

Table 1 to [§ 422.2440](/on/2024-09-17/title-42/section-422.2440)—Base Credibility Factors for MA Contracts

| Member months | Base credibility factor (additional percentage points) |
| --- | --- |
| <2,400 | N/A (Non-credible). |
| 2,400 | 8.4%. |
| 6,000 | 5.3%. |
| 12,000 | 3.7%. |
| 24,000 | 2.6%. |
| 60,000 | 1.7%. |
| 120,000 | 1.2%. |
| 180,000 | 1.0%. |
| >180,000 | 0.0% (Fully credible). |

Table 2 to [§ 422.2440](/on/2024-09-17/title-42/section-422.2440)—Deductible Factors for MA MSA Contracts

| Weighted average deductible | Deductible factor |
| --- | --- |
| <$2,500 | 1.000 |
| $2,500 | 1.164 |
| $5,000 | 1.402 |
| ≥$10,000 | 1.736 |

[[85 FR 33908](https://www.federalregister.gov/citation/85-FR-33908), June 2, 2020]