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[Federal Register Volume 78, Number 107 (Tuesday, June 4, 2013)]
[Rules and Regulations]
[Pages 33233-33240]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-13149]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Parts 155 and 156

[CMS-9964-F2]
RIN 0938-AR76

Patient Protection and Affordable Care Act; Establishment of 
Exchanges and Qualified Health Plans; Small Business Health Options 
Program

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rule.

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SUMMARY: This final rule implements provisions of the Patient 
Protection and Affordable Care Act and the Health Care and Education 
Reconciliation Act of 2010 (collectively referred to as the Affordable 
Care Act) related to the Small Business Health Options Program (SHOP). 
Specifically, this final rule amends existing regulations regarding 
triggering events and special enrollment periods for qualified 
employees and their dependents and implements a transitional policy 
regarding employees' choice of qualified health plans (QHPs) in the 
SHOP.

DATES: These regulations are effective on July 1, 2013.

FOR FURTHER INFORMATION CONTACT: Leigha Basini at (301) 492-4307.

SUPPLEMENTARY INFORMATION:

I. Executive Summary

    Beginning in 2014, individuals and small businesses will be able to 
purchase private health insurance through competitive marketplaces, 
called Affordable Insurance Exchanges or ``Exchanges'' (also called 
Health Insurance Marketplaces). Section 1311(b)(1)(B) of the Affordable 
Care Act contemplates that in each State there will be a SHOP that 
assists qualified employers in providing health insurance options for 
their employees. The final rule, Patient Protection and Affordable Care 
Act; Establishment of Exchanges and Qualified Health Plans; Exchange 
Standards for Employers (Exchange Establishment Rule),\1\ as modified 
by the Notice of Benefit and Payment Parameters for 2014,\2\ sets forth 
standards for the administration of SHOP Exchanges. In this rule, we 
finalize provisions proposed in the Establishment of Exchanges and 
Qualified Health Plans; Small Business Health Options Program Notice of 
Proposed Rule Making,\3\ which amends some of the standards established 
in the Exchange Establishment Rule.
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    \1\ Patient Protection and Affordable Care Act; Establishment of 
Exchanges and Qualified Health Plans; Exchange Standards for 
Employers, 77 FR 18310 (March 27, 2012) (to be codified at 45 CFR 
parts 155, 156, & 157).
    \2\ Patient Protection and Affordable Care Act; CMS Notice of 
Benefit and Payment Parameters for 2014, 78 FR 15410 (March 11, 
2013) (to be codified at 45 CFR parts 153, 155, 156, 157, & 158).
    \3\ Patient Protection and Affordable Care Act; Establishment of 
Exchanges and Qualified Health Plans; Small Business Health Options 
Program, 77 FR 15553 (March 11, 2013) (to be codified at 45 CFR 
parts 155 & 156).
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    In the Exchange Establishment Rule, we established standards for 
special enrollment periods for people enrolled through an individual 
market Exchange, and provided that, in most instances, a special 
enrollment period is 60 days from the date of the triggering event. See 
45 CFR 155.420. We also made these provisions applicable to SHOPs, at 
Sec.  155.725(a)(3). In the proposed rule we proposed and this final 
rule amends, the special enrollment period for the SHOP to 30 days for 
most applicable triggering events, so that it aligns with the special 
enrollment periods for the group market established by the Health 
Insurance Portability and Accountability Act of 1996 (HIPAA).\4\ To 
further align the SHOP provisions with HIPAA, we also proposed that if 
an employee or dependent becomes eligible for premium assistance under 
Medicaid or the Children's Health Insurance Program (CHIP) or loses 
eligibility for Medicaid or CHIP, this would be a triggering event, and 
the employee or dependent would have a 60-day special enrollment period 
to select a QHP. This triggering event had previously been 
inadvertently omitted from the regulations because it applies only to 
group health plans and health insurance coverage in the group market. 
We also proposed to make a conforming change to Sec.  156.285(b)(2), so 
that this section references the SHOP special enrollment periods in a 
way that is consistent with our proposed changes to Sec.  155.725.
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    \4\ HIPAA added section 9801(f) to the Internal Revenue Code 
(the Code), section 701(f) to the Employee Retirement Income 
Security Act (ERISA), and section 2704(f) to the Public Health 
Service Act.
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    In the Exchange Establishment Rule, we also set forth the minimum 
functions of a SHOP, including that the SHOP must allow employers the 
option to offer employees all QHPs at a level of coverage chosen by the 
employer, and that the SHOP may allow employers to offer one or more 
QHPs to qualified employees by other methods. We proposed and are now 
finalizing the following transitional policy. For plan years beginning 
on or after January 1, 2014 and before January 1, 2015, a SHOP will not 
be required to permit qualified employers to offer their qualified 
employees a choice of QHPs at a single level of coverage, but will have 
the option of doing so. Federally-facilitated SHOPs (FF-SHOPs) will not 
exercise this option, but will instead allow employers to choose a 
single QHP from the choices available in FF-SHOP to offer their 
qualified employees. This transitional policy is intended to provide 
additional time to prepare for an employee choice model and to increase 
the stability of the small group market while providing small groups 
with the benefits of SHOP in 2014 (such as a choice among competing 
QHPs and access for qualifying small employers to the small business 
health care tax credit). We also proposed changes to the effective date 
of the SHOP premium aggregation function set forth at Sec.  
155.705(b)(4) in the Exchange Establishment Rule consistent with this 
transitional policy, which we are finalizing in this rule.

II. Background

A. Legislative Overview

    Section 1311(b) of the Affordable Care Act establishes that there 
will be a SHOP in each State to assist qualified small employers in 
providing health insurance options to their employees.
    Section 1311(c)(6) of the Affordable Care Act sets forth that the 
Secretary of Health and Human Services (HHS) shall direct Exchanges to 
provide for special enrollment periods. Section 155.420 of the Exchange 
Establishment Rule established special enrollment periods for the 
individual market, and Sec.  155.725(a)(3) established them for the 
SHOP.
    Section 1312(a)(2) of the Affordable Care Act provides that 
qualified employers may offer qualified employees a choice among all 
QHPs at a level of coverage chosen by the employer. Section 
1312(f)(2)(A) defines a qualified employer as a small employer that 
elects to make all full-time employees of such employer eligible for 
one or more QHPs offered in the small group market through an Exchange 
that offers QHPs. The Exchange Establishment Rule set forth standards 
for the SHOP and implemented section 1312 at 45 CFR, part 155, subpart 
H.

B. Stakeholder Consultation and Input

    HHS has consulted with a wide range of interested stakeholders on 
policy matters related to the SHOP, including through regular 
conversations with the

[[Page 33234]]

National Association of Insurance Commissioners (NAIC), employers, 
health insurance issuers, trade groups, consumer advocates, agents and 
brokers, and other interested parties. HHS has also held many 
consultations with States about the SHOP, both individually and through 
group conversations. HHS received many comments in response to the 
Exchange Establishment proposed rule,\5\ including comments regarding 
the statutory provisions on SHOP employee choice and special enrollment 
periods for employees and their dependents, to which we responded in 
the Exchange Establishment Rule. HHS also received comments in response 
to the December 2012 Notice of Benefit and Payment Parameters for 2014 
proposed rule,\6\ to which we responded in the Notice of Benefit and 
Payment Parameters for 2014 final rule (78 FR 15410). We considered 
these stakeholder comments in developing this final rule.
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    \5\ Patient Protection and Affordable Care Act; Establishment of 
Exchanges and Qualified Health Plans; Proposed Rule, 76 FR 41866 
(July 15, 2011) (to be codified at 45 CFR parts 155 & 156).
    \6\ Patient Protection and Affordable Care Act; HHS Notice of 
Benefit and Payment Parameters for 2014; Proposed Rule, 77 FR 73118 
(December 7, 2012) (to be codified at 45 CFR parts 153, 155, 156, 
157, & 158).
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C. Structure of the Final Rule

    The regulations outlined in this final rule will be codified in 45 
CFR parts 155 and 156. The provisions in part 155 outline the standards 
relative to the establishment, operation, and functions of Exchanges, 
including the SHOP. The provisions in part 156 outline the health 
insurance issuer standards under the Affordable Care Act, including 
standards related to Exchanges and SHOPs.
    This final rule finalizes provisions set forth in the March 11, 
2013 proposed rule (78 FR 15553).

III. Provisions of the Proposed Rule and Responses to Public Comments

    We received 40 comments to the proposed rule, including comments 
from consumer advocacy groups, health care providers, employers, health 
insurers, health care associations, Members of Congress, 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. We have carefully considered these comments in finalizing 
this rule.
    Brief summaries of each proposed provision, a summary of the public 
comments we received and our responses to the comments are as follows. 
We received a number of comments that fall outside the scope of these 
regulations, which we do not address in this final rule.
    The following summarizes comments about the rule, in general, or 
regarding issues not contained in specific provisions:
    Comment: Two commenters suggested that HHS should revisit Sec.  
156.200(g), as finalized in the Notice of Benefit and Payment 
Parameters for 2014. Section 156.200(g) is a QHP certification 
requirement linking, or tying, federally-facilitated Exchange and FF-
SHOP participation. Generally, the certification requirement applies 
when an issuer or a member of the same issuer group as the issuer 
(defined at Sec.  156.20 as a group under common ownership and control, 
or using a common national service mark) has a share of the small group 
market in a State with a federally-facilitated Exchange/FF-SHOP that 
exceeds 20 percent, as determined from the most recent earned premiums 
data reported to HHS. .Specifically, the certification requirement 
applies in the following circumstances: We interpret Sec.  
156.200(g)(1) to require that issuers that have greater than 20 percent 
small group market share offer at least one silver-level QHP and one 
gold-level QHP through the FF-SHOP as a condition of participation in 
the federally facilitated individual market Exchange.
    We also interpret Sec.  156.200(g)(1) to require that issuers that 
do not have greater than 20 percent market share in a State's small 
group market, but that are members of an issuer group that has at least 
one member with greater than 20 percent market share, have to offer the 
required silver and gold level coverage through the SHOP as a condition 
of participation in the individual market Exchange.
    Under Sec.  156.200(g)(2), issuers that do not offer small group 
market products in a State, but that are members of an issuer group 
that has at least one member with greater than 20 percent market share, 
would not have to offer the required SHOP coverage themselves. Instead, 
another issuer in that issuer's group would do so, and in light of the 
fact that we intend the tying provision to fall primarily on issuers 
with greater than 20 percent market share, we interpret Sec.  
156.200(g)(2) to require that the issuer meeting the requirement in 
these circumstances be an issuer whose small group market share exceeds 
20 percent.
    The commenters on this certification requirement stated that tying 
Exchange participation to SHOP participation could lead to higher costs 
in the SHOPs and may have a disparate effect on larger issuers in the 
small group market.
    Response: Section 156.200(g) has been finalized and will apply in 
the 2014 plan year. HHS intends to evaluate in future years the effect 
this certification standard is having generally on a State's small 
group market and specifically on employee choice in SHOPs.

A. Part 155--Exchange Establishment Standards and Other Related 
Standards Under the Affordable Care Act

1. Subpart H--Exchange Functions: Small Business Health Options Program 
(SHOP)
a. Functions of a SHOP (Sec.  155.705)
    Facilitating employee choice at a single level of coverage selected 
by the employer--bronze, silver, gold, or platinum--is a required SHOP 
function established in the Exchange Establishment Rule (45 CFR 
155.705(b)(2)) and discussed in greater detail in the preamble to the 
December 2012 HHS Notice of Benefit and Payment Parameters for 2014 
proposed rule. In addition, the rules permit SHOPs to allow a qualified 
employer to choose one QHP for employees (Sec.  155.705(b)(3)).
    When we proposed this policy, we also sought comments on a 
transitional policy in which a FF-SHOP would allow employers to offer 
to their employees a single QHP from those offered through the SHOP (77 
FR 73184). A few commenters suggested that each FF-SHOP should provide 
employee choice. Most commenters on this issue, however, supported 
allowing employers to choose a single QHP option for employees, either 
as an additional option or as the only option in the initial years of 
the FF-SHOP. The commenters who supported providing a qualified 
employer only the option choosing a single QHP to offer in the initial 
years of FF-SHOP operation cited several concerns, including the 
following: whether issuers could meet the deadlines for submission of 
small group market QHPs given the new small group market rating rules; 
whether issuers could complete enrollment and accounting system changes 
required to interact with the SHOP enrollment and premium aggregation 
systems required by employee choice. The commenters stated that issuer 
efforts to prepare and price QHPs for an employee choice environment 
and to make the systems and operational changes required for SHOP 
enrollment and premium

[[Page 33235]]

aggregation could compete with efforts to prepare for participation in 
the Exchange (both individual and SHOP).
    In light of these concerns, we concluded in the final HHS Notice of 
Benefit and Payment Parameters for 2014 that the FF-SHOP would provide 
employers the choice of offering only a single QHP, as employers 
customarily do today, in addition to the choice of offering all QHPs at 
a single level of coverage.
    To respond to these comments we proposed a transition policy until 
2015 that allows, but does not require implementation of the employee 
choice model for all SHOPs. We also proposed that FF-SHOPs should 
assist qualified employers in offering qualified employees a single QHP 
choice for plan years beginning during calendar year 2014.
    The Exchange Establishment Rule also included a premium aggregation 
function for the SHOP that was designed to assist employers whose 
employees were enrolled in multiple QHPs. Because this function will 
not be necessary in 2014 for SHOPs that delay implementation of the 
employee choice model, we also proposed at Sec.  155.705(b)(4) that the 
premium aggregation function be optional for plan years beginning 
before January 1, 2015.
    Specifically, we proposed amendments to Sec.  155.705(b)(2), 
(b)(3), and (b)(4) providing as follows: (1) The effective date of the 
employer choice requirements at Sec.  155.705(b)(2) and the premium 
aggregation requirements at Sec.  155.705(b)(4) for both State-based 
SHOPs and FF-SHOPs will be January 1, 2015; (2) State-based SHOPs could 
elect to offer employee choice and perform premium aggregation for plan 
years beginning before January 1, 2015, but need not do so; and (3) FF-
SHOPs will begin to offer employee choice and premium aggregation in 
plan years beginning on or after January 1, 2015. We received the 
following comments concerning these proposals.
    Comment: Many commenters expressed support for the proposed 
transition policy for both the employer choice requirement of Sec.  
155.705(b)(2) and the premium aggregation requirement of Sec.  
155.705(b)(4), stating that the transition would provide the additional 
time needed to build the systems necessary to ensure the success of 
employee choice and premium aggregation. Other commenters opposed the 
delay, believing that transitioning to employee choice would undermine 
the value proposition of the SHOP in any State that exercised this 
option and reduce enrollment in the SHOP. One commenter suggested that 
during the transitional policy SHOPs operate under a simplified 
implementation that does not include a web portal and plan comparison 
tool.
    Response: Section 1312 of the Affordable Care Act permits an 
employer to select a level of coverage and an employee to have the 
choice of enrolling in any qualified health plan that offers coverage 
at that level. We have serious concerns that issuers would not be 
operationally ready to offer QHPs through the SHOP if we implemented 
employee choice for 2014.
    As described in the proposed rule, HHS proposed a transitional 
period for employee choice and premium aggregation in the SHOP based on 
comments issuers made about whether issuers could complete the 
enrollment and accounting system changes required to interact with the 
SHOP enrollment and premium aggregation systems required by employee 
choice and whether issuers could meet the deadlines for submission of 
small group market QHPs.
    As finalized at 45 CFR 147.102, the new rating rules for coverage 
beginning on January 1, 2014 significantly reform rating practices in 
many States. In comments to the Final Notice of Benefit and Payment 
Parameters for 2014, issuers expressed concern that implementation of 
employee choice would complicate SHOP pricing in light of the 
compressed timeframe for finalizing rates because employee choice may 
significantly modify the population expected to participate in a plan 
in a manner that will be difficult for issuers to predict.
    In other comments to the Exchange Establishment Rule and Notice of 
Benefit and Payment Parameters for 2014, issuers also expressed concern 
with the compressed timeline for completing the modifications to their 
information technology systems necessitated by employee choice and 
premium aggregation. For example, many health insurance issuers expect 
that their accounting and enrollment systems will be the sole system of 
record. Integrating such a system into a SHOP with employee choice and 
premium aggregation might require additional modifications to the 
system, as the system must be synchronized with the SHOP's enrollment 
and accounting systems and responsibility for determining certain group 
changes in enrollment and billing might be effectuated by the SHOP 
instead of the issuer.
    Issuers also expressed concern that there would be inadequate time 
to educate employers, employees, and agents and brokers about how they 
are expected to interact with the SHOP. For example, issuers noted that 
they accommodate many of the unique needs of small businesses through 
changes in enrollment at the time of payment. Under employee choice and 
premium aggregation, some standardization of these processes is 
necessary because an employee group may interact with a variety of 
carriers, each potentially with its own set of rules. Issuers suggested 
that they needed additional time to educate employers and agents and 
brokers about these new standardized processes.
    We believe that even in SHOPs that elect to transition to employee 
choice, there is still significant value to the SHOP for small 
employers when compared to the small group market outside the SHOP and 
therefore significant value to operating a SHOP under this transitional 
policy. Employers participating in the SHOP may qualify for a small 
business health care tax credit of up to 50 percent of the employer 
paid premium cost of coverage. The SHOP will still provide employers 
with a streamlined comparison of health plans from multiple health 
insurance issuers, assistance modeling employee contributions, and 
real-time premium quotes. These benefits would not be available to 
employers under simplified implementation suggested by one commenter. 
Further, plans sold on the SHOP must be certified as QHPs, meaning that 
they must meet minimum standards in order for issuers to sell them on 
the SHOP. We believe that because of this strong value proposition, the 
SHOP may still have robust enrollment despite the adoption of this 
transitional policy.
    Comment: Some commenters suggested that HHS further delay full 
implementation of employee choice and extend the transitional period 
for up to five years. Two commenters suggested that HHS test employee 
choice and premium aggregation in a few States to study their effect on 
the small group market before requiring their implementation in every 
SHOP.
    Response: We believe a one-year transitional period best addresses 
these concerns, as it provides issuers with a year's worth of 
experience under the new small group rating methodology, gives issuers 
significantly more time to design and implement the modifications to 
their systems necessary for employee choice and premium aggregation, 
and allows additional time for education and outreach about employee 
choice.
    HHS will monitor through any information provided under Sec.  
155.720(i)

[[Page 33236]]

the effect of implementing employee choice in States that elect to 
implement it in 2014. This process will provide much of the systematic 
testing suggested by commenters.
    Comment: Some commenters suggested that HHS use the additional time 
afforded to SHOPs to implement employee choice under the proposed rule 
to further streamline the paperwork and regulatory burden on employers 
and to streamline other Exchange-related employer reporting 
requirements.
    Response: We received comments on the ``Data Collection to Support 
Eligibility Determinations and Enrollment for Employees in the Small 
Business Health Options Program'' Paperwork Reduction Act packages 
through both the 60-day Federal Register Notice published on January 
29, 2013 (78 FR 6109) and the 30-day Federal Register Notice published 
on July 6, 2012 (77 FR 40061). These comments helped us to reduce the 
burden of SHOP applications on small employers by streamlining the 
application form. HHS has used these opportunities to create 
application questions for determining an employer's size that are 
easier for an employer to understand. HHS, the Departments of Labor, 
and the Treasury continue to explore methods to minimize any employer 
burden.
    Comment: One commenter requested HHS clarify how the proposed FF-
SHOP transitional employee choice policy would affect the ability of 
employers to offer stand-alone pediatric dental coverage in the FF-
SHOP.
    Response: We do not believe that the transitional employee choice 
policy would prevent an employer from selecting and offering a single 
stand-alone dental plan in addition to a QHP.
    Comment: Some commenters requested that HHS clarify how the 
transitional employee choice policy would affect the employer 
contribution methodology for the FF-SHOP that was issued in the Notice 
of Benefit and Payment Parameters for 2014 and codified at Sec.  
155.705(b)(11)(ii), as these commenters suggested the purpose of this 
contribution model may no longer be pertinent without employee choice, 
specifically the ability to calculate composite premiums.
    Response: This rule does not modify the premium contribution 
methodology codified in Sec.  155.705(b)(11)(ii), which permits either 
State law or employers to require the FF-SHOP to base contributions on 
a calculated composite premium for employees. In the case of the FF-
SHOP before 2015 operating with the employee choice transitional 
policy, we now clarify that the benchmark plan selected by the employer 
will be the single QHP offered by the employer to its employees, 
simplifying this process for the employer.
    Comment: One commenter supporting the FF-SHOP transitional employee 
choice policy questioned how the delay of premium aggregation would 
affect the collection of user fees from QHP issuers participating in 
the FF-SHOP.
    Response: We do not believe this transitional employee choice 
policy will impact the collection of user fees from QHP issuers 
participating in the FF-SHOP. We noted in the preamble to the Notice of 
Benefit and Payment Parameters for 2014 (78 FR 15496) that we 
anticipate user fees for the FF-SHOP to be collected in the same manner 
as they will be collected for the FFE. We anticipate collecting user 
fees by deducting the user fee from the federally-administered 
Exchange-related program payments. If a QHP issuer does not receive any 
Exchange-related program payments, the issuer would be billed for the 
user fee on a monthly basis and receive an invoice as described in the 
``Supporting Statement for Paperwork Reduction Act Submissions: Initial 
Plan Data Collection to Support QHP Certification and other Financial 
Management and Exchange Operations'' posted on the CMS Web site in 
conjunction with the Federal Register Notice (77 FR 40061).
b. Enrollment Periods Under SHOP (Sec.  155.725)
    The Exchange Establishment Rule established special enrollment 
periods for Exchanges serving the individual market (Sec.  155.420), 
and the SHOP regulations adopted most of these provisions by reference 
(Sec.  155.725(a)(3)). Under these regulations, unless specifically 
stated otherwise in the regulations, a qualified individual has 60 days 
from the date of the triggering event to select a QHP (Sec.  
155.420(c)).
    This SHOP provision differs from the length of special enrollment 
periods in group markets provided by HIPAA, which last for 30 days 
after loss of eligibility for other group health plan or health 
insurance coverage or after a person becomes a dependent through 
marriage, birth, adoption, or placement for adoption.\7\ Because we 
believe that there is no rationale for providing a longer special 
enrollment period in a SHOP than is provided in the group market 
outside the SHOP, we proposed amendments to Sec.  155.725 to clarify 
that a qualified employee or dependent of a qualified employee who has 
obtained coverage through the SHOP would have 30 days from the date of 
most of the triggering events specified in Sec.  155.420 to select a 
QHP. Additionally, consistent with revisions to HIPAA enacted by 
section 311 of the Children's Health Insurance Program Reauthorization 
Act of 2009 (CHIPRA) (Pub. L. 111-3, enacted on February 4, 2009), we 
proposed that a qualified employee or dependent of a qualified employee 
who has lost eligibility for Medicaid or CHIP coverage, or who has 
become eligible for State premium assistance under a Medicaid or CHIP 
program would be eligible for a special enrollment period in a SHOP and 
would have 60 days from the date of the triggering event to select a 
QHP. Specifically, we proposed striking Sec.  155.725(a)(3) and adding 
a new paragraph (j) consolidating the proposed SHOP special enrollment 
provisions in one paragraph. We proposed a provision clarifying that a 
dependent of a qualified employee is eligible for a special enrollment 
period only if the employer offers coverage to dependents of qualified 
employees. We also proposed paragraphs (j)(5) and (j)(6) that retain 
certain provisions relating to effective dates of coverage and loss of 
minimum essential coverage from the original Sec.  155.420. We proposed 
conforming revisions to Sec.  156.285(b)(2), so that provision would 
reference the special enrollment periods in proposed Sec.  155.725(j) 
instead of those set forth at Sec.  155.420. We believe these changes 
appropriately align the SHOP provisions with provisions applicable to 
the rest of the group market, and welcome comment on the proposal. We 
received the following comments concerning these proposals.
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    \7\ See 26 CFR 54.9801-6, 29 CFR 2590.701-6, and 45 CFR 146.117 
for regulations regarding special enrollment periods under HIPAA.
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    Comment: We received many comments supporting the proposed 
alignment of the length of special enrollment periods in the SHOP with 
the small group market at large. Some of these commenters stated that 
aligning with the existing market standards will reduce confusion, 
simplify public education, and prevent adverse selection. However, some 
commenters were concerned that reducing the length of special 
enrollment periods may not provide sufficient time for an employee to 
understand and compare the plan or plans offered to the employee. These 
commenters were particularly concerned that an employee choice model 
would require additional time for an employee to make an informed 
decision, as employees would have

[[Page 33237]]

many more plans to compare before making a decision.
    Response: We believe that even with the employee choice model, the 
existing HIPAA standard for the length of special enrollment periods 
reduces confusion and balances an employee's need for sufficient time 
to review his or her plan options while limiting the potential for 
adverse selection. Today, many employers, agents and brokers, and 
employees are familiar with the existing HIPAA standard. Maintaining a 
policy inconsistent with the HIPAA standard would be confusing to many 
employers, agents and brokers, and employees, as they may rationally 
expect the market standard to apply inside the SHOP.
    Additionally, with the assistance of the SHOP, employees will have 
online tools that will assist them in easily viewing and comparing 
information regarding the premium cost and benefits of their plan 
options. These tools were specifically designed to assist employees in 
making an informed decision when presented with a large number of 
plans. Therefore, we believe that the employee choice model does not 
inherently require that employees have additional time to make a plan 
selection.
c. Provisions for the Additional Standards Specific to SHOP
    In Sec.  156.285, we proposed requiring QHPs in the SHOP to provide 
the special enrollment periods added to Sec.  155.725. While we 
received many comments on the proposed special enrollment periods, we 
received no comments on this conforming amendment. We are finalizing 
this provision as proposed.

IV. Provisions of the Final Regulations

    This final rule incorporates the provisions of the proposed rule, 
and we are finalizing these provisions primarily as proposed.

V. Collection of Information Requirements

    This final rule has not imposed new or altered existing information 
collection and recordkeeping requirements. Consequently, it need not be 
reviewed by the Office of Management and Budget under the authority of 
the Paperwork Reduction Act of 1995.

VI. Regulatory Impact Analysis

    We have examined the impact of this final rule as required by 
Executive Order 12866 on Regulatory Planning and Review (September 30, 
1993) and 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). A 
regulatory impact analysis (RIA) must be prepared for major rules with 
economically significant effects ($100 million or more in any 1 year). 
It is HHS's belief that this final rule does not reach this economic 
threshold and thus is not considered a major rule.
    This final rule consists of a provision to amend the duration of 
certain special enrollment periods to correspond to the duration in 
group markets under HIPAA. The rule also adds a triggering event that 
creates a special enrollment period for qualified employees and/or 
their eligible dependents when an employee or qualified dependent with 
coverage through the SHOP becomes eligible for State premium assistance 
under Medicaid or CHIP or loses eligibility for Medicaid or CHIP. 
HIPAA, as revised by CHIPRA, already includes this triggering event, 
which was inadvertently omitted from the original list in Sec.  
155.420(d). We do not believe either of these actions would impose any 
new costs on issuers, employers, enrollees, or the SHOP. In fact, the 
amendment would create alignment of SHOP regulations with laws for the 
existing group market and could potentially create efficiencies for QHP 
issuers.
    Finally, this rule provides a transition so that SHOPs provide 
qualified employers the option to offer qualified employees a choice of 
any QHP at a single metal level starting with plan years beginning on 
or after January 1, 2015, instead of January 1, 2014. For plan years 
beginning in CY 2014, qualified employers will offer qualified 
employees coverage through a single QHP in FF-SHOPs; State-based SHOPs 
will have the flexibility to offer either employer or employee choice 
in 2014. In our analysis of the impact of employer and employee choices 
in the Notice of Benefit and Payment Parameters for 2014 final rule (78 
FR 15410), we noted that adding the option for employers to offer a 
single QHP would have the potential effect of reducing adverse 
selection and any associated risk premium and a slight effect of 
decreasing the consumer benefit resulting from choice. We believe the 
same analysis applies to our proposal to provide employer choice in 
2014.
    Issuers will incur costs adapting their enrollment and financial 
systems to interact with a SHOPs enrollment and premium aggregation 
systems. The costs and benefits of Exchange and SHOP implementation 
were assessed in the RIA for the Exchange Establishment final rule, 
titled Patient Protection and Affordable Care Act; Establishment of 
Exchanges and Qualified Health Plans, Exchange Standards for Employers 
and Standards Related to Reinsurance, Risk Corridors and Risk 
Adjustment Regulatory Impact Analysis (Exchange RIA).\8\ Because 
issuers may now have an additional year to develop these systems and 
may thus be able to stage their efforts rather than implementing all 
system changes by October 1, 2013, we believe that the total cost will 
be unchanged.
---------------------------------------------------------------------------

    \8\ Patient Protection and Affordable Care Act; Establishment of 
Exchanges and Qualified Health Plans, Exchange Standards for 
Employers and Standards Related to Reinsurance, Risk Corridors and 
Risk Adjustment Regulatory Impact Analysis, March 2012. Available 
at: http://cciio.cms.gov/resources/files/Files2/03162012/hie3r-ria-032012.pdf.
---------------------------------------------------------------------------

    From the Exchange perspective, in the Exchange RIA, we noted that a 
State-based Exchange could incur costs in establishing a premium 
aggregation function for the SHOP. Therefore, the policy in this final 
rule could decrease costs to States that operate a State-based Exchange 
for the 2014 plan year.

VII. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) 
requires agencies to prepare an initial regulatory flexibility analysis 
to describe the impact of the rule on small entities, unless the head 
of the agency can certify that the rule would not have a significant 
economic impact on a substantial number of small entities. The RFA 
generally defines a ``small entity'' as--(1) A proprietary firm meeting 
the size standards of the Small Business Administration (SBA); (2) a 
not-for-profit organization that is not dominant in its field; or (3) a 
small government jurisdiction with a population of less than 50,000. 
States and individuals are not included in the definition of ``small 
entity.'' HHS uses as its measure of significant economic impact on a 
substantial number of small entities a change in revenues of more than 
3 percent.

[[Page 33238]]

    The RFA requires agencies to analyze options for regulatory relief 
of small businesses, if a rule has a significant impact on a 
substantial number of small entities. For purposes of the RFA, small 
entities include small businesses, nonprofit organizations, and small 
government jurisdictions. Small businesses are those with sizes below 
thresholds established by the SBA. For the purposes of the regulatory 
flexibility analysis, we expect the following types of entities to be 
affected by this proposed rule: (1) Small employers and (2) QHP 
issuers.
    As discussed in Health Insurance Issuers Implementing Medical Loss 
Ratio (MLR) Requirements Under the Patient Protection and Affordable 
Care Act; Interim Final Rule,\9\ few, if any, issuers are small enough 
to fall below the size thresholds for small business established by the 
SBA. In that rule, we used a data set created from 2009 NAIC Health and 
Life Blank annual financial statement data to develop an updated 
estimate of the number of small entities that offer comprehensive major 
medical coverage in the individual and group markets. For purposes of 
that analysis, HHS used total Accident and Health earned premiums as a 
proxy for annual receipts. We estimated that there are 28 small 
entities with less than $7 million in accident and health earned 
premiums offering individual or group comprehensive major medical 
coverage.\10\ However, this estimate may overstate the actual number of 
small health insurance issuers offering such coverage, since it does 
not include receipts from these companies' other lines of business. We 
further estimate that any issuers that would be considered small 
businesses are likely to be subsidiaries of larger issuers that are not 
small businesses.
---------------------------------------------------------------------------

    \9\ Health Insurance Issuers Implementing Medical Loss Ratio 
(MLR) Requirements Under the Patient Protection and Affordable Care 
Act; Interim Final Rule, 75 FR 74864, 74918-20 (December 1, 2010) 
(codified at 45 CFR part 158).
    \10\ According to SBA size standards, entities with average 
annual receipts of $7 million or less would be considered small 
entities for North American Industry Classification System (NAICS) 
Code 524114 (Direct Health and Medical Insurance Carriers). For more 
information, see ``Table of Size Standards Matched To North American 
Industry Classification System Codes,'' effective March 26, 2012, 
U.S. Small Business Administration, available at http://www.sba.gov.
---------------------------------------------------------------------------

    The SHOP is limited by statute to employers with at least one but 
not more than 100 employees. Until 2016, States have the option to 
reduce this threshold to 50. For this reason, we expect that many 
employers would meet the SBA standard for small entities. We do not 
believe that this rule imposes requirements on employers offering 
coverage through the SHOP that are more restrictive than current 
requirements on employers offering employer-sponsored health insurance. 
Specifically, small employers are currently required to offer the 
special enrollment period that the final rule applies to eligible 
employees and dependents with coverage through the SHOP, and the 
triggering event that the final rule applies to eligible individuals 
and dependents, as well. The rule merely applies existing standards to 
the SHOP. Additionally, the transitional policy regarding employee 
choice does not impose new requirements on small employers because most 
small employers currently offer only one health insurance plan to their 
employees.
    Therefore, we are not preparing an analysis for the RFA because we 
have determined, and the Secretary certifies, that this final rule will 
not have a significant economic impact on a substantial number of small 
entities.

VIII. 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 proposed rule (and subsequent 
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. UMRA does not address the total cost of a 
rule. Rather, it focuses on certain categories of costs, mainly those 
``federal mandate'' costs resulting from: (1) Imposing enforceable 
duties on State, local, or tribal governments, or on the private 
sector; or (2) increasing the stringency of conditions in, or 
decreasing the funding of, State, local, or tribal governments under 
entitlement programs.
    This rule does not place any financial mandates on State, local, or 
tribal governments. It applies a triggering event and special 
enrollment period to coverage through the SHOP, modifies the duration 
of certain special enrollment periods, and implements employee choice 
in the SHOP starting with plan years beginning on or after January 1, 
2015. These amendments would affect State governments only to the 
extent that they operate a SHOP and, if they are affected, would not 
place any new financial mandates on them.

IX. Federalism

    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct costs on State and local 
governments, preempts State law, or otherwise has Federalism 
implications. This rule does not impose any costs on State or local 
governments not otherwise imposed by already-finalized provisions of 
the regulations implementing the Affordable Care Act.
    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 NAIC, and consulting with State insurance 
officials on an individual basis. We believe that this rule does not 
impose substantial direct costs on State and local governments, preempt 
State law, or otherwise have federalism implications. We note that we 
have attempted to provide States that choose to operate a SHOP with 
flexibility such that States may, if they choose, offer employee choice 
beginning with plan years starting on or after January 1, 2014, or they 
may implement this policy in plan years starting on or after January 1, 
2015.
    Under the requirements set forth in section 8(a) of Executive Order 
13132, and by the signatures affixed to this regulation, the Department 
of Health and Human Services certifies that CMS has complied with the 
requirements of Executive Order 13132 for the attached proposed 
regulation in a meaningful and timely manner.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

X. Congressional Review Act

    The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the 
Small Business Regulatory Enforcement Fairness Act of 1996, generally 
provides that before a rule may take effect, the agency promulgating 
the rule must submit a rule report, which includes a copy of the rule, 
to each House of the Congress and to the Comptroller General of the 
United States. HHS will submit a report containing this rule and other 
required information to the U.S. Senate, the U.S. House of 
Representatives, and the Comptroller General of the United

[[Page 33239]]

States prior to publication of the rule in the Federal Register. This 
final rule is not a ``major rule'' as defined by 5 U.S.C. 804(2).

List of Subjects

45 CFR Part 155

    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 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, 
Indians, Individuals with disabilities, Loan programs--health, 
Organization and functions (Government agencies), Medicaid, Public 
assistance programs, Reporting and recordkeeping requirements, Safety, 
State and local governments, Sunshine Act, Technical assistance, Women, 
and Youth.

    For the reasons set forth in the preamble, the Department of Health 
and Human Services amends 45 CFR parts 155 and 156 as set forth below:

PART 155--EXCHANGE ESTABLISHMENT STANDARDS AND OTHER RELATED 
STANDARDS UNDER THE AFFORDABLE CARE ACT

0
1. The authority citation for part 155 continues to read as follows:

    Authority: Title I of the Affordable Care Act, sections 1301, 
1302, 1303, 1304, 1311, 1312, 1313, 1321, 1322, 1331, 1334, 1402, 
1411, 1412, 1413.

0
2. Section 155.705 is amended by revising paragraphs (b)(2) through (4) 
to read as follows:

Sec.  155.705  Functions of a SHOP.

* * * * *
    (b) * * *
    (2) Employer choice requirements. With regard to QHPs offered 
through the SHOP for plan years beginning on or after January 1, 2015, 
the SHOP must allow a qualified employer to select a level of coverage 
as described in section 1302(d)(1) of the Affordable Care Act, in which 
all QHPs within that level are made available to the qualified 
employees of the employer.
    (3) SHOP options with respect to employer choice requirements. (i) 
For plan years beginning before January 1, 2015, a SHOP may allow a 
qualified employer to make one or more QHPs available to qualified 
employees:
    (A) By the method described in paragraph (b)(2) of this section, or
    (B) By a method other than the method described in paragraph (b)(2) 
of this section.
    (ii) For plan years beginning on or after January 1, 2015, a SHOP:
    (A) Must allow an employer to make available to qualified employees 
all QHPs at the level of coverage selected by the employer as described 
in paragraph (b)(2) of this section, and
    (B) May allow an 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.
    (iii) For plan years beginning before January 1, 2015, a Federally-
facilitated SHOP will provide a qualified employer the choice to make 
available to qualified employees a single QHP.
    (iv) For plan years beginning on or after January 1, 2015, a 
Federally-facilitated SHOP will provide a qualified employer a choice 
of two methods to make QHPs available to qualified employees:
    (A) The employer may choose a level of coverage as described in 
paragraph (b)(2) of this section, or
    (B) The employer may choose a single QHP.
    (4)(i) Premium aggregation. Consistent with the effective dates set 
forth in paragraph (b)(4)(ii) of this section, the SHOP must perform 
the following functions related to premium payment administration:
    (A) Provide each qualified employer with a bill on a monthly basis 
that identifies the employer contribution, the employee contribution, 
and the total amount that is due to the QHP issuers from the qualified 
employer;
    (B) Collect from each employer the total amount due and make 
payments to QHP issuers in the SHOP for all enrollees; and
    (C) Maintain books, records, documents, and other evidence of 
accounting procedures and practices of the premium aggregation program 
for each benefit year for at least 10 years.
    (ii) Effective dates. (A) A State-based SHOP may elect to perform 
these functions for plan years beginning before January 1, 2015, but 
need not do so.
    (B) A Federally-facilitated SHOP will perform these functions only 
in plan years beginning on or after January 1, 2015.
* * * * *

0
3. Section 155.725 is amended by:
0
A. Amending paragraph (a)(1) by adding ``and'' at the end of the 
paragraph.
0
B. Amending paragraph (a)(2) by removing ``; and'' and by adding a 
period in its place at the end of the paragraph.
0
C. Removing paragraph (a)(3), and
0
D. Adding paragraph (j).
    The addition reads as follows:

Sec.  155.725  Enrollment periods under SHOP.

* * * * *
    (j)(1) Special enrollment periods. The SHOP must provide special 
enrollment periods consistent with this section, during which certain 
qualified employees or a dependent of a qualified employee may enroll 
in QHPs and enrollees may change QHPs.
    (2) The SHOP must provide a special enrollment period for a 
qualified employee or dependent of a qualified employee who:
    (i) Experiences an event described in Sec.  155.420(d)(1), (2), 
(4), (5), (7), (8), or (9);
    (ii) Loses eligibility for coverage under a Medicaid plan under 
title XIX of the Social Security Act or a State child health plan under 
title XXI of the Social Security Act; or
    (iii) Becomes eligible for assistance, with respect to coverage 
under a SHOP, under such Medicaid plan or a State child health plan 
(including any waiver or demonstration project conducted under or in 
relation to such a plan).
    (3) A qualified employee or dependent of a qualified employee who 
experiences a qualifying event described in paragraph (j)(2) of this 
section has:
    (i) Thirty (30) days from the date of a triggering event described 
in paragraph (j)(2)(i) of this section to select a QHP through the 
SHOP; and
    (ii) Sixty (60) days from the date of a triggering event described 
in paragraph (j)(2)(ii) or (iii) of this section to select a QHP 
through the SHOP;
    (4) A dependent of a qualified employee is not eligible for a 
special election period if the employer does not extend the offer of 
coverage to dependents.
    (5) The effective dates of coverage are determined using the 
provisions of Sec.  155.420(b).

[[Page 33240]]

    (6) Loss of minimum essential coverage is determined using the 
provisions of Sec.  155.420(e).

PART 156--HEALTH INSURANCE ISSUER STANDARDS UNDER THE AFFORDABLE 
CARE ACT, INCLUDING STANDARDS RELATED TO EXCHANGES

0
4. The authority citation for part 156 continues to read as follows:

    Authority: Title I of the Affordable Care Act, sections 1301-
1304, 1311-1312, 1321, 1322, 1324, 1334, 1341-1343, and 1401-1402, 
Pub l. 111-148, 124 Stat. 119 (42 U.S.C. 18042).

0
5. Section 156.285 is amended by revising paragraph (b)(2) to read as 
follows:

Sec.  156.285  Additional standards specific to SHOP.

* * * * *
    (b) * * *
    (2) Provide special enrollment periods as described in Sec.  
155.725(j);
* * * * *

    Dated: May 13, 2013.
Marilyn Tavenner,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: May 15, 2013
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2013-13149 Filed 5-31-13; 11:15 am]
BILLING CODE 4120-01-P
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