[Federal Register Volume 77, Number 55 (Wednesday, March 21, 2012)]
[Rules and Regulations]
[Pages 16453-16470]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-6359]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Parts 144, 147, and 158

CMS-9981-F

RIN 0938-AQ95


Student Health Insurance Coverage

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

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This final rule establishes requirements for student health 
insurance coverage under the Public Health Service (PHS) Act and the 
Patient Protection and Affordable Care Act (Affordable Care Act). The 
final rule defines ``student health insurance coverage'' as a type of 
individual health insurance coverage, and specifies that certain PHS 
Act requirements are inapplicable to this type of individual health 
insurance coverage. This final rule also amends the medical loss ratio 
and annual limits requirements for student health insurance coverage 
under the PHS Act.

DATES: Effective Date. This rule is effective on April 20, 2012.
    Applicability Dates. The amendment to 45 CFR Part 147 applies to 
student health insurance coverage for policy years beginning on or 
after July 1, 2012. The amendments to 45 CFR Part 158 apply beginning 
January 1, 2013, to health insurance issuers offering student health 
insurance coverage.

FOR FURTHER INFORMATION CONTACT: Robert Imes, (410) 786-1565.

SUPPLEMENTARY INFORMATION:

I. Background

    The Patient Protection and Affordable Care Act (Pub. L. 111-148) 
was enacted on March 23, 2010, and the Health Care and Education 
Reconciliation Act of 2010 (Pub. L. 111-152) was enacted on March 30, 
2010. We refer to the two statutes collectively as the Affordable Care 
Act. The Affordable Care Act reorganizes, amends, and adds to the 
provisions of Part A of Title XXVII of the Public Health Service (PHS) 
Act relating to group health plans and health insurance issuers in the 
group and individual markets.

[[Page 16454]]

    Section 1560(c) of the Affordable Care Act provides that ``nothing 
in this title (or an amendment made by this title) shall be construed 
to prohibit an institution of higher education (as such term is defined 
for purposes of the Higher Education Act of 1965) from offering a 
student health insurance plan, to the extent that such requirement is 
otherwise permitted under applicable Federal, State, or local law.''
    On February 11, 2011, we published a proposed rule (76 FR 7767) 
regarding section 1560(c) entitled ``Student Health Insurance 
Coverage.'' In the preamble of the proposed rule, we explained that we 
interpreted section 1560(c) to mean that if particular requirements in 
the Affordable Care Act would have, as a practical matter, the effect 
of prohibiting an institution of higher education from offering a 
student health plan otherwise permitted under Federal, State or local 
law, such requirements would be inapplicable pursuant to section 
1560(c). Accordingly, the proposed rule defined ``student health 
insurance coverage'' and specified that a small number of individual 
market requirements in the PHS Act and the Affordable Care Act would 
not apply to student health insurance coverage. We also asked for 
comments on how other Affordable Care Act requirements should apply in 
the case of student health insurance coverage. We received 
approximately one hundred comments in response to the proposed rule. 
They include comments from institutions of higher education and their 
associations, students and student organizations, faculty members, 
consumer organizations, health insurance issuers, and brokers.

II. Provisions of the Proposed Rule

    The February 11, 2011 proposed rule included the following:
    Definition. The proposed rule defined student health insurance 
coverage as a type of individual market health insurance coverage 
offered to students and their dependents under a written agreement 
between an institution of higher education and an issuer. Student 
health insurance coverage could not be offered to individuals other 
than students and their dependents, could not condition eligibility 
based on health status, and had to satisfy any additional requirements 
imposed under State law.
    Exemptions from the PHS Act. The proposed rule would exempt student 
health insurance coverage from the guaranteed availability requirement 
of PHS Act section 2741(e)(1) and the guaranteed renewability 
requirement of PHS Act section 2742(b)(5). The proposed rule also would 
provide that student health insurance coverage could not establish an 
annual dollar limit on coverage lower than $100,000 for policy years 
beginning prior to September 23, 2012. The proposed rule would apply 
the generally applicable annual dollar limit requirements for 
individual health insurance coverage for subsequent policy years.
    Student Administrative Health Fees. The proposed rule would clarify 
that student administrative health fees were not cost-sharing for 
purposes of PHS Act section 2713, which requires that certain 
preventive services be covered without cost-sharing. Student 
administrative health fees were defined as fees charged by institutions 
of higher education on a periodic basis to provide health care through 
school clinics, regardless of whether students utilize the clinics or 
enroll in student health insurance coverage.
    Notice. The proposed rule would require that issuers give students 
a notice informing them of their coverage's exceptions from the 
specified PHS Act requirements. The notice would have to be prominently 
displayed in 14-point bold type on the front of the insurance policy or 
certificate and any other plan materials. Model language was provided.
    Applicability. The proposed rule would be applicable to student 
health insurance coverage for policy years beginning on or after 
January 1, 2012.

III. Analysis of and Responses to Public Comments

    We carefully considered all of the comments in drafting this final 
rule. The major comments are summarized below with our responses.

A. Definition of Student Health Insurance Coverage (Sec.  147.145 (a))

    Comment: We received several comments concerning the proposed 
definition of student health insurance coverage in Sec.  147.145(a). An 
issuer, a college association and a student advocacy group noted that, 
in addition to individual universities, consortia of universities and 
State boards of regents sometimes sponsor student health insurance 
coverage plans. In addition, they noted that student associations have 
sponsored insurance plans. A broker asked for clarification whether 
student health insurance coverage could encompass coverage sold to 
students attending high school. A college association requested 
clarification on what individuals can be included as dependents under 
student health insurance coverage. Lastly, an issuer proposed that 
temporary continuations of coverage following loss of student status be 
limited to 90 days.
    Response: The proposed definition of student health insurance 
coverage would not prevent consortia of universities or State boards of 
regents from acting on behalf of an institution of higher education in 
entering into a written agreement with an issuer to provide student 
health insurance coverage since those bodies are either a collection of 
universities or part of the university system. Student associations 
sponsoring insurance plans are not institutions of higher education 
under the Higher Education Act of 1965, and therefore such coverage 
would not be student health coverage within the meaning of the proposed 
rule. However, depending on their circumstances, student associations 
may qualify as bona fide associations under Sec.  144.103 which would 
allow them to be exempt from the current PHS Act guaranteed 
availability and guaranteed renewability requirements. The proposed 
definition would not include coverage provided under an agreement 
between an issuer and a high school, as the definition of an 
institution of higher education under the Higher Education Act does not 
include secondary institutions.
    As discussed in the proposed rule's preamble, student health 
insurance plans have flexibility in determining which dependents, if 
any, are eligible for coverage under their plan terms. Similarly, 
student health insurance plans would have discretion under the proposed 
rule to allow temporary continuations of coverage upon events such as 
the loss of student status. For example, while a 90-day extension would 
be reasonable to allow a graduating student to transition to other 
coverage, a very lengthy extension, such as a 12-month extension, would 
not be consistent with the proposed requirement of Sec.  147.145(a) 
that eligibility for student health insurance coverage be limited to 
students and their dependents. We are therefore adopting the proposed 
definition of student health insurance coverage in the final rule 
without change.
    Comment: Nine colleges and universities urged that we allow student 
coverage, at least in some instances, to continue to be offered as 
short-term limited duration coverage. These commenters noted the 
temporary nature of student coverage, the fact that universities 
generally were issued a new policy each year, and the cost of 
compliance with the Affordable Care Act. Further, some universities and 
issuers asserted that student coverage

[[Page 16455]]

was not intended to provide comprehensive coverage and should rather be 
seen as part of the universities' risk mitigation strategies. A 
consumer group supported defining student health insurance as 
individual health insurance and noted the definition's consistency with 
past CMS statements. A higher education association recommended that 
any short-term limited duration policies issued to students be required 
to disclose that they do not comply with Affordable Care Act 
provisions.
    Response: As discussed in the proposed rule's preamble, we 
understand that in the past many issuers have claimed that student 
health insurance coverage was short-term limited duration coverage and 
have not complied with the PHS Act. To that effect, issuers sometimes 
included coverage terms that were only minutes short of one year and 
placed disclaimers on the front pages of policies asserting non-
renewable and short-term limited duration status. However, in practice, 
these policies often--(1) Allowed students to renew coverage as long as 
their schools had chosen to retain the policy (and, in some cases, the 
issuers cooperated with the universities in automatically renewing 
students who did not affirmatively opt out); (2) had significant 
numbers of students keep coverage for longer than one year; and (3) in 
some cases, even based annual and lifetime dollar limitations and 
preexisting condition exclusion limitation periods on students' 
coverage under the policies from the same issuer during prior academic 
years.
    The effective date of this rule is intended to provide issuers and 
universities that operated with a reasonable belief that their policies 
were short-term limited duration coverage to come into compliance with 
the Affordable Care Act and the PHS Act. While there may be instances 
where short-term limited duration coverage is appropriately sold to 
students--for instance, foreign students studying for only one semester 
in the United States or U.S. citizens studying abroad for one summer--
the short-term limited duration model does not apply to coverage that a 
student could have through the same health insurance issuer for one or 
more years during the course of his or her undergraduate or graduate 
education. CMS, along with the States, will monitor issuers' compliance 
with properly classifying student health insurance coverage following 
the effective date of this rule. Further, we point out that CMS has 
authority to impose penalties on health insurance issuers for failures 
to comply with the requirements of the PHS Act.
    Comment: In the proposed rule, we specifically requested comments 
on the prevalence, structure, and State regulation of self-funded 
student health plans, given that the PHS Act does not provide authority 
for HHS to regulate such plans. In response, three consumer advocacy 
groups asked that we affirmatively encourage States to regulate self-
funded student health plans to the extent permissible under Federal and 
State law. One issuer asserted that colleges would self-fund student 
health plans in response to a determination that insured student health 
plans fall under the Affordable Care Act, in order to avoid some of the 
requirements of the Affordable Care Act.
    Response: From the comments to the proposed rule, it appears that 
there are approximately 200,000 students covered through student health 
plan arrangements that are self-funded through colleges and 
universities. While some commenters would prefer uniform regulation of 
all student plans; as stated in the proposed rule's preamble, however, 
we do not have the authority to regulate self-funded student health 
plans. The PHS Act and the Affordable Care Act give HHS regulatory 
authority over health insurance issuers in the group and individual 
markets and over non-Federal governmental group health plans, but self-
funded student health plans do not fit into these categories. The 
proposed rule acknowledged that because self-funded student health 
plans are neither health insurance coverage nor group health plans, as 
those terms are defined in the PHS Act, HHS has no authority to 
regulate them, including extending Affordable Care Act policies to 
them. As explained in the proposed rule, these self-funded student 
health plans may be regulated by the States.

B. Exemptions From the Public Health Service Act (Sec.  147.145(b))

    Comment: Nine issuers and four universities were concerned that 
eliminating annual and lifetime dollar limits would result in dramatic 
premium hikes for student plans and that many students will not be able 
to afford insurance. As a result, some commenters asserted that this 
elimination would cause universities to stop sponsoring student health 
insurance plans. An issuer opined that smaller schools would not have 
sufficiently large enrollments that could generate the premiums 
necessary to cover the risk exposure from unlimited maximums on plan 
dollar limits. These commenters proposed alternatives such as a slower 
phase-in of the annual limits rules, a permanent exception from these 
rules, and a waiver program under which universities could request 
exceptions from the generally-applicable rules.
    Conversely, seven commenters, including some universities and 
consumer interest groups, supported the elimination of annual and 
lifetime dollar limits on student health insurance plans without a 
phase-in. Two commenters noted that while few students even come close 
to meeting these limits, the uncovered medical expenses could be 
catastrophic for those that do.
    Response: In recognition of the considerable increase from $100,000 
to $2 million in one year and in response to these comments, we have 
modified the proposed rule to the following schedule for restrictions 
on annual dollar limits--(1) annual limits of no less than $100,000 for 
policy years beginning on or after July 1, 2012 but before September 
23, 2012; (2) annual limits of no less than $500,000 for policy years 
beginning on or after September 23, 2012, but before January 1, 2014; 
and (3) consistent with section 2711, no annual dollar limits for 
policy years beginning on or after January 1, 2014. The $500,000 annual 
dollar limit requirement for policy years beginning on or after 
September 23, 2012 provides student health insurance coverage a more 
gradual transition to full compliance with PHS Act section 2711 in 2014 
but also protects students from catastrophic claims except in extreme 
cases. This schedule ensures persons with student health insurance 
coverage will be more fully protected from catastrophic claims within a 
few years, while allowing any costs associated with this important 
protection to be incorporated gradually. We point out that the student 
policies likely to see premium increases from this requirement are 
those policies that currently leave students with very significant 
financial exposure in the event of illness or accident.
    Comment: Commenters, including universities, brokers, and issuers, 
generally recommended that preventive service coverage be provided at 
student health centers, unless referrals were needed to other 
providers. Industry and university commenters noted that student health 
insurance coverage benefits typically coordinate with services offered 
at the student health center and that this coordination eliminates 
duplication of benefits and makes student plans more affordable. 
Industry commenters noted that student health fees, separate from the 
student

[[Page 16456]]

health insurance coverage premiums, often cover access to certain 
preventive services from campus providers for both students enrolled in 
student health insurance coverage and other students who may have other 
or no coverage.
    Response: Student health insurance coverage must include the 
preventive services specified under PHS Act section 2713 and the 
implementing regulations (45 CFR Sec.  147.140). However, PHS Act 
section 2713 and the implementing regulations do not prevent student 
health insurance coverage from coordinating with student health centers 
to ensure the provision of these services. For example, an issuer can 
arrange for a student health center to serve as its in-network provider 
where students could receive preventive services without cost-sharing. 
This final rule also retains the clarification that student 
administrative health fees are not cost-sharing under section 2713 of 
the PHS Act. Student administrative health fees are those that are 
charged to all students enrolled at a college or university, regardless 
of whether a student enrolls in student health coverage or utilizes any 
services offered by the clinic, which gives all students access to a 
student health clinic's services and supports a number of services and 
activities that foster a healthier campus community.
    Comment: Most commenters asserted that it would be inappropriate to 
apply section 2719A, which allows choice of certain health care 
professionals, to student health insurance coverage because of the 
unique nature of the student health system environment. More than two 
dozen commenters, including industry, university and consumer interest 
groups, noted the need to preserve the student health centers' role in 
providing care to students. Commenters emphasized the fact that student 
health insurance coverage's benefits are customized to take into 
account the services available from campus providers. Commenters also 
noted that campus providers serve as gatekeepers for care and as 
medical homes. Conversely, one consumer group asserted that it was not 
necessary to grant an exception from section 2719A to student health 
insurance coverage because students already are incentivized to use the 
geographically closest providers. Additionally, a consumer advocacy 
group noted that students would also need adequate access to health 
care when away from campus.
    Response: The proposed rule does not prevent a student health 
insurance plan from designating providers at a student health center as 
its in-network providers and allowing students to choose from among 
those providers for purposes of satisfying section 2719A, provided that 
the centers have sufficient provider capacity and range of services 
available to support this designation. We believe that this provides an 
adequate incentive for students to obtain health care at the student 
health clinic while they are on campus, while also providing them with 
choice of providers when away from campus. We also note that student 
health centers vary in capacity and design, and some are not equipped 
to provide emergency services. Therefore, the final rule does not 
modify the proposed rule to grant student health insurance coverage 
exceptions from the provider choice requirements of section 2719A.
    Comment: Commenters offered various approaches concerning how 
grandfather status should apply to student health insurance coverage. A 
university proposed that grandfather status apply to student health 
insurance coverage in the same manner that it applies to other 
individual health insurance coverage. Other commenters including 
issuers and brokers asserted that special treatment regarding 
grandfather status was advisable because issuers and universities were 
not able to predict the direction of this rule in advance and because 
the effective date of this rule as proposed (that is, policy years 
beginning on or after January 1, 2012) is much later than the 
Affordable Care Act's general date (March 23, 2010) for determining 
grandfather status. Commenters requested accommodations such as--(1) 
assessing grandfather status based on the student plan in place for the 
academic year 2011-2012; (2) setting grandfather status based on 
whether a university had the same or a similar policy within the 
parameters of the grandfather rule, not on a student-by-student basis, 
as a straight-forward application of the individual market rules would 
dictate; and (3) allowing issuers and universities a limited 
opportunity to revoke benefit changes that otherwise would trigger loss 
of grandfather status.
    Response: While we understand the unique issues regarding 
grandfather status of student health insurance coverage, we do not have 
the legal discretion to alter the generally applicable grandfather 
rules. Grandfathering rules apply to health insurance issuers and plans 
across all markets. The rule defines student health insurance coverage 
to be a form of individual market coverage, and as such, grandfather 
status is determined as to the coverage in which each individual 
student was enrolled on March 23, 2010. Any coverage in which an 
individual student is newly enrolled after March 23, 2010 is non-
grandfathered.
    Comment: In response to the NPRM, a public health group, a women's 
rights organization, a student organization from a religiously-
affiliated university, and an individual student commented on the 
importance of student health insurance coverage including benefits for 
contraception. The student organization and the individual student 
specifically noted that their schools' plans excluded coverage for 
contraceptive methods.
    Subsequent to the NPRM on student health insurance coverage, on 
August 3, 2011, CMS, along with the Department of Labor and the 
Department of the Treasury (the Departments), published interim final 
rules (IFR) with request for comments (76 FR 46621) amending the 
Interim Final Rules Relating to Coverage of Preventive Services, 
codified at 45 CFR Sec.  147.130. The August 3, 2011 amended IFR 
provided the Health Resources and Services Administration (HRSA) 
authority to exempt group health plans established or maintained by 
certain religious employers (and group health insurance coverage 
provided in connection with those group health plans) from any 
requirement to cover contraceptives required as a result of any HRSA 
guidelines.
    In response to the August 3, 2011 amended IFR, the Departments 
received comments from a council of religiously-affiliated schools and 
from numerous religious-affiliated colleges and universities requesting 
that, among other suggestions, the exemption be broadened to include 
plans that meet the definition of a church plan under section 414(e) of 
the Internal Revenue Code and also to include student health insurance 
plans facilitated by religiously-affiliated colleges and universities. 
Conversely, the Departments received comments from women's advocacy 
organizations and from a constitutional rights organization requesting 
that the exemption either be stricken from the IFR or at least 
narrowed.
    Response: With respect to certain non-profit institutions of higher 
education with religious objections to covering contraceptive services 
whose student health insurance plans are not grandfathered health 
plans, if the college or university and its student health insurance 
plan satisfy the terms applicable to an employer and its group health 
plan (and group health insurance coverage provided in connection with

[[Page 16457]]

that group health plan) under the Guidance released on February 10, 
2012, establishing a temporary one-year enforcement safe harbor for 
group health plans established or maintained by certain non-profit, 
non-exempt employers with religious objections to covering 
contraceptive services (and group health insurance coverage provided in 
connection with those group health plans),\1\ the college or university 
and the issuer of the student health insurance coverage will also be 
subject to the temporary one-year enforcement safe harbor, and 
contraceptive benefits will not have to be provided in its student 
health insurance plan until policy years beginning on or after August 
1, 2013. Satisfaction of such terms includes sending the requisite 
notice to the students enrolled in the student health insurance plan 
and the institution of higher education maintaining on file the 
requisite self-certification.
---------------------------------------------------------------------------

    \1\ ``Guidance on the Temporary Enforcement Safe Harbor for 
Certain Employers, Group Health Plans and Group Health Insurance 
Issuers with Respect to the Requirement to Cover Contraceptive 
Services Without Cost Sharing Under Section 2713 of the Public 
Health Service Act, Section 715(a)(1) of the Employee Retirement 
Income Security Act, and Section 9815(a)(1) of the Internal Revenue 
Code'', February 10, 2012, which can be found at: http://cciio.cms.gov/resources/files/Files2/02102012/20120210-Preventive-Services-Bulletin.pdf.
---------------------------------------------------------------------------

    Before the end of the temporary enforcement safe harbor, the 
Departments will work with stakeholders to develop alternative ways of 
providing contraceptive coverage without cost-sharing to students of 
non-profit religious institutions of higher education with religious 
objections to such coverage. Specifically, the Departments plan to 
initiate rulemaking to require issuers to offer student health 
insurance plans without contraceptive coverage through such an 
institution and simultaneously to offer contraceptive coverage without 
cost-sharing directly to the student health insurance plan enrollees 
(and their dependents). Under this approach, the Department also will 
require that, in this circumstance, there be no charge for the 
contraceptive coverage. Actuaries, economists and experts have found 
that coverage of contraceptives is at least cost neutral when taking 
into account all costs and benefits in the health plan.

C. Notice (Sec.  147.145(d))

    Comment: While commenters uniformly supported a notice requirement 
concerning how student health insurance coverage differs from other 
individual market coverage, they had various recommendations concerning 
the notice's content and appearance. Some consumer groups agreed with 
the proposed rule's specific approach. Other commenters, including 
provider associations, consumer advocacy groups and issuers, submitted 
a range of proposed changes to the notice, including that it--(1) Use 
terms likely to be understood by enrollees, such as using ``new health 
reform law'' in place of ``PHS Act''; (2) provide contact information 
for State or local consumer assistance services; (3) clearly list 
exceptions from the PHS Act and the Affordable Care Act in a bulleted 
fashion; (4) be limited to one sentence in length; (5) use a 
conspicuous font and display; (6) permit font and display to conform 
more to the style of the document into which it is incorporated; (7) be 
provided in languages other than English; and (8) be allowed to be 
posted on schools' intranets. One consumer group suggested that notice 
regarding the special rules on guaranteed availability and renewability 
are unnecessary. In addition, two commenters recommended that the 
notice requirement sunset when the annual dollar limit requirement for 
student health insurance becomes consistent with that for all other 
individual health insurance coverage.
    Response: While we retain the proposal that a notice should be 
provided to a student and any dependents describing how their coverage 
differs from other individual market coverage, and that the disclosure 
should be provided in the insurance policy or certificate and any other 
written materials for the coverage (for example, enrollment 
information), we include some modifications in the final rule in 
response to comments. We note that the proposed rule set out a model 
notice, with the intent of allowing health insurance issuers 
flexibility to create their own notice, provided that it met certain 
criteria.
    In response to recommendations from commenters, the final rule 
modifies the content of the notice requirement, as well as simplifies 
the model notice. The content criteria was modified by removing the 
notice regarding guaranteed availability and guaranteed renewability, 
leaving only the content to inform students if the policy does not meet 
the annual limits restrictions. Additionally, the revised model notice 
in the final rule uses the term ``health care reform law,'' given that 
this phrase may be more understandable to consumers. Required language 
was also added advising students that they may be eligible for coverage 
under their parents' employer group health plan or a parent's 
individual market coverage if they are under the age of 26. This is 
important because coverage under a parent's employer or a parent's 
individual market plan may contain all of the protections of the 
Affordable Care Act, including adherence to the annual dollar limits 
requirements. In addition, we clarify that the notice must be provided 
in the insurance policy or certificate and in any other plan materials 
summarizing the terms of the coverage (such as a summary description 
document). Finally, the final rule sunsets the notice requirement when 
the annual limits requirement is consistent with other individual 
health insurance coverage.

D. Applicability (Sec.  147.145(e))

    Comment: One consumer advocacy group recommended that January 1, 
2012 be the latest date for student health insurance coverage to comply 
with the individual market requirements. This commenter expressed 
concern that by establishing policy years beginning on or after January 
1, 2012 as the effective date for the rule, most students will have to 
wait until the 2012-2013 school year to benefit from the rule. A 
related concern of the commenter was that this effective date allows 
issuers to increase premiums and collect as much profit as possible 
before the Federal MLR requirements take effect.
    One issuer urged HHS to issue a final rule no later than August 1, 
2011 or otherwise delay the effective date so that issuers have 
adequate time to prepare for compliance. The commenter explained that 
negotiations for and sales of 2012-2013 academic year policies will 
occur in the Fall of 2011.
    Response: We recognize the concerns of issuers regarding timing, 
but we had to ensure that the final rule is consistent with other 
policies. We believe that the timing of this final rule provides 
sufficient time for issuers to comply with the new provisions for the 
2012-2013 academic year.
    Comment: Issuers and brokers raised several general issues 
concerning the applicability of the PHS Act and the Affordable Care Act 
to foreign students studying in the United States. They asserted that 
plans for inbound foreign students have unique administrative cost 
structures, benefit designs, and medical utilization patterns, which 
differ substantially from plans for domestic students. These commenters 
suggested that, because of these differences, schools should be allowed 
to offer separate plans for international students that are subject to 
different requirements than domestic health plans. One commenter asked 
that we exempt health plans for students who are not United States 
citizens from the

[[Page 16458]]

PHS Act and the Affordable Care Act. In contrast, a consumer group and 
a school interest group urged HHS to subject international student 
plans to the same rules as all other individual market coverage.
    Response: Health insurance coverage issued in a State, as that term 
is defined by the PHS Act and the Affordable Care Act, must comply with 
the applicable provisions of such Acts, without regard to the 
individuals being insured. However, as previously discussed, there may 
be circumstances where student coverage appropriately may still be sold 
on a short-term limited duration basis to foreign students, and thus 
the issuer would not have to comply with the PHS Act and the Affordable 
Care Act.
    Comment: Issuers noted that the State Department's Bureau of 
Educational and Cultural Affairs requires students on J-1 Exchange 
Visitor visas to maintain health insurance coverage that includes 
medical benefits of at least $50,000 per accident or illness, includes 
a deductible of not more than $500 per accident or illness, and meets 
other requirements (22 CFR 62.14). One commenter requested that we 
ensure that our final rule and 22 CFR 62.14 do not conflict.
    Response: We reviewed the requirements under 22 CFR 62.14 and 
believe that issuers will be able to comply both with those rules and 
this final rule.
    Comment: Commenters offered a range of comments on the rule's 
interaction with State laws. A State insurance department requested a 
clarification that States could impose more stringent standards on 
student health insurance coverage than those under this rule. The State 
insurance department offered an example of a State requiring more 
detailed disclosures. One issuer requested this rule preempt State laws 
imposing additional standards on student health insurance coverage. On 
the other hand, several universities submitted a form letter urging 
that student health insurance coverage be subject only to State laws. A 
broker asserted that most States regulate student health insurance 
coverage as a form of blanket or group health insurance and urged that 
CMS allow States to continue to regulate student health insurance 
coverage in that fashion. Finally, several consumers expressed concern 
that student health insurance coverage would not be subject to rate 
review under PHS Act section 2794, as added by Affordable Care Act 
section 1003.
    Response: As discussed in the preamble to the proposed rule, the 
PHS Act only preempts State standards and requirements to the extent 
that they prevent the application of a PHS Act requirement. (PHS Act 
sections 2724 and 2762). States may impose additional requirements on 
student health insurance (for example, additional disclosure 
requirements) and States may continue to regulate student health 
insurance coverage as a form of group or blanket health insurance, 
provided these standards do not prevent the application of the relevant 
individual market provisions of the PHS Act.
    Section 1560(c) permits limited exemptions for student health 
insurance coverage from those generally applicable Affordable Care Act 
requirements that, as a practical matter, would prohibit the offering 
of student health insurance coverage. Section 1560(c) does not allow 
CMS to except student health insurance coverage from compliance with 
all Federal requirements. Further, many commenters pointed out the 
inadequacy of many current student health insurance plans, which 
suggests that compliance solely with State laws has failed to ensure 
that students had access to comprehensive coverage in the past.
    Issuers must comply with the Federal rate review process in 45 CFR 
Part 154 for non-grandfathered health insurance coverage that is 
included under a State's definition of individual market coverage or 
small group market coverage.

E. Issuer Use of Premium Revenue: Reporting and Rebate Requirements 
(Part 158)

    Comment: While the proposed rule did not include a specific 
proposal as to how Federal medical loss ratio (MLR) requirements in PHS 
Act section 2718 would apply to student health insurance coverage, we 
specifically requested comments on this issue. Section 2718 provides 
for the calculation of an issuer's MLR based on the percentage of 
premium revenue that is spent on health care claims and quality 
improvement, and directs that rebates be paid if this amount does not 
meet the minimum standard. We specifically invited comments on whether 
to make an adjustment to the MLR methodology to reflect the ``special 
circumstances'' of student health coverage, as allowed under PHS Act 
section 2718(c). Pursuant to our request in the proposed rule, we 
received several comments on the Federal MLR requirements as they 
relate to student health insurance coverage.
    One university and student advocates strongly supported applying 
Federal MLR requirements to student health insurance coverage in the 
same manner as they apply to individual market insurance generally. 
This would mean using the standard methodology for calculating the MLR 
and applying the 80 percent standard for individual market insurance to 
the MLR produced by this standard methodology.
    A majority of the brokers, agents, TPAs and issuers, however, 
asserted that applying the Federal MLR requirements to student health 
coverage without any special circumstances adjustment would be 
inappropriate and would force issuers to leave the student health 
insurance market. These commenters asserted that it would be difficult 
for student coverage to meet the Federal MLR requirements because of 
the unique operational and administrative nature of such plans. Most 
issuers stated that if the standard method for calculating the Federal 
MLR were applied, their MLRs would be between 65 percent and 82 
percent. One issuer commented that only large issuers would be able to 
fold student insurance into their overall individual market blocks of 
business and continue to operate at the required Federal MLR standard 
if no adjustment were made to the methodology for calculating the MLR.
    Specific examples of the unique administrative costs cited by 
several commenters include--(1) The transient nature of the student 
population, leading to high turnover; (2) more frequent enrollment 
periods; (3) the level of plan design customization required by 
different schools; (4) the operation and administration of student 
waiver programs; and (5) special billing practices related to student 
health centers. Additionally, one issuer asserted that college 
students' unfamiliarity with the health care system increases the cost 
of administrative expenses for student health plans.
    Several issuers also provided specific recommendations to address 
the application of the Federal MLR requirements. A majority of these 
commenters proposed developing a special MLR methodology for student 
coverage. Two issuers recommended that student coverage in effect 
should be held to no higher than a 70 percent or 75 percent MLR. 
Several commenters suggested that student plans should be aggregated 
nationally as their own pool, and a few requested that the MLR 
reporting year should be based on an academic year or a policy year 
because this is how student plans are sold. One issuer specifically 
noted that it does not sell other individual health insurance coverage 
and, therefore, would not have any other individual market business to 
aggregate with the student experience.

[[Page 16459]]

Another issuer had specific comments regarding when rebates should be 
due, and who should receive them.
    Lastly, two commenters including an educational association 
recommended that HHS research, either independently or through an 
independent organization, whether student health plans have unique 
administrative expenses that warrant special treatment.
    Response: We considered the comments and have reviewed additional 
data that supports the claim that student health plans have special 
circumstances specifically relating to their administrative cost 
structures. Accordingly, this final rule amends 45 CFR Part 158 by 
expressly stating that issuers of student health insurance coverage are 
subject to the individual market reporting and rebate requirements of 
the MLR rule. While some commenters requested modifying the Federal MLR 
percentage standard for student plans, HHS does not have the authority 
to change the MLR percentage standard for plans. HHS does have 
authority under PHS Act section 2718(c), however, ``to take into 
account the special circumstances of smaller plans, different types of 
plans, and newer plans'' in determining the methodology for calculating 
an issuer's MLR. This amendment to Part 158 exercises this authority by 
recognizing the special circumstances of student plans for purposes of 
the application of the Federal MLR requirements. The amendment to Part 
158 provides that the experience for student coverage is to be reported 
separately from other individual market coverage. Further, given that 
student health insurance coverage is provided a separate pool, apart 
from other individual market coverage, the amendment provides for 
national aggregation of student health insurance coverage.\2\ In 
addition, by taking into account the special circumstances of student 
health insurance coverage and helping to ensure continued access to 
student health insurance coverage, this amendment to Part 158 comports 
with section 1560(c) of the Affordable Care Act, which provides that 
nothing in Title I of the Affordable Care Act (or any amendments) be 
construed to prohibit universities from offering student health 
insurance plans.
---------------------------------------------------------------------------

    \2\ Because student health insurance plan data will be 
aggregated nationally, a single 80 percent MLR standard will apply 
in determining rebates, even if some of the aggregated data come 
from States with adjusted individual market percentages.
---------------------------------------------------------------------------

    Also in response to comments from issuers, universities and student 
advocates and data from issuers and the NAIC, this amendment to Part 
158 provides that the calculation of incurred claims and quality 
improving activities is to be multiplied by 1.15 in 2013. HHS has 
determined that this phased-in adjustment to the numerator for student 
health insurance coverage for the MLR requirements is sufficient to 
account for the special circumstances of student health plans, 
specifically their unique administrative costs. As mentioned above, 
issuers of student health insurance coverage commented that, based on 
current operations and unique costs associated with student coverage, 
they currently meet a 70 percent to 75 percent MLR standard and, 
therefore, would need an adjustment to meet the 80 percent MLR standard 
and place them on a glide path to compliance in 2014. The student 
health plan-specific MLR methodology is in effect for MLR reporting 
year 2013, and no special treatment is provided in MLR reporting year 
2014 and beyond. As mentioned above, issuers provided many examples of 
the unique administrative expenses in the student market. While some of 
the expenses are inherent in the nature of student coverage (such as, 
high enrollee turnover and manual claims processing for student 
clinics), there are other administrative costs where issuers can 
potentially gain efficiencies in their operations (such as, marketing 
and plan customization). The phase-in of the MLR requirements is 
intended to provide issuers additional time to become more efficient in 
their operations and meet the individual market MLR requirement of 80 
percent. We believe that this policy is responsive to the concerns of 
commenters, while still maintaining the protections under the 
Affordable Care Act. The rule also provides that the MLR reporting year 
for student coverage will be on a calendar year basis, beginning 
January 1, 2013. We maintained the calendar year MLR reporting 
structure for student coverage because, under Part 158, issuers 
currently report other individual market coverage on a calendar year 
basis. In addition, issuers of student health insurance coverage will 
be subject to the rebate provisions in Part 158, consistent with other 
individual market coverage. Since student health insurance coverage is 
individual market coverage, the rebates will be distributed directly to 
the student in the same manner as rebates from other individual market 
coverage. Lastly, the amendment to Part 158 includes conforming changes 
clarifying how life-years and credibility adjustments are applied to 
the student market.

F. Provisions of the Public Health Service Act Effective in 2014

    Comment: Pursuant to our request in the proposed rule for comments 
on the applicability of other Affordable Care Act provisions, we 
received a large number of comments on the interaction between student 
health insurance coverage and various Affordable Care Act reforms 
effective in 2014.
    Five commenters argued that PHS Act section 2702 and 2703, the 2014 
guaranteed availability and renewability provisions, should not apply 
to student health insurance coverage, consistent with the proposed 
rule's exemption from PHS Act section 2741 and 2742, the current HIPAA 
guaranteed availability and renewability requirements. One commenter 
further pointed out the need to have flexibility to limit guaranteed 
availability to open enrollment periods.
    Three universities and a consumer advocacy group expressed concern 
that universities would stop sponsoring student health insurance due to 
coverage being available through the Affordable Insurance Exchanges. 
One university asserted students are better served purchasing coverage 
while enrolling for classes, while another university expressed concern 
that provider networks could be inadequate for students with coverage 
through an out-of-state Exchange. Four commenters requested that the 
subsidies available through the Affordable Insurance Exchanges be 
available for use with student health insurance coverage and self-
funded student plans. On the other hand, three commenters opposed the 
offering of student health insurance coverage through the Affordable 
Insurance Exchanges, arguing that this would interfere with the 
administration of colleges' mandatory insurance requirements and that, 
in any event, most students' family income levels would disqualify them 
for subsidies.
    Several commenters requested that student health insurance coverage 
and self-funded student health plans be specifically recognized as 
minimum essential coverage. Two commenters suggested that self-funded 
student health plans be required to meet the same coverage requirements 
as student health insurance coverage in order to be deemed minimum 
essential coverage.
    Lastly, two commenters proposed that student health insurance 
coverage continue to have its experience separately pooled, 
notwithstanding the single risk pool requirement that otherwise goes 
into effect for the individual market in 2014, and one commenter 
proposed that student health

[[Page 16460]]

insurance coverage be deemed large group coverage and therefore exempt 
from the essential health benefits package requirements.
    Response: We considered the comments concerning those Affordable 
Care Act provisions that become effective in 2014 and have decided to 
address these issues with respect to student coverage in conjunction 
with final regulations concerning the Affordable Insurance Exchanges, 
the market requirements of the PHS Act, the definition of minimum 
essential coverage, tax credits for premium assistance, and other 2014 
issues.
    As noted, the proposed rule included exemptions for student health 
plans from the current guaranteed issue and renewability requirements 
of PHS Act sections 2741 and 2742 for policy years beginning on or 
after July 1, 2012.

IV. Provisions of the Final Regulations

    For the most part, this final rule incorporates the provisions of 
the proposed rule. The provisions of this final rule that differ from 
the proposed rule are:
    <bullet> Annual limits. We modified the phase-in schedule so that 
student health insurance coverage cannot have annual dollar limits on 
essential health benefits less than $500,000 for policy years beginning 
on or after September 23, 2012, but before January 1, 2014.
    <bullet> Notice Requirement. We streamlined the content of the 
notice requirement by removing notice of the exemption regarding 
guaranteed availability and guaranteed renewability and simplified the 
model notice by using terms more easily understood by students and 
their dependents. Required language was also added advising students 
that they may be eligible for coverage under their parents' employer or 
individual market coverage if they are under the age of 26. In 
addition, we added a sunset provision to the notice in 2014 for when 
the annual limits requirements become consistent with other individual 
health insurance coverage.
    <bullet> Medical Loss Ratio. We amended 45 CFR Part 158 by 
expressly stating that issuers of student health insurance coverage are 
subject to the reporting and rebate requirements of the MLR rule. 
However, as allowed by PHS Act section 2718(b)(1)(A)(ii), adjustments 
to the MLR numerators are provided for MLR reporting year 2013 due to 
their unique circumstances. In addition, we added specific provisions 
to Sec.  158.120 providing that student coverage will be aggregated 
nationally as its own pool rather than on a State by State basis, and 
its experience will be reported separate from other policies. Lastly, 
the rule includes conforming changes regarding how credibility 
adjustments are applied to the student health insurance market.

V. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, 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. In 
order 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:
    <bullet> The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
    <bullet> The accuracy of our estimate of the information collection 
burden.
    <bullet> The quality, utility, and clarity of the information to be 
collected.
    <bullet> Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We are soliciting public comment on each of these issues for 45 CFR 
147.145(d), which contains information collection requirements (ICRs). 
Section 147.145(d)(1) requires issuers of student health insurance 
coverage to provide notice to enrollees that the policy does not meet 
the minimum annual limits requirement of the Affordable Care Act. In 
addition, the final regulation requires that the disclosure must be 
prominently displayed in clear, conspicuous 14-point bold type. 
Additionally, the final regulation provides model language that issuers 
of student health insurance coverage can use in order to be in 
compliance with the notice requirement. The model language is provided 
in 45 CFR 147.145(d)(2).
    In order to provide the notices, the issuers of student health 
insurance coverage will need to review the model language or draft 
their own language, incorporate the plan or issuer's name into the 
model notice (or a notice that is similar to the model), and print the 
notice in any plan or policy documents that are regularly sent to 
student enrollees.
    Minor changes in the notice requirement from the proposed rule 
create no additional burden beyond that calculated in the proposed 
rule. The final rule modifies the content of the notice requirement, as 
well as simplifies the model notice. The content was modified by 
removing the notice regarding guaranteed availability and guaranteed 
renewability and by using the term ``health care reform law.'' Required 
language was also added advising students that they may be eligible for 
coverage under their parents' employer or individual market coverage if 
they are under the age of 26. In this final rule, we are adopting the 
burden estimate in the student health insurance coverage proposed rule. 
This burden estimate encompasses the entire notice process which 
includes assembly of the notice. It is estimated that approximately 75 
student health insurance coverage issuers will have to provide such 
notice.\3\ We estimate that it will take approximately 2 minutes per 
student enrollee or approximately 1,000 hours per student health 
insurance issuer to prepare and mail the notices to students. Including 
hourly wage and printing and mailing costs, we estimate the annual cost 
burden will be $40,840 per affected issuer for a total cost of 
$3,063,000. In some cases, actual burden per notice (for example, 
postage) may be lower because we expect that many issuers will insert 
the model language into the existing plan materials that they were 
already intending to send to enrollees each year.
---------------------------------------------------------------------------

    \3\ This estimate is based on data from the 2009 National 
Association of Insurance Commissioners (NAIC) Annual Accident and 
Health Policy Experience Exhibit and the American Council on 
Education (ACE). The 2009 NAIC filings show that there are 58 health 
insurance issuers offering student health coverage; however this 
data does not include managed care plans in California, and may 
include some issuers offering K-12 student accidental health 
coverage. In addition, data from the American Council on Education 
suggests that there are several smaller plans offering student 
health plans.

[[Page 16461]]



                                                                 Table 1--Annual Reporting, Recordkeeping and Disclosure Burden
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                          Hourly labor   Total labor      Total
                                                                                                             Burden  per   Total annual      cost of       cost of      capital/     Total cost
            Regulation  section(s)                    OMB  Control  No.          Respondents    Responses     response    burden (hours)    reporting     reporting    maintenance       ($)
                                                                                                               (hours)                         ($)           ($)       costs  ($)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Sec.   147.145...............................  0938--New......................            75     2,250,000         .0333          75,000         26.14     3,063,000             0     3,063,000
����������������������������������������������
    Total....................................  ...............................            75     2,250,000  ............          75,000  ............  ............  ............     3,063,000
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    For purposes of MLR and rebate reporting under Part 158, this final 
rule generally conforms the requirements for issuers of student plans 
to the requirements for the individual market under the MLR interim 
final regulation. One exception is that health insurance issuers that 
sell student plans will report the experience separately from other 
coverage. In addition, such experience will be aggregated on a national 
basis. Because the MLR interim final rule accounted for health 
insurance issuers for individual market coverage reporting on an annual 
basis, we are not imposing any additional requirements for health 
insurance issuers. In fact, as a result of the national aggregation of 
these plans, the burden on health insurance issuers of complying with 
this final rule will decrease.
    We have submitted an information collection request to OMB for 
review and approval of the information collection requirements 
contained in this final rule. The requirements are not effective until 
approved by OMB and assigned a valid OMB control number.

VI. Regulatory Impact Analysis

    In accordance with the provisions of Executive Order 12866, this 
rule was reviewed by the Office of Management and Budget.

A. Summary

    As stated earlier in this preamble, this final rule is designed to 
address several issues that have arisen regarding the applicability of 
the Affordable Care Act to student health insurance coverage, including 
how this coverage is categorized under the PHS Act. Specifically, the 
provisions in this final rule clarify which protections of the PHS Act 
and the Affordable Care Act apply to student health insurance coverage, 
and to what extent students and their dependents enrolled in these 
plans have the benefit of these consumer protection provisions. This 
final rule defines student health insurance coverage as a type of 
individual health insurance coverage and specifies certain PHS Act and 
Affordable Care Act provisions as inapplicable to this type of 
individual health insurance coverage. These provisions are generally 
effective for student health insurance policy years beginning on or 
after July 1, 2012.
    CMS has crafted this rule to implement the protections intended by 
Congress in the most economically efficient manner possible. We have 
examined the effects of this rule as required by Executive Order 12866 
(58 FR 51735, September 1993, Regulatory Planning and Review), the 
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), 
section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), Executive Order 13132 on 
Federalism, and the Congressional Review Act (5 U.S.C. 804(2)). In 
accordance with OMB Circular A-4, CMS has quantified the benefits, 
costs and transfers where possible, and has also provided a qualitative 
discussion of some of the benefits, costs and transfers that may stem 
from this final rule.

B. Executive Orders 13563 and 12866

    Executive Order 12866 (58 FR 51735) directs 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 (76 FR 3821, January 21, 2011) is supplemental to and 
reaffirms the principles, structures, and definitions governing 
regulatory review as established in Executive Order 12866.
    Section 3(f) of Executive Order 12866 defines a ``significant 
regulatory action'' as an action that is likely to result in a final 
rule--(1) Having an annual effect on the economy of $100 million or 
more in any one year, or adversely and materially affecting a sector of 
the economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local or tribal governments or communities 
(also referred to as ``economically significant''); (2) creating a 
serious inconsistency or otherwise interfering with an action taken or 
planned by another agency; (3) materially altering the budgetary 
impacts of entitlement grants, user fees, or loan programs or the 
rights and obligations of recipients thereof; or (4) raising novel 
legal or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in the Executive Order.
    A regulatory impact analysis (RIA) must be prepared for major rules 
with economically significant effects ($100 million or more in any 1 
year), and a ``significant'' regulatory action is subject to review by 
the OMB.
    As discussed below, we have concluded that this final rule would 
likely not have economic impacts of $100 million or more in any one 
year or otherwise meet the definition of an ``economically significant 
regulation'' under Executive Order 12866. Nevertheless, CMS has opted 
to provide an assessment of the potential costs, benefits, and 
transfers associated with this final rule. This assessment is based 
primarily on the estimated administrative costs to issuers associated 
with providing the required notifications to student health plan 
enrollees. As discussed below, we believe that this final rule will 
have a minimal effect on premiums.
1. Need for Regulatory Action
    In order to address several issues that have arisen regarding the 
applicability of the Affordable Care Act to student health insurance 
coverage, including how this coverage is categorized under the PHS Act, 
this final rule specifies that student health insurance coverage will 
be defined as a type of individual health insurance coverage and, with 
the exception of certain specific provisions, be subject to the 
individual market provisions of the PHS Act and the Affordable Care 
Act. As discussed elsewhere in the preamble, in clarifying the general 
applicability of the PHS Act and the Affordable Care Act to student 
health insurance coverage, this final rule also specifies that a 
limited number of provisions of the PHS Act and the Affordable Care Act 
are inapplicable to student health insurance coverage. Section 1560(c) 
of the Affordable Care Act provides that ``[N]othing in this title (or 
an amendment made by this title)

[[Page 16462]]

shall be construed to prohibit an institution of higher education (as 
such term is defined for purposes of the Higher Education Act of 1965) 
from offering a student health insurance plan, to the extent that such 
requirement is otherwise permitted under applicable Federal, State, or 
local law.'' CMS interprets this provision of the Affordable Care Act 
to mean that if particular requirements added by the Affordable Care 
Act would have, as a practical matter, the effect of prohibiting an 
institution of higher education from offering a student health plan 
otherwise permitted under Federal, State or local law, such 
requirements would be inapplicable pursuant to the rule of construction 
in section 1560(c). As discussed elsewhere in the preamble, based on 
data provided by stakeholders representing colleges and universities 
and students, CMS has determined that if student health insurance 
coverage were required to comply with certain provisions of the 
Affordable Care Act, this would be the functional equivalent of 
``prohibiting'' the educational institutions from making such coverage 
available to students. Therefore, this final rule clarifies that 
student administrative health fees are not cost-sharing requirements 
under section 2713 of the PHS Act; and provides for a transition period 
for issuers of student health insurance coverage to comply with the 
restricted annual dollar limits requirements and methodology for 
calculating the MLR under the Affordable Care Act. The final rule also 
announces a temporary one-year enforcement safe harbor with respect to 
certain non-profit colleges and universities with religious objections 
to covering contraceptive services. CMS believes that the 
clarifications that are included in this final rule are necessary to 
facilitate the offering of student health insurance plans, consistent 
with the requirements of section 1560(c) of the Affordable Care Act.
2. Summary of Impacts
    In accordance with OMB Circular A-4, Table 2 below depicts an 
accounting statement summarizing CMS's assessment of the benefits, 
costs, and transfers associated with this regulatory action. CMS has 
limited the period covered by the regulatory impact analysis (RIA) to 
2012-2013. Estimates are not provided for subsequent years because 
there will be significant changes in the marketplace in 2014 related to 
the offering of new individual and small group plans through the 
Affordable Insurance Exchanges. Additionally, because this final rule 
clarifies that student health insurance coverage is subject to the 
provisions in the Affordable Care Act, including how these plans are 
categorized under the PHS Act, the RIA does not estimate the overall 
effect of imposing the Affordable Care Act provisions on these plans. 
Instead, the RIA focuses on the modifications to the applicability of 
individual market requirements that would have a potential impact 
during the years 2012 to 2013. That is, providing for a transition 
period for issuers of student health insurance coverage to comply with 
the restricted annual dollar limits policy of section 2711 of the PHS 
Act and the MLR calculation methodology of section 2718 of the PHS Act, 
and announcing a temporary one-year enforcement safe harbor with 
respect to certain non-profit colleges and universities with religious 
objections to covering contraceptive services. These modifications are 
designed consistent with section 1560(c) of the Affordable Care Act. 
Because some final rule provisions are modified from the proposed rule, 
the RIA has been revised to reflect these changes.
    CMS anticipates that the provisions of this final rule will help 
ensure that institutions of higher education can maintain the offering 
of student health insurance coverage by clarifying the inapplicability 
of certain requirements of the PHS Act and Affordable Care Act that 
would prohibit the offering of such coverage. In accordance with 
Executive Order 12866, CMS believes that the benefits of this 
regulatory action justify the costs.

                                            Table 2--Accounting Table
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
Benefits:
Qualitative:
    * Continued coverage, access to preventive services and other Affordable Care Act patient protections, and
     continuity of care for students............................................................................
    * Increased transparency relating to benefits offered in student health insurance coverage..................
----------------------------------------------------------------------------------------------------------------
Costs and Transfers:                                 Estimate       Year dollar    Discount rate  Period covered
                                                                                      percent
----------------------------------------------------------------------------------------------------------------
    Annualized Monetized ($millions/year).......             3.1            2011               7       2012-2013
                                                             3.1            2011               3       2012-2013
----------------------------------------------------------------------------------------------------------------
Annual costs related to providing notifications to enrollees.
----------------------------------------------------------------------------------------------------------------
Qualitative:
    * Reduced rate of premium growth for student health insurance coverage from 2012 through 2013 than would
     have occurred under immediate compliance with the restricted annual dollar limit requirements..............
    * Increased out-of-pocket costs for a small number of enrollees.............................................
    * Reduced rebate receipts for a small number of enrollees...................................................
----------------------------------------------------------------------------------------------------------------

3. Estimated Number of Affected Entities
    Comprehensive sources of data concerning the number of persons 
covered by student health insurance plans and the benefit structure of 
those plans are not readily available. Additionally, available survey 
data do not adequately capture this population due to small sample 
sizes and the difficulty of differentiating student health insurance 
coverage from other individual market coverage. However, we were able 
to develop some estimates based on a Government Accountability Office 
(GAO) report and data provided by the American Council on Education 
(ACE).
a. Estimated Number of Plans Offering Student Health Insurance Coverage
    There were 4,409 degree-granting institutions in 2009, including 
two-year and four-year institutions.\4\ The GAO found that 57 percent 
of colleges and

[[Page 16463]]

universities offered student insurance plans from 2007 to 2008,\5\ 
suggesting that approximately 2,500 colleges and universities offered 
such an insurance plan. According to industry sources, approximately 
1,500 to 2,000 institutions offer student health plans, and the vast 
majority of these plans are insured (rather than self-funded) plans.\6\
---------------------------------------------------------------------------

    \4\ U.S. Department of Education, National Center for Education 
Statistics. (2010). Digest of Education Statistics, 2009 Table 265. 
http://nces.ed.gov/programs/digest/d09/tables/dt09_265.asp.
    \5\ Government Accountability Office, ``Health Insurance: Most 
College Students Are Covered through Employer-Sponsored Plans, and 
Some Colleges and States Are Taking Steps to Increase Coverage,'' 
March 2008, GAO-08-389, p. 17.
    \6\ It is estimated that approximately 200,000 students (less 
than 1 percent of the market) are enrolled in coverage offered 
through self-funded health plans. As discussed earlier in the 
preamble, these self-funded student plans are not subject to the 
requirements of the PHS Act because they are neither health 
insurance coverage nor group health plans, as those terms are 
defined in the PHS Act.
---------------------------------------------------------------------------

    In a survey of colleges with student health plans, GAO found that 
all but 4 percent established some maximum benefit amount during the 
2007 to 2008 academic year. Most (68 percent of plans) defined the 
maximum in terms of per condition per lifetime. Approximately 24 
percent of the plans defined an annual limit (including plans with a 
per year or per condition per year limit).\7\
---------------------------------------------------------------------------

    \7\ Government Accountability Office, March 2008, pp. 24, 27.
---------------------------------------------------------------------------

    Additionally, as discussed earlier in the Collection of Information 
Requirements section, CMS estimates that there are approximately 75 
health insurance issuers that offer student health insurance coverage 
that is provided to eligible students and their dependents through 
written agreements that are negotiated with the abovementioned colleges 
and universities that offer such coverage.
b. Estimated Number of Individuals Enrolled in Student Health Insurance 
Coverage
    The GAO has estimated the percentage of college students aged 18 
through 23 years old who are insured through non-employer-sponsored 
private health insurance programs, including student health insurance 
programs. GAO found that 7 percent of college students aged 18 through 
23 were covered by non-employer-sponsored private health insurance 
programs, including student health insurance programs.\8\ However, 
almost one-half of all college students are not in this age group.
---------------------------------------------------------------------------

    \8\ Government Accountability Office, March 2008, p. 10.
---------------------------------------------------------------------------

    The National Center for Education statistics (NCES) has projected 
that there will be 19.0 million college students in 2012, including 
both undergraduate and graduate, approximately one-half of whom will be 
in the 18-23 age range.\9\ Based on the previous GAO findings, a 
reasonable estimate of the total number of persons with student health 
insurance is approximately 1.3 million (approximately 7 percent of the 
estimated 19.0 million total college students). A separate source of 
information estimates that the five largest carriers offering student 
health insurance account for approximately 1.2 to 1.5 million 
undergraduate and graduate enrollees; in addition, industry sources 
estimate that approximately 200,000 students are covered through 
student health plan arrangements that are self-funded through colleges 
and universities, and a relatively small number by insurers beyond the 
five largest carriers.\10\ By comparison, 2009 data from the National 
Association of Insurance Commissioners' (NAIC) Accident and Health 
(A&H) Policy Experience Exhibit suggest that health insurance issuers 
offered college student policies with approximately 1.1 million 
enrollees (based on estimated member years, including dependents).\11\ 
There is clearly some uncertainty about the number of people enrolled 
in student health insurance coverage, but it appears likely that there 
are between 1.1 million and 1.5 million enrollees.
---------------------------------------------------------------------------

    \9\ U.S. Department of Education, National Center for Education 
Statistics. (2009), Digest of Education Statistics, 2008, Table 190. 
http://nces.ed.gov/fastfacts/display.asp?id=98.
    \10\ Based on information compiled by the American Council on 
Education, primarily from the American College Health Association 
and the health insurance industry, September 2010.
    \11\ This represents data for 32 health insurance issuers (for 
example, licensed entities with unique NAIC company codes) that 
reported earned premiums and enrollment for student business in the 
individual or group markets on the NAIC Accident & Health (A&H) 
Policy Experience Exhibit for 2009, and excludes experience for 
companies regulated by the California Department of Managed Health 
Care. These issuers represent a subset of the 58 total issuers who 
reported any kind of student business on the NAIC A&H Policy 
Experience Exhibit for that year. CMS estimates that 16 issuers 
whose average premium per enrollee was approximately $200 or less 
were primarily reporting data for K-12 student accidental health 
coverage, which is not subject to the provisions of this rule. CMS 
also excluded 10 issuers that did not report valid premium and/or 
enrollment data for student business from this analysis. In cases 
where data for member years were unavailable for certain issuers, 
CMS used data that were reported for covered lives or number of 
policies/certificates as a proxy.
---------------------------------------------------------------------------

    Table 3 presents the estimated distribution of persons covered by 
student health insurance according to the annual limits of their 
policies, based on two different data sources. Regardless of which data 
source is used, the estimated number of students affected by this rule 
is small. The first data source represents the distribution of annual 
limits in the individual market, as presented in Table 3.3 of the 
interim final rule relating to section 2711 of the Affordable Care Act, 
regarding lifetime and annual dollar limits on benefits (75 FR 37188, 
June 28, 2010). Because that table did not use the annual limits 
thresholds relevant to this rule, the estimated number of persons in 
each cell was prorated. Because the Affordable Care Act prohibits group 
health plans and health insurance issuers offering group or individual 
health insurance coverage from establishing lifetime dollar limits, for 
purposes of this analysis we assume that the plans with such limits 
(for example, 71.9 percent of the 199 plans in the GAO survey) have no 
annual limit. Another 4.0 percent of plans have had no limit of any 
type. Of the plans with per condition per year limits (13.6 percent), 
none had limits exceeding $100,000. The distribution of the remaining 
10.6 percent of plans was estimated based on three statistics reported 
in the GAO report.\12\
---------------------------------------------------------------------------

    \12\ These four percentages do not sum to 100 percent due to 
rounding.
---------------------------------------------------------------------------

    The second data source represents the findings from the 2008 GAO 
report. According to the GAO's analysis, only 24 percent of student 
health plans had an annual limit of any sort. Although the GAO found 
that most student health insurance coverage included lifetime benefit 
limits during the 2007 to 2008 academic year (for example, per 
condition per lifetime), such limits are prohibited under current law 
and hence are not relevant to this analysis.
    A commenter expressed concerns about the data in Table 3, that it 
was inconsistent with the finding from the GAO study that annual limits 
ranged from $15,000 to $250,000, with the median being $50,000. We 
would like to clarify that this statement applies to only the plans 
that had annual limits. The preceding paragraphs explain how the data 
from the GAO study was used to estimate the distribution in Table 3. In 
the GAO study, only 24 percent of the plans had annual limits, 71.9 
percent of the plans had lifetime limits but no annual limit and 
another 4 percent had no annual or lifetime limits. As explained 
previously, for the purpose of this analysis, plans with lifetime 
limits only were treated as having no annual limits.
    The GAO estimate suggests that approximately 300,000 students would 
potentially be affected by the rule to allow student health insurance 
coverage to have annual dollar limits on essential health benefits 
lower than the $750,000 that would be required in the absence of this 
rule.

[[Page 16464]]



 Table 3--Estimated Number of Persons With Student Health Insurance Coverage Subjected to Annual Limits, by Data
                                                     Source
----------------------------------------------------------------------------------------------------------------
                                       CMS estimated distribution for all    GAO distribution for student health
                                         plans offered in the individual     plans with annual limits, 2007-2008
                                                     market                -------------------------------------
            Annual limit             --------------------------------------
                                                            Number  (in          Percent          Number  (in
                                           Percent           thousands)                            thousands)
----------------------------------------------------------------------------------------------------------------
Less Than $100,000..................                0.2                  3               21.6                281
$100,000-$499,999...................                1.4                 18                2.5                 33
$500,000-$1,999,999.................               13.6                177                0.0                  0
$2,000,000 or Higher (including no                 84.8              1,102               75.9                986
 annual limit)......................
                                     ---------------------------------------------------------------------------
    Total...........................              100.0              1,300              100.0              1,300
----------------------------------------------------------------------------------------------------------------
Note: The estimated number of persons in each cell has been prorated.
Sources: The CMS distribution was derived from CMS, 75 FR 37188, Table 3.3; the GAO distribution was derived
  from GAO, March 2008, GAO-08-389, pp. 24, 27.

    Given that provisions of this final rule would be applicable for 
policy years beginning on or after July 1, 2012, and assuming that most 
students enrolling in student health insurance coverage do so at the 
beginning of the fall semester, we believe that this final rule is not 
likely to impact a significant number of students until late summer of 
2012, at which point approximately 280,000 enrollees will see their 
annual limits increase to no less than $100,000 on essential benefits 
(for student health insurance coverage policy years beginning on or 
after July 1, 2012, but before September 23, 2012), according to the 
GAO-based results.
    Because this final rule includes a phased transition to the 
restricted annual dollar limits thresholds that are required under the 
Affordable Care Act, some students that would have otherwise 
experienced increases in their annual dollar limits for policy years 
beginning before September 23, 2012 under current law will not 
experience those increases. This includes an estimated 33,000 persons 
with coverage offering annual limits between $100,000 and $499,999. In 
the late summer of 2013, approximately 314,000 persons enrolled in 
coverage with annual dollar limits below $500,000 will experience an 
increase in their annual dollar limits (to no less than $500,000 for 
essential health benefits). Consistent with the provisions of the 
Affordable Care Act, no non-grandfathered student health insurance 
coverage will be allowed to have annual dollar limits for policy years 
beginning on or after January 1, 2014. These estimates are different 
from the proposed rule, which had different annual dollar limit 
thresholds.
    The final rule also specifies a phased-in transition to the 
methodology for MLR calculation, authorized by section 2718 of the PHS 
Act. Section 2718(b) of the PHS Act requires issuers to provide an 
annual rebate to each enrollee if the ratio of the amount of premium 
revenue expended on reimbursement for clinical services and activities 
that improve quality is less than the applicable minimum standard and 
also specifies how the rebate is to be calculated. For the MLR 
reporting year 2013, the total of incurred claims and expenditures for 
activities that improve health care quality is multiplied by a factor 
of 1.15 for student health insurance coverage. Limited data for student 
business in the individual and group market is available for 29 health 
insurance issuers in the 2009 NAIC Accident and Health (A&H) Policy 
Experience Exhibit.\13\ Of these, 10 issuers had less than 1,000 life-
years \14\ each and thus, as provided by 45 CFR 158.230(c)(3) and (d), 
would be presumed to meet or exceed the 80 percent MLR standard. For 
the remaining 19 issuers, the estimated unadjusted MLRs for student 
health insurance plans range from approximately 12 percent to 125 
percent. Of these, only 3 issuers have sufficient numbers of enrollees 
to have fully credible experience. The remaining 16 issuers would 
receive a credibility adjustment, or boost, to their MLR to take into 
account the fact that their experience is not large enough to be fully 
credible. In the absence of data required for calculating the adjusted 
MLRs, the unadjusted MLR has been used to estimate the impact of the 
transitional phase in. Table 4 presents the estimated total rebates and 
the number of issuers and enrollees affected under the provisions in 
this final rule and under the methodology used to calculate an issuer's 
MLR without any adjustment for the special circumstances of student 
health insurance coverage or credibility. It is estimated that 14 
issuers will be required to pay approximately $53,000,000 in rebates if 
the special circumstances of student health insurance coverage are not 
taken into account. Rebates owed by individual issuers range from 
$34,000 to over $33 million. High rebate amounts could affect the 
viability of some of the affected issuers and cause them to withdraw 
from the market, thereby reducing access to student health insurance 
coverage. If the total of incurred claims and expenditures for 
activities that improve health care quality are multiplied by a factor 
of 1.15, then it is estimated that 7 issuers will not meet the MLR 
requirements and will be required to pay approximately $7,000,000 in 
rebates. This is a high range estimate and once all the adjustments 
consistent with the provisions of section 2718 of the Affordable Care 
Act are applied, the number of issuers affected and the amount of 
rebates will likely be reduced. It is also possible that issuers will 
undertake quality improvement activities and operational changes and 
efficiencies that will further increase

[[Page 16465]]

their MLRs and reduce the rebate amounts.
---------------------------------------------------------------------------

    \13\ This represents data for 29 health insurance issuers (e.g., 
licensed entities with unique NAIC company codes) that reported 
earned premiums and enrollment for student business in the 
individual or group markets on the NAIC Accident & Health (A&H) 
Policy Experience Exhibit for 2009, and excludes experience for 
companies regulated by the California Department of Managed Health 
Care. These issuers represent a subset of the 58 total issuers who 
reported any kind of student business on the NAIC A&H Policy 
Experience Exhibit for that year. The Department estimates that 16 
issuers whose average premium per enrollee was approximately $200 or 
less were primarily reporting data for K-12 student accidental 
health coverage, which is not subject to the provisions of this 
rule.
    The Department also excluded 10 issuers that did not report 
valid premium and/or enrollment data for student business, and 2 
issuers that reported anomalous combinations of premiums and claims 
(e.g., zero premiums and positive claims or negative claims and 
positive premiums) from this analysis. In cases where data for 
member years were unavailable for certain issuers, the Department 
used data that were reported for covered lives or number of 
policies/certificates as a proxy.
    \14\ Life-years are the total number of months of coverage for 
enrollees whose premiums and claims experience is included in the 
data reported, divided by 12.

    Table 4--Estimated Number of Issuers of Student Health Insurance
Coverage Affected by Phased Transition of Medical Loss Ratio Calculation
                               Methodology
------------------------------------------------------------------------
 MLR calculation methodology  (MLR      Number of         Total rebate
         requirement--80%)           affected issuers        amount
------------------------------------------------------------------------
MLR calculated without any                         14        $53,460,000
 multiplier.......................
MLR calculated with a multiplier                    7          7,115,000
 of 1.15..........................
------------------------------------------------------------------------

    While the final rule also announces a temporary one-year 
enforcement safe harbor with respect to certain non-profit institutions 
of higher education with religious objections to covering contraceptive 
services we have insufficient information with which to estimate its 
effect.
4. Anticipated Benefits, Costs and Transfers
    As discussed earlier, because this final rule clarifies that 
student health insurance coverage policies are subject to the 
provisions in the Affordable Care Act, the RIA does not estimate the 
overall effect of imposing the Affordable Care Act provisions on these 
plans. Therefore, the discussion of anticipated benefits, costs and 
transfers focuses on the impacts associated with the clarification in 
this final rule that a limited number of requirements of the PHS Act 
and the Affordable Care Act are inapplicable to student health 
insurance coverage, in order to facilitate the offering of student 
health insurance plans, consistent with section 1560(c) of the 
Affordable Care Act.
a. Benefits
    The final rule defines student health insurance coverage as a type 
of individual health insurance coverage and specifies certain PHS Act 
and Affordable Care Act provisions as inapplicable to this type of 
individual health insurance coverage. One such provision of this rule 
is to provide for a transition period for issuers of student health 
insurance coverage to comply with the restricted annual dollar limits 
requirements under the Affordable Care Act. For example, student health 
insurance coverage will be allowed to impose an annual dollar limit of 
no less than $100,000 on essential health benefits for policy years 
beginning on or after July 1, 2012, but prior to September 23, 2012 and 
$500,000 for policy years beginning on or after September 23, 2012, but 
before January 1, 2014.
    Another provision of this rule is to provide for a transition 
period for issuers of student health insurance coverage to comply with 
the MLR requirements of the Affordable Care Act. For example, issuers 
will be allowed to calculate their MLRs by applying a multiplier of 
1.15 to the total of incurred claims and expenditures for activities 
that improve health care quality for the 2013 MLR reporting year. Aside 
from these adjustments to the annual dollar limits and MLR 
requirements, students enrolled in student health insurance coverage 
will benefit from the other Affordable Care Act individual market 
protections, including the prohibition against rescissions, the 
prohibition against lifetime dollar limits, the dependents under 26 
coverage requirements, preventive services and the patients' bill of 
rights.
    While we cannot quantify them at this time, we believe there would 
be economic benefits to this rule resulting from improved coverage and 
access to health services for students because in the absence of the 
provisions in this rule, it is likely that there would be some 
reductions in student health insurance availability--for example, due 
to the more restricted annual dollar limits and MLR methodology 
requirements that otherwise would have applied in these years.
    One rationale for the provision of a transition period for issuers 
of student health insurance coverage to comply with the restricted 
annual dollar limits requirements is that many student plans currently 
have annual limits substantially lower than the $1.25 million 
requirement that will be in effect for plan years beginning on or after 
September 23, 2011. Concerns have been expressed that some institutions 
of higher education would not be able to offer student health insurance 
coverage if the annual dollar limits were immediately increased by 
those amounts. Similarly, many student plans currently have unadjusted 
MLRs that are significantly lower than the 80 percent requirement. 
According to issuers of student health insurance coverage, these plans 
have significantly higher administrative costs due to factors such as 
high rates of manual claims processing, low persistency rates, multiple 
enrollment periods in a year and varied network and referral 
requirements. If the issuers are required to comply with the MLR 
methodologies applicable to traditional health insurance immediately, 
it might lead to reduced access to student health plans. While some 
students have access to dependent coverage through their parents' 
health insurance plans up to age 26, this may not be an option for 
older students and students whose parents do not have coverage.\15\ 
Some students may be able to find coverage in the medically 
underwritten individual market in the absence of a student health plan, 
and others may be able to access the Pre-existing Condition Insurance 
Program if they meet other eligibility criteria. However, in the 
absence of the provisions of this final rule, it is likely that some 
affected students would not be able to find affordable alternative 
coverage and become uninsured. To the extent that the transition period 
for issuers of student health insurance coverage to comply with the 
annual dollar limits and MLR calculation methodology applicable to 
other types of individual market coverage results in institutions of 
higher education continuing to offer coverage, benefits are realized. 
Students who otherwise might have been uninsured will have continued 
access to coverage.
---------------------------------------------------------------------------

    \15\ Andrews, Michelle, ``Health-Care Overhaul Offers Insurance 
Benefits to Young Adults,'' The Washington Post, May 25, 2010, 
accessed at http://www.washingtonpost.com/wp-dyn/content/article/2010/05/24/AR2010052403141.html.
---------------------------------------------------------------------------

    Several other provisions in this final rule will also help colleges 
and universities to continue offering student health insurance coverage 
by maintaining current industry practices--including the temporary one-
year enforcement safe harbor with respect to certain non-profit 
institutions of higher education with religious objections to covering 
contraceptive services, clarifications relating to the inapplicability 
of the current guaranteed availability and renewability requirements in 
the PHS Act (in order to allow student health insurance

[[Page 16466]]

coverage to be limited to eligible students and their dependents), and 
the clarification that student administrative health fees are not cost-
sharing requirements under section 2713 of the PHS Act. Additionally, 
the notice requirements in this final rule will provide increased 
transparency relating to the benefits that are offered in student 
health insurance coverage. This will assist students in making the best 
selection among their available coverage options.
b. Costs and Transfers
    In addition, as discussed earlier in the preamble, for plan years 
beginning after September 23, 2011, the minimum annual limit under the 
Affordable Care Act is $1.25 million. This level is higher than many of 
the current annual dollar limits for student health plans. The required 
80 percent MLR is also higher than the MLRs currently observed for 
student health plans. If the higher annual dollar limits and MLR 
methodology requirements are applied immediately, without adjustment, 
to student health insurance coverage benefit designs, and issuers are 
not able to adjust their operations quickly enough, it could require 
large premium increases or high rebate payments that could effectively 
``prohibit an institution of higher education * * * from offering a 
student health insurance plan.'' (Affordable Care Act section 1560(c)).
    However, at the same time, a small number of student enrollees are 
likely to face higher out-of-pocket costs than they would have faced if 
there were no transition period for issuers of student health insurance 
coverage to comply with the restricted annual dollar limits. Thus, 
there is a small transfer from this group which would have had higher 
out-of-pocket costs to the population of students purchasing student 
plans through lower premiums. Similarly, a small number of enrollees 
will not receive rebate payments that they would have received if there 
was no transition period for calculating the components of the MLR. 
Thus, there is a transfer from this group to the issuers of student 
health plans. In addition, a small number of enrollees will be affected 
by the temporary enforcement safe harbor with respect to contraceptive 
services.
    Finally, CMS estimates that there will be some administrative costs 
to issuers associated with the notice requirements. As discussed in the 
Collection of Information Requirements section, we estimate that 
approximately 75 student health insurance issuers will have to provide 
notices to students and any dependents indicating that the coverage 
does not meet all of the requirements of the Affordable Care Act. We 
estimate that it will take approximately 2 minutes per student enrollee 
or approximately 1,000 hours per student health insurance issuer to 
prepare and mail the notices to student enrollees. In other words, it 
would take a team of ten individuals 2\1/2\ weeks to prepare and mail 
the notices. Including hourly wage and printing and mailing costs, we 
estimate the annual cost burden will be $40,840 per affected issuer, 
for a total cost of $3,063,000. We believe that these cost estimates 
represent the upper limit, as most issuers are likely to insert the 
model notice language into the existing plan documents that they 
distribute to their enrollees, thus reducing their estimated costs.

C. Regulatory Alternatives

    Under the Executive Order, CMS is required to consider alternatives 
to issuing rules and alternative regulatory approaches. CMS considered 
the two regulatory alternatives below.
1. Require Student Health Insurance Coverage To Be Offered Through a 
Bona Fide Association
    CMS considered requiring student health insurance coverage to meet 
the definition of a bona fide association, as that term is defined at 
45 CFR 144.103, in order to be exempt from guaranteed availability and 
guaranteed renewability requirements under current law provisions 
before 2014. This approach would have required issuers of student 
health insurance coverage to comply with all of the individual market 
requirements of the PHS Act and the Affordable Care Act, except for 
current guaranteed availability and guaranteed renewability provisions. 
However, the approach would have been cost-prohibitive on some 
institutions of higher education, causing them to drop coverage since 
student health insurance coverage today rarely is offered through 
associations (that is, student associations). In addition, associations 
affiliated with newly-established institutions of higher education 
would have been unable to satisfy the requirement that a bona fide 
association be in existence for five years.
2. Change the Definition of Short-Term Limited Duration Coverage
    CMS also considered modifying the definition of short-term limited-
duration insurance in 45 CFR 144.103 to make it more difficult for 
student health insurance coverage to qualify as such (for example, 
shorten the time limit from 12 months to 6 months). However, this 
change would have had broader implications for the health insurance 
market because there are currently health insurance policies being 
offered in the general market that meet the current definition of 
short-term limited duration insurance. As indicated earlier, these 
products serve as stop-gap coverage for individuals who need health 
coverage for short periods of time. To change the definition of short-
term limited duration insurance would have implications for this type 
of coverage.
    CMS believes that the option adopted for this final rule (defining 
student health insurance coverage as individual health insurance 
coverage and limiting the applicability of the PHS Act and the 
Affordable Care Act through its authority under Affordable Care Act 
section 1560(c)) strikes the best balance of extending certain 
protections of the Affordable Care Act to students and their dependents 
enrolled in the student health insurance plans while preserving the 
availability and affordability of such coverage.

D. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) requires agencies that issue a 
rule to analyze options for regulatory relief of small businesses if a 
rule has a significant 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 nonprofit 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''). CMS uses as its measure of significant 
economic impact on a substantial number of small entities a change in 
revenues of more than 3 percent to 5 percent.
    As discussed in the Web Portal interim final rule (75 FR 24481), we 
examined the health insurance industry in depth in the Regulatory 
Impact Analysis we prepared for the final rule on establishment of the 
Medicare Advantage program (69 FR 46866, August 3, 2004). In that 
analysis we determined that there were few if any insurance firms 
underwriting comprehensive health insurance policies (in contrast, for 
example, to travel insurance policies or dental discount policies) that 
fell below the size thresholds for ``small'' business established by 
the SBA (currently $7 million in annual receipts for health insurers, 
based on North American

[[Page 16467]]

Industry Classification System Code 524114).\16\
---------------------------------------------------------------------------

    \16\ ``Table of Size Standards Matched To North American 
Industry Classification System Codes,'' effective November 5, 2010, 
U.S. Small Business Administration, available at http://www.sba.gov.
---------------------------------------------------------------------------

    Additionally, as discussed in the Medical Loss Ratio interim final 
rule (75 FR 74918, December 1, 2010, as modified by technical 
corrections (75 FR 82277, December 30, 2010)), CMS used a data set 
created from 2009 National Association of Insurance Commissioners 
(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, CMS used total A&H earned 
premiums as a proxy for annual receipts. CMS estimated that there were 
28 small entities with less than $7 million in A&H earned premiums 
offering individual or group comprehensive major medical coverage; 
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.
    As discussed earlier in this regulatory impact analysis, 
comprehensive sources of data concerning the student health insurance 
market are not readily available. However, for purposes of this 
regulatory flexibility analysis, CMS has used data for issuers who 
reported offering student coverage on the 2009 NAIC Accident & Health 
Policy Experience exhibit as a proxy for estimating the potential 
number of small issuers that could be affected by the provisions in 
this final rule. Based on these data, CMS estimates that there are 4 
small entities with less than $7 million in A&H earned premiums that 
offer student health insurance coverage that is the subject of this 
final rule. These small entities account for 13 percent of the 
estimated 32 total issuers who reported offering such coverage.\17\
---------------------------------------------------------------------------

    \17\ As discussed earlier in this regulatory impact analysis, 
these 32 health insurance issuers are licensed entities with unique 
NAIC company codes that reported earned premiums and enrollment for 
student business in the individual and group markets on the NAIC 
Accident & Health Policy Experience Exhibit in 2009, and exclude 
companies regulated by the California Department of Managed Health 
Care. This represents a subset of the 58 total issuers who reported 
any kind of student business on the NAIC A&H Policy Experience 
Exhibit for that year (including some that CMS estimates are 
primarily offering K-12 student accident health coverage that is not 
subject to the provisions of this final rule).
---------------------------------------------------------------------------

    CMS estimates that 100 percent of these small issuers are 
subsidiaries of larger carriers, and 100 percent also offer other types 
of A&H coverage. On average, CMS estimates that student health 
insurance coverage in the group market accounts for approximately 29 
percent of total A&H earned premiums for these small issuers. 
Additionally, CMS estimates that the annual cost burden for these small 
entities relating to the notice requirements in this final rule will be 
$40,840 per issuer (accounting for 2.3 percent of their total A&H 
earned premiums). As discussed earlier, CMS believes that these 
estimates overstate the number of small entities that will be affected 
by the requirements in this rule, as well as the relative impact of 
these requirements on these entities because CMS has based its analysis 
on issuers' total A&H earned premiums (rather than their total annual 
receipts). Therefore, the Secretary certifies that this final rule will 
not have a significant impact on a substantial number of small 
entities.
    In addition, section 1102(b) of the Social Security Act requires us 
to prepare a regulatory impact analysis if a final rule may have a 
significant economic impact on the operations of a substantial number 
of small rural hospitals. This analysis must conform to the provisions 
of section 604 of the RFA. This final rule would not affect small rural 
hospitals. Therefore, the Secretary has determined that this final rule 
would not have a significant impact on the operations of a substantial 
number of small rural hospitals.

E. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act (UMRA) of 1995 
requires that agencies assess anticipated costs and benefits before 
issuing any final rule that includes a Federal mandate that could 
result in expenditure in any one year by State, local or tribal 
governments, in the aggregate, or by the private sector, of $100 
million in 1995 dollars, updated annually for inflation. In 2011, that 
threshold level was approximately $136 million.
    UMRA does not address the total cost of a final rule. Rather, it 
focuses on certain categories of cost, 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 final rule includes no mandates on State, local, or tribal 
governments. Under the final rule, issuers will be required to provide 
important Affordable Care Act and PHS Act protections for students 
enrolled in student health insurance coverage. Further, the estimated 
annual costs associated with the provisions of this final rule are 
approximately $40,840 per affected entity (or approximately $3,063,000 
per year across all affected entities). Thus, this final rule does not 
impose an unfunded mandate on State, local or tribal governments or the 
private sector. However, consistent with policy embodied in UMRA, this 
final rule has been designed to be the least burdensome alternative for 
State, local and tribal governments, and the private sector while 
achieving the objectives of the Affordable Care Act.

F. Federalism

    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a final rule that imposes 
substantial direct requirement costs on State and local governments, 
preempts State law, or otherwise has federalism implications. In CMS' 
view, while the requirements specified in this final rule would not 
impose substantial direct costs on State and local governments, this 
final rule has federalism implications due to direct effects on the 
distribution of power and responsibilities among the State and Federal 
governments relating to the rule of student health insurance coverage.
    As discussed earlier in the preamble, some States do not regulate 
student health insurance as individual health insurance coverage, but 
rather as a type of association ``blanket coverage'' or as non-employer 
group coverage. Under this final rule, student health insurance 
coverage will be defined as a type of individual health insurance 
coverage, and will therefore be subject to the individual market 
provisions of the PHS Act and the Affordable Care Act, with the 
exception of certain specific provisions that are identified in the 
final rule. States would continue to apply State laws regarding student 
health insurance coverage. However, if any State law or requirement 
prevents the application of a Federal standard, then that particular 
State law or requirement would be preempted. Additionally, State 
requirements that are more stringent than the Federal requirements 
would be not be preempted by this final rule. Accordingly, States have 
significant latitude to impose requirements with respect to student 
health insurance coverage that are more restrictive than the Federal 
law.
    In compliance with the requirement of Executive Order 13132 that 
agencies examine closely any policies that may have federalism 
implications or limit the policymaking discretion of the

[[Page 16468]]

States, CMS has engaged in efforts to consult with and work 
cooperatively with affected States, including consulting with State 
insurance officials on an individual basis.
    Throughout the process of developing this final rule, CMS has 
attempted to balance the States' interests in regulating health 
insurance issuers, and Congress' intent to provide uniform protections 
to consumers in every State. By doing so, it is CMS' view that it has 
complied with the requirements of Executive Order 13132. Under the 
requirements set forth in section 8(a) of Executive Order 13132, and by 
the signatures affixed to this rule, HHS certifies that the CMS Center 
for Consumer Information and Insurance Oversight has complied with the 
requirements of Executive Order 13132 for the attached final rule in a 
meaningful and timely manner.

G. Congressional Review Act

    This final rule is subject to the Congressional Review Act 
provisions of the Small Business Regulatory Enforcement Fairness Act of 
1996 (5 U.S.C. 801 et seq.), which specifies that before a rule can 
take effect, the Federal agency promulgating the rule shall submit to 
each House of the Congress and to the Comptroller General a report 
containing a copy of the rule along with other specified information, 
and has been transmitted to Congress and the Comptroller General for 
review.

List of Subjects

45 CFR Part 144

    Health care, Health insurance, Reporting and recordkeeping 
requirements.

45 CFR Part 147

    Health care, Health insurance, Reporting and recordkeeping 
requirements, and State regulation of health insurance.

45 CFR Part 158

    Administrative practice and procedure, Claims, Health care, Health 
insurance, Health plans, Penalties, Reporting and recordkeeping 
requirements.

    For the reasons set forth in the preamble, the Department of Health 
and Human Services amends 45 CFR Subtitle A, Subchapter B as set forth 
below:

PART 144--REQUIREMENTS RELATING TO HEALTH INSURANCE COVERAGE

0
1. The authority citation for part 144 continues to read as follows:

    Authority:  Secs. 2701 through 2763, 2791, and 2792 of the 
Public Health Service Act, 42 U.S.C. 300gg through 300gg-63, 300gg-
91, and 300gg-92.


0
2. Section 144.103 is amended by:
0
a. Revising the introductory text.
0
b. Adding the definition of ``student health insurance coverage'' in 
alphabetical order.
    The revision and addition read as follows:


Sec.  144.103  Definitions.

    For purposes of parts 146 (group market), 147 (health reform 
requirements for the group and individual markets), 148 (individual 
market), and 150 (enforcement) of this subchapter, the following 
definitions apply unless otherwise provided:
* * * * *
    Student health insurance coverage has the meaning given the term in 
Sec.  147.145.
* * * * *

PART 147--HEALTH INSURANCE REFORM REQUIREMENTS FOR THE GROUP AND 
INDIVIDUAL HEALTH INSURANCE MARKETS

0
3. The authority citation for part 147 continues to read as follows:

    Authority:  Sections 2701 through 2763, 2791, and 2792 of the 
Public Health Service Act (42 U.S.C. 300gg through 300gg-63, 300gg-
91, and 300gg-92), as amended.


0
4. Add Sec.  147.145 to read as follows:


Sec.  147.145  Student health insurance coverage.

    (a) Definition. Student health insurance coverage is a type of 
individual health insurance coverage (as defined in Sec.  144.103 of 
this subchapter) that is provided pursuant to a written agreement 
between an institution of higher education (as defined in the Higher 
Education Act of 1965) and a health insurance issuer, and provided to 
students enrolled in that institution of higher education and their 
dependents, that meets the following conditions:
    (1) Does not make health insurance coverage available other than in 
connection with enrollment as a student (or as a dependent of a 
student) in the institution of higher education.
    (2) Does not condition eligibility for the health insurance 
coverage on any health status-related factor (as defined in Sec.  
146.121(a) of this subchapter) relating to a student (or a dependent of 
a student).
    (3) Meets any additional requirement that may be imposed under 
State law.
    (b) Exemptions from the Public Health Service Act. (1) Guaranteed 
availability and guaranteed renewability. For purposes of sections 
2741(e)(1) and 2742(b)(5) of the Public Health Service Act, student 
health insurance coverage is deemed to be available only through a bona 
fide association.
    (2) Annual limits. (i) Notwithstanding the annual dollar limits 
requirements of Sec.  147.126, for policy years beginning before 
September 23, 2012, a health insurance issuer offering student health 
insurance coverage may not establish an annual dollar limit on 
essential health benefits that is lower than $100,000.
    (ii) Notwithstanding the annual dollar limits requirements of Sec.  
147.126, for policy years beginning on or after September 23, 2012, but 
before January 1, 2014, a health insurance issuer offering student 
health insurance coverage may not establish an annual dollar limit on 
essential health benefits that is lower than $500,000.
    (iii) For policy years beginning on or after January 1, 2014, a 
health insurance issuer offering student health insurance coverage must 
comply with the annual dollar limits requirements in Sec.  147.126.
    (c) Student administrative health fees. (1) Definition. A student 
administrative health fee is a fee charged by the institution of higher 
education on a periodic basis to students of the institution of higher 
education to offset the cost of providing health care through health 
clinics regardless of whether the students utilize the health clinics 
or enroll in student health insurance coverage.
    (2) Preventive services. Notwithstanding the requirements under 
section 2713 of the Public Health Service Act and its implementing 
regulations, student administrative health fees as defined in paragraph 
(c)(1) of this section are not considered cost-sharing requirements 
with respect to specified recommended preventive services.
    (d) Notice. (1) Requirements. (i) A health insurance issuer that 
provides student health insurance coverage, and does not meet the 
annual dollar limits requirements under section 2711 of the Public 
Health Service Act, must provide a notice informing students that the 
policy does not meet the minimum annual limits requirements under 
section 2711 of the Public Health Service Act. The notice must include 
the dollar amount of the annual limit along with a description of the 
plan benefits to which the limit applies for the student health 
insurance coverage.
    (ii) The notice must state that the student may be eligible for 
coverage as a dependent in a group health plan of a parent's employer 
or under the parent's individual market coverage if the student is 
under the age of 26.

[[Page 16469]]

    (iii) The notice must be prominently displayed in clear, 
conspicuous 14-point bold type on the front of the insurance policy or 
certificate and in any other plan materials summarizing the terms of 
the coverage (such as a summary description document).
    (iv) The notice must be provided for policy years beginning before 
January 1, 2014.
    (2) Model language. The following model language, or substantially 
similar language, can be used to satisfy the notice requirement of this 
paragraph (d): ``Your student health insurance coverage, offered by 
[name of health insurance issuer], may not meet the minimum standards 
required by the health care reform law for the restrictions on annual 
dollar limits. The annual dollar limits ensure that consumers have 
sufficient access to medical benefits throughout the annual term of the 
policy. Restrictions for annual dollar limits for group and individual 
health insurance coverage are $1.25 million for policy years before 
September 23, 2012; and $2 million for policy years beginning on or 
after September 23, 2012 but before January 1, 2014. Restrictions for 
annual dollar limits for student health insurance coverage are $100,000 
for policy years before September 23, 2012, and $500,000 for policy 
years beginning on or after September 23, 2012, but before January 1, 
2014. Your student health insurance coverage put an annual limit of: 
[Dollar amount] on [which covered benefits--notice should describe all 
annual limits that apply]. If you have any questions or concerns about 
this notice, contact [provide contact information for the health 
insurance issuer]. Be advised that you may be eligible for coverage 
under a group health plan of a parent's employer or under a parent's 
individual health insurance policy if you are under the age of 26. 
Contact the plan administrator of the parent's employer plan or the 
parent's individual health insurance issuer for more information.''
    (e) Applicability. The provisions of this section apply for policy 
years beginning on or after July 1, 2012.

PART 158--ISSUER USE OF PREMIUM REVENUE: REPORTING AND REBATE 
REQUIREMENTS

0
5. The authority citation for part 158 continues to read as follows:

    Authority: Section 2718 of the Public Health Service Act (42 USC 
300gg-18), as amended.



0
6. Section 158.103 is amended by adding the definitions of ``student 
administrative health fee,'' ``student health insurance coverage,'' and 
``student market'' in alphabetical order, to read as follows:


Sec.  158.103  Definitions.

    For the purposes of this part, the following definitions apply 
unless specified otherwise.
* * * * *
    Student administrative health fee has the meaning given the term in 
Sec.  147.145 of this subchapter.
    Student health insurance coverage has the meaning given the term in 
Sec.  147.145 of this subchapter.
    Student market means the market for student health insurance 
coverage.
* * * * *

0
7. Section 158.120 is amended by adding paragraph (d)(5) to read as 
follows:


Sec.  158.120  Aggregate reporting.

* * * * *
    (d) * * *
    (5) An issuer in the student market must aggregate and report the 
experience from these policies on a national basis, separately from 
other policies.

0
8. Section 158.140 is amended by adding paragraph (b)(3)(iv) to read as 
follows:


Sec.  158.140  Reimbursement for clinical services provided to 
enrollees.

* * * * *
    (b) * * *
    (3) * * *
    (iv) Amounts paid to a provider for services that do not represent 
reimbursement for covered services provided to an enrollee and are 
directly covered by a student administrative health fee.
* * * * *

0
9. Section 158.220 is amended:
0
a. In paragraph (b) introductory text by removing the reference 
``paragraph (c)'' and adding in its place the reference ``paragraphs 
(c) and (d).''
0
b. Adding paragraph (d).
    The addition reads as follows:


Sec.  158.220  Aggregation of data in calculating an issuer's medical 
loss ratio.

* * * * *
    (d) Requirements for MLR reporting years 2013 and 2014 for the 
student market only.
    (1) For the 2013 MLR reporting year, an issuer's MLR is calculated 
using the data reported under this part for the 2013 MLR reporting year 
only.
    (2) For the 2014 MLR reporting year--
    (i) If an issuer's experience for the 2014 MLR reporting year is 
fully credible, as defined in Sec.  158.230 of this subpart, an 
issuer's MLR is calculated using the data reported under this part for 
the 2014 MLR reporting year.
    (ii) If an issuer's experience for the 2014 MLR reporting year is 
partially credible or non-credible, as defined in Sec.  158.230 of this 
subpart, an issuer's MLR is calculated using the data reported under 
this part for the 2013 MLR reporting year and the 2014 MLR reporting 
year.

0
10. Section 158.221 is amended by adding paragraph (b)(5) to read as 
follows:


Sec.  158.221  Formula for calculating an issuer's medical loss ratio.

* * * * *
    (b) * * *
    (5) The numerator of the MLR for policies that are reported 
separately under Sec.  158.120(d)(5) of this part must be the amount 
specified in paragraph (b) of this section, except that for the 2013 
MLR reporting year the total of the incurred claims and expenditures 
for activities that improve health care quality is then multiplied by a 
factor of 1.15.
* * * * *

0
11. Section 158.231 is amended by adding paragraphs (d) and (e) to read 
as follows:


Sec.  158.231  Life-years used to determine credible experience.

* * * * *
    (d) For the 2013 MLR reporting year for the student market only, 
the life-years used to determine credibility are the life-years for the 
2013 MLR reporting year only.
    (e) For the 2014 MLR reporting year for the student market only--
    (1) If an issuer's experience for the 2014 MLR reporting year is 
fully credible, the life-years used to determine credibility are the 
life-years for the 2014 MLR reporting year only;
    (2) If an issuer's experience for the 2014 MLR reporting year only 
is partially credible or non-credible, the life-years used to determine 
credibility are the life-years for the 2013 MLR reporting year plus the 
life-years for the 2014 MLR reporting year.

0
12. Section 158.232 is amended by adding paragraph (e) to read as 
follows:


Sec.  158.232  Calculating the credibility adjustment.

* * * * *
    (e) No credibility adjustment. Beginning with the 2015 MLR 
reporting year for the student market only, the credibility adjustment 
for an MLR based on partially credible experience is zero

[[Page 16470]]

if both of the following conditions are met:
    (1) The current MLR reporting year and each of the two previous MLR 
reporting years included experience of at least 1,000 life-years; and
    (2) Without applying any credibility adjustment, the issuer's MLR 
for the current MLR reporting year and each of the two previous MLR 
reporting years were below the applicable MLR standard for each year as 
established under Sec.  158.210 in this subpart.

    Dated: October 11, 2011.
Donald M. Berwick,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: November 3, 2011.
Kathleen Sebelius,
Secretary.
[FR Doc. 2012-6359 Filed 3-16-12; 4:15 pm]
BILLING CODE 4120-01-P