17220 Federal Register / Vol. 77, No. 57 / Friday, March 23, 2012 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

45 CFR Part 153 

[CMS–9975–F] 

RIN 0938–AR07 

Patient Protection and Affordable Care 

Act; Standards Related to 

Reinsurance, Risk Corridors and Risk 

Adjustment 

AGENCY: Department of Health and 

Human Services. 

ACTION: Final rule. 

SUMMARY: This final rule implements 

standards for States related to 

reinsurance and risk adjustment, and for 

health insurance issuers related to 

reinsurance, risk corridors, and risk 

adjustment consistent with title I of the 

Patient Protection and Affordable Care 

Act as amended by the Health Care and 

Education Reconciliation Act of 2010, 

referred to collectively as the Affordable 

Care Act. These programs will mitigate 

the impact of potential adverse selection 

and stabilize premiums in the 

individual and small group markets as 

insurance reforms and the Affordable 

Insurance Exchanges (‘‘Exchanges’’) are 

implemented, starting in 2014. The 

transitional State-based reinsurance 

program serves to reduce uncertainty by 

sharing risk in the individual market 

through making payments for high 

claims costs for enrollees. The 

temporary Federally administered risk 

corridors program serves to protect 

against uncertainty in rate setting by 

qualified health plans sharing risk in 

losses and gains with the Federal 

government. The permanent State-based 

risk adjustment program provides 

payments to health insurance issuers 

that disproportionately attract high-risk 

populations (such as individuals with 

chronic conditions). 

DATES: Effective Date: These regulations 

are effective on May 22, 2012. 

FOR FURTHER INFORMATION CONTACT: 

Sharon Arnold at (301) 492–4415 or 

Laurie McWright at (301) 492–4372 

for general information. 

Wakina Scott at (301) 492–4393 for 

matters related to reinsurance. 

Grace Arnold at (301) 492–4272 for 

matters related to risk adjustment. 

Jeff Wu at (301) 492–4416 for matters 

related to risk corridors. 

SUPPLEMENTARY INFORMATION: 

Abbreviations 

CMS Centers for Medicare & Medicaid 

Services 

HHS U.S. Department of Health and Human 

Services 

HIPAA Health Insurance Portability and 

Accountability Act of 1996 (Pub. L. 104– 

191) 

MLR Medical Loss Ratio 

PCIP Pre-existing Condition Insurance Plan 

PHS Act Public Health Service Act (42 

U.S.C. 201 et seq.) 

QHP Qualified Health Plan 

Table of Contents 

I. Background 

A. Legislative Overview 

B. Introduction 

II. Provisions of the Proposed Regulations 

and Analysis of and Responses to Public 

Comments 

A. Subpart A—General Provisions 

B. Subpart B—State Notice of Benefit and 

Payment Parameters 

C. Subpart C—State Standards Related to 

the Reinsurance Program 

D. Subpart D—State Standards Related to 

the Risk Adjustment Program 

E. Subpart E—Health Insurance Issuer and 

Group Health Plan Standards Related to 

the Reinsurance Program 

F. Subpart F—Health Insurance Issuer 

Standards Related to the Risk Corridors 

Program 

G. Subpart G—Health Insurance Issuer 

Standards Related to the Risk 

Adjustment Program 

III. Provisions of the Final Regulations 

IV. Collection of Information Requirements 

V. Summary of Regulatory Impact Analysis 

VI. Regulatory Flexibility Act 

I. Background 

A. Legislative Overview 

Starting in 2014, individuals and 

small businesses will be able to 

purchase private health insurance 

through State-based competitive 

marketplaces called Affordable 

Insurance Exchanges, or ‘‘Exchanges.’’ 

Exchanges will offer Americans 

competition, choice, and clout. 

Insurance companies will compete for 

business on a level playing field, driving 

down costs. Consumers will have a 

choice of health plans to fit their needs. 

In addition, Exchanges will give 

individuals and small businesses the 

same purchasing power as big 

businesses. The Departments of Health 

and Human Services, Labor, and the 

Treasury are working in close 

coordination to release guidance related 

to Exchanges in several phases. A 

Request for Comment relating to 

Exchanges was published in the Federal 

Register on August 3, 2010. An Initial 

Guidance to States on Exchanges was 

issued on November 18, 2010. A 

proposed rule for the application, 

review, and reporting process for 

waivers for State innovation was 

published in the Federal Register on 

March 14, 2011. Two proposed rules, 

including the proposed form of this 

rule, were published in the Federal 

Register on July 15, 2011 to implement 

components of Exchanges and health 

insurance premium stabilization 

programs (that is, reinsurance, risk 

corridors, and risk adjustment) from the 

Affordable Care Act. A proposed rule 

regarding eligibility for Exchanges was 

published in the Federal Register on 

August 17, 2011. A proposed rule on the 

Health Insurance Premium Tax Credit 

was published in the Federal Register 

on August 17, 2011. A proposed rule 

making changes to eligibility for the 

Medicaid program was published in the 

Federal Register on August 17, 2011. 

The final versions of the Exchange 

Establishment and Eligibility rules were 

made available for public inspection at 

the Office of the Federal Register on 

March 12, 2012. A final version of the 

Medicaid rule is being made available 

for public inspection at the Office of the 

Federal Register on the same date as this 

rule. 

Section 1341 of the Affordable Care 

Act provides that each State must 

establish a transitional reinsurance 

program to help stabilize premiums for 

coverage in the individual market 

during the first three years of Exchange 

operation (2014 through 2016). Section 

1342 provides that HHS must establish 

a temporary risk corridors program that 

will apply to QHPs in the individual 

and small group markets for the first 

three years of Exchange operation (2014 

through 2016). Section 1343 provides 

that each State must establish a 

permanent program of risk adjustment 

for all non-grandfathered plans in the 

individual and small group markets 

both inside and outside of the 

Exchanges. These risk-spreading 

mechanisms, which will be 

implemented by HHS and the States, are 

designed to mitigate the potential 

impact of adverse selection and provide 

stability for health insurance issuers in 

the individual and small group markets. 

If a State chooses not to establish a 

transitional reinsurance program or a 

risk adjustment program, this final rule 

provides that HHS will do so on its 

behalf. 

Section 1321(a) also provides broad 

authority for HHS to establish standards 

and regulations to implement the 

statutory requirements related to 

reinsurance, risk adjustment, and the 

other components of title I of the 

Affordable Care Act. Section 1321(a)(2) 

requires, in issuing such regulations, 

HHS to engage in stakeholder 

consultation in a way that ensures 

balanced representation among 

interested parties. We describe the 

consultation activities HHS has 

undertaken later in this introduction. 

Section 1321(c)(1) authorizes HHS to 

establish and implement reinsurance, 


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risk adjustment, and the other 

components of title I of the Affordable 

Care Act in States that have not done so. 

B. Introduction 

Underpinning the goals of highquality, affordable health insurance 

coverage is the need to minimize the 

possible negative effects of adverse 

selection. Adverse selection results 

when a health insurance purchaser 

understands his or her own potential 

health risk better than the health 

insurance issuer does, resulting in a 

health plan having higher costs than 

anticipated. 

To protect themselves from adverse 

selection, issuers may include a margin 

in their pricing (that is, set premiums 

higher than necessary) in order to offset 

the potential expense of high-cost 

enrollees. The uncertainty resulting 

from adverse selection could also lead 

an issuer to be more cautious about 

offering certain plan designs in the 

Exchange. This risk will likely be 

greatest in the first years of the 

Exchange; however, the risk should 

decrease as the new market matures and 

issuers gain actual claims experience 

with this new population. 

As experience in States has shown, 

offsetting the adverse selection from 

insurance reforms may be best 

accomplished by broadening the risk 

pool: Making coverage affordable 

through lower premiums and targeted 

financial assistance and making 

coverage a responsibility so that people 

pay premiums regardless of their 

current need for health care. In addition, 

to further minimize the negative effects 

of adverse selection and foster a stable 

marketplace from year one of 

implementation, the Affordable Care 

Act establishes transitional reinsurance 

and temporary risk corridors programs, 

and a permanent risk adjustment 

program to provide payments to health 

insurance issuers that cover higher-risk 

populations and to more evenly spread 

the financial risk borne by issuers. 

The transitional reinsurance program 

and the temporary risk corridors 

program, which begin in 2014, are 

designed to provide issuers with greater 

payment stability as insurance market 

reforms are implemented. The 

reinsurance program, which is a Statebased program, will reduce the 

uncertainty of insurance risk in the 

individual market by partially offsetting 

risk for high-cost enrollees. By limiting 

issuers’ exposure to high-cost enrollees, 

this program will attenuate individual 

market rate increases that might 

otherwise occur because of the 

immediate enrollment of individuals 

with unknown health status. The risk 

corridors program, which is a Federally 

administered program, will protect 

against uncertainty in rates for QHPs by 

limiting the extent of issuer losses (and 

gains). On an ongoing basis, the risk 

adjustment program is intended to 

provide increased payments to health 

insurance issuers that attract higher-risk 

populations (such as those with chronic 

conditions) and reduce the incentives 

for issuers to avoid higher-risk 

enrollees. Under this program, funds are 

transferred from issuers with lower-risk 

enrollees to issuers with higher-risk 

enrollees. Section 1343 of the 

Affordable Care Act authorizes HHS to 

utilize criteria and methods similar to 

those utilized under Parts C or D of title 

XVIII of the Social Security Act to 

implement risk adjustment. Standards 

for the reinsurance, risk corridors, and 

risk adjustment programs are addressed 

in this final rule. The following chart 

summarizes these programs: 

Program Reinsurance Risk corridors Risk adjustment 

What ................................. Provides funding to issuers that incur 

high claims costs for enrollees.

Limits issuer losses (and gains) ........ Transfers funds from lower risk plans 

to higher risk plans. 

Program Operation .......... State option to operate, regardless of 

whether the State establishes an 

Exchange.

HHS ................................................... State option to operate if the State 

establishes an Exchange. 

Who Participates .............. All issuers and third party administrators on behalf of group health 

plans contribute funding; nongrandfathered individual market 

plans (inside and outside the Exchange) are eligible for payments.

Qualified health plans ........................ Non-grandfathered individual and 

small group market plans, inside 

and outside the Exchange. 

Why .................................. Offsets high cost outliers ................... Protects against inaccurate rate-setting.Protects against adverse selection. 

When ................................ Throughout the year .......................... After reinsurance and risk adjustment.Before June 30 of the calendar year 

following the benefit year. 

Time Frame ..................... 3 years (2014–2016) ......................... 3 years (2014–2016) ......................... Permanent. 

II. Provisions of the Proposed 

Regulations and Analysis of and 

Responses to Public Comments 

As indicated in our proposed rule, 

HHS published a Request for Comment 

(RFC) on August 3, 2010, inviting the 

public to provide input regarding the 

rules that will govern the Exchanges. 

The comment period closed on October 

4, 2010. Comments were submitted by 

consumer advocacy organizations, 

medical and health care professional 

trade associations and societies, medical 

and health care professional entities, 

health insurance issuers, insurance 

trade associations, members of the 

general public, and employer 

organizations. The RFC comments were 

considered in the development of the 

proposed rule. 

Leading up to the issuance of the 

Premium Stabilization proposed rule, 

HHS consulted with stakeholders 

through weekly meetings with the 

National Association of Insurance 

Commissioners (NAIC), regular contact 

with States through the Exchange grant 

process, and meetings with tribal 

representatives, health insurance 

issuers, trade groups, consumer 

advocates, employers, and other 

interested parties. We continue to 

consult with these stakeholders on the 

development of guidance related to the 

reinsurance, risk adjustment, and risk 

corridors programs. In this final rule, we 

have responded to comments submitted 

in response to the Premium 

Stabilization proposed rule and the 

RFC, where relevant. 

On July 15, 2011, we published in the 

Federal Register (76 FR 41950–41956) 

the proposed Standards related to 

Reinsurance, Risk Corridors, and Risk 

Adjustment. We received approximately 

700 comments on the proposed rule. Of 

the comments received, approximately 

200 were submitted as part of letter 

campaigns related to women’s and 

mental health services, or were general 

comments on the Affordable Care Act 

and the government’s role in health 


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care, but were not specific to the 

proposed rule. 

Comments that were specific to the 

proposed rule represented a wide 

variety of stakeholders, including States 

and tribal organizations, health 

insurance issuers, consumer groups, 

healthcare providers, industry experts, 

and members of the public. Many 

commenters emphasized the importance 

of the premium stabilization programs 

as Exchanges and insurance reforms are 

implemented and addressed the balance 

between flexibility for States and 

standardization and predictability for 

consumers nationwide. 

A. Subpart A—General Provisions 

1. Basis and Scope (§ 153.10) 

Section 153.10(a) of subpart A 

specified that the general statutory 

authority for the standards proposed in 

part 153 are based on the following 

sections of title I of the Affordable Care 

Act: sections 1321 and 1341–1343. 

Section 153.10(b) specified that this part 

establishes standards for the 

establishment and operation of a 

transitional reinsurance program, a 

temporary risk corridors program, and a 

permanent risk adjustment program. We 

received a number of supportive 

comments on these provisions and we 

are finalizing them without 

modification. 

2. Definitions (§ 153.20) 

In § 153.20, § 153.200, § 153.300, and 

§ 153.600 of the proposed rule, we set 

forth definitions for terms that are 

critical to the reinsurance, risk 

adjustment, and risk corridors programs. 

Many of the definitions presented in 

§ 153.20 were taken directly from the 

Affordable Care Act or from existing 

regulations. New definitions were 

created to carry out the regulations in 

part 153. When a term is defined in part 

153 other than in subpart A, the 

definition of the term is applicable only 

to the relevant subpart or section. The 

application of the terms defined in 

§ 153.20 is limited to part 153. 

Considering the comments received, 

we are finalizing this section as 

proposed, with the following 

modifications: 

We are moving a number of 

definitions that previously appeared in 

subparts C, D, and G of the proposed 

rule to subpart A of this final rule. We 

are revising the definition of 

‘‘attachment point’’ to clarify that 

reinsurance payments will apply to 

claims costs accumulated on an 

incurred basis in a benefit year, and to 

specify that reinsurance payments are 

payable on all covered benefits. We are 

making conforming revisions to the 

definitions of ‘‘coinsurance rate’’ and 

‘‘reinsurance cap.’’ We are revising the 

definition of ‘‘contribution rate’’ to be a 

per capita amount payable with respect 

to reinsurance contribution enrollees 

who reside in a State. We are adding a 

new defined term, ‘‘reinsurance 

contribution enrollee,’’ which means an 

individual covered by a plan for which 

reinsurance contributions must be made 

pursuant to § 153.400(b). We are 

removing the definition of ‘‘percent of 

premium’’ because this definition is no 

longer used. 

We are modifying the definition of 

‘‘risk adjustment methodology’’ to mean 

all parts of the risk adjustment 

process—the risk adjustment model, the 

calculation of plan average actuarial 

risk, the calculation of payments and 

charges, the risk adjustment data 

collection approach, and the schedule 

for the risk adjustment program. We are 

doing so to clarify the distinct parts of 

the risk adjustment process. The risk 

adjustment model calculates individual 

risk scores. The calculation of plan 

average actuarial risk adjusts those 

individual risk scores for rating 

variation, and calculates average 

actuarial risk at the plan level. The plan 

average actuarial risk is used for the 

calculation of payments and charges for 

risk adjustment covered plans. The risk 

adjustment data collection approach 

specifies how risk adjustment data will 

be stored, collected, accessed, 

transmitted, and validated, and the 

timeframes, data format, and privacy 

and security standards associated with 

each. The schedule for the risk 

adjustment program is the schedule for 

calculating payments and charges, 

invoicing issuers for charges, and 

disbursing payments. We are modifying 

the definition of ‘‘risk adjustment data’’ 

to mean all data that are used in a risk 

adjustment model, the calculation of 

plan average actuarial risk, or the 

calculation of payments and charges, or 

that are used for validation or audit of 

such data. We have added several new 

definitions—‘‘individual risk score,’’ 

‘‘calculation of plan average actuarial 

risk,’’ ‘‘calculation of payments and 

charges,’’ and ‘‘risk adjustment data 

collection approach.’’ 

Finally, we are making a number of 

clarifying modifications throughout this 

section. 

Comment: We received one comment 

suggesting that HHS define the benefit 

year as a calendar year and that the 

reinsurance program would be best 

operated on a calendar year basis. 

Response: The benefit year was 

defined as the calendar year in the 

Exchange Establishment rule. We have 

cross-referenced this definition in this 

final rule. 

Comment: Although a few 

commenters supported the proposal that 

reinsurance be payable only on essential 

health benefits, the majority of 

commenters urged that reinsurance be 

payable on all covered benefits, with 

several citing the administrative 

complexity of distinguishing between 

claims for essential health benefits and 

claims for other covered benefits. 

Response: Because it would be 

administratively burdensome for issuers 

to distinguish claims for covered 

essential health benefits from other 

claims, we are revising the definitions 

so that reinsurance is payable on all 

covered benefits. 

Comment: We received several 

comments disagreeing with the 

inconsistency in the proposed definition 

of percent of premium, which would 

include administrative costs for the 

fully insured market, but not the selfinsured market. 

Response: We believe that the statute 

intended for self-insured plans also to 

pay administrative costs. However, 

since we have modified the policy for 

the collection of contributions as 

discussed in the preamble to § 153.220, 

we are no longer proposing a definition 

for percent of premium. 

Comment: We received a number of 

comments requesting clarification of the 

definition of a contributing entity for the 

reinsurance program. Several 

commenters suggested that HHS clarify 

that third-party administrators are not 

financially liable for contributions to be 

made by group health plans for which 

they administer benefits. 

Response: The Affordable Care Act 

requires that health insurance issuers 

and third party administrators on behalf 

of group health plans make 

contributions. We are including text in 

§ 153.400 that clarifies which issuers 

must make reinsurance contributions 

and which are exempt. 

Comment: A few commenters 

expressed support for the differentiation 

between the defined terms ‘‘risk 

adjustment model’’ and ‘‘risk 

adjustment methodology.’’ Another 

commenter suggested an expanded set 

of definitions to capture more of the 

steps in the risk adjustment process, 

including a term to define the 

methodology for transferring money 

between plans, and a term to describe 

an individual enrollee’s relative cost 

compared to that of an average enrollee. 

Response: We are adding a definition 

of ‘‘individual risk score’’ to describe a 

relative measure of predicted health 

care costs for a particular enrollee. We 

are adding a definition of ‘‘calculation 


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of plan average actuarial risk’’ to 

describe the specific calculations used 

to determine plan average actuarial risk 

from individual risk scores for a risk 

adjustment covered plan, including the 

specification of the risk pool from 

which average actuarial risk will be 

calculated. We are adding a definition of 

‘‘calculation of payments and charges’’ 

to describe the specific procedures used 

to determine plan average actuarial risk 

from individual risk scores for a risk 

adjustment covered plan, including 

adjustment for variable rating factors 

and the specification of the risk pool 

from which average actuarial risk is to 

be calculated. We are adding a 

definition of ‘‘risk adjustment data 

collection approach’’ to describe the 

specific procedures by which risk 

adjustment data is to be stored, 

collected, accessed, and transmitted, 

and the timeframes, data format, and 

privacy and security standards with 

respect thereto. 

Comment: We received two comments 

about the definition of ‘‘risk adjustment 

data.’’ One commenter suggested that 

the definition be expanded to 

encompass all aspects of the risk 

adjustment process. Another commenter 

requested that HHS not adopt language 

that would curtail the use of a 

prospective risk adjustment model. 

Response: We are aligning the 

definition with a number of the other 

new definitions encompassed in ‘‘risk 

adjustment methodology.’’ We do not 

intend to curtail the use of a prospective 

risk adjustment model. 

Comment: We received a few 

comments requesting clarification as to 

the types of plans that are subject to risk 

adjustment. Commenters asked 

specifically about Medicaid managed 

care plans and multi-State plans. 

Response: Section 1343 of the 

Affordable Care Act requires that health 

plans (except grandfathered plans) in 

the individual or small group markets 

participate in the risk adjustment 

program. We are modifying the 

definition of ‘‘risk adjustment covered 

plan’’ in response to comments. This 

modification clarifies that all health 

insurance coverage, including multiState plans and Consumer Operated and 

Oriented Plans, are risk adjustment 

covered plans. The risk adjustment 

program does not apply to Medicare 

Advantage plans or Medicare 

Prescription Drug Plans, under which 

private health plans contract with 

Medicare to provide Medicare-covered 

benefits, or to contracts with State 

Medicaid agencies to provide Medicaid 

benefits, as payments for such coverage 

are regulated under provisions of the 

Social Security Act. 

Insurance coverage solely for 

excepted benefits under title XXVII of 

the PHS Act will be excluded from risk 

adjustment. Excepted benefit plans 

cover a specific set of services, such as 

vision benefits, while ‘‘major medical’’ 

plans cover a broader set of benefits 

such as physician and hospital visits. 

These differences make fair enrollee risk 

comparison between excepted benefit 

plans and major medical plans difficult. 

We are modifying the definition of risk 

adjustment covered plan to exclude 

plans determined not to be risk 

adjustment covered plans in the annual 

HHS notice of benefit and payment 

parameters. 

B. Subpart B—State Notice of Benefit 

and Payment Parameters 

In this subpart, we proposed a process 

by which the States that are operating a 

risk adjustment program or establishing 

a reinsurance program issue an annual 

notice of benefit and payment 

parameters to disseminate information 

to issuers and other stakeholders about 

specific requirements to support 

payment-related functions. This 

provides a practical way to update 

certain payment and benefit parameters 

that may change annually, such as 

reinsurance contribution rates that are 

based on annually changing thresholds. 

This notice will also serve as a 

mechanism to address other Exchangerelated provisions. 

1. State Notice of Benefit and Payment 

Parameters (§ 153.100) 

In § 153.100(a), we proposed that a 

State operating an Exchange, as well as 

a State establishing a reinsurance 

program, be required to issue a notice to 

describe the specific parameters that the 

State will employ if that State intends 

to utilize any reinsurance or risk 

adjustment parameters that differ from 

those specified in the annual HHS 

notice of benefit and payment 

parameters. In paragraph (b) (now 

paragraph (c)), we proposed specific 

deadlines for the State notice of benefit 

and payment parameters. We proposed 

that those deadlines be tied to the 

publication of the annual HHS notice of 

benefit and payment parameters, upon 

which the public will have an 

opportunity to comment. Below is a 

chart detailing the schedules for the 

annual HHS notice of benefit and 

payment parameters for benefit year 

2014 and subsequent years, with the 

first two milestones occurring in the 

calendar year two years before the 

effective date. 

ANNUAL HHS NOTICE OF BENEFIT AND PAYMENT PARAMETERS

HHS publishes advance notice ................................................................. Mid-October two calendar years before the benefit year. 

Comment period ends .............................................................................. Mid-November two calendar years before the benefit year. 

HHS publishes final notice ........................................................................ Mid-January of the calendar year before the benefit year. 

We proposed that a State that plans to 

modify Federal parameters issue its 

notice by early March in the calendar 

year before the benefit year. We 

proposed that this requirement set an 

outer bound for the date by which the 

final notice is to be issued by a State 

that intends to utilize any reinsurance 

or risk adjustment parameters that differ 

from those specified in the annual HHS 

notice of benefit and payment 

parameters. 

We also proposed in paragraph (c) 

(now paragraph (d)), that if a State 

operating an Exchange or establishing a 

reinsurance program does not provide 

public notice of its intent to have Statespecific parameters within the period 

specified, the parameters set forth in the 

annual HHS notice of benefit and 

payment parameters will serve as the 

State parameters. 

For the reasons described in the 

proposed rule and considering the 

comments received, we are finalizing 

the provisions proposed in § 153.100 of 

the proposed rule, with the following 

modifications: We are clarifying that a 

State must publish a notice of benefit 

and payment parameters if it intends to 

modify the data requirements for 

reinsurance payments, collect 

reinsurance contributions, use more 

than one applicable reinsurance entity, 

or modify any reinsurance parameters. 

We are directing a State that operates a 

risk adjustment program to publish a 

notice of benefit and payment 

parameters setting forth the risk 

adjustment methodology and data 

validation standards it will use. We are 

specifying that State notices be issued 

by March 1 of the calendar year prior to 

the first benefit year for which the 

notice applies. We are clarifying that a 


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State that does not publish a notice of 

benefit and payment parameters forgoes 

its right to modify the data requirements 

for reinsurance payments, collect 

reinsurance contributions, use more 

than one applicable reinsurance entity, 

or use any risk adjustment methodology 

or data validation standards other than 

those published in the annual HHS 

notice of benefit and payment 

parameters for use by HHS when 

operating risk adjustment on behalf of a 

State. We are also making a number of 

clarifying modifications throughout this 

section. 

Comment: We received a number of 

comments in support of a requirement 

that States publish a State notice of 

benefit and payment parameters. One 

commenter suggested that we include a 

requirement that all notices be made 

public with a period for comment. 

Another commenter proposed that 

States be required to justify deviation 

from any methodologies or parameters 

set forth in the annual HHS notice of 

benefit and payment parameters. 

Response: While we recognize the 

value of requiring a public comment 

period for State notices, we believe that 

such a requirement should be left to 

State law and practice. HHS will 

provide an opportunity for public 

comment when HHS administers risk 

adjustment or reinsurance. State law 

will govern what administrative process 

is necessary when a State adopts a risk 

adjustment methodology, or modifies 

reinsurance parameters, subject to the 

limits of this final rule and the HHS 

notice of benefit and payment 

parameters. We are clarifying the 

content of the justification to be 

published by a State that seeks to use a 

risk adjustment methodology other than 

the methodology used by HHS when 

operating risk adjustment on behalf of a 

State. However, we are not requiring 

that a State must provide justification 

for changes to reinsurance payment 

parameters. As discussed in the 

preamble in subpart C, we believe a 

State may have many reasons to make 

adjustments to the HHS reinsurance 

payment parameters. As such, we 

believe that each State should have the 

flexibility to determine the parameters 

that best suit the administration of its 

reinsurance program. 

Comment: A number of commenters 

expressed support for the timing of 

notice releases as proposed. However, 

we received a number of comments 

stating that the proposed timeframe did 

not allow sufficient time for issuers to 

prepare their applications for 

certification for participation in the 

Exchange in time for the October 2013 

open enrollment period. Commenters 

proposed alternative timeframes for the 

release of the HHS notice that ranged 

from January 2012 to June 30, 2012. A 

number of commenters also stated that, 

particularly in the initial years, more 

advanced notice of Federal and State 

program parameters will be necessary in 

order for issuers to prepare premiums 

for the 2014 benefit year. 

Response: The timeframe for 

implementation of the Affordable Care 

Act makes it difficult for the Federal 

and State governments to provide more 

notice than was proposed in the 

proposed rule. To accommodate States’ 

and issuers’ desire for further 

information with respect to risk 

adjustment, HHS is planning a number 

of working sessions with issuers and 

States. We believe these sessions will 

provide sufficient information to issuers 

and States, while providing HHS the 

time necessary to more fully develop the 

Federal parameters for the reinsurance 

and risk adjustment programs. For these 

reasons, we are clarifying and finalizing 

the proposed requirement that State 

notices of benefit and payment 

parameters be published by March 1 of 

the calendar year prior to the benefit 

year. 

Comment: We received a comment 

supporting the requirement that, if a 

State establishing a reinsurance program 

does not provide public notice of its 

intent to have State-specific parameters, 

the parameters set forth in the annual 

HHS notice of benefit and payment 

parameters will serve as the State 

parameters. 

Response: We are finalizing our 

policy that a State that elects to 

establish a reinsurance program that 

does not publish a State notice of 

benefit and payment parameters by 

March 1 must adhere to the parameters 

set forth in the HHS notice of benefit 

and payment parameters. 

2. Standards for the State Notice of 

Benefit and Payment Parameters 

(§ 153.110) 

We proposed in paragraph (a)(1) (now 

paragraph (a)), that content related to 

the reinsurance program include the 

data requirements and data collection 

frequency for health insurance issuers to 

receive reinsurance payments. In 

paragraph (a)(2) (now paragraph (e)), we 

proposed that a State that establishes a 

reinsurance program must specify the 

attachment point, reinsurance cap, and 

coinsurance rate if the State plans to use 

values different from those set forth in 

the annual HHS notice of benefit and 

payment parameters. In paragraph (a)(3) 

(now paragraph (d)), we proposed that 

if a State plans to use more than one 

applicable reinsurance entity, the State 

must include in its State notice of 

benefit and payment parameters 

information related to the geographic 

boundaries of each applicable 

reinsurance entity and estimates related 

to the number of enrollees, payments, 

and premiums available for 

contributions in each region. 

In paragraph (b) (now paragraph (f)), 

we proposed content related to the risk 

adjustment program if the State intends 

to modify the risk adjustment 

parameters set forth in the annual HHS 

notice of benefit and payment 

parameters, including a detailed 

description of and rationale for any 

modification. 

For the reasons described in the 

proposed rule and considering the 

comments received, we are finalizing 

the provisions proposed in § 153.110 

with the following modifications: We 

are specifying that a State establishing a 

reinsurance program that elects to 

collect reinsurance contributions from 

the fully insured market must announce 

its intention to do so, and must set forth 

the data requirements for reinsurance 

payments in the State notice of benefit 

and payment parameters. We are 

clarifying that a State must apply any 

modified reinsurance parameters 

uniformly throughout the State. 

However, as discussed in Subpart C, a 

State must inform HHS by December 1, 

2012, of its intent to collect reinsurance 

contributions for the 2014 benefit year, 

and by September 1 of the calendar year 

that is two years prior to the applicable 

benefit year if the State elects to collect 

reinsurance contributions for any 

benefit year after 2014. A State that 

elects to collect additional reinsurance 

contributions must describe the purpose 

of the additional collection and the 

additional contribution rate. We are 

making a number of clarifying 

modifications throughout this section. 

Comment: One commenter supported 

affording States the flexibility to provide 

higher reinsurance payments to plans. 

Response: We believe that States 

should have the flexibility to vary 

reinsurance payments, so long as the 

reinsurance parameters are uniform 

throughout the State. However, a State 

electing to change reinsurance 

parameters must publish those changed 

parameters in the State notice of benefit 

and payment parameters. A State 

electing to make higher reinsurance 

payments will be required to collect any 

additional reinsurance contributions 

required to fund those higher payments 

through a State applicable reinsurance 

entity. 

Comment: We received a comment 

asking that States be provided the 


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flexibility to use multiple coinsurance 

rates. 

Response: We believe that States 

generally should have flexibility in 

setting payment parameters, but we do 

not believe that the Affordable Care Act 

intended for a State to allow an 

applicable reinsurance entity to set 

multiple payment parameters in the 

State, or for multiple applicable 

reinsurance entities in a State to set 

different payment parameters. We 

believe that payment parameters set by 

the State or HHS on behalf of the State 

should be uniform throughout the State. 

Comment: Several commenters 

supported the requirement that if there 

are multiple applicable reinsurance 

entities in a State, these entities must be 

required to operate in distinct 

geographic areas. 

Response: We are finalizing that 

requirement in § 153.210(a)(2). 

Comment: Several commenters asked 

for clarification or changes in the 

content that a State must provide in its 

notice of benefit and payment 

parameters. In particular, commenters 

stated that the proposed rule did not 

define the term ‘‘risk adjustment data 

validation methodology.’’ 

Response: We believe our proposed 

rule struck a balance between providing 

minimal baselines for States and 

providing States with flexibility for their 

State notices. We are clarifying the 

provisions related to risk adjustment 

data validation by requiring that 

§ 153.110(f) align with § 153.330(a) and 

§ 153.350. 

C. Subpart C—State Standards Related 

to the Reinsurance Program 

Section 1341 of the Affordable Care 

Act directs that a transitional 

reinsurance program be established in 

each State to help stabilize premiums 

for coverage in the individual market 

during the benefit years 2014 through 

2016. Under this provision, all health 

insurance issuers, and third-party 

administrators on behalf of self-insured 

group health plans, must make 

contributions to support reinsurance 

payments to non-grandfathered plans of 

individual market issuers that cover 

high-cost individuals. As a basis for 

reinsurance payments, the law directs 

HHS to develop a list of 50 to 100 

medical conditions to identify high-cost 

individuals, or to identify alternative 

methods for payment in consultation 

with the American Academy of 

Actuaries. 

In subpart C of the proposed rule, we 

proposed to codify in regulation section 

1341 of the Affordable Care Act as it 

relates to establishing a reinsurance 

program. Related standards on health 

insurance issuers with respect to 

reinsurance were proposed in subpart E 

of the proposed rule. 

1. Reserved (§ 153.200) 

Section 153.200 of the proposed rule 

defined a number of terms used in this 

subpart. Those definitions have been 

moved to subpart A. We are reserving 

this section for future use. 

2. State Establishment of a Reinsurance 

Program (§ 153.210) 

In § 153.210 of the proposed rule, we 

described standards for States regarding 

the establishment of a reinsurance 

program. We proposed in paragraph (a) 

that each State that elects to operate an 

Exchange must also establish a 

reinsurance program as required by the 

law. In paragraph (a)(1), we proposed to 

codify in regulation section 1341(a) of 

the Affordable Care Act, which requires 

that States must either enter into a 

contract with an existing applicable 

reinsurance entity or establish an 

applicable reinsurance entity to carry 

out the provisions for the reinsurance 

program. We believe the statute allows 

State flexibility in selecting an 

applicable reinsurance entity and did 

not propose more specific guidelines. 

The Affordable Care Act also allows 

States to set up more than one 

reinsurance entity, although this option 

may increase administrative costs. We 

proposed in paragraph (a)(2) that, for 

any State that chooses to have more 

than one reinsurance entity, the State 

must publish in a State notice of benefit 

and payment parameters, described in 

subpart B, information regarding the 

geographic divisions between the 

applicable entities. We further interpret 

the statute to imply that the geographic 

divisions of the applicable reinsurance 

entities must be distinct and together 

cover the entire individual market in the 

State and not just certain areas or 

populations. In paragraph (a)(3), we 

proposed to allow the State to permit a 

reinsurance entity to subcontract for 

administrative functions, provided that 

the State reviews and approves these 

subcontracted arrangements as 

described in paragraph (a)(4). We 

interpreted the statute to allow 

flexibility in the performance of 

administrative functions, with the 

understanding that the responsible party 

must be the applicable reinsurance 

entity. 

We proposed in paragraph (a)(5) that 

the establishment of, or contract with, 

an applicable reinsurance entity must 

extend for a sufficient period to ensure 

that the entity can fulfill all reinsurance 

requirements for the benefit years 2014 

through 2016, and any activities 

required to be undertaken in subsequent 

periods. Any State in which 

contributions remain to be disbursed for 

benefit years beyond 2016 must ensure 

that an applicable reinsurance entity is 

available for required payment activities 

for such additional periods. Section 

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

requires that these payments be 

completed by December 31, 2018. 

We clarified in paragraph (b) that 

there may be situations in which an 

applicable reinsurance entity operates a 

reinsurance program for more than one 

State. In such cases, we consider each 

contract to be an individual reinsurance 

arrangement between a specific State 

and the applicable reinsurance entity. 

We proposed in paragraph (c) to allow 

a State that does not elect to establish 

an Exchange to operate its own 

reinsurance program. Under this 

circumstance, the State will be required 

to carry out the provisions of this 

subpart. In paragraph (d), we proposed 

that if a State does not elect to establish 

an Exchange and does not elect to 

establish its own reinsurance program, 

HHS will establish the reinsurance 

program and will perform all the 

reinsurance functions for that State. 

These functions would include the 

collection of all contributions described 

in § 153.220, including funds required 

to operate and administer the applicable 

reinsurance functions. In paragraph (e), 

we proposed that each State that 

establishes a reinsurance program must 

ensure that each applicable reinsurance 

entity within the State complies with all 

provisions of this subpart and with 

subpart E. 

For the reasons described in the 

proposed rule and considering the 

comments received, we are finalizing 

these provisions with the following 

modifications: 

In paragraph (a), we are clarifying that 

because reinsurance is no longer a 

required Exchange function, each State 

is eligible to establish a reinsurance 

program regardless of whether the State 

establishes an Exchange; we are 

removing proposed paragraph (c) to 

conform to this change. We are 

clarifying in paragraph (a)(2) that each 

State is required to notify HHS in the 

manner and timeframe specified by 

HHS of the percentage of reinsurance 

contributions received by HHS for the 

State to be allocated to each applicable 

reinsurance entity, if applicable. We are 

moving the requirement that a State 

publish the geographic boundaries for 

each applicable reinsurance entity, if it 

elects to have more than one, to subpart 

B. Finally, we are making a number of 

clarifying modifications to this section. 


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Comment: We received a comment 

suggesting a number of entities that 

could serve as a not-for-profit 

reinsurance entity for a State. We 

received a few comments urging that we 

provide more guidance on entities 

eligible to be State applicable 

reinsurance entities. One commenter 

suggested that the State reinsurance 

entity be subject to both Federal and 

State oversight. 

Response: We believe that a State 

should have the discretion to select the 

entity that will administer its 

reinsurance program, and do not 

establish specific standards for that 

selection. We understand the 

commenter’s concern about oversight, 

and note that § 153.210(d) requires 

States to ensure compliance with 

subpart C when the State is operating 

the reinsurance program. When HHS is 

operating a reinsurance program on 

behalf of the State, HHS will also ensure 

such compliance. Because we believe 

that States should have flexibility in 

selection and oversight over the 

applicable reinsurance entity, we are 

not proposing further guidance on those 

matters. 

Comment: We received a comment 

suggesting that HHS provide options for 

States to terminate an entity for cause. 

Response: We believe that nothing in 

this final rule precludes States from 

terminating a contract with an 

applicable reinsurance entity in a 

manner consistent with State law 

(including regulations governing 

contracting). In such an event, the State 

should ensure a seamless transition of 

reinsurance functions to another 

applicable reinsurance entity to prevent 

any disruption in the program. 

Comment: We received many 

comments suggesting that a State 

establishing an Exchange not be 

required to operate a reinsurance 

program. Commenters stated that it 

would be difficult for a State to identify 

a not-for-profit entity to operate the 

transitional reinsurance program. One 

commenter suggested that HHS execute 

a master contract with a single 

reinsurance entity that satisfies all of the 

requirements in this final rule and 

permit States to use that entity. Another 

commenter stated that a State’s options 

for establishing a reinsurance program 

should be similar to those it has with 

respect to establishing a risk adjustment 

program. 

Response: We are no longer requiring 

that States that establish an Exchange 

also establish a reinsurance program. 

We believe that this flexibility is 

appropriate because some States have 

previously established reinsurance 

programs, and may feel they are 

prepared to operate a reinsurance 

program for their State. If a State 

chooses not to establish a reinsurance 

program, HHS will establish a 

reinsurance program for that State. 

Comment: We received one comment 

asking HHS to publish a white paper on 

draft methodologies for reinsurance. 

Response: We are describing the 

general methodology for collecting 

reinsurance contributions and making 

reinsurance payments in subpart C of 

this final rule. We plan to provide 

further details on this methodology, 

including the national rate for 

contributions and State-based 

reinsurance payment parameters, in the 

HHS notice of benefit and payment 

parameters. 

Comment: We received a comment 

seeking clarification on the use of 

unexpended contribution funds 

collected in calendar years 2014 through 

2016, and funds that may remain after 

2016. 

Response: We believe that unused 

reinsurance funds should be used by the 

State until expended or by December 31, 

2018, whichever date comes first, to 

make reinsurance payments. States are 

not prohibited from continuing a 

reinsurance program, but may not use 

reinsurance contribution funds 

collected under the reinsurance program 

in calendar years 2014 through 2016 to 

fund the program in years after 2018. If 

contribution funds collected for a 

calendar year between 2014 and 2016 

remain unspent by December 31 of the 

year, those funds may be carried into 

the next year to make payments for the 

next year or to make retroactive 

payments for prior years. 

Comment: We received a comment 

asking that existing State reinsurance 

programs be permitted to serve as a 

combined reinsurance program. The 

commenter further suggested permitting 

the use of reinsurance contributions 

collected under the transitional 

reinsurance program for an existing 

State reinsurance program. 

Response: We believe that a State 

with an existing reinsurance program in 

place can modify that program to 

comply with the standards for the 

transitional reinsurance program. The 

State would be required to contract with 

a not-for-profit reinsurance entity to 

administer the program, and the 

applicable reinsurance entity must 

comply with the standards. 

Contributions collected for the 

transitional reinsurance program must 

be used to make reinsurance payments 

pursuant to the transitional reinsurance 

program based on the payment 

parameters established by the State or 

HHS on behalf of the State, and may not 

be used to fund a separate State 

reinsurance program. 

3. Collection of Reinsurance 

Contribution Funds (§ 153.220) 

In § 153.220 of the proposed rule, we 

described standards for the collection of 

reinsurance contribution funds. In 

paragraph (a)(1) (now paragraph (c)), we 

proposed to codify in regulation the 

aggregate contribution amounts required 

under the Affordable Care Act for 

reinsurance. The Affordable Care Act 

requires that the reinsurance entity 

collect specified additional contribution 

funds for deposit into the general fund 

of the U.S. Treasury. In paragraph (a)(2), 

we proposed to codify in regulation 

these additional contribution amounts. 

Although the transitional reinsurance 

program is State-based, section 

1341(b)(3) sets contribution amounts for 

the program on a national basis. We 

considered two approaches to collecting 

contribution funds: (1) Use of a national 

uniform contribution rate, and (2) use of 

a State-level allocation, both set by HHS 

to ensure that the sum of all 

contribution funds equals the national 

amounts set forth in the Affordable Care 

Act. In paragraph (b), we proposed 

using a national contribution rate. Use 

of a national contribution rate is a 

simpler approach. Further, since there is 

significant uncertainty about individual 

market enrollment, the overall health of 

the enrolled population, and the cost of 

care for new enrollees, we believed that 

a national contribution rate would be 

the less ambiguous approach of the two. 

All contribution funds collected by a 

State establishing a reinsurance program 

under the national contribution rate 

would stay in that State and be used to 

make reinsurance payments on valid 

claims submitted by reinsurance-eligible 

plans in that State. There are two 

methods we considered for determining 

contributions using a national rate: (1) A 

percent of premium amount applied to 

all contributing entities, and (2) a flat 

per capita amount applied to all covered 

enrollees of contributing entities. In 

paragraph (b)(1) (now paragraph (e)), we 

proposed the percent of premium 

method as the fairest method by which 

to collect these contributions. 

In paragraph (b)(2) (now paragraph 

(e)), we also proposed requiring that all 

contribution funds collected for 

reinsurance payments be used for 

reinsurance, and all contribution funds 

collected for the U.S. Treasury be paid 

to the U.S. Treasury. In paragraph 

(b)(3)(i), we proposed that a State may 

collect more than would be collected 

under the national rate, if the State 

believes that these amounts are not 

sufficient to cover the payments it will 


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make under the payment formula. In 

paragraph (b)(3)(ii) (now paragraph (g)), 

we proposed permitting a State to 

collect more than the amount collected 

at the national rate to cover the 

administrative costs of the applicable 

reinsurance entity. 

We also considered the frequency 

with which applicable reinsurance 

entities should collect contribution 

funds from contributing entities. For 

example, applicable reinsurance entities 

could collect contribution funds 

intended for reinsurance payments and 

payments to the U.S. Treasury on a 

monthly basis beginning in January 

2014 so that reinsurance payments 

could begin in February 2014. 

Considering the comments received, 

we are finalizing these provisions with 

the following modifications: 

In paragraph (a), we are revising the 

proposed provisions so that HHS would 

collect contribution funds from selfinsured plans and third-party 

administrators on their behalf, whether 

or not a state elects to establish a 

reinsurance program. This policy is 

consistent with traditional Federal 

oversight of self-insured plans. States 

that establish a reinsurance program 

would have the option, but not the 

obligation, to collect contributions from 

issuers in the fully insured market. If a 

State does not elect to collect from the 

fully insured market, HHS would collect 

contributions from both fully insured 

and self-insured plans. 

In paragraph (b), we are clarifying that 

a State that elects to establish a 

reinsurance program must generally 

notify HHS by September 1 of the 

calendar year that is two years prior to 

the applicable benefit year if the State 

plans to collect reinsurance 

contributions from fully insured plans. 

However, due to States’ anticipated 

workload in establishing Exchanges in 

the fall of 2012, we are postponing the 

deadline for notifying HHS of a State’s 

intent to collect reinsurance 

contributions from fully insured plans 

to December 1, 2012, for the 2014 

benefit year (with the notification being 

required by September 1 of the calendar 

year two years prior to the applicable 

benefit year for any benefit year after 

2014). The State’s notification will be 

effective for the applicable benefit year 

and each subsequent benefit year during 

which reinsurance-related activities 

continue. 

Paragraph (d) describes how 

contribution funds collected by HHS 

will be distributed: HHS will distribute 

the reinsurance contributions collected 

to the applicable reinsurance entity for 

a State, net of the State’s share of the 

U.S. Treasury contribution and 

administrative expenses incurred when 

performing reinsurance functions under 

this subpart. 

In paragraph (e), we are clarifying that 

HHS will set the national contribution 

rate in the annual HHS notice of benefit 

and payment parameters along with the 

proportion of the national contribution 

rate that will be allocated to reinsurance 

payments, payments to the U.S. 

Treasury, and administrative expenses 

of the applicable reinsurance entity for 

the State or HHS when performing 

reinsurance functions under this 

subpart. 

In paragraph (g), we are clarifying that 

a State may elect to collect more than 

the amounts that would be collected 

based on the contribution rate to 

provide funding for administrative 

expenses or additional reinsurance 

payments. This policy was proposed in 

paragraph (b)(3) of the proposed rule. In 

paragraph (h), we describe the 

administration of additional State 

collections. If a State establishes a 

reinsurance program and elects to 

collect more than the amounts that 

would be collected based on the 

national contribution rate for 

administrative expenses, then the State 

must notify HHS within 30 days after 

publication of the proposed annual HHS 

notice of benefit and payment 

parameters of the additional 

contribution rate that it elects to collect 

for administrative expenses. Further, the 

State must ensure that the State’s 

applicable reinsurance entity collects 

any additional amount for 

administrative expenses, or accepts 

additional amounts from HHS in 

accordance with the State’s election 

under paragraph (a)(1). For reinsurance 

payments, notwithstanding paragraphs 

(a)(1) and (a)(2), the State must ensure 

that the State applicable reinsurance 

entity collects all additional reinsurance 

contributions from contributing entities 

for the purpose of reinsurance 

payments. In sum, HHS will only collect 

additional amounts for administrative 

expenses for a State, and will not collect 

additional amounts for reinsurance 

payments for a State. The collection of 

additional amounts for reinsurance 

payments must be carried out by the 

State’s applicable reinsurance entity. 

We are also making a number of 

clarifying modifications throughout this 

section. 

Comment: We received many 

comments expressing concern that 

States may lack the ability to collect 

contributions from self-insured plans, 

due to the States’ lack of authority and 

oversight of self-insured plans. 

Response: We are revising the 

proposed collection process so that HHS 

collects from the self-insured market in 

all States. We believe that this change in 

collection process will create a more 

efficient, centralized collection from 

self-insured plans that is beneficial to 

both States and third party 

administrators on behalf of group health 

plans. This collection is authorized 

under HHS’ authority under section 

1321(c)(1) of the Affordable Care Act to 

‘‘take such actions as are necessary to 

implement’’ the requirements of title I of 

the Affordable Care Act. 

Comment: We received overwhelming 

support for the proposed use of a 

national uniform contribution rate. 

However, one commenter expressed 

concern with this approach, and 

suggested a State-level allocation to 

make the redistribution of contribution 

funds proportional to the size of the 

State’s individual market. 

Response: Consistent with the 

majority of comments, we believe that a 

national uniform contribution rate is the 

better approach because it is simpler 

and more easily implemented for a 

transitional program. The statute does 

not specify the approach for collection 

of contributions, but requires HHS to 

consult with the NAIC in determining 

provisions for the reinsurance program. 

NAIC supported the use of a national 

contribution rate because it minimizes 

the burden on States and issuers and is 

more equitable. NAIC also stated in its 

official response to the proposed rule 

that a State-level allocation would be 

more administratively burdensome for 

issuers and States and would not 

guarantee fairness in the collection of 

contributions. While one commenter 

expressed concern that use of a national 

contribution rate would result in 

underfunding of reinsurance, we believe 

that a State’s right to increase the 

contribution rate addresses this concern. 

Comment: Many commenters 

supported the proposed percent of 

premium method, arguing that a percent 

of premium method better allocates 

contributions to States with higher 

premium and healthcare costs. A few 

commenters opposed use of a percent of 

premium method due to its complexity 

and a concern that it could adversely 

impact the market. 

Response: HHS has considered the 

advantages and disadvantages of both 

methods, along with the overarching 

goals for the transitional reinsurance 

program, which are to (1) Stabilize 

premiums by offering protection to 

health insurance issuers against medical 

cost overruns for high-cost enrollees in 

the individual market; (2) provide early 

and prompt payment of reinsurance 

funds during the benefit year; (3) 

minimize administrative burden; and (4) 


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allow contributions collected by or on 

behalf of a State to remain in that State. 

Given these goals and the time-limited 

nature of the program, we believe that 

the per capita approach will be less 

complex to administer, particularly with 

regard to the self-insured market. 

Further, the per capita approach will 

better enable us to maintain the goals of 

the reinsurance program by providing 

issuers with a more straightforward 

approach in making contributions to the 

reinsurance program with minimal 

administrative burden. A State would 

still be allowed to collect additional 

contributions towards reinsurance 

payment. 

While several commenters expressed 

support for our original proposal of a 

percent of premium method, these same 

stakeholders also support timely 

collection and payment in the 

reinsurance program, which is an 

important component of the premium 

stabilization provided by the 

reinsurance program. We believe that 

the per capita approach will best 

achieve this goal. 

4. Calculation of Reinsurance Payments 

(§ 153.230) 

In § 153.230 of the proposed rule, we 

set the payment policy for the 

reinsurance program based upon 

consultation with the American 

Academy of Actuaries. The reinsurance 

payment policy must address two basic 

issues: (1) How to determine the 

individuals who are covered by 

reinsurance, and (2) how to determine 

appropriate payment amounts. Given 

the short-term nature of the program, 

our primary objective is to select an 

implementation approach that is 

administratively and operationally 

simple, but satisfies the goals of the 

program. Therefore, we prefer to use 

reliable and readily accessible data 

sources that will allow health insurance 

issuers to receive prompt payment. We 

proposed in paragraph (a) that coverage 

be based on items and services within 

the essential health benefits for an 

individual enrollee that exceeds an 

attachment point. 

In paragraph (b), we proposed to 

announce the reinsurance payment 

formula and State-specific values for the 

attachment point, reinsurance cap, and 

coinsurance rate in the annual HHS 

notice of benefit and payment 

parameters. We believe that publishing 

this information in a Federal notice is 

the best approach for announcing the 

attachment point and reinsurance cap, 

as these values may change in calendar 

years 2015 and 2016. The Affordable 

Care Act does not suggest that the threeyear reinsurance program should 

replace commercial reinsurance or 

internal risk mitigation strategies. There 

will be a continued need for ongoing 

commercial reinsurance. Therefore, we 

proposed establishing a reinsurance cap 

set at a level approximately equal to the 

attachment point for traditional 

commercial reinsurance. 

In paragraph (b)(1) (now paragraph 

(c)), we proposed that the reinsurance 

payment amount be a percentage of 

those costs above an attachment point 

and below a reinsurance cap. However, 

we believe States may have unique 

situations, and will permit a State that 

establishes a reinsurance program to 

establish its own payment formula by 

varying the attachment point, 

coinsurance rate, and reinsurance cap. 

The preamble to the proposed rule 

contains a further discussion of the 

reasoning and background behind the 

policy proposed in paragraph (b)(1). 

We proposed using medical cost 

experience to identify eligible enrollees 

for which health insurance issuers 

would receive reinsurance. This 

approach for calculating reinsurance 

payments considers costs only for highrisk individuals. However, use of a 

reinsurance cap, as well as the fact that 

a health insurance issuer pays only a 

portion of costs above the attachment 

point and below the cap, may 

incentivize health insurance issuers to 

control costs. 

We proposed in paragraph (b)(2) (now 

moved to § 153.220(f)(2)(ii)), that all 

payments to the general fund of the U.S. 

Treasury be made on a frequency to be 

determined by HHS. We have also 

considered the frequency with which 

payments should be made to the U.S. 

Treasury. For example, the applicable 

reinsurance entities could remit 

payment on a monthly or quarterly basis 

commencing February 28, 2014 and 

continuing through January 31, 2017 or 

until States have remitted the full 

amount of all payments. We proposed in 

paragraph (c) (now paragraph (d)), to 

allow some degree of State variation 

from the reinsurance parameters 

proposed by HHS. We proposed in 

paragraph (c)(1) (now paragraph (d)(1)), 

that the State may alter the attachment 

point, reinsurance cap, including 

elimination of the cap, and coinsurance 

rate. We proposed in paragraph (c)(2) 

(now paragraph (d)(2)), that States must 

publish any modification to the 

reinsurance payment formula and 

parameters in a State notice of benefit 

and payment parameters as described in 

subpart B of this part. We proposed in 

paragraph (c)(3) (now paragraph (d)(3)), 

that the State must ensure that all 

proposed alterations to the reinsurance 

formulas proposed by HHS, including 

payments and contributions, result in 

the applicable reinsurance entity having 

sufficient contributions to meet all of its 

obligations for payments. These 

alterations to reinsurance parameters do 

not require HHS approval. 

We believe that a State may have 

many reasons to make adjustments to 

the HHS reinsurance payment formula. 

First, the State may decide to increase 

reinsurance payments above the levels 

established by HHS. Second, the State 

may have additional unexpended funds 

from a prior contribution period and 

may seek to adjust the reinsurance 

formulas to disburse the unexpended 

funds. Finally, the State may elect to 

pay the same amounts recommended by 

HHS, but may wish to modify the 

frequency of those payments. 

For the reasons described in the 

proposed rule and considering the 

comments received, we are finalizing 

these provisions, with the following 

modifications: 

In paragraph (a), we are no longer 

requiring that payment be linked to the 

coverage of essential health benefits. In 

paragraph (b), we are clarifying that the 

States must use, subject to any 

modifications made pursuant to 

paragraph (d), the payment formula and 

values for the attachment point, 

reinsurance cap, and coinsurance rate 

for each year commencing in 2014 and 

ending in 2016, established in the 

annual HHS notice of benefit and 

payment parameters for the applicable 

benefit year. We are removing paragraph 

(b)(2) due to the new policy on 

collections and payments to the U.S. 

Treasury set forth in § 153.220. We are 

revising paragraph (c)(3) (now 

paragraph (d)(3)), to clarify that any 

State modification to the reinsurance 

payment formula pursuant to paragraph 

(d)(1) must be reasonably calculated to 

ensure that contributions received 

toward reinsurance are sufficient to 

cover payments that the applicable 

reinsurance entity is obligated to make 

under that State formula for the given 

benefit year for the reinsurance 

program. We are making a number of 

clarifying modifications throughout this 

section. 

Comment: We received a number of 

comments that emphasized that 

reinsurance programs typically are tied 

not to underlying conditions that lead to 

high enrollee medical costs, but to 

claims costs beyond a specific dollar 

threshold within a coverage period, 

regardless of enrollees’ health condition. 

Several commenters stated that coverage 

of specific conditions under a 

reinsurance program could lead to 

discriminatory practices toward certain 

individuals, with one commenter noting 


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that identifying medical conditions as a 

basis for reinsurance payments would 

require more extensive verification than 

usually required by traditional 

reinsurance. Another commenter stated 

that reinsurance that makes payments 

based solely on incurred costs does not 

encourage efficient and effective care. 

Response: We are finalizing the 

provisions that base reinsurance 

payments on total claims costs, rather 

than specific diagnoses. We believe that 

because reinsurance payments are likely 

to only reimburse a portion of claims 

costs above the attachment point and 

will pay no costs above the reinsurance 

cap, there will still be incentives for an 

issuer to encourage efficient and 

effective care. 

Comment: We received a few 

comments suggesting that States be 

permitted to use one of the other 

approaches proposed by the American 

Academy of Actuaries for determining 

eligible individuals for reinsurance. 

Response: In consultation with HHS, 

the American Academy of Actuaries 

proposed four approaches for 

determining eligible individuals for the 

reinsurance program, described in the 

preamble to the proposed rule. From 

those proposals, we selected the 

approach based on total claims costs. 

We believe that permitting States the 

flexibility to select one of the other 

American Academy of Actuaries 

approaches would unnecessarily burden 

issuers operating in multiple States. 

Because reinsurance is a transitional 

program, we wish to avoid that 

additional burden on issuers, and are 

finalizing the proposed policy that uses 

total claims cost. 

Comment: We received many 

comments supporting our proposed 

approach for calculating reinsurance 

payments based on the use of an 

attachment point, coinsurance rate, and 

reinsurance cap. One commenter 

expressed concern that the proposed 

approach may reduce the incentive to 

control costs. 

Response: We understand the 

concerns regarding cost control. 

However, since issuers are likely to not 

be fully reimbursed under the 

reinsurance program for claims costs 

above the attachment point, we believe 

that they will continue to have an 

incentive to control costs. 

Comment: We received a comment 

asking for clarification on whether 

reinsurance payments are made on an 

incurred basis. 

Response: As indicated in the 

proposed definitions for ‘‘attachment 

point,’’ ‘‘coinsurance rate,’’ and 

‘‘reinsurance cap,’’ we intend for claims 

costs to be measured on an incurred 

basis for purposes of calculating 

reinsurance payments. 

5. Disbursement of Reinsurance 

Payments (§ 153.240) 

In § 153.240, we proposed parameters 

for the timing of reinsurance payments. 

In paragraph (a) of this section, we 

proposed that States must ensure that 

the applicable reinsurance entity 

collects from health insurance issuers of 

reinsurance-eligible plans data required 

to calculate payments described in 

§ 153.230, according to the data 

requirements and data collection 

frequency specified by the State in the 

State notice of benefit and payment 

parameters described in subpart B, or in 

the annual HHS notice of benefit and 

payment parameters. 

In paragraph (b), we proposed that a 

State must ensure that each applicable 

reinsurance entity makes payments that 

do not exceed contributions and makes 

payments to health insurance issuers of 

reinsurance-eligible plans according to 

§ 153.230. We also proposed in 

paragraph (b)(2) (now paragraph (b)(1)), 

to allow a State to reduce payments on 

a pro rata basis to match the amount of 

contributions received by the State in a 

given reinsurance year, and to require 

that pro rata reductions made by the 

State be made in a fair and equitable 

manner for all health insurance issuers 

in the individual market. 

In paragraph (b)(3) (now paragraph 

(b)(2)), we proposed that a State be 

required to ensure that an applicable 

reinsurance entity make payments as 

specified in § 153.410(b) to the issuer of 

a reinsurance-eligible plan after 

receiving a valid claim for payment. 

Finally, in paragraph (c), we proposed 

that for each benefit year, the State be 

required to maintain all records related 

to the reinsurance program for 10 years, 

consistent with requirements for record 

retention under the False Claims Act. 

For the reasons described in the 

proposed rule and considering the 

comments received, we are finalizing 

these provisions with the following 

modifications: 

We are clarifying in paragraph (b) that 

the State must ensure that each 

applicable reinsurance entity does not 

make reinsurance payments that exceed 

contributions received to date. We are 

removing paragraph (b)(1) because those 

requirements are covered in § 153.230 

and paragraph (b)(2) (formerly 

paragraph (b)(3)). We are clarifying in 

paragraph (b)(1) (formerly paragraph 

(b)(2)), that if a State, or HHS on behalf 

of the State, determines that reinsurance 

payments requested for a calendar year 

will likely exceed the reinsurance 

contributions that will be received for 

the year, the State, or HHS on behalf of 

the State, may reduce reinsurance 

payments, so long as the manner in 

which payments are reduced is fair and 

equitable for all health insurance issuers 

in the individual market. We are making 

a number of clarifying modifications 

throughout this section. 

Comment: We received many 

comments related to the timing of 

reinsurance payments. Some 

commenters asked that States be 

provided flexibility in determining 

payment timeframes. A few commenters 

suggested that contributions be 

collected monthly, but that payments be 

made quarterly. One commenter 

suggested providing early funds to small 

carriers to cover potential cash flow 

shortfalls. 

Response: We recognize the 

importance of providing issuers with 

reinsurance payments in a timely 

manner, but we believe it is prudent to 

maintain flexibility in payment timing 

to ensure that sufficient contributions 

are available to fund those payments. 

We are finalizing the proposal 

permitting States to establish the 

payment timeframe in the State notice 

of benefit and payment parameters 

described in subpart B. For reinsurance 

programs established by HHS on behalf 

of the State, HHS will publish the 

payment timeframe in the HHS notice of 

benefit and payment parameters. We 

anticipate that States will take into 

account the cash flow needs of small 

issuers in setting the reinsurance 

payment timeframes. 

Comment: We received several 

comments suggesting that HHS prohibit 

health insurance issuers from passing 

reinsurance payment shortfalls on to 

providers. 

Response: We understand the concern 

raised by the commenters, and we 

encourage providers to work with plan 

issuers concerning this matter. 

Comment: We received several 

comments on the duration of the record 

maintenance requirement. Commenters 

suggested retention requirements 

ranging from two to fifteen years, with 

many commenters suggesting a five-year 

period. 

Response: We believe that the record 

retention requirements for reinsurance 

should be consistent with other Federal 

record retention requirements, and are 

finalizing the proposed provision that 

requires records to be retained for ten 

years, as explained above. 

6. Coordination With High-Risk Pools 

(§ 153.250) 

In § 153.250(a) of the proposed rule, 

we proposed to codify in regulation 

section 1341(d) of the Affordable Care 


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Act, which requires that States 

eliminate or modify high-risk pools to 

the extent necessary to carry out the 

reinsurance program. In paragraph (a), 

we proposed to codify in regulation the 

above-referenced section. In paragraph 

(b), we proposed to permit a State that 

continues its high-risk pool to 

coordinate its high-risk pool with its 

reinsurance program to the extent it 

conforms with the provisions of this 

subpart. 

For the reasons described in the 

proposed rule and considering the 

comments received, we are finalizing 

these provisions with no modifications. 

Comment: We received several 

comments recommending that high-risk 

pools be permitted to be offered as 

individual market plans eligible for 

reinsurance. One commenter requested 

that reinsurance contributions be used 

to fund the costs of operating State highrisk pools during the three-year period. 

Several commenters suggested not 

combining reinsurance funds with 

funds for high-risk pools, and opposed 

permitting high-risk pools to receive 

reinsurance payments. 

Response: We clarify in § 153.400 that 

State high-risk pools are excluded from 

contributions and payments. We clarify, 

as we did in the proposed rule, that 

none of the funds collected for 

reinsurance can be used for any purpose 

other than for making payments under 

the reinsurance program or for 

administering that program. We 

understand the concerns of some 

commenters regarding the transition of 

high-risk pool participants and point 

out that the Exchanges will work with 

State high-risk pools to ensure a smooth 

transition and continuity of care for 

these enrollees. We believe that the 

reinsurance program, along with the risk 

adjustment and risk corridors programs, 

were designed in anticipation of new 

high-cost enrollees, some of whom may 

currently be receiving coverage through 

State high-risk pools. 

Comment: We received a comment 

suggesting coordination between PCIP 

and the transitional reinsurance 

program. 

Response: Section 1101 of the 

Affordable Care Act requires 

coordination between PCIP and the 

Exchanges. To the extent that 

individuals previously enrolled in PCIP 

enroll in reinsurance-eligible plans, 

issuers will have access to the 

reinsurance program for these enrollees. 

D. Subpart D—State Standards Related 

to the Risk Adjustment Program 

In subpart D, we proposed standards 

for States with respect to the risk 

adjustment program required under 

section 1343 of the Affordable Care Act. 

Parallel provisions for health insurance 

issuers were proposed in subpart G of 

this part. Section 1343 provides for a 

program of risk adjustment for all nongrandfathered plans in the individual 

and small group market both inside and 

outside of the Exchange. The risk 

adjustment program is intended to 

reduce or eliminate premium 

differences between plans based solely 

on expectations of favorable or 

unfavorable risk selection or choices by 

higher risk enrollees in the individual 

and small group market. The risk 

adjustment program also serves to level 

the playing field inside and outside of 

the Exchange, reducing the potential for 

excessive premium growth or instability 

within the Exchange. We interpret 

section 1343 to mean that risk pools 

must be aggregated at the State level, 

even if a State decides to utilize regional 

Exchanges. Furthermore, section 1343(c) 

indicates that risk adjustment applies to 

individual and small group market 

health insurance issuers of nongrandfathered plans within a State, both 

inside and outside of the Exchange. 

Accordingly, similar to our approach in 

reinsurance, if multiple States contract 

with a single entity to administer risk 

adjustment, risk may not be combined 

across State lines, but must be pooled 

within each State. 

1. Reserved (§ 153.300) 

Section 153.300 of the proposed rule 

defined a number of terms used in this 

subpart. Those definitions have been 

moved to subpart A. We are reserving 

this section for future use. 

2. Risk Adjustment Administration 

(§ 153.310) 

In this section, in paragraph (a)(1), we 

specified that any State electing to 

establish an Exchange is eligible to 

establish a risk adjustment program. 

Pursuant to section 1321(c)(1) of the 

Affordable Care Act, we proposed in 

paragraph (a)(2) that for States that do 

not operate an Exchange, HHS will 

establish a risk adjustment program. We 

also clarified in paragraph (a)(3) that 

HHS will administer all of the risk 

adjustment functions for any State that 

elects to establish an Exchange but does 

not elect to administer risk adjustment. 

We are finalizing this provision, with a 

number of clarifying modifications. 

Comment: Many commenters 

supported permitting States to defer 

operation of a risk adjustment program 

to HHS. One commenter recommended 

that any State should be eligible to 

operate a risk adjustment program, 

whether or not the State is establishing 

an Exchange. 

Response: An effective risk 

adjustment program is critical to 

prevent adverse selection and stabilize 

premiums inside and outside the 

Exchanges. Developing a risk 

adjustment program is methodologically 

and operationally complex. We believe 

that, particularly in the initial years, 

States may wish to defer risk adjustment 

operation to HHS in order to focus 

resources on establishing Exchanges. 

We are therefore finalizing these 

provisions to provide States the option 

to operate risk adjustment if they 

establish Exchanges. Because we believe 

that the Federally Facilitated Exchange 

should be operated in coordination with 

a risk adjustment program that is closely 

tied to its implementation, States not 

operating Exchanges and States entering 

into a partnership with or relying 

entirely on the Federally Facilitated 

Exchange will not be permitted to 

operate a risk adjustment program. We 

will clarify in future guidance the 

process through which a State will 

notify HHS of its choice to operate risk 

adjustment if it establishes an Exchange 

beginning in 2014 or any subsequent 

year. 

In paragraph (b), we clarified that a 

State may elect to have an entity other 

than the Exchange perform the risk 

adjustment functions of this subpart, 

provided that the selected entity meets 

the requirements for eligibility to serve 

as an Exchange set forth in § 155.110 of 

the proposed Exchange Establishment 

rule. Considering the comments 

received, we are finalizing this 

provision, noting that the definition of 

an entity eligible to serve as an 

Exchange has been modified from the 

proposed definition. 

Comments: Commenters offered 

varying opinions regarding the 

requirements for entities to be eligible to 

administer risk adjustment. Several 

commenters urged HHS to include 

stronger provisions prohibiting conflicts 

of interest. Those commenters stated 

that all members of the board of a risk 

adjustment entity should be free of 

financial ties to issuers, and that 

consumer representation on the board 

should be required. One commenter 

believed that an entity’s eligibility to be 

a risk adjustment entity should be based 

on the entity’s experience, and not on 

the requirements governing entities 

carrying out Exchange functions. Other 

commenters stated that the 

requirements on entities eligible to 

administer risk adjustment and carry 

out Exchange functions were overly 

restrictive, noting that the requirements 

would exclude State regulators, such as 

a State Department of Insurance. This 

commenter asked that the regulator in 


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each State be eligible to administer risk 

adjustment. Two commenters suggested 

that entities be eligible to administer 

both risk adjustment and reinsurance. 

Response: We believe that a State may 

have a single entity administer 

reinsurance and risk adjustment, 

provided that the entity meets the 

separate requirements to administer 

both programs. We note that to be 

eligible to administer reinsurance, an 

entity must meet the definition outlined 

in § 153.20. We also appreciate concerns 

that risk adjustment entities may have 

board members with conflicts of interest 

and, further, that because risk 

adjustment involves the transfer of 

money between plans, these concerns 

may be especially relevant for this 

program. We encourage States to weigh 

these concerns when establishing a risk 

adjustment entity. However, we seek, to 

the extent possible, consistency between 

the requirements to serve as a risk 

adjustment entity and the requirements 

to serve as an entity performing other 

Exchange functions. 

In paragraph (c), we proposed 

timeframes for the risk adjustment 

process. We proposed that all payment 

calculations commence with the 2014 

benefit year. We sought comment on the 

appropriate deadline by which risk 

adjustment must be completed each 

year. In response to comments, we are 

finalizing the standard that risk 

adjustment be implemented beginning 

with the 2014 benefit year, and are 

including a requirement that each issuer 

be notified of risk adjustment payments 

owed to, or charges owed by, the issuer 

by June 30 of the year following the 

benefit year. We believe that this 

deadline best balances the need to 

coordinate risk adjustment payments 

and charges with other programs, and 

the need to ensure that high quality risk 

adjustment data is available to support 

the program. 

Comments: We received a number of 

comments recommending that risk 

adjustment be performed before 

completion of the MLR calculation 

process. Two commenters specified that 

risk adjustment should be completed by 

late May of the year following the 

benefit year in order to accommodate 

the Federal MLR reporting deadline of 

June 1. Other commenters stated that it 

would be difficult to coordinate risk 

adjustment payments with MLR 

reporting. Two commenters suggested 

extending the MLR deadline for 2014 

through 2016. One commenter 

suggested delaying the implementation 

of risk adjustment until 2016. 

Response: The risk adjustment 

process relies in part on high quality 

claims data. Allowing for claims run-out 

after the benefit year increases the 

amount and quality of claims data 

because issuers will have more time to 

receive, review and pay claims made 

during the benefit year. Better quality 

data will lead to more accurate risk 

scores, which ultimately feed into the 

calculation of plan average actuarial risk 

and the calculation of payments and 

charges. 

In the preamble to the proposed rule, 

we discussed requiring that States 

complete the risk adjustment process by 

June 30 of the year following the benefit 

year, or June 30, 2015 for the benefit 

year 2014. States would be free to set a 

payment schedule (including interim 

payments throughout the benefit year), 

but would be required to comply with 

the June 30 deadline. Many commenters 

agreed that June 30 was a reasonable 

deadline for completion of the risk 

adjustment process. We have included 

in the final rule a June 30 deadline for 

the completion of the risk adjustment 

process. We believe that 6 months 

following the benefit year is a 

reasonable timeframe to complete the 

risk adjustment process. 

The deadline to submit MLR reports 

to the Federal government is June 1 of 

the year following the calendar year 

experience being reported. MLR 

calculations must take into account risk 

adjustment payments and charges. We 

recognize that our proposed deadline is 

inconsistent with the current Federal 

MLR reporting deadline, but believe that 

allowing sufficient time to collect 

quality data to support risk adjustment 

is extremely important and would be 

extremely difficult to complete within 

current MLR timeframes. We will work 

to resolve this issue prior to 2014. 

Comments: A few commenters 

suggested that risk adjustment payments 

be made quarterly, with the final 

payment to be made after the first 

quarter of the year following the benefit 

year. 

Response: We believe that States 

should have the flexibility to set a 

payment schedule that best suits their 

program administration. Therefore, we 

did not include a requirement that 

States adhere to a specific payment 

schedule. 

In the preamble to the proposed rule, 

we discussed our belief that States 

should provide HHS with a summary 

report of risk adjustment activities for 

each benefit year in the year following 

the calendar year covered in the report. 

The final rule directs States to submit an 

annual summary report of their 

program. We believe that this report will 

permit States to learn from other States’ 

experience and will help HHS evaluate 

the implementation of the risk 

adjustment program. We will specify the 

contents of the report in future 

guidance, but expect the report would 

include information such as plan 

average actuarial risk score and the risk 

adjustment payment or charge for each 

risk adjustment covered plan in the 

State, trends in risk scores over time, 

evidence of upcoding, and other risk 

adjustment-related elements. We expect 

that States will make summary reports 

publicly available. We believe this 

report will facilitate periodic evaluation, 

oversight, and continuous improvement 

of the risk adjustment program. 

Comment: Several commenters 

supported the concept of providing 

summary reports. However, one 

commenter was unwilling to fully 

support the requirement until knowing 

the content that would be required in 

the report. Two commenters suggested 

that the report include the average 

actuarial risk for each plan, the risk 

adjustment charge or payment for each 

plan, and information on risk scores and 

cost trends, including evidence of 

upcoding and error rates determined 

under the most recently completed risk 

adjustment data validation audits. We 

also received comments requesting that 

HHS require that State risk adjustment 

entities report information about their 

States’ risk adjustment program to 

issuers. Finally, we received one 

comment suggesting that all funds 

collected by the risk adjustment entity 

be required to be used only in 

connection with the risk adjustment 

program. 

Response: Annual summary reports 

can serve as a tool for States and HHS 

to monitor and evaluate State programs 

across the country. HHS will also be 

able to use the reports to provide 

technical assistance to States 

administering risk adjustment programs 

when needed. The technical assistance 

will serve not only to improve a State’s 

risk adjustment program, but will 

reduce the burden on each State to 

evaluate and improve its risk 

adjustment program. The information in 

the annual reports will also be useful in 

evaluating the implementation of the 

Federally developed risk adjustment 

methodology and other Federally 

certified risk adjustment methodologies. 

For these reasons, we have added 

paragraph (d) to this final rule to ensure 

that States submit annual risk 

adjustment program reports to HHS. 

3. Federally Certified Risk Adjustment 

Methodology (§ 153.320) 

Section 1343(b) of the Affordable Care 

Act requires HHS to establish criteria 

and methods for risk adjustment in 

coordination with the States. We 


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interpret this provision to mean that 

HHS will establish a baseline 

methodology to be used by a State, or 

HHS on behalf of the State, in 

determining plan average actuarial risk. 

In § 153.300 of the proposed rule, we 

defined the risk adjustment 

methodology as encompassing the risk 

adjustment model, the calculation of 

plan average actuarial risk, and the 

calculation of payments and charges. 

We proposed in paragraph (a)(1) that 

a Federally certified risk adjustment 

methodology be developed by HHS. We 

proposed in paragraph (a)(2) that a 

State-submitted alternate risk 

adjustment methodology may become a 

Federally certified risk adjustment 

methodology through HHS certification. 

For the reasons described in the 

proposed rule and considering the 

comments received, we are finalizing 

these provisions, with certain clarifying 

modifications. 

Comments: One commenter requested 

clarification on when State alternate 

methodologies would be required to be 

submitted and would be evaluated. 

Multiple commenters expressed a 

preference that State and Federal 

methodologies be announced early 

enough to give sufficient time for issuers 

to incorporate anticipated risk 

adjustment payments or charges into 

their rates. 

Response: While the proposed timing 

necessitates a short window for 

submission and evaluation of the 

alternate risk adjustment methodologies, 

the timeframe permits a State to 

evaluate the methodology proposed by 

HHS in the proposed annual HHS notice 

of benefit and payment parameters. This 

timeframe also permits HHS to publish 

all certified methodologies at one time 

in the final annual HHS notice of benefit 

and payment parameters. In future 

years, HHS will evaluate whether it 

should accept and evaluate applications 

for alternate risk adjustment 

methodologies on an earlier timeframe. 

However, in the initial year, the HHS 

methodology will likely not have been 

fully developed in time to benchmark 

alternate risk adjustment methodologies 

on an earlier timeframe. 

We proposed in paragraph (b)(1) of 

this section that a State that is operating 

a risk adjustment program must use one 

of the Federally certified risk 

adjustment methodologies that HHS 

will publish in an annual HHS notice of 

benefit and payment parameters. We 

proposed that State notices of benefit 

and payment parameters include a full 

description of the risk adjustment 

model, including, but not limited to: (1) 

Demographic factors, diagnostic factors, 

and utilization factors (if any); (2) the 

qualifying criteria for establishing that 

an individual is eligible for a specific 

factor; (3) the weights assigned to each 

factor; and (4) the schedule for the 

calculation of individual risk scores. We 

sought comments on other information 

that should be included in this notice. 

In paragraph (b)(2), we proposed that 

the risk adjustment methodology will 

also describe any adjustments made to 

the risk adjustment model weights when 

calculating average actuarial risk, 

including premium rating variation. 

Considering the comments received, 

we are finalizing this provision, with 

the following modifications: We are 

clarifying that notices must also include 

a description of the calculation of plan 

average actuarial risk, a description of 

the calculation of payments and 

charges, and a description the risk 

adjustment data collection approach. 

We are also including a number of other 

clarifying modifications. 

Comments: We received several 

comments supporting a structure in 

which HHS will develop a risk 

adjustment methodology but States have 

the option to submit alternate 

methodologies for approval by HHS. 

Several commenters preferred that HHS 

establish one national methodology. 

Other commenters suggested that States 

be required to justify deviation from the 

methodology developed by HHS. Two 

commenters believed that HHS approval 

of State methodologies was 

unnecessary, and that any State 

alternate methodology should be 

deemed certified and available to all 

States. Some commenters suggested that 

all methodologies be subject to notice 

and comment. 

Response: We recognize that States 

may wish to employ alternate risk 

adjustment methodologies, and believe 

that alternate approaches could achieve 

results similar to those that will be 

achieved by the methodology developed 

by HHS. We agree that States should 

submit a rationale for their proposed 

alternate methodology for certification. 

We are therefore finalizing the proposed 

rule, which required publication of a 

rationale, with a number of clarifying 

modifications. HHS will develop a 

Federal risk adjustment methodology, 

and States that wish to deviate from that 

methodology may submit an alternate 

methodology to HHS for approval. 

States must specify in their State notice 

of benefit and payment parameters 

which of the Federally certified 

methodologies published in the annual 

HHS notice of benefit and payment 

parameters they will use. We believe 

that the publication of the Federal 

methodology in a notice of benefit and 

payment parameters addresses certain 

commenters’ desire that interested 

parties be given opportunity to 

comment on the methodology proposed 

by HHS. HHS will provide an 

opportunity for public comment when it 

administers risk adjustment on behalf of 

a State. State law will govern what 

administrative process is necessary 

when a State adopts a risk adjustment 

methodology, subject to the limits of 

this final rule and the annual HHS 

notice of benefit and payment 

parameters. 

In paragraph (c), we proposed that 

HHS will specify in the annual HHS 

notice of benefit and payment 

parameters the Federally certified risk 

adjustment methodology that will apply 

when HHS operates the risk adjustment 

program. We are finalizing this 

provision, with a number of clarifying 

modifications. 

The statute is not specific with 

respect to the method by which States 

are expected to determine the precise 

value of payments and charges, so we 

requested comment on two payments 

and charges methodologies and whether 

there are alternate methodologies that 

might be used. We received a number of 

comments requesting consistency in 

methodology from State to State. 

Therefore, we plan to establish a 

national method for the calculation of 

payments and charges that States may 

not vary. A national method for the 

calculation of payments and charges 

ensures a degree of consistency in the 

risk adjustment program from State to 

State while allowing States to vary 

certain elements of the program. 

Comments: Many commenters 

recommended that HHS establish one 

national methodology or limit States’ 

ability to deviate from the methodology 

developed by HHS. Other commenters 

supported giving States the flexibility to 

propose alternate methodologies so long 

as those methodologies are as robust as 

the one proposed by HHS. 

Response: The calculation of 

payments and charges requires selection 

of a baseline premium, for example, a 

plan average or State average premium. 

That premium basis is multiplied by the 

plan average actuarial risk to calculate 

risk adjustment payments or charges, 

and requires balancing if payments do 

not equal charges. Thus, the calculation 

of payments and charges affects the 

amount of funds transferred from lowrisk to high-risk plans, and can affect 

premiums in low-risk and high-risk 

plans. 

Although a national standard 

methodology for calculating payments 

and charges provides a degree of 

consistency from State to State, we 

recognize it may also limit States’ ability 


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to implement novel methodologies. We 

believe that there may be potential to 

introduce State variation in the 

calculation of payments and charges in 

the future. We also believe that 

requiring a national methodology for 

calculating payments and charges 

initially, and leaving open the 

possibility of permitting State variation 

in later years, relieves States from the 

burden of developing such a 

methodology in the first year, and 

provides a starting point for States 

seeking to create alternate 

methodologies in later years. 

4. State Alternate Risk Adjustment 

Methodologies (§ 153.330) 

We proposed allowing States to 

utilize alternate risk adjustment 

methodologies, provided that States 

taking advantage of this flexibility 

submit their proposed alternate risk 

adjustment methodologies for HHS 

review and certification. We proposed 

in paragraph (a)(1) the information 

about the State’s proposed risk 

adjustment methodology that the State 

must include in its request for 

certification. In paragraph (a)(2), we 

proposed that all requests include 

information relating to certain criteria to 

be used in the evaluation of the request. 

For the reasons described in the 

proposed rule, and considering the 

comments received, we are finalizing 

these provisions with the following 

modifications: We are including new 

language requiring States to provide a 

description of the risk adjustment 

methodology. This change aligns this 

provision with changes made to 

§ 153.320 discussed above. We are also 

making a number of clarifying 

modifications throughout this section. 

Comments: Several commenters 

requested greater specificity about the 

validation requirements for the 

proposed alternate risk adjustment 

methodologies. One commenter 

requested that HHS permit States to 

vary payments based on whether a plan 

participates in the Exchange or the 

Small Business Health Options Program. 

Another commenter suggested that 

States be permitted to vary payments 

based on whether the issuer implements 

programs to improve population health. 

Other commenters suggested other 

requirements for certification of 

alternate risk adjustment methodologies. 

For example, one commenter 

recommended requiring that an 

alternate methodology include either a 

separate model for pediatrics or 

demonstrate the model’s effectiveness in 

pediatric populations. Another 

commenter recommended requiring 

States to specify how they will move 

from a retrospective to a prospective 

risk adjustment approach. A number of 

commenters supported use of a 

prospective approach, while others 

favored a retrospective approach. Some 

commenters supported a diagnosisbased risk adjustment model, while 

others favored a demographic approach. 

One commenter suggested that a surveybased approach be utilized. 

Response: We anticipate that a 

number of different approaches could 

receive Federal certification. HHS will 

provide further details on the process 

for receiving Federal certification for 

alternate risk adjustment methodologies 

in the draft annual HHS notice of 

benefit and payment parameters. State 

alternate methodology requests will be 

accepted up to 30 days after publication 

of the draft annual HHS notice of benefit 

and payment parameters, and alternate 

methodologies that are certified by HHS 

will be published in the final HHS 

notice of benefit and payment 

parameters. 

In paragraph (b), we proposed that a 

State that operates a risk adjustment 

program must renew HHS certification 

of alternate risk adjustment 

methodologies whenever changes occur, 

including at the time of recalibration, 

which the State must identify when 

initially requesting certification for the 

alternate risk adjustment model. 

Considering the comments received, we 

are finalizing this provision with the 

following modifications: We are 

including language clarifying that the 

need to obtain recertification of a 

recalibrated risk adjustment model 

applies to any alteration to the Federally 

certified risk adjustment methodology. 

Comment: We received two comments 

supporting a requirement that States 

wishing to recalibrate or otherwise 

change their methodology submit that 

change to HHS for approval. 

Response: We are finalizing this 

policy. 

5. Data Collection Under Risk 

Adjustment (§ 153.340) 

As described above, a robust risk 

adjustment process requires data to 

support the determination of an 

individual’s risk score and the plan and 

State average actuarial risk. In paragraph 

(a), we proposed that a State, or HHS on 

behalf of the State, be responsible for 

collecting data for use in the risk 

adjustment program. HHS considered 

three possibilities for data collection: (1) 

A centralized approach in which issuers 

submit raw claims data sets to HHS; (2) 

an intermediate State-level approach in 

which issuers submit raw claims data 

sets to the State government or the 

entity responsible for administering the 

risk adjustment process at the State 

level; and (3) a distributed approach in 

which each issuer must reformat its own 

data to map correctly to the risk 

assessment database, and then pass on 

individual risk scores to the entity 

responsible for assessing risk 

adjustment charges and payments. 

Considering the comments received, 

we are modifying this paragraph as 

follows: Rather than specify an 

intermediate risk adjustment data 

collection approach, we are permitting 

States that elect to operate a risk 

adjustment program to choose the risk 

adjustment data collection approach 

that best suits their program. HHS will 

use a distributed approach when 

operating risk adjustment on behalf of a 

State. Because a distributed approach to 

data collection has not been 

implemented on this scale, we plan to 

evaluate the implementation and may 

make changes to the approach based on 

that evaluation. We are including a 

requirement that States operating risk 

adjustment collect or calculate, at a 

minimum, individual risk scores. This 

requirement minimizes the collection of 

sensitive data while allowing States to 

calculate rating variation adjustments 

and payments and charges. We are 

modifying the privacy and security 

standards applicable when a State is 

operating risk adjustment. Protecting the 

privacy and confidentiality of an 

individual’s personal health information 

continues to be among HHS’ highest 

priorities. Under a distributed approach, 

issuers will need to format risk 

adjustment data, maintain that data in a 

manner that complies with State or HHS 

specifications, and in some cases run 

risk adjustment software. In addition, a 

State, or HHS on behalf of the State, will 

not be required to collect claims data; 

however, the data validation and audit 

process will be more involved. 

Comments: We received a large 

number of comments on the collection 

of risk adjustment data, including many 

comments supporting HHS’ proposed 

collection of risk adjustment data at the 

State level. A number of other 

commenters expressed concern for 

patient privacy under the proposed 

method of data collection. Some of 

those concerned about patient privacy 

did not explicitly oppose the proposed 

risk adjustment data collection 

approach, but encouraged HHS to 

collect de-identified data or carefully 

consider privacy and security standards, 

such as techniques to mask or encrypt 

data. We received many comments in 

favor of a distributed approach to risk 

adjustment data collection. These 

comments focused on the administrative 

complexity of transmitting claims data 


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to HHS and the risk of exposing private 

information and competitively sensitive 

data, such as unit prices for medical 

services. Another commenter suggested 

that States be given flexibility to choose 

which risk adjustment data collection 

approach to use when operating risk 

adjustment. 

Response: The transmission by issuers 

to HHS and the storage by HHS of large 

amounts of sensitive data pose potential 

risks to consumer privacy. A distributed 

approach would leverage the existing 

data infrastructure of issuers, potentially 

saving Federal and issuer resources. For 

these reasons, HHS will utilize a 

distributed approach to collecting risk 

adjustment data when operating risk 

adjustment on behalf of a State. 

We considered requiring that all 

States utilize a distributed approach to 

risk adjustment data collection, as HHS 

will do. However, we believe that 

requiring a particular approach runs 

counter to the flexibility generally 

afforded States by the Affordable Care 

Act and HHS. 

We proposed in paragraph (b) that the 

State, or HHS on behalf of the State, use 

standard HIPAA transaction standards 

when collecting data. We proposed in 

paragraphs (b)(1) and (b)(2) to require 

States to utilize two specific HIPAA 

transaction standards for risk 

adjustment data collection. In paragraph 

(b)(3), to address consumer privacy 

concerns, we proposed that States must 

utilize specific privacy standards in 

their data collection risk adjustment 

procedures. 

Considering the comments received, 

we are modifying this paragraph as 

follows: We are including a requirement 

that States require issuers to comply 

with the data privacy and security 

standards set forth in the State’s notice 

of benefit and payment parameters. 

Because we maintain the flexibility 

for States that operate risk adjustment 

programs to choose their data collection 

approaches, we are including a 

requirement that States limit their 

collection to the information reasonably 

necessary to operate the risk adjustment 

program. For example, a State could not 

collect an enrollee’s name, because that 

information would not be reasonably 

necessary to operate the risk adjustment 

program. We are prohibiting a State 

from collecting or storing any personally 

identifiable information for use as a 

unique identifier for an enrollee’s data, 

unless that information is masked or 

encrypted by the issuer, with the key to 

that masking or encryption withheld 

from the State. The term ‘‘personally 

identifiable information’’ is a broadly 

used term across Federal agencies, and 

has been defined in the Office of 

Management and Budget Memorandum 

M–07–16. In order to reduce duplicative 

guidance or potentially conflicting 

regulatory language, we are not defining 

personally identifiable information in 

this final rule, and incorporate the 

aforementioned definition into this final 

rule. 

The privacy and security standards 

outlined above reflect the changes in the 

risk adjustment data collection 

approach in paragraph (a) of this 

section. We note that these standards 

should be read to represent a minimum 

standard to be used in the risk 

adjustment program. We expect that 

States will build on these minimum 

privacy and security standards when 

establishing a risk adjustment data 

collection program. 

Comment: We received a number of 

comments about privacy concerns 

associated with the proposed collection 

of risk adjustment data. Some 

commenters believed that HHS should 

finalize a requirement that any risk 

adjustment data collected be deidentified. Others preferred that data not 

be collected. 

Response: We are committed to 

applying strong privacy and security 

standards to risk adjustment data 

collected by States or HHS on behalf of 

a State. We are amending the proposed 

privacy and security standards so that 

States that limit their collection of 

personally identifiable information to 

that which is reasonably necessary to 

carry out their risk adjustment 

methodology. In paragraph (b)(4), we 

require States to implement security 

standards that provide administrative, 

technical, and physical safeguards 

consistent with the standards described 

in the HIPAA Security Rule at 45 CFR 

164.308, 164.310, and 164.312. We 

recognize that the specific requirements 

for data collection may vary depending 

on the amount and type of data States 

choose to collect, and thus we decided 

to permit States to design security 

requirements to accommodate these 

requirements. This final rule does not 

preclude States from implementing 

stricter security standards, particularly 

if they choose to collect additional risk 

adjustment data. HHS will not be 

collecting the claims data from issuers 

needed to run the risk adjustment 

methodology when HHS runs risk 

adjustment on behalf of a State. HHS 

will issue further guidance regarding the 

privacy and security standards 

applicable when HHS is operating risk 

adjustment on behalf of a State. 

In paragraph (c), we proposed that 

States with existing all-payer claims 

databases may request an exception 

from the minimum standards for data 

collection. In paragraph (d), we 

proposed that the State must make 

certain risk adjustment data available to 

support other activities, including: 

recalibrating Federally certified risk 

adjustment models; verifying risk 

corridor submissions; and verifying and 

auditing reinsurance claims. We have 

removed paragraphs (c) and (d) because 

these requirements are not compatible 

with flexibility with regard to risk 

adjustment data collection. In the 

proposed rule and preamble, we 

discussed a number of ways risk 

adjustment data could be used to 

support other programs such as 

verifying risk corridor submissions, 

reinsurance payments, cost-sharing 

reductions, and quality improvement 

efforts. We are continuing to explore 

how to obtain the data needed to 

support these programs. We anticipate 

working closely with States and issuers 

to efficiently gather or access the data 

needed to support these programs. 

Comments: We received a few 

comments requesting that existing data 

collection initiatives such as all-payer 

claims databases be utilized to the 

fullest extent possible to support risk 

adjustment. 

Response: A State operating a risk 

adjustment program may choose to 

utilize all-payer claims databases, 

provided that the State complies with 

the requirements set forth in this 

paragraph. 

Comments: We received several 

comments supporting the use of risk 

adjustment data for other Affordable 

Care Act purposes. Two commenters 

were wary of permitting access to data 

for uses beyond risk adjustment because 

they view the data as sensitive and wish 

to limit Federal access to it. 

Response: We believe that HHS’ use 

of a distributed approach for risk 

adjustment addresses many concerns 

regarding centralized data collection of 

risk adjustment data. We are currently 

exploring options to collect the 

information needed for other purposes. 

We believe that States administering a 

risk adjustment program should, to the 

extent possible, seek efficiencies in data 

collection across programs. 

6. Risk Adjustment Data Validation 

Standards (§ 153.350) 

In § 153.350, we proposed that States 

have a reliable data validation process, 

which is essential to the establishment 

of a credible risk adjustment program. In 

paragraph (a), we proposed that the 

State, or HHS on behalf of the State, 

validate a statistically valid sample of 

all issuers that submit data for risk 

adjustment every year. In paragraph (b), 

we proposed that the State, or HHS on 


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behalf of the State, be permitted to 

adjust the average actuarial risk for each 

plan based on the error rate found in the 

validation. In paragraph (c), we 

proposed that the State, or HHS on 

behalf of the State, be permitted to 

adjust payments and charges based on 

the changes to average actuarial risk. 

Finally, in paragraph (d), we proposed 

that the State, or HHS on behalf of the 

State, be required to provide an appeals 

process for issuers. 

Considering the comments received, 

we are finalizing this provision, with 

the following modifications: We are 

expanding the data validation 

requirements to include requirements 

applicable to a distributed risk 

adjustment data collection approach, 

and are making a number of clarifying 

modifications throughout this section. 

Comments: We received several 

comments on data validation. We 

received a number of comments 

supporting the proposed data validation 

requirements. For the most part, 

commenters supported data validation 

requirements for every issuer offering 

risk adjustment covered plans in a State. 

A few commenters suggested that HHS 

add requirements on States, establish a 

national validation methodology, or 

perform the validation itself. 

One commenter suggested that States 

be allowed to establish minimum 

values, under which annual data 

validation would not be required. For 

example, issuers with fewer than 5,000 

members and less than 1 percent of the 

overall market would not be required to 

validate data annually; instead, these 

issuers would be required to validate 

data every 2 or 3 years. 

Response: We believe that the data 

validation standards we are finalizing 

represent appropriate minimum 

standards. We believe that annual data 

validation for all issuers is necessary to 

ensure a robust risk adjustment 

program, and so do not believe that 

minimum values for annual data 

validation or data validation that occurs 

less frequently are appropriate. 

Comment: We also received a number 

of comments about the specific data 

validation methodology or process. 

Several commenters suggested that data 

validation be completed throughout the 

year and certified at the end of the year. 

One commenter suggested including a 

requirement that data validation be 

maintained for the duration of risk 

adjustment operation. One commenter 

suggested that diagnoses identified by 

health care providers apply even if, 

upon subsequent audit, HHS determines 

that the patient’s medical records did 

not support the provider’s diagnosis. 

One commenter urged that States be 

required to design risk adjustment data 

validation standards using a 

methodology similar to that used under 

the CMS-Hierarchical Condition 

Category system. 

Response: We believe that a State 

should have the discretion to design its 

risk adjustment program, including the 

method for data validation. Given that 

risk adjustment occurs at the State level, 

the possibility of differences from State 

to State do not present a significant 

problem. For this reason, we are 

finalizing the data validation 

requirements with the modifications 

described above. 

Comment: We received one comment 

suggesting that we insert the phrase ‘‘or 

HHS on behalf of the State’’ in 

paragraph (c). 

Response: In the preamble to the 

proposed rule, we proposed ‘‘that the 

State, or HHS on behalf of the State, 

adjust payments and charges based on 

the changes to average actuarial risk.’’ 

However, the phrase ‘‘or HHS on behalf 

of the State’’ was omitted from the 

proposed regulation text in paragraph 

(c). We are amending the final rule text 

to be consistent with § 153.350(a) and 

(b) of, and the preamble to, the proposed 

rule. 

E. Subpart E—Health Insurance Issuer 

and Group Health Plan Standards 

Related to the Reinsurance Program 

In subpart E of the proposed rule, we 

proposed standards for health insurance 

issuers that complemented the 

standards for the transitional 

reinsurance program more fully 

described in the preamble to subpart C 

of the proposed rule. Subpart C 

discussed standards of the program 

applicable to States. In subpart E, we 

discussed the standards applicable to 

health insurance issuers and selfinsured group health plans. 

1. Reinsurance Contribution Funds 

(§ 153.400) 

In § 153.400, we proposed to codify in 

regulation section 1341 of the 

Affordable Care Act, which requires that 

the reinsurance program be funded by 

contribution funds from contributing 

entities. In paragraph (a), we proposed 

that all contributing entities make 

contributions, in a frequency and 

manner to be determined by the State or 

HHS, to the applicable reinsurance 

entity in the State. In paragraph (b), we 

proposed that if the State establishes 

multiple applicable reinsurance entities, 

the contributing entity must contribute 

an appropriate payment to each 

applicable reinsurance entity. We 

proposed in paragraph (c) (now 

paragraph (d)), that contributing entities 

be required to provide the data 

necessary for the applicable reinsurance 

entity to calculate the amounts due from 

each contributing entity. 

For the reasons described in the 

proposed rule and considering the 

comments received, we are finalizing 

these provisions, with the following 

modifications: 

We are clarifying in paragraph (a) that 

a contributing entity must make 

contributions for all reinsurance 

contribution enrollees who reside in a 

State at the national rate and any 

additional contribution rate if a State 

elects to collect additional 

contributions. We are adding paragraph 

(a)(1), which clarifies that all 

contributing entities must make 

reinsurance contributions on behalf of 

all group health plans and health 

insurance coverage they represent 

except those set forth in paragraph 

(a)(2). For example, contributing entities 

are required to make reinsurance 

contributions on behalf of plans in the 

Federal Employee Health Benefit 

Program, State and local government 

employee plans, and grandfathered 

health plans. The Affordable Care Act 

requires these issuers and third-party 

administrators on behalf of self-insured 

plans to make reinsurance 

contributions. 

In paragraph (a)(2), we are clarifying 

that contributing entities are not 

required to make contributions on 

behalf of plans or health insurance 

coverage that consists solely of excepted 

benefits within the meaning of section 

2791(c) of the PHS Act. Section 

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

Act requires the contribution amount for 

an issuer to be based on the issuer’s 

fully insured commercial book of 

business for all major medical products. 

Issuers of certain plans are excluded 

from making reinsurance contributions 

because those plans are not 

‘‘commercial books of business’’ or 

‘‘major medical’’ products. Thus, private 

Medicare and Medicaid plans and 

Federal and certain State high-risk pools 

are exempt from making reinsurance 

contributions because they are not a 

‘‘commercial book of business.’’ Further, 

stand-alone vision and dental plans and 

other plans defined as excepted benefits 

within the meaning of section 2791(c) of 

the PHS Act are exempt because they 

are not ‘‘major medical’’ products. 

In a new paragraph (c), we are 

requiring that each contributing entity 

submit contributions due to the Federal 

applicable reinsurance entity on a 

quarterly basis beginning January 15, 

2014. We believe this timeframe is 

consistent with industry practice and 

will allow for timely transfer of 


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contribution funds to States and the 

U.S. Treasury. We believe that States 

should have the flexibility to set the 

frequency of collections by the 

applicable reinsurance entity. 

In a new paragraph (d), we are 

clarifying that each contributing entity 

must submit to HHS and each 

applicable reinsurance entity, if the 

State elects to collect reinsurance 

contributions, data required to 

substantiate contribution amounts, in 

the format and with the timing specified 

by the State or HHS. For example, HHS 

may request this data in the form of a 

report that specifies the number of 

reinsurance contribution enrollees 

covered by a plan in each State in a 

month. 

Comment: We received a number of 

comments requesting clarification as to 

whether certain types of plans, such as 

multi-State plans and CO–OP plans, are 

contributing entities. 

Response: We believe that section 

1341(b)(1)(A) of the Affordable Care Act 

directs a broad cross-section of issuers 

and self-insured plans to make 

reinsurance contributions, given the 

uncertainty of the size and 

characteristics of the population that 

will participate in the Exchanges. We 

discuss whether certain plans are 

required to make reinsurance 

contributions in the preamble above. 

Comment: One commenter suggested 

that HHS clarify whether the Basic 

Health Plans described in Section 1331 

of the Affordable Care Act will be 

subject to reinsurance contributions or 

eligible for reinsurance payments. 

Response: Since guidance and 

regulations regarding the Basic Health 

Plans have not yet been issued by HHS, 

we are unable to provide direction at 

present on whether these plans are 

subject to the reinsurance program. 

Comment: We received several 

comments recommending that 

reinsurance contributions be collected 

on a quarterly basis. One commenter 

recommended an annual collection. 

Response: We have included a 

provision that requires that 

contributions to HHS be submitted 

quarterly in paragraph (c). A State that 

elects to collect contributions may set 

its own timeframe for collection. 

However, we encourage States to adopt 

a timeframe similar to the one adopted 

by HHS to minimize the burden on 

issuers in multiple States. 

2. Requests for Reinsurance Payment 

(§ 153.410) 

The reinsurance program as proposed 

in subpart C will make payments to 

reinsurance-eligible plan issuers. In 

paragraph (a) of the proposed rule, we 

proposed that reinsurance-eligible plan 

issuers be required to submit a request 

for reinsurance payment to the 

applicable reinsurance entity. We 

proposed in paragraph (b) that this 

request be made according to the 

method specified in the annual HHS 

notice of benefit and payment 

parameters. 

For the reasons described in the 

proposed rule and considering the 

comments received, we are finalizing 

these provisions, with certain clarifying 

changes. 

Comment: We received a comment 

requesting that HHS provide standards 

for issuers to request payment. 

Response: Issuers of reinsuranceeligible plans will make requests for 

payment in accordance with the 

procedures set forth in the annual HHS 

notice of benefit and payment 

parameters. If a State establishes a 

reinsurance program, then it will 

publish guidance regarding data 

requirements for reinsurance payment 

in its State notice of benefit and 

payment parameters. 

Comment: We received a few 

comments regarding the frequency of 

reinsurance payments. One commenter 

suggested a monthly reinsurance 

payment cycle. The commenter 

suggested that the reinsurance entity 

pay claims at 75 percent of the eligible 

amounts, with the remaining 25 percent 

of eligible claims becoming payable at 

the end of the year to the extent funds 

are available. One commenter suggested 

a payment process at the end of the 

benefit year. Another commenter 

suggested that reinsurance payment 

requests be permitted to be submitted 

whenever an individual claim causes a 

beneficiary’s accumulated claims costs 

for the plan year to exceed the 

attachment point, and that adjustments 

be permitted to be submitted as the 

claim fully develops. 

Response: Further guidance on the 

reinsurance claim and payment process 

will be provided in the HHS notice of 

benefit and payment parameters. 

Comment: We received comments 

regarding the deadline for reinsurance 

payment requests and late claims. One 

commenter suggested that reinsuranceeligible claims be required to be 

submitted no more than six months after 

the plan year, and that claims not filed 

within that timeframe become ineligible 

for reinsurance payment. Another 

commenter suggested that the ability to 

submit late claims be restricted to 

ensure that late claims do not delay 

MLR rebates to consumers or risk 

corridors payments to insurers. 

Response: We will provide further 

guidance on the deadline for requests 

and on late claims in the annual HHS 

notice of benefit and payment 

parameters. 

F. Subpart F—Health Insurance Issuer 

Standards Related to the Temporary 

Risk Corridors Program (§ 153.500– 

§ 153.530) 

In this subpart, we proposed 

requirements on health insurance 

issuers related to the temporary risk 

corridors program which section 1342 of 

the Affordable Care Act established for 

the first three years of Exchange 

operation (2014–2016). Risk corridors 

create a mechanism for sharing risk for 

allowable costs between the Federal 

government and QHP issuers. QHP 

issuers with allowable costs that are less 

than 97 percent of the QHP’s target 

amount will remit charges for a 

percentage of those savings to HHS, 

while QHP issuers with allowable costs 

greater than 103 percent of the QHP’s 

target amount will receive payments 

from HHS to offset a percentage of those 

losses. 

1. Definitions (§ 153.500) 

In § 153.500, we proposed a number 

of definitions for purposes of 

administering risk corridors. We 

proposed to define ‘‘allowable 

administrative costs’’ as the total nonmedical costs as defined in § 158.160(b), 

including costs for the administration 

and operation incurred by the plan as 

set forth in § 158.160(b)(2). We proposed 

to define ‘‘allowable costs’’ as an 

amount equal to the total medical costs, 

which include clinical costs, excluding 

allowable administrative costs, paid by 

the QHP issuer in providing benefits 

covered by the QHP. ‘‘Charge’’ was 

defined as the flow of funds from QHP 

issuers to HHS. ‘‘Direct and indirect 

remuneration’’ was defined by reference 

to the definition used for Medicare Part 

D purposes. ‘‘Payment’’ was defined as 

the flow of funds from HHS to QHP 

issuers. ‘‘Qualified health plan’’ was 

defined by reference to the definition for 

the term included in the proposed 

Exchange Establishment rule. ‘‘Risk 

corridors’’ was defined as any payment 

adjustment system based on the ratio of 

allowable costs of a plan to the plan’s 

target amount. ‘‘Target amount’’ was 

defined as an amount equal to the total 

premiums incurred by a QHP, including 

any premium tax credit under any 

governmental program, reduced by the 

allowable administrative costs of the 

plan. 

Considering the comments received 

and other considerations discussed 

below, we are finalizing this section 

with the following modifications: 


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We are adding the defined term, 

‘‘administrative costs,’’ meaning total 

non-claims costs for a QHP as defined 

in § 158.160(b). We are revising the 

defined term, ‘‘allowable administrative 

costs,’’ to mean administrative costs, 

capped at 20 percent of premiums 

earned. We are revising the definition of 

‘‘allowable costs’’ to reference the MLR 

term ‘‘incurred claims’’ and to include 

quality improvement and health 

information technology expenditures, as 

defined in the MLR rule. We are also 

referencing the after-the-fact 

adjustments described in § 153.530(b) 

for reinsurance and risk adjustment 

amounts paid or received by a QHP 

issuer. 

We are revising the definition of 

‘‘direct and indirect remuneration’’ to 

mean prescription drug rebates received 

by the issuer within the meaning of 

§ 158.140(b)(1)(i). This definition 

matches the concept from the MLR rule, 

which takes into account rebates, but 

not other forms of remuneration, such as 

price concessions and discounts. 

We are adding the defined term, 

‘‘premiums earned,’’ meaning monies 

paid by or for enrollees with respect to 

a QHP as a condition of receiving 

coverage under that plan, including any 

fees or other contributions paid by or for 

enrollees. This defined term references 

the equivalent definition in the MLR 

rule, and is intended to clarify that 

premiums are to be determined in a 

manner consistent with the MLR rule, a 

consistency we seek with respect to the 

risk corridors program when 

practicable. We are revising the defined 

term, ‘‘target amount,’’ to reference the 

new defined term ‘‘premiums earned.’’ 

We are moving the definition of 

‘‘qualified health plan’’ to subpart A. 

We are not modifying the definitions of 

‘‘charge,’’ ‘‘payment,’’ or ‘‘risk 

corridors.’’ Finally, we are making a 

number of clarifying modifications 

throughout this section. Many of the 

revisions we are making to defined 

terms in this subpart are intended to 

parallel terms used in the MLR rule, to 

the extent feasible. These revised 

definitions are used in the risk corridors 

calculation in a manner that is 

mathematically identical to the statutory 

formulation in section 1342 of the 

Affordable Care Act. 

Comment: In the preamble of the 

proposed rule, we discussed the 

possibility of imposing a 20 percent 

limitation on allowable administrative 

costs. A number of commenters 

supported this limitation. Some 

commenters supported the 20 percent 

limitation because it would prevent an 

issuer with high administrative costs 

from receiving risk corridors payments, 

and then using those payments to pay 

the required MLR rebates. Other 

commenters stated that imposing a 

limitation would be consistent with the 

MLR rule—a consistency that could 

reduce the need for issuers to maintain 

data for two different formulas. 

Response: We are revising the 

definition of allowable administrative 

costs accordingly. 

Comment: We received a number of 

comments that supported including 

quality improvement expenditures in 

allowable costs. Some commenters also 

suggested including health information 

technology expenses, which the MLR 

rule also takes into account. The 

commenters stated that including 

quality improvement expenses and 

health information technology 

expenditures in allowable costs would 

ensure consistency with MLR 

requirements, and would incentivize 

issuers to make these investments, 

which could inure to the benefit of 

enrollees. Some commenters requested 

that we adopt certain modifications to 

those MLR definitions. For example, 

two commenters suggested that HHS 

adopt a standard-based ‘‘functional 

approach’’ for determining whether an 

activity or function is a quality 

improvement activity similar to that 

employed by MLR. Under this 

approach, the function of the activity 

would dictate whether it was a quality 

improvement activity that issuers could 

include in allowable costs. Another 

commenter recommended that quality 

improvement activity expenditures be 

based on projections. 

Response: We viewed the proposed 

rule as including these costs in 

allowable costs, because they are not 

among the administrative costs in 

§ 158.160(b). We are revising the 

definition of allowable costs to make 

clear that it includes both expenditures 

to improve health care quality and 

expenditures related to health 

information technology and meaningful 

use requirements. However, we are not 

modifying those MLR definitions for 

purposes of risk corridors, in order to 

retain consistency with the MLR 

calculation. 

Comment: A few commenters 

requested that the risk corridors 

program not utilize the Medicare Part D 

formulation of direct and indirect 

remuneration. They stated that the Part 

D formulation is too broad for the risk 

corridors program, and that a narrower 

construct is appropriate here. 

Commenters contrasted the formulation 

applicable to Medicare, a governmental 

program, with the formulation that in 

their view should be applicable to 

commercial plans. Commenters 

recommended including a number of 

different definitions of rebates, 

discounts, and price concessions. One 

commenter recommended using the 

formulation used in the retiree drug 

subsidy program under subpart R of the 

Medicare Modernization Act regulations 

at 42 CFR 423.880 et seq. 

Response: We acknowledge the 

breadth of the proposed definition of 

direct and indirect remuneration, and 

are revising the definition to be 

consistent with the approach adopted 

by the MLR rule. The MLR rule requires 

deduction of prescription drug rebates 

received by an issuer for both reporting 

and calculation purposes. We intend 

that MLR rules for defining and 

determining when prescription drug 

rebates are received by an issuer apply 

for risk corridors purposes. 

Comment: One commenter 

recommended that allowable costs be 

defined as the sum of claims incurred 

during the risk corridors reporting year 

and paid through March 31 of the 

following year plus unpaid claims 

liabilities associated with claims 

incurred during the risk corridors 

reporting year. 

Response: We agree that the 

calculation of allowable costs should 

include a run-out period and unpaid 

claims liabilities, and are clarifying that 

allowable costs should be calculated in 

accordance with the MLR rule. 

Comment: We received four 

comments about the definition of 

‘‘QHP.’’ Three commenters stated that a 

plan offered by an issuer outside of the 

Exchange that is identical to a QHP 

should be subject to the risk corridors 

program. Those commenters cited 

administrative simplicity, and stated 

that ‘‘the pricing of QHPs is supposed 

to be the same whether offered on or off 

an Exchange.’’ A fourth commenter 

requested guidance on the issue. 

Response: The Affordable Care Act 

provides that the risk corridors program 

applies to QHPs. For risk corridors 

purposes, the QHP definition set forth 

in the Exchange Establishment rule 

applies. A QHP issuer is not precluded 

from offering a QHP outside an 

Exchange. If a QHP issuer does so, the 

QHP offered outside an Exchange is 

subject to the risk corridors program. 

We believe that, in keeping with the 

discussion of the same premium 

provision in the preamble of the 

Exchange Establishment rule, this 

generally means that health plans that 

are substantially the same as a QHP will 

be subject to the risk corridors program. 

HHS may clarify this standard in future 

rulemaking or guidance. 

Comment: A number of commenters 

requested that the risk corridors 


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calculation take into account profits in 

a manner similar to the MLR rule. Some 

commenters requested that allowable 

administrative costs include profits, 

margin, or underwriting gain. This 

inclusion would be consistent with the 

MLR rule, which permits an issuer in 

certain circumstances to have 

administrative expenses and profits up 

to 20 percent of after-tax premium 

revenues before a rebate is due. 

Commenters also noted that section 

1342(a) of the Affordable Care Act states 

that risk corridors calculations are to be 

based on a similar program under 

Medicare Part D, which includes return 

on investment, an analog to profits, in 

the definition of target amount. 

Response: The proposed rule did not 

address profits in the risk corridors 

calculation. In the HHS notice of benefit 

and payment parameters, we intend to 

propose that profits be included within 

administrative costs for purposes of the 

risk corridors calculation, consistent 

with MLR. 

Comment: A number of commenters 

requested that the risk corridors 

calculation take into account taxes in a 

manner similar to the MLR rule. The 

MLR rule requires reporting of a broad 

range of taxes, and deduction of certain 

taxes from premiums in the MLR 

denominator. One commenter noted 

that taxes may either be subtracted from 

premiums or added to allowable 

administrative costs. 

Response: The proposed rule did not 

address taxes in the risk corridors 

calculation. In the HHS notice of benefit 

and payment parameters, we intend to 

propose that taxes and other expenses 

be included within administrative costs 

for purposes of the risk corridors 

calculation, with those Federal and 

State taxes and licensing and regulatory 

fees described in § 158.161(a), 

§ 158.162(a)(1), and § 158.162(b)(1) 

exempt from the 20 percent cap on 

allowable administrative expenses. 

Comments: Several commenters 

sought clarification as to whether any of 

the risk corridors elements were 

projections. Various commenters 

suggested that premiums or 

administrative costs should reflect 

projections. One commenter requested a 

clarification to confirm the intent to use 

projected costs as the targeted amount. 

Response: Section 1342 of the 

Affordable Care Act does not allow the 

use of projections. Furthermore, because 

the temporary risk corridors program is 

designed to limit the extent of actual 

issuer losses (and gains) with respect to 

QHPs, the program will use actual data, 

not projected data. 

2. Risk Corridors Establishment and 

Payment Methodology (§ 153.510) 

In § 153.510 of the proposed rule, we 

proposed to establish risk corridors by 

specifying risk percentages above and 

below the target amount. In § 153.510(a), 

we proposed to require a QHP issuer to 

adhere to the requirements set by HHS 

for the establishment and 

administration of a risk corridors 

program for calendar years 2014 through 

2016. The preamble to the proposed rule 

stated that we would issue guidance in 

the annual HHS notice of benefit and 

payment parameters for QHPs regarding 

reporting and the administration of 

payments and charges. The preamble 

also stated that risk corridors guidance 

will be plan-specific, and not issuerspecific, as is the case with respect to 

the MLR rule, and that we interpreted 

the risk corridors provisions to apply to 

all QHPs offered in the Exchange. 

In § 153.510, we also established the 

payment methodology for the risk 

corridors program, using the thresholds 

and risk-sharing levels specified in 

statute. In § 153.510(b), we described 

the method for determining payment 

amounts to QHP issuers. For a QHP 

with allowable costs in excess of 103 

percent but not more than 108 percent 

of the target amount, HHS will pay the 

QHP issuer 50 percent of the amount in 

excess of 103 percent of the target 

amount. For a QHP with allowable costs 

that exceed 108 percent of the target 

amount, the Affordable Care Act directs 

HHS to pay the QHP issuer an amount 

equal to 2.5 percent of the target amount 

plus 80 percent of the amount in excess 

of 108 percent of the target amount. 

In § 153.510(c), we described the 

circumstances under which QHP issuers 

will remit charges to HHS, as well as the 

means by which HHS will determine 

those charge amounts. We proposed that 

QHP issuers will begin to remit charges 

to HHS for the first dollar of allowable 

charges less than 97 percent of the target 

amount. For a QHP with allowable costs 

that are less than 97 percent of the target 

amount but greater than 92 percent of 

the target amount, HHS will charge the 

QHP issuer an amount equal to 50 

percent of the difference between 97 

percent of the target amount and the 

actual value of allowable costs. For a 

QHP with allowable costs below 92 

percent of the target amount, the QHP 

issuer will remit charges to HHS in an 

amount equal to 2.5 percent of the target 

amount plus 80 percent of the difference 

between 92 percent of the target amount 

and the actual value of allowable costs. 

While we did not propose deadlines 

in the proposed rule, we discussed in 

the preamble timeframes for QHP 

issuers to remit charges to HHS. We 

suggested, for example, that a QHP 

issuer required to make a risk corridors 

payment may be required to remit 

charges within 30 days of receiving 

notice from HHS, and that HHS would 

make payments to QHP issuers that are 

owed risk corridors amounts within a 

30-day period after HHS determines that 

a payment should be made to the QHP 

issuer. QHP issuers who are owed these 

amounts will want prompt payment, 

and payment deadlines should be the 

same for HHS and QHP issuers. We 

sought comment on these proposed 

payment deadlines in the preamble to 

the proposed rule. 

Considering the comments received, 

we are finalizing this section as 

proposed, with a few clarifying 

modifications. 

Comments: We received a number of 

comments suggesting that the risk 

corridors calculation should be 

performed at a less granular level than 

the plan level. The most common 

suggestion was aggregation at the issuer 

level, although other alternatives were 

suggested. One commenter suggested 

aggregation at the carrier, State and 

business line level, while another 

recommended applying the risk 

corridors calculation separately to an 

issuer’s aggregate non-group QHP 

business and aggregate small group QHP 

business. One reason advanced for these 

alternatives was consistency with the 

MLR rules, which apply at the issuer 

level. Commenters also noted that 

issuers do not currently accumulate data 

at the plan level. Some commenters 

stated that issuer-level data would be 

more credible and reliable. 

Response: We have carefully 

considered the commenters’ 

suggestions, but are not making the 

requested change. The statutory 

language governing risk corridors does 

not afford the necessary flexibility. The 

statutory provision that governs risk 

corridors at section 1342(a) of the 

Affordable Care Act describes the risk 

corridors program as one in which ‘‘a 

qualified health plan offered in the 

individual or small group market shall 

participate * * *’’. By contrast, section 

2718 of the PHS Act, which governs the 

MLR program, requires the calculation 

of a ratio with respect to an issuer. 

Comment: One commenter requested 

that the risk corridors program may be 

based on targeted medical costs (net 

premiums) in addition to the premium 

rates. 

Response: We are not making the 

changes proposed by the commenter 

because section 1342 of the Affordable 

Care Act does not provide the flexibility 

necessary to do so. That section requires 


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that the risk corridors program be based 

upon the ratio of a plan’s total costs, 

other than administrative costs, to its 

total premiums, reduced by the 

administrative costs. In codifying that 

section in regulation, we have sought to 

define the relevant terms in a manner 

consistent with those used in the MLR 

calculation. 

Comments: A number of commenters 

addressed the risk corridors payment 

deadline. Three commenters agreed that 

30 days was a reasonable timeframe for 

both payments and charges, and one 

commenter recommended that 

payments and charges be paid once per 

year. One commenter suggested 

requiring issuers of QHPs to submit risk 

corridors data within 30 days after 

submission of a request for payment to 

HHS or receipt of demand for payment 

from HHS. 

Response: We plan to address the risk 

corridors payment deadline in the HHS 

notice of benefit and payment 

parameters. 

3. Attribution and Allocation of 

Revenue and Expense Items (§ 153.520) 

In § 153.520(a)(3) of the proposed rule 

(now § 153.530(d)), we proposed rules 

for accounting for reinsurance claims 

submitted on a date to be determined by 

HHS for a given reinsurance benefit 

year. Specifically, we proposed that a 

QHP issuer be required to attribute 

reinsurance payments to risk corridors 

based on the date on which the valid 

reinsurance claim was submitted. For 

example, if the QHP issuer were to 

submit a reinsurance claim on or before 

the deadline for a benefit year, that QHP 

issuer would attribute the claim 

payment to the risk corridors 

calculation for the benefit year in which 

the costs were accrued. Conversely, if 

the QHP issuer were to submit a claim 

after the deadline for a benefit year, that 

QHP issuer would attribute the claim 

payment to the risk corridors 

calculation for the following benefit 

year. 

We are finalizing this provision as 

proposed, with the following 

modifications: 

We are revising § 153.520(d) to clarify 

that an issuer must attribute not only 

reinsurance payments, but also 

reinsurance contributions and risk 

adjustment payments and charges to the 

benefit year for which the contributions, 

charges, or payments apply, not the year 

in which the claim was submitted. 

In addition, we are including the new 

paragraphs § 153.520(a), § 153.520(b), 

§ 153.520(c), and § 153.520(e) to clarify 

the attribution of items, such as quality 

improvement and health information 

technology expenditures, that are 

typically not plan-specific. Paragraph 

153.520(a) requires that each item of 

revenue and expense in allowable costs 

and target amount for a QHP must be 

reasonably attributable to that QHP’s 

operations. Paragraph 153.520(b) states 

that each item must be reasonably 

allocated across the issuer’s plans (that 

is, QHPs and non-QHPs). Thus, 

§ 153.520(a) and § 153.520(b) require an 

issuer to allocate shared revenue and 

expense items between its health plans 

and its other business lines, and then to 

attribute its shared items within its 

health plans to each plan. To the extent 

that the issuer is utilizing a method for 

allocating expenses for MLR purposes, 

the method used for risk corridors 

purposes under § 153.520 must be 

consistent. Paragraph 153.520(c) 

requires an issuer to disclose to HHS a 

detailed description of the methods and 

bases for the attribution and allocation. 

We plan to specify the timing and 

method of disclosure in future guidance. 

Finally, § 153.520(e) requires an issuer 

to maintain the supporting records for 

the attribution and allocation for 10 

years, and to make the records available 

to HHS upon request. 

Comments: We received a few 

comments to the proposed provision 

attributing reinsurance payments to the 

applicable benefit year. One commenter 

stated that the rule was inconsistent 

with issuers’ pricing practices, the MLR 

calculation, and financial reporting 

practices. The commenter stated that 

issuers could manipulate risk corridors 

payments by delaying claims 

submissions, and that claims not 

submitted in time for the 2016 

calculation would not be eligible for risk 

corridors, since the program would have 

terminated. Another commenter 

recommended that reinsurance amounts 

be on a ‘‘basis other than a paid basis’’ 

in order to be consistent with the MLR 

calculation. Another commenter 

recommended attribution of reinsurance 

claims to the year of submission, even 

if the claims were incurred in a prior 

benefit year. 

Response: We are clarifying in the 

rule that reinsurance and risk 

adjustment payments, contributions, 

and charges are attributed to the benefit 

year with respect to which the 

reinsurance or risk adjustment amounts 

apply. For example, reinsurance 

payments received in 2015 for claims 

costs incurred in 2014 (even if the 

reinsurance claim was properly 

submitted in 2015) would be attributed 

to 2014 for purposes of risk corridors 

calculations. 

4. Risk Corridors Data Requirements 

(§ 153.530) 

To support the risk corridors program 

calculations, we proposed in § 153.520 

of the proposed rule that all QHP issuers 

submit data needed to determine actual 

performance relative to their target 

amounts, to be collected in standard 

formats specified by HHS. We proposed 

in § 153.520(a) to require that QHP 

issuers submit data related to actual 

premium amounts collected, including 

premium amounts paid by parties other 

than the enrollee in a QHP, and 

specifically, advance premium tax 

credits paid by the government. We also 

proposed that risk adjustment and 

reinsurance be regarded as after-the-fact 

adjustments to premiums for purposes 

of determining risk corridors amounts. 

Therefore, § 153.520(a)(1) of the 

proposed rule required that the reported 

premium amounts be increased by the 

amounts paid to the QHP issuer for risk 

adjustment and reinsurance, and 

§ 153.520(a)(2) required that reported 

premium amounts be reduced for any 

risk adjustment charges the QHP issuer 

pays on behalf of the plan, reinsurance 

contributions that the QHP issuer makes 

on behalf of the plan, and Exchange user 

fees that the QHP issuer pays on behalf 

of the plan. We sought comment on this 

issue in the preamble. 

We proposed in § 153.520(b) that QHP 

issuers be required to submit allowable 

cost data to calculate the risk corridors 

in a format to be specified by HHS, and 

that allowable costs be reduced for any 

direct and indirect remuneration 

received. Finally, we proposed that 

allowable costs be reduced by the 

amount of any cost-sharing reductions 

received from HHS. 

Considering the comments received, 

we are finalizing this provision, with 

the following modifications: 

In order to more clearly reflect section 

1342(c)(1)(B) of the Affordable Care Act, 

we are revising this section so that the 

adjustments for reinsurance and risk 

adjustment are made to allowable costs. 

We are also making a number of 

clarifying modifications throughout this 

section. 

Comments: Commenters generally 

agreed that reinsurance and risk 

adjustment payments and charges 

should be treated as after-the-fact 

adjustments to risk corridors. One 

commenter noted the inconsistency 

between the proposed rule’s treatment 

of reinsurance and risk adjustment 

payments and charges as adjustments to 

premium revenue, and section 1342 of 

the Affordable Care Act, which requires 

that those adjustments be made to 

allowable costs. Another commenter 


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noted that under the MLR rule, these 

adjustments are made to premium 

revenue, and urged that the risk 

corridors program handle these 

adjustments in the same manner. One 

commenter requested clarification that 

the attribution of reinsurance payments 

‘‘received’’ be determined on an accrual 

rather than cash basis. Another 

commenter, who requested that the risk 

adjustment program be delayed until at 

least 2016 because of the complexity of 

implementing the risk adjustment, 

reinsurance, and risk corridors programs 

simultaneously, requested that, for 

consistency, HHS only take into account 

reinsurance for purposes of the 

temporary risk corridors program during 

those initial years. 

Response: In order to more clearly 

reflect the requirements of the 

Affordable Care Act, we are revising the 

section so that those payments and 

charges are adjustments to allowable 

costs, rather than premium revenue. We 

agree with the commenter that 

reinsurance and risk adjustment 

payments and charges should be 

reflected in risk corridors on an accrual 

basis, and are reflecting that 

requirement in § 153.520(d) of this final 

rule. Since all three programs will play 

important and different roles in 

stabilizing premiums beginning in 2014, 

we believe that both the risk adjustment 

and reinsurance programs should be 

taken into account as after-the-fact 

adjustments for purposes of the risk 

corridors calculation, as required by the 

statute. 

Comments: Commenters expressed 

concern about the interaction of risk 

corridors, reinsurance, and risk 

adjustment with the MLR calculation. 

Commenters discussed the need for the 

MLR timeline to take into account those 

other calculations, payments, and 

charges. One commenter discussed the 

challenges faced by publicly held 

issuers who must also comply with 

Federal securities laws’ disclosure 

requirements. Two commenters 

included detailed timelines 

encompassing proposed due dates for 

reinsurance, risk adjustment, risk 

corridors and MLR. 

Commenters also supported our 

efforts to use, where practicable, MLR 

definitions and concepts in the risk 

corridors rules, but noted difficulties in 

using data collected for MLR purposes 

for premium stabilization purposes 

because MLR data is compiled at the 

issuer level, while risk corridors data 

will be required to be collected at the 

plan level. 

Response: We will provide additional 

details on timeline-related issues in 

future guidance. We anticipate that the 

accounting profession will take 

appropriate measures to guide issuers, 

as it has in past analogous 

circumstances, such as with the retiree 

drug subsidy program under the 

Medicare Modernization Act, which 

was first effective in 2006. We will 

continue efforts to minimize reporting 

burden by seeking to utilize data already 

collected for MLR. 

Comments: We received a comment 

on the issue of how to determine the 

allowable costs for a QHP if the issuer 

fails to comply with the reporting 

requirements in § 153.530. The 

commenter recommended that HHS use 

quarterly reports to determine a final 

payment liability using the lowest HHS 

payment liability minus a certain 

percentage of withhold (penalty) of 

either the premium payments or risk 

corridors payment. 

Response: We interpret the comment 

as suggesting that HHS determine a 

baseline amount of allowable costs or 

payment liability reflecting experience 

of other issuers. The approach is one of 

several reasonable methods. We will 

consider it along with other approaches. 

We are evaluating measures we could 

take to address non-compliance. 

G. Subpart G—Health Insurance Issuer 

Standards Related to the Risk 

Adjustment Program 

Section 1343 of the Affordable Care 

Act provides for a program of risk 

adjustment for all non-grandfathered 

plans in the individual and small group 

markets both inside and outside of the 

Exchanges. We noted in the 

introduction to subpart D of this part 

that the risk adjustment program 

described in section 1343 is intended to 

reduce or eliminate premium 

differences between plans based solely 

on expectations of favorable or 

unfavorable risk selection or choices by 

higher risk enrollees in the individual 

and small group markets. The foregoing 

is relevant for this subpart as well, 

which finalizes the health insurance 

issuer standards that are necessary to 

carry out risk adjustment as described in 

subpart D. 

1. Reserved (§ 153.600) 

Section 153.600 of the proposed rule 

defined a number of terms used in this 

subpart. Those definitions have been 

moved to subpart A. We are reserving 

this section for future use. 

2. Risk Adjustment Issuer Requirements 

(§ 153.610) 

We proposed in paragraph (a) that all 

issuers of risk adjustment covered plans 

be required to submit risk adjustment 

data according to the timetable and 

format prescribed by the State, or HHS 

on behalf of the State. Considering the 

comments received, we are finalizing 

this definition, with the following 

modifications: We are modifying the 

requirement that issuers submit risk 

adjustment data to the State, or HHS on 

behalf of the State, to align with the 

changes to § 153.340(a) and (b) 

discussed above. We are adding a 

requirement that issuers that offer risk 

adjustment covered plans store required 

risk adjustment data in accordance with 

the risk adjustment data collection 

approach established by HHS or the 

State. We note that use of a distributed 

model may require issuers to format risk 

adjustment data and maintain that data 

in a manner that complies with 

specifications promulgated by the State, 

or HHS on behalf of the State, and to 

run risk adjustment software. 

Comment: We received many 

comments supporting the requirement 

that issuers submit risk adjustment data 

to the State, or HHS on behalf of the 

State. A number of commenters 

requested that HHS expand the 

definition of risk adjustment data to 

include rate setting data that may not be 

available from State Departments of 

Insurance. Other commenters stated that 

the amount and type of data envisioned 

in the proposed rule was appropriate. 

Response: We are making only minor 

changes to this provision, to align with 

changes made to § 153.340(a). 

Comment: One commenter suggested 

that participation in risk adjustment 

should be voluntary. Two other 

commenters urged HHS to delay risk 

adjustment until sufficient data is 

available. We received several 

comments suggesting that the timeframe 

for data submission be left to States. 

Response: The Affordable Care Act 

requires that issuers of risk adjustment 

covered plans participate in the risk 

adjustment program. We believe that 

there will be sufficient data to 

administer the risk adjustment program, 

even in the initial years. Therefore, we 

are finalizing the policy that all issuers 

offering risk adjustment covered plans 

must participate in the program by 

providing the specified information to 

the State, or HHS on behalf of the State, 

on a timeframe determined by that 

State. 

In paragraph (b) of the proposed rule, 

we proposed to permit contractual 

arrangements between issuers and 

providers, suppliers, physicians, and 

other practitioners to ensure that issuers 

receive the necessary risk adjustment 

data. Considering the comments 

received, we are finalizing this 

paragraph as paragraph (c). 


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Comments: We received a number of 

comments in response to this provision. 

Two commenters supported a 

requirement permitting issuers to 

require providers, suppliers, physicians, 

and other practitioners to submit risk 

adjustment data to those issuers. We 

received two comments expressing 

reservations about the requirement on 

the grounds that it would place 

additional burdens on practitioners. 

Response: We believe that the risk 

adjustment program is highly dependent 

on high quality risk adjustment data. 

Issuers depend on providers, suppliers, 

physicians, and other practitioners to 

submit this data to them. Because 

issuers will receive or be required to 

make risk adjustment payments based in 

part on the amount and quality of this 

risk adjustment data, we believe it is fair 

to permit issuers to require suppliers, 

physicians, and other practitioners to 

submit that data to them in their 

contracts. We are therefore finalizing 

this paragraph. 

In paragraph (c) of the proposed rule, 

we proposed that risk adjustment 

covered plan issuers who owe a net 

balance of risk adjustment charges will 

be assessed those net charges upon 

completion of the risk adjustment 

process. Additionally, we requested 

comment as to whether issuers should 

have a 30-day timeframe in which to 

pay net charges to the State that 

assessed those charges, or to HHS on 

behalf of the State. Considering the 

comments received, we are finalizing 

this paragraph, clarifying that charges 

include any adjustments made pursuant 

to data validation described in 

§ 153.350. 

Comment: We received a few 

comments supporting the requirement 

that issuers remit charges to the State, 

or HHS on behalf of the State. 

Response: In response to comments, 

we are finalizing the requirement that 

issuers pay risk adjustment charges to 

the State, or HHS on behalf of the State. 

We are clarifying that charges include 

any adjustments made pursuant to data 

validation described in § 153.350. 

Comment: We received one comment 

supporting a requirement that issuers be 

required to pay net charges within 30 

days of the assessment of those charges 

by a State, or HHS on behalf of a State. 

Response: In response to the 

comment, we are adding a provision 

that issuers must pay net charges to the 

State, or HHS on behalf of the State, 

within 30 days of the assessment of 

those charges. 

3. Compliance With Risk Adjustment 

Standards (§ 153.620) 

The credibility of risk adjustment is 

important to stabilizing health 

insurance premiums in the Exchanges. 

Consistent with § 153.350 of the 

proposed rule, we proposed in § 153.620 

that risk adjustment covered plan 

issuers must make available data to HHS 

or the State to support validation of the 

risk adjustment data that they have 

submitted. In paragraph (b), we 

proposed that risk adjustment covered 

plan issuers retain the risk adjustment 

data that they have reported for a period 

of ten years. For the reasons described 

in the proposed rule and considering 

the comments received, we are 

finalizing these provisions as proposed 

with a few modifying clarifications. 

Comment: We received several 

comments supporting the requirement 

that issuers make data required for 

validation of risk adjustment data 

available to States or HHS on behalf of 

the State. Two commenters suggested 

that HHS establish sanctions for issuers 

that do not comply with the data 

validation and records maintenance 

requirements. One commenter opposed 

this requirement, suggesting that the 

requirement would force issuers to 

disclose sensitive data. 

Response: We believe that the data 

validation and records maintenance 

standards are necessary to support the 

credibility of the risk adjustment 

program. After consideration of the 

comments received, we are finalizing 

the proposed provision with a minor 

drafting change to § 153.610(b) to clarify 

that the provision applies when the 

State, or HHS on behalf of the State, 

requests the data. 

Comment: We received several 

comments suggesting that a ten-year 

record retention requirement was too 

long and would impose a significant 

burden on issuers. 

Response: We believe that the record 

retention requirements should be 

consistent with other Federal record 

retention requirements, and are 

finalizing the proposed provision. 

III. Provisions of the Final Regulations 

For the most part, this final rule 

incorporates the provisions of the 

proposed rule. Those provisions of the 

final rule that differ from the proposed 

rule are as follows: 

Subpart A—General Provisions 

(§ 153.10 and § 153.20) 

• We have moved a number of 

reinsurance-related definitions to 

subpart A. We have made technical 

changes to the definition of ‘‘attachment 

point,’’ ‘‘coinsurance rate,’’ 

‘‘contribution rate,’’ and ‘‘reinsurance 

cap’’ to reflect comments received. 

• We have moved a number of risk 

adjustment-related definitions to 

subpart A. We have added several new 

definitions—‘‘individual risk score,’’ 

‘‘calculation of plan average actuarial 

risk,’’ ‘‘calculation of payments and 

charges,’’ ‘‘risk adjustment data 

collection approach,’’ and ‘‘risk 

adjustment data.’’ We also modified the 

definition of ‘‘risk adjustment 

methodology’’ to mean all parts of risk 

adjustment—the risk adjustment model, 

the calculation of plan average actuarial 

risk, the calculation of payments and 

charges, the risk adjustment data 

collection approach, and the schedule 

for the risk adjustment program. We 

have modified the definition of ‘‘risk 

adjustment data’’ to mean all data that 

are used in a risk adjustment model, or 

the calculation of plan average actuarial 

risk, or the calculation of payments and 

charges, or that are used for validation 

or audit of such data. 

Subpart B—State Notice of Benefit and 

Payment Parameters (§ 153.100 and 

§ 153.110) 

• We have clarified that a State that 

establishes a reinsurance program must 

publish a notice of benefit and payment 

parameters if it intends to modify the 

data requirements for reinsurance 

payments, collect reinsurance 

contributions, use more than one 

applicable reinsurance entity, or modify 

any reinsurance parameters. We have 

clarified that States have the flexibility 

to establish a reinsurance entity 

regardless of whether or not they 

establish a State Exchange. 

• We have clarified that a State 

operating a risk adjustment program 

must publish a notice of benefit and 

payment parameters setting forth the 

risk adjustment methodology and data 

validation that it will use. 

• We have specified that State notices 

of benefit and payment parameters be 

issued by March 1 of the calendar year 

prior to the first benefit year for which 

the notice applies. 

• We have clarified that a State that 

does not publish a notice of benefit and 

payment parameters forgoes its right to 

modify the data requirements for 

reinsurance payments, collect 

reinsurance contributions, use more 

than one applicable reinsurance entity, 

modify any reinsurance parameters, or 

use any risk adjustment methodology or 

data validation standards other than 

those published in the HHS notice of 

benefit and payment parameters for use 

by HHS when operating risk adjustment 

on behalf of the State. 


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• We have specified that a State that 

elects to collect additional reinsurance 

contributions must describe the purpose 

of the additional collection and the 

additional contribution rate. 

• We have clarified that a State that 

modifies the reinsurance parameters 

from those published in the annual HHS 

notice of benefit and payment 

parameters must apply those parameters 

uniformly throughout the State. 

Subpart C—State Standards Related to 

the Reinsurance Program (§ 153.200– 

§ 153.250) 

• We have clarified that States that 

establish an Exchange are not required 

to establish a reinsurance program. 

• We have revised the process for 

collection of contributions so that HHS 

will collect contributions from selfinsured plans, while the State has the 

option to collect from fully insured 

plans. We have required States to notify 

HHS by December 1, 2012, if they elect 

to collect reinsurance contributions 

from fully insured plans for the 2014 

benefit year, and by September 1 of the 

calendar year that is two years prior to 

the applicable benefit year if they elect 

to collect reinsurance contributions 

from fully insured plans for any benefit 

year after 2014. 

• We have directed each State to 

notify HHS of the percentage of 

reinsurance contributions received by 

HHS allocated to each applicable 

reinsurance entity, if applicable. 

• We have added provisions 

specifying that if a State elects to collect 

additional reinsurance contributions, 

HHS will only collect additional 

amounts for administrative expenses, 

and will not collect additional amounts 

for reinsurance payments. 

• We are no longer requiring that 

reinsurance payments be linked to 

essential health benefits. 

Subpart D—State Standards Related to 

the Risk Adjustment Program 

(§ 153.300–§ 153.350) 

• We have added a deadline for States 

to notify issuers of payments and 

charges. 

• We have added a provision that 

States must submit annual risk 

adjustment program summary reports to 

HHS. 

• We have clarified the standards for 

publication of risk adjustment 

methodology in HHS and State notices 

of benefit and payment parameters. 

• We have modified the proposed 

approach to risk adjustment data 

collection, as follows: When HHS 

operates a risk adjustment program, it 

will use a distributed approach so that 

individual data remains with the issuer. 

When a State operates a risk adjustment 

program, it may choose the approach 

that best suits its program. 

• We have modified the privacy and 

security standards applicable when a 

State is operating risk adjustment. 

• We have adjusted the data 

validation standards to account for the 

new approach to risk adjustment data 

collection. 

Subpart E—Health Insurance Issuer and 

Group Health Plan Standards Related to 

the Reinsurance Program (§ 153.400 and 

§ 153.410) 

• We have clarified that contributing 

entities must make reinsurance 

contributions to HHS and the applicable 

reinsurance entity, if the State elects to 

collect reinsurance contributions. 

• We have clarified which 

contributing entities must make 

reinsurance contributions. 

• We have clarified issuer standards 

for States that elect to collect additional 

funds. 

• We have specified a collection 

timeframe for submission of reinsurance 

contributions to HHS. 

• We have clarified that reinsurance 

contributions data must be submitted to 

HHS and each applicable reinsurance 

entity, if the State elects to collect 

reinsurance contributions. 

Subpart F—Health Insurance Issuer 

Standards Related to the Risk Corridors 

Program (§ 153.500–§ 153.530) 

• We added the defined terms 

‘‘administrative costs’’ and ‘‘premiums 

earned’’ to be consistent with the MLR 

regulations. 

• We revised the defined term 

‘‘allowable administrative costs’’ to 

include a 20 percent cap on such costs. 

• We revised the defined term 

‘‘allowable costs’’ to include quality 

improvement and health information 

technology expenditures under the MLR 

regulations. 

• We revised the defined term ‘‘direct 

and indirect remuneration’’ to conform 

with the MLR regulations. 

• We revised the provision regarding 

attribution of reinsurance payments 

based on the date on which the 

reinsurance claim was submitted. The 

final rule specifies that reinsurance 

payments and contributions and risk 

adjustment payments and charges be 

allocated to the benefit year for which 

they apply. 

• We added a number of provisions 

clarifying how revenue and expense 

items not typically plan-specific are to 

be allocated and attributed to plans. 

• We revised the provisions 

concerning after-the-fact adjustments to 

allowable costs to more clearly reflect 

the relevant statutory requirements. 

Subpart G—Health Insurance Issuer 

Standards Related to the Risk 

Adjustment Program (§ 153.610 and 

§ 153.620) 

• We have modified issuers’ data 

submission standards to reflect the 

flexibility afforded to States in 

collecting risk adjustment data. 

• We have included a requirement 

that issuers that offer risk adjustment 

covered plans store all required risk 

adjustment data in accordance with the 

risk adjustment data collection 

approach established by HHS, or the 

State. 

• We have specified that issuers remit 

risk adjustment charges within 30 days. 

IV. Collection of Information 

Requirements 

This final rule includes requirements 

that differ from those included in the 

proposed rule. The following provisions 

of provisions this final rule involve 

changes from the information collection 

requirements set forth in the proposed 

rule: 

• As described in § 153.210(a), we 

have added a new provision to the final 

rule under which a State that contracts 

with more than one applicable 

reinsurance entity must notify HHS of 

the percentage of reinsurance 

contributions received from HHS for the 

State to be allocated to each applicable 

reinsurance entity. 

• As described in § 153.220(b), we 

have added a new standard to the final 

rule under which a State electing to 

collect reinsurance contributions from 

issuers in the fully insured market must 

notify HHS of its intention to do so. 

• As described in § 153.310(d), we 

have added a new standard to the final 

rule under which a State operating a 

risk adjustment program must submit 

annual summary reports of risk 

adjustment operations to HHS. 

• As described in § 153.340(b)(1), we 

have modified the risk adjustment data 

collection standards from the proposed 

rule. A State operating a risk adjustment 

program must collect or calculate 

individual risk scores generated by the 

risk adjustment model in the Federally 

certified risk adjustment methodology. 

• As described in § 153.400(d), we 

have modified the data standards 

applicable to contributing entities with 

respect to contribution amounts so that 

a contributing entity in the individual 

and fully insured market is no longer 

required to submit enrollment and 

premium data and a contributing entity 

in the self-insured market is no longer 

required to submit data on covered lives 

and total expenses. Instead, a 

contributing entity is required to submit 


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Federal Register / Vol. 77, No. 57 / Friday, March 23, 2012 / Rules and Regulations 17243 

data necessary to substantiate the 

contribution amounts for the 

contributing entity. 

• As described in § 153.520(c), we 

have added a new standard to the final 

rule under which a QHP issuer must 

submit to HHS a report with detailed 

description of the methods and specific 

bases used to attribute revenues and 

expenses in allowable costs and target 

amount to each QHP and across plans. 

• As described in § 153.520(e), we 

have added a new standard to the final 

rule under which a QHP issuer must 

maintain for ten years and make 

available to HHS upon request the data 

used to make certain attributions and 

allocations of items of revenue or 

expenses, together with all supporting 

information required to determine that 

these methods and bases were 

accurately implemented. 

In addition, this final rule describes 

some information collections for which 

HHS plans to seek approval at a later 

date. For these information collections, 

HHS will issue future Federal Register 

notices to seek comments on those 

information collections, as required by 

the Paperwork Reduction Act. Included 

among such information collections for 

which HHS plans to seek later approval 

are the following requirements: 

• As described in § 153.310(d), a State 

operating a risk adjustment program 

must submit annual summary reports of 

risk adjustment operations to HHS. 

• As described in § 153.400(d), a 

contributing entity must submit data 

required to substantiate the contribution 

amounts for the contributing entity. 

• As described in § 153.410(b), 

issuers of reinsurance-eligible plans, in 

order to receive reinsurance payments, 

must make requests for payment in 

accordance with the standards of the 

annual HHS notice of benefit and 

payment parameters for the applicable 

benefit year or the applicable State 

notice of benefit and payment 

parameters. 

• As described in § 153.520(c), a QHP 

issuer must submit to HHS a report with 

a detailed description of the methods 

and specific bases used to attribute 

revenues and expenses in allowable 

costs and target amount to each QHP 

and across plans. 

• As described in § 153.530, a QHP 

issuer must submit to HHS data on 

premiums earned, allowable costs, and 

allowable administrative costs with 

respect to each QHP that the QHP issuer 

offers. 

• As described in § 153.610(a)–(b) 

and § 153.620(b), an issuer that offers 

risk adjustment covered plans must 

submit or make accessible, and must 

store, all risk adjustment data for those 

risk adjustment covered plans. 

• As described in § 153.620, an issuer 

that offers risk adjustment covered plans 

must comply with data validation 

requests by the State or HHS on behalf 

of the State. 

An agency may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information 

unless it displays a control number 

assigned by OMB. 

V. Summary of Regulatory Impact 

Analysis 

The following section focuses on the 

benefits and costs of the requirements 

included in this final rule, summarizing 

analysis from the detailed Regulatory 

Impact Analysis, available at http:// 

cciio.cms.gov under ‘‘Regulations and 

Guidance.’’ That Regulatory Impact 

Analysis evaluates the impacts of this 

final rule and a second final rule, titled 

‘‘Patient Protection and Affordable Care 

Act; Establishment of Exchanges and 

Qualified Health Plans; Exchange 

Standards for Employers.’’ The second 

final rule was made available for public 

inspection at the Office of the Federal 

Register on March 12, 2012. 

A. Introduction 

HHS has examined the impacts of the 

final rule under Executive Orders 12866 

and 13563, the Regulatory Flexibility 

Act (5 U.S.C. 601–612), and the 

Unfunded Mandates Reform Act of 1995 

(Pub. L. 104–4). Executive Orders 12866 

and 13563 direct agencies to assess all 

costs and benefits (both quantitative and 

qualitative) of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). Executive Order 13563 

emphasizes the importance of 

quantifying both costs and benefits, of 

reducing costs, of harmonizing rules, 

and of promoting flexibility. This rule 

has been designated an ‘‘economically’’ 

significant rule, under section 3(f)(1) of 

Executive Order 12866. Accordingly, 

the rule has been reviewed by the Office 

of Management and Budget. 

The Regulatory Flexibility Act 

requires agencies to analyze regulatory 

options that would minimize any 

significant impact of a rule on small 

entities. Few insurance issuers offering 

comprehensive health insurance 

policies fall below the size thresholds 

for ‘‘small’’ business established by the 

SBA. HHS concludes that this rule will 

not have a significant impact on a 

substantial number of small entities. 

Section 202(a) of the Unfunded 

Mandates Reform Act of 1995 requires 

that agencies prepare a written 

statement, which includes an 

assessment of anticipated costs and 

benefits, before proposing ‘‘any rule that 

includes any Federal mandate that may 

result in the expenditure by State, local, 

and tribal governments, in the aggregate, 

or by the private sector, of $100,000,000 

or more (adjusted annually for inflation) 

in any one year.’’ The current threshold 

after adjustment for inflation is 

approximately $136 million, using the 

most current (2011) Implicit Price 

Deflator for the Gross Domestic Product. 

Because States are not required to 

establish a reinsurance program or 

operate a risk adjustment program, the 

final rule does not impose a mandate to 

incur costs above the $136 million 

threshold on State, local, or tribal 

governments. Because operational 

details on how health insurance issuers 

and entities that must participate in the 

reinsurance program have not been 

finalized, we are not able to estimate 

whether the final rule imposes a 

mandate to incur costs above the $136 

million threshold on the private sector. 

B. Need for This Regulation 

This rule implements standards for 

States related to reinsurance and risk 

adjustment, and for health insurance 

issuers related to reinsurance, risk 

corridors, and risk adjustment 

consistent with the Affordable Care Act. 

These programs will mitigate the 

impacts of potential adverse selection 

and stabilize the individual and small 

group markets as insurance reforms and 

the Exchanges are implemented, starting 

in 2014. The transitional State-based 

reinsurance program serves to reduce 

the uncertainty of insurance risk in the 

individual market by making payments 

for high-cost enrollees. The temporary 

federally administered risk corridors 

program serves to protect against ratesetting uncertainty for QHPs by limiting 

the extent of issuer losses (and gains). 

On an ongoing basis, the State-based 

risk adjustment program is intended to 

protect health insurance issuers that 

attract higher-risk populations (such as 

individuals with chronic conditions). 

C. Summary of Costs and Benefits 

Two regulations are being published 

to implement components of the 

Exchange and health insurance 

premium stabilization policies in the 

Affordable Care Act. The detailed 

Regulatory Impact Analysis evaluates 

the impacts of both proposed rules, 

while this summary focuses on the 

benefits and costs of the requirements in 

this final rule. 


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Methods of Analysis 

This regulatory impact analysis 

references Congressional Budget Office 

(CBO) estimates relating to the 

Affordable Care Act and CMS estimates 

published in the FY 2013 President’s 

Budget relating to the Affordable Care 

Act and the proposed form of this rule. 

The CBO estimates remain the most 

comprehensive accounting of all the 

interacting provisions pertaining to the 

Affordable Care Act, and contain cost 

estimates of certain provisions that have 

not been independently estimated by 

CMS. We expect that the requirements 

in this final rule will significantly alter 

neither CBO’s estimates nor CMS’s 

estimates. Our review and analysis of 

the requirements of the final rule 

indicate that the impacts are within the 

margin of error of CBO’s and CMS’s 

models. 

Summary of Costs and Benefits 

CBO estimated program payments and 

receipts for reinsurance and risk 

adjustment. As those programs do not 

begin operation until 2014, there are no 

outlays for reinsurance and risk 

adjustment in 2012 and 2013. CBO 

estimates that risk adjustment payments 

and collections are equal in the 

aggregate, but that risk adjustment 

payments lag revenues by one quarter. 

CBO did not score the impact of the risk 

corridors program, but assumed 

collections would equal payments to 

plans in the aggregate. The payments 

and receipts in risk adjustment and 

reinsurance are financial transfers 

between issuers and the entities running 

those programs. 

TABLE 1—ESTIMATED OUTLAYS AND RECEIPTS FOR REINSURANCE AND RISK ADJUSTMENT PROGRAMS FY2012–FY2016, 

IN BILLIONS OF DOLLARS

Year 2012 2013 2014 2015 2016 

Reinsurance and Risk Adjustment Program Payments a .... ........................ ........................ 11 18 18 

Reinsurance and Risk Adjustment Program Receipts a ...... ........................ ........................ 12 16 18 

a Risk-adjustment payments lag receipts by one quarter. Note that although the estimates above are based upon CBO analyses, CBO did not 

account for reinsurance collections payable to the U.S. Treasury. Consequently, the receipts in the President’s Fiscal Year 2013 Budget are 

higher than those estimated by CBO, though not appreciably different. 

Source: CBO. 2011. Letter to Hon. Nancy Pelosi. March 20, 2010. 

Benefits. Payments through 

reinsurance, risk adjustment, and risk 

corridors reduce the increased risk of 

financial loss that health insurance 

issuers might otherwise expect to incur 

in 2014. Insurers charge premiums for 

expected costs plus a risk premium, in 

order to build up reserve funds in case 

medical costs are higher than expected. 

Reinsurance, risk adjustment, and risk 

corridors payments reduce the risk to 

the issuer, reducing the risk premium. 

Costs. There are administrative costs 

to States and Exchanges to set up and 

administer these premium stabilization 

programs. However, States may use 

Exchange Planning and Establishment 

Grant funding awarded pursuant to 

section 1311 of the Affordable Care Act 

to develop these programs. There are 

also reporting costs for issuers to submit 

data and financial information. 

Regulatory Options Considered 

Options considered for the 

reinsurance, risk adjustment, and risk 

corridor programs parallel the options 

considered for Exchanges. These 

programs aim to mitigate the impacts of 

potential adverse selection and stabilize 

the individual and small group markets 

as insurance reforms and the Affordable 

Insurance Exchanges are implemented, 

starting in 2014. The Affordable Care 

Act structures reinsurance and risk 

adjustment as State-based programs 

with Federal guidelines on 

methodology, while it establishes risk 

corridors as a federally run program. 

HHS identified two regulatory options 

to the approach set forth in this final 

rule, as required by Executive Order 

12866. 

Uniform Standards for Reinsurance 

and Risk Adjustment: Under this option, 

HHS would have set a single standard 

for State operation of reinsurance and 

risk adjustment. This option would have 

restricted State flexibility. 

State Flexibility for Reinsurance and 

Risk Adjustment: Under this option, 

States would have had a great deal of 

flexibility around whether and how to 

implement reinsurance and risk 

adjustment programs. This option 

would have allowed States to develop 

these programs to fit their State-specific 

characteristics. The programs would 

have been subject to few Federal 

standards. 

Summary of Estimate Costs for Each 

Option 

A single standard for State operations 

of reinsurance and risk adjustment 

could have resulted in reduced Federal 

oversight cost. However, this option 

could also have reduced innovation and 

limited the diffusion of successful 

policies. On the other hand, while State 

flexibility could have allowed for State 

innovation, it would have increased the 

administrative burden on the Federal 

government and multi-State issuers, as 

policies and procedures could have 

varied significantly between States. 

HHS has adopted a middle course that 

aims to limit administrative costs, 

especially for the transitional 

reinsurance program, while also 

ensuring that the policy aims of the 

premium stabilization programs are met. 

These costs and benefits are discussed 

more fully in the detailed Regulatory 

Impact Analysis. 

D. Accounting Statement 

Category Primary estimate Year dollar 

Unit discount 

rate 

(percent) 

Period 

covered 

Benefits: 

Annualized Monetized ($millions/year) .... Not estimated ................................................. 2011 7 2012–2016 

Not estimated ................................................. 2011 3 2012–2016 

Costs: 

Annualized Monetized ($millions/year) .... Not estimated ................................................. 2011 7 2012–2016 

Not estimated ................................................. 2011 3 2012–2016 

Transfers: 


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Category Primary estimate Year dollar 

Unit discount 

rate 

(percent) 

Period 

covered 

Federal Annualized Monetized ($millions/ 

year).

9925 ............................................................... 2011 7 2012–2016 

9633 ............................................................... 2011 3 2012–2016 

Qualitative ......................................... Risk Adjustment transfers funds among individual and small group market health plan issuers. 

Reinsurance collects funds from all issuers and distributes it to individual market issuers. 

Note: For full documentation and discussion of these estimated costs and benefits see the detailed Regulatory Impact Analysis, available at 

http://cciio.cms.gov under ‘‘Regulations and Guidance.’’ 

VI. Regulatory Flexibility Act 

The Regulatory Flexibility Act (5 

U.S.C. 601 et seq.) (RFA) requires 

agencies to prepare an initial regulatory 

flexibility analysis to describe the 

impact of the proposed rule on small 

entities, unless the head of the agency 

can certify that the rule will not have a 

significant economic impact on a 

substantial number of small entities. 

The RFA generally defines a ‘‘small 

entity’’ as (1) A proprietary firm meeting 

the size standards of the Small Business 

Administration (SBA), (2) a not-forprofit organization that is not dominant 

in its field, or (3) a small government 

jurisdiction with a population of less 

than 50,000. States and individuals are 

not included in the definition of ‘‘small 

entity.’’ HHS uses as its measure of 

significant economic impact on a 

substantial number of small entities a 

change in revenues of more than 3 to 5 

percent. 

As discussed above, this final rule is 

necessary to implement standards for 

States related to reinsurance and risk 

adjustment, and for health insurance 

issuers related to reinsurance, risk 

corridors, and risk adjustment 

consistent with the Affordable Care Act. 

For purpose of the regulatory flexibility 

analysis, we expect entities offering 

health insurance plans, including fully 

insured health plan issuers and selfinsured health plan issuers, to be 

affected by this proposed rule. We 

believe that health insurers would be 

classified under the North American 

Industry Classification System (NAICS) 

Codes 524114 (Direct Health and 

Medical Insurance Carriers) According 

to SBA size standards, entities with 

average annual receipts of $7 million or 

less would be considered small entities 

for this NAICS code. Health issuers 

could also be classified in NAICS code 

621491 (HMO Medical Centers), in 

which case the SBA size standard for 

small entities would be annual receipts 

of $10 million or less. 

HHS examined the health insurance 

industry in depth in the Regulatory 

Impact Analysis we prepared for the 

proposed rule on establishment of the 

Medicare Advantage program (69 FR 

46866, August 3, 2004). In that analysis, 

we determined that there were few 

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’’ entities 

established by the SBA. 

Additionally, as discussed in the 

Medical Loss Ratio interim final rule (75 

FR 74918), HHS used 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, HHS used total Accident and 

Health (A&H) earned premiums as a 

proxy for annual receipts. HHS 

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. 

This final rule contains standards for 

premium stabilization programs 

required of health plan issuers 

including the risk adjustment program 

as well as the transitional reinsurance 

program and temporary risk corridors 

programs. Because we believe that few 

insurance firms offering comprehensive 

health insurance policies fall below the 

size thresholds for ‘‘small’’ entities 

established by the SBA, we conclude 

that this final rule will not have a 

significant economic impact on a 

substantial number of small entities. 

List of Subjects in 45 CFR Part 153 

Administrative practice and 

procedure, Adverse selection, Health 

care, Health insurance, Health records, 

Organization and functions 

(Government agencies), Premium 

Stabilization, Reporting and 

recordkeeping requirements, 

Reinsurance, Risk adjustment, Risk 

corridors, Risk mitigation, State and 

local governments. 

For the reasons set forth in the 

preamble, the Department of Health and 

Human Services amends 45 CFR subtitle 

A, subchapter B, by adding part 153 to 

read as set forth below: 

Subtitle A—Department of Health and 

Human Services 

Subchapter B—Requirements Relating 

To Health Care Access 

PART 153—STANDARDS RELATED TO 

REINSURANCE, RISK CORRIDORS, 

AND RISK ADJUSTMENT UNDER THE 

AFFORDABLE CARE ACT 

Subpart A—General Provisions 

Sec. 

153.10 Basis and scope. 

153.20 Definitions. 

Subpart B—State Notice of Benefit and 

Payment Parameters 

153.100 State notice of benefit and 

payment parameters. 

153.110 Standards for the State notice of 

benefit and payment parameters. 

Subpart C—State Standards Related to the 

Reinsurance Program 

153.200 [Reserved] 

153.210 State establishment of a 

reinsurance program. 

153.220 Collection of reinsurance 

contribution funds. 

153.230 Calculation of reinsurance 

payments. 

153.240 Disbursement of reinsurance 

payments. 

153.250 Coordination with high-risk pools. 

Subpart D—State Standards Related to the 

Risk Adjustment Program 

153.300 [Reserved] 

153.310 Risk adjustment administration. 

153.320 Federally certified risk adjustment 

methodology. 

153.330 State alternate risk adjustment 

methodology. 

153.340 Data collection under risk 

adjustment. 

153.350 Risk adjustment data validation 

standards. 


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Subpart E—Health Insurance Issuer and 

Group Health Plan Standards Related to the 

Reinsurance Program 

153.400 Reinsurance contribution funds. 

153.410 Requests for reinsurance payment. 

Subpart F—Health Insurance Issuer 

Standards Related to the Risk Corridors 

Program 

153.500 Definitions. 

153.510 Risk corridors establishment and 

payment methodology. 

153.520 Attribution and allocation of 

revenue and expense items. 

153.530 Risk corridors data requirements. 

Subpart G—Health Insurance Issuer 

Standards Related to the Risk Adjustment 

Program 

153.600 [Reserved] 

153.610 Risk adjustment issuer 

requirements. 

153.620 Compliance with risk adjustment 

standards. 

Authority: Secs. 1321, 1341–1343, Pub. L. 

111–148, 24 Stat. 119. 

Subpart A—General Provisions 

§ 153.10 Basis and scope. 

(a) Basis. This part is based on the 

following sections of title I of the 

Affordable Care Act (Pub. L. 111–148, 

24 Stat. 119): 

(1) Section 1321. State flexibility in 

operation and enforcement of Exchanges 

and related requirements. 

(2) Section 1341. Transitional 

reinsurance program for individual 

market in each State. 

(3) Section 1342. Establishment of risk 

corridors for plans in individual and 

small group markets. 

(4) Section 1343. Risk adjustment. 

(b) Scope. This part establishes 

standards for the establishment and 

operation of a transitional reinsurance 

program, temporary risk corridors 

program, and a permanent risk 

adjustment program. 

§ 153.20 Definitions. 

The following definitions apply to 

this part, unless the context indicates 

otherwise: 

Alternate risk adjustment 

methodology means a risk adjustment 

methodology proposed by a State for use 

instead of a Federally certified risk 

adjustment methodology that has not 

yet been certified by HHS. 

Applicable reinsurance entity means a 

not-for-profit organization that is 

exempt from taxation under Chapter 1 

of the Internal Revenue Code of 1986 

that carries out reinsurance functions 

under this part on behalf of the State. 

An entity is not an applicable 

reinsurance entity to the extent it is 

carrying out reinsurance functions 

under subpart C of this part on behalf 

of HHS. 

Attachment point means the 

threshold dollar amount for claims costs 

incurred by a health insurance issuer for 

an enrolled individual’s covered 

benefits in a benefit year, after which 

threshold the claims costs for such 

benefits are eligible for reinsurance 

payments. 

Benefit year has the meaning given to 

the term in § 155.20 of this subchapter. 

Calculation of payments and charges 

means the methodology applied to plan 

average actuarial risk to determine risk 

adjustment payments and charges for a 

risk adjustment covered plan. 

Calculation of plan average actuarial 

risk means the specific procedures used 

to determine plan average actuarial risk 

from individual risk scores for a risk 

adjustment covered plan, including 

adjustments for variable rating and the 

specification of the risk pool from 

which average actuarial risk is to be 

calculated. 

Coinsurance rate means the rate at 

which the applicable reinsurance entity 

will reimburse the health insurance 

issuer for claims costs incurred for an 

enrolled individual’s covered benefits in 

a benefit year after the attachment point 

and before the reinsurance cap. 

Contributing entity means a health 

insurance issuer or a third party 

administrator on behalf a self-insured 

group health plan. 

Contribution rate means, with respect 

to a benefit year, the per capita amount 

each contributing entity must pay for a 

reinsurance program established under 

this part with respect to each 

reinsurance contribution enrollee who 

resides in that State. 

Exchange has the meaning given to 

the term in § 155.20 of this subchapter. 

Federally certified risk adjustment 

methodology means a risk adjustment 

methodology that either has been 

developed and promulgated by HHS, or 

has been certified by HHS. 

Grandfathered health plan has the 

meaning given to the term in 

§ 147.140(a) of this subchapter. 

Group health plan has the meaning 

given to the term in § 144.103 of this 

subchapter. 

Health insurance coverage has the 

meaning given to the term in § 144.103 

of this subchapter. 

Health insurance issuer or issuer has 

the meaning given to the term in 

§ 144.103 of this subchapter. 

Health plan has the meaning given to 

the term in section 1301(b)(1) of the 

Affordable Care Act. 

Individual market has the meaning 

given to the term in § 144.103 of this 

subchapter. 

Individual risk score means a relative 

measure of predicted health care costs 

for a particular enrollee that is the result 

of a risk adjustment model. 

Large employer has the meaning given 

to the term in § 155.20 of this 

subchapter. 

Qualified employer has the meaning 

given to the term in § 155.20 of this 

subchapter. 

Qualified health plan or QHP has the 

meaning given to the term in § 155.20 of 

this subchapter. 

Qualified individual has the meaning 

given to the term in § 155.20 of this 

subchapter. 

Reinsurance cap means the threshold 

dollar amount for claims costs incurred 

by a health insurance issuer for an 

enrolled individual’s covered benefits, 

after which threshold, the claims costs 

for such benefits are no longer eligible 

for reinsurance payments. 

Reinsurance contribution enrollee 

means an individual covered by a plan 

for which reinsurance contributions 

must be made pursuant to § 153.400. 

Reinsurance-eligible plan means, for 

the purpose of the reinsurance program, 

any health insurance coverage offered in 

the individual market, except for 

grandfathered plans and health 

insurance coverage not required to 

submit reinsurance contributions under 

§ 153.400(a). 

Risk adjustment covered plan means, 

for the purpose of the risk adjustment 

program, any health insurance coverage 

offered in the individual or small group 

market with the exception of 

grandfathered health plans, group 

health insurance coverage described in 

§ 146.145(c) of this subchapter, 

individual health insurance coverage 

described in § 148.220 of this 

subchapter, and any other plan 

determined not to be a risk adjustment 

covered plan in the annual HHS notice 

of benefit and payment parameters. 

Risk adjustment data means all data 

that are used in a risk adjustment 

model, the calculation of plan average 

actuarial risk, or the calculation of 

payments and charges, or that are used 

for validation or audit of such data. 

Risk adjustment data collection 

approach means the specific procedures 

by which risk adjustment data is to be 

stored, collected, accessed, transmitted, 

validated and audited and the 

applicable timeframes, data formats, and 

privacy and security standards. 

Risk adjustment methodology means 

the risk adjustment model, the 

calculation of plan average actuarial 

risk, the calculation of payments and 

charges, the risk adjustment data 

collection approach, and the schedule 

for the risk adjustment program. 

Risk adjustment model means an 

actuarial tool used to predict health care 


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costs based on the relative actuarial risk 

of enrollees in risk adjustment covered 

plans. 

Risk pool means the State-wide 

population across which risk is 

distributed. 

Small group market has the meaning 

given to the term in section 1304(a)(3) 

of the Affordable Care Act. 

State has the meaning given to the 

term in § 155.20 of this subchapter. 

Subpart B—State Notice of Benefit and 

Payment Parameters 

§ 153.100 State notice of benefit and 

payment parameters. 

(a) General requirement for 

reinsurance. A State establishing a 

reinsurance program must issue an 

annual notice of benefit and payment 

parameters specific to that State if that 

State elects to: 

(1) Modify the data requirements or 

data collection frequency for health 

insurance issuers to receive reinsurance 

payment from those specified in the 

annual HHS notice of benefit and 

payment parameters for the applicable 

benefit year; 

(2) Collect reinsurance contributions 

pursuant to § 153.220(a)(1); 

(3) Collect additional reinsurance 

contributions pursuant to § 153.220(g); 

(4) Use more than one applicable 

reinsurance entity; or 

(5) Modify any reinsurance payment 

parameters from those specified in the 

annual HHS notice of benefit and 

payment parameters for the applicable 

benefit year. 

(b) Risk adjustment requirements. A 

State operating a risk adjustment 

program must issue an annual notice of 

benefit and payment parameters specific 

to that State setting forth the risk 

adjustment methodology and data 

validation standards it will use. 

(c) State notice deadlines. If a State is 

required to publish an annual State 

notice of benefit and payment 

parameters, it must do so by March 1 of 

the calendar year prior to the benefit 

year for which the notice applies. 

(d) State failure to publish notice. Any 

State establishing a reinsurance program 

or operating a risk adjustment program 

that fails to publish a State notice of 

benefit and payment parameters within 

the period specified in paragraph (c) of 

this section must— 

(1) Adhere to the data requirements 

and data collection frequency for health 

insurance issuers to receive reinsurance 

payments that are specified in the 

annual HHS notice of benefit and 

payment parameters for the applicable 

benefit year; 

(2) Forgo the collection of reinsurance 

contributions pursuant to § 153.220(a); 

(3) Forgo the collection of additional 

reinsurance contributions pursuant to 

§ 153.220(g); 

(4) Forgo the use of more than one 

applicable reinsurance entity; 

(5) Adhere to the reinsurance 

parameters specified in the annual HHS 

notice of benefit and payment 

parameters for the applicable benefit 

year; and 

(6) Adhere to the risk adjustment 

methodology and data validation 

standards published in the annual HHS 

notice of benefit and payment 

parameters for use by HHS when 

operating risk adjustment on behalf of a 

State. 

§ 153.110 Standards for the State notice of 

benefit and payment parameters. 

(a) Data requirements. If a State that 

establishes a reinsurance program elects 

to modify the data requirements or data 

collection frequency for health 

insurance issuers to receive reinsurance 

payment from those specified in the 

annual HHS notice of benefit and 

payment parameters for the applicable 

benefit year, the State notice of benefit 

and payment parameters must specify 

those modifications. 

(b) Reinsurance collection. If a State 

that establishes a reinsurance program 

elects to collect reinsurance 

contributions pursuant to § 153.220(a), 

then the State must announce its 

intention to do so in the State notice of 

benefit and payment parameters. 

(c) Additional collections. If a State 

that establishes a reinsurance program 

elects to collect additional funds 

pursuant to § 153.220(g), the State must 

publish the following: 

(1) A description of the purpose of the 

additional collection, including whether 

it will be used to cover reinsurance 

payments, administrative costs, or both; 

and 

(2) The additional contribution rate at 

which the funds will be collected. 

(d) Multiple reinsurance entities. If a 

State plans to use more than one 

applicable reinsurance entity, the State 

must publish in the State notice of 

benefit and payment parameters, for 

each applicable reinsurance entity— 

(1) The geographic boundaries for that 

entity; 

(2) An estimate of the number of 

enrollees in fully insured plans within 

those boundaries; 

(3) An estimate of the number of 

enrollees in the individual market 

within those boundaries; 

(4) An estimate of the reinsurance 

contributions that will be collected by 

the applicable reinsurance entity; 

(5) The percentage of reinsurance 

contributions received from HHS for the 

State to be allocated to the applicable 

reinsurance entity; and 

(6) An estimate of the amount of 

reinsurance payments that will be made 

to issuers with respect to enrollees 

within those boundaries. 

(e) Reinsurance payment. If a State 

that establishes a reinsurance program 

intends to modify the attachment point, 

reinsurance cap, or coinsurance rate 

from the corresponding parameters 

specified in the annual HHS notice of 

benefit and payment parameters for the 

applicable benefit year, the State must— 

(1) Describe those modified 

parameters in the State notice of benefit 

and payment parameters; and 

(2) Apply the modified parameters 

uniformly throughout the State. 

(f) Risk adjustment content. A State 

operating a risk adjustment program 

must provide the information set forth 

in § 153.330(a) and the data validation 

standards set forth pursuant to § 153.350 

in the State notice of benefit and 

payment parameters. 

Subpart C—State Standards Related to 

the Reinsurance Program 

§ 153.200 [Reserved] 

§ 153.210 State establishment of a 

reinsurance program. 

(a) General requirement. Each State is 

eligible to establish a reinsurance 

program for the years 2014 through 

2016. 

(1) If a State establishes a reinsurance 

program, the State must enter into a 

contract with one or more applicable 

reinsurance entities to carry out the 

provisions of this subpart. 

(2) If a State contracts with more than 

one applicable reinsurance entity, the 

State must: 

(i) Ensure that each applicable 

reinsurance entity operates in a distinct 

geographic area with no overlap of 

jurisdiction with any other applicable 

reinsurance entity; 

(ii) Use the same payment parameters 

with respect to each applicable 

reinsurance entity; and 

(iii) Notify HHS in the manner and 

timeframe specified by HHS of the 

percentage of reinsurance contributions 

received from HHS for the State to be 

allocated to each applicable reinsurance 

entity. 

(3) A State may permit an applicable 

reinsurance entity to subcontract 

specific administrative functions 

required under this subpart and subpart 

E of this part. 

(4) A State must review and approve 

subcontracting arrangements to ensure 

efficient and appropriate expenditures 


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of administrative funds collected under 

this subpart. 

(5) A State must ensure that the 

applicable reinsurance entity completes 

all reinsurance-related activities for 

benefit years 2014 through 2016 and any 

activities required to be undertaken in 

subsequent periods. 

(b) Multi-State reinsurance 

arrangements. Multiple States may 

contract with a single entity to serve as 

an applicable reinsurance entity for 

each State. In such a case, the 

reinsurance programs for those States 

must be operated as separate programs. 

(c) Non-electing States. HHS will 

establish a reinsurance program for each 

State that does not elect to establish its 

own reinsurance program. 

(d) Oversight. Each State that 

establishes a reinsurance program must 

ensure that the applicable reinsurance 

entity complies with all provisions of 

this subpart and subpart E of this part 

throughout the duration of its contract. 

§ 153.220 Collection of reinsurance 

contribution funds. 

(a) Collections. If a State establishes a 

reinsurance program, then— 

(1) The State may elect to— 

(i) Have the applicable reinsurance 

entity collect contributions for 

reinsurance contribution enrollees who 

reside in that State directly from issuers 

of health plans; or 

(ii) Ensure that the applicable 

reinsurance entity accepts contributions 

for reinsurance contribution enrollees 

who reside in that State with respect to 

issuers of health plans from HHS. 

(2) The State must ensure that the 

applicable reinsurance entity accepts 

contributions for reinsurance 

contribution enrollees who reside in 

that State with respect to all 

contributing entities other than issuers 

of health plans from HHS. 

(b) Notification of election to collect. 

If a State establishes a reinsurance 

program, then that State must notify 

HHS by December 1, 2012, if the State 

elects to collect reinsurance 

contributions from fully insured plans 

for the 2014 benefit year, and by 

September 1 of the calendar year that is 

two years prior to the applicable benefit 

year if the State elects to collect 

reinsurance contributions from fully 

insured plans for any benefit year after 

2014, in each case pursuant to 

paragraph (a)(1)(i) of this section. The 

State’s notification will be effective for 

the applicable benefit year and each 

subsequent benefit year during which 

activities related to the transitional 

reinsurance program continue. 

(c) Contribution funding. Reinsurance 

contributions collected must fund the 

following: 

(1) Reinsurance payments that will 

total, on a national basis, $10 billion in 

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

in 2016; 

(2) U.S. Treasury contributions that 

will total, on a national basis, $2 billion 

in 2014, $2 billion in 2015, and 

$1 billion in 2016; and 

(3) Administrative expenses of the 

applicable reinsurance entity or HHS 

when performing reinsurance functions 

under this subpart. 

(d) Distribution of reinsurance 

contributions. If a State establishes a 

reinsurance program, HHS will 

distribute funds collected for 

reinsurance contribution enrollees who 

reside in a State to the applicable 

reinsurance entity for that State (or the 

applicable reinsurance entities, if more 

than one, in accordance with the 

allocation specified by the State 

pursuant to § 153.210(a)(2)(ii)), less: 

(1) The State’s pro rata share of the 

U.S. Treasury contribution described in 

paragraph (c)(2) of this section; and 

(2) The State’s pro rata share of 

administrative expenses incurred by 

HHS when performing reinsurance 

functions under this subpart. 

(e) National contribution rate. HHS 

will set in the annual HHS notice of 

benefit and payment parameters for the 

applicable benefit year the national 

contribution rate and the proportion of 

contributions collected under the 

national contribution rate to be 

allocated to: 

(1) Reinsurance payments; 

(2) Payments to the U.S. Treasury as 

described in paragraph (c)(2) of this 

section; and 

(3) Administrative expenses of the 

applicable reinsurance entity or HHS 

when performing reinsurance functions 

under this subpart. 

(f) State collections. If a State elects to 

have the applicable reinsurance entity 

collect contributions pursuant to 

paragraph (a)(1)(i) of this section, the 

State must ensure that: 

(1) The applicable reinsurance entity 

for the State collects contributions for 

reinsurance contribution enrollees who 

reside in that State directly from issuers 

of health plans in the amounts required 

under the national contribution rate. 

(2) Reinsurance contributions are 

allocated as required in the annual HHS 

notice of benefit and payment 

parameters for the applicable benefit 

year, such that: 

(i) Contributions allocated for 

reinsurance payments are only used for 

reinsurance payments; and 

(ii) Contributions allocated for 

payments to the U.S. Treasury are paid 

to the U.S. Treasury in a timeframe to 

be established by HHS. 

(g) Additional State collections. If a 

State establishes a reinsurance program, 

it may elect to collect more than the 

amounts that would be collected based 

on the national contribution rate set 

forth in the annual HHS notice of 

benefit and payment parameters for the 

applicable benefit year to provide: 

(1) Funding for administrative 

expenses of the applicable reinsurance 

entity; or 

(2) Additional funding for reinsurance 

payments. 

(h) Administration of additional State 

collections. If a State elects to collect 

additional amounts pursuant to 

paragraph (g) of this section for 

administrative expenses or reinsurance 

payments, then: 

(1) The State must notify HHS within 

30 days after publication of the draft 

annual HHS notice of benefit and 

payment parameters for the applicable 

benefit year of the additional 

contribution rate that it elects to collect 

for additional administrative expenses. 

The State must ensure that the State’s 

applicable reinsurance entity— 

(i) Collects these additional amounts 

for additional administrative expenses 

from issuers of health plans when the 

State elects to collect contributions from 

such issuers under paragraph (a)(1) of 

this section; and 

(ii) Accepts additional amounts for 

additional administrative expenses from 

HHS from all contributing entities from 

which HHS collects in accordance with 

the State’s election under paragraph 

(a)(1) of this section. 

(2) Notwithstanding paragraphs (a)(1) 

and (a)(2) of this section, the State must 

ensure that the applicable reinsurance 

entity collects all additional reinsurance 

contributions for the purpose of 

reinsurance payments from all 

contributing entities. 

§ 153.230 Calculation of reinsurance 

payments. 

(a) General requirement. A health 

insurance issuer of a non-grandfathered 

individual market plan becomes eligible 

for reinsurance payments when its 

claims costs for an individual enrollee’s 

covered benefits in a benefit year exceed 

the attachment point. 

(b) Reinsurance payment parameters. 

If a State establishes a reinsurance 

program, the State must use, subject to 

any modifications made pursuant to 

paragraph (d) of this section, the 

payment formula and values for the 

attachment point, reinsurance cap, and 

coinsurance rate for each year 


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commencing in 2014 and ending in 

2016 established in the annual HHS 

notice of benefit and payment 

parameters for the applicable benefit 

year. 

(c) Reinsurance payments. If a State 

establishes a reinsurance program, the 

State must ensure, subject to 

§ 153.240(b)(1), that the reinsurance 

payment represents the product of the 

coinsurance rate multiplied by the 

health insurance issuer’s claims costs 

for an individual enrollee’s covered 

benefits that the health insurance issuer 

incurs between the attachment point 

and the reinsurance cap. 

(d) State modification of reinsurance 

payment formula. If a State establishes 

a reinsurance program, the State may 

modify the reinsurance payment 

formula in accordance with the 

following: 

(1) The State may only use one or 

more of the following methods to 

modify the reinsurance payment 

formula: 

(i) Increasing or decreasing the 

attachment point; 

(ii) Increasing, decreasing, or 

eliminating the reinsurance cap; or 

(iii) Increasing or decreasing the 

coinsurance rate. 

(2) The State must publish any such 

modification to the reinsurance 

payment formula and parameters in a 

State notice of benefit and payment 

parameters as described in subpart B of 

this part. 

(3) Any State modification to the 

reinsurance payment formula pursuant 

to paragraph (d)(1) of this section must 

be reasonably calculated to ensure that 

reinsurance contributions received 

toward reinsurance are sufficient to 

cover payments that the applicable 

reinsurance entity is obligated to make 

under that State formula for the given 

benefit year for the reinsurance 

program. 

(4) The State must use a uniform 

attachment point, coinsurance rate, and 

reinsurance cap throughout the State. 

§ 153.240 Disbursement of reinsurance 

payments. 

(a) Data collection. If a State 

establishes a reinsurance program, the 

State must ensure that the applicable 

reinsurance entity collects from health 

insurance issuers of reinsurance-eligible 

plans data required to calculate 

payments described in § 153.230, 

according to the data requirements and 

data collection frequency specified by 

the State in the notice of benefit and 

payment parameters described in 

subpart B of this part. 

(b) Reinsurance entity payments. If a 

State establishes a reinsurance program, 

the State must ensure that each 

applicable reinsurance entity does not 

make payments to health insurance 

issuers that exceed contributions 

received to date by the applicable 

reinsurance entity. 

(1) If a State, or HHS on behalf of the 

State, determines that reinsurance 

payments requested for a benefit year 

will likely exceed the reinsurance 

contributions that will be received for 

the year, the State may require that the 

applicable reinsurance entity reduce (or 

HHS on behalf of the State may reduce) 

reinsurance payments, so long as the 

manner in which payments are reduced 

is fair and equitable for all health 

insurance issuers in the individual 

market. 

(2) The State must ensure that an 

applicable reinsurance entity makes 

payment to the health insurance issuer 

of a reinsurance-eligible plan after 

receiving a valid claim for payment 

from that health insurance issuer in 

accordance with the requirements of 

§ 153.410. 

(c) Maintenance of records. If a State 

establishes a reinsurance program, the 

State must maintain books, records, 

documents, and other evidence of 

accounting procedures and practices of 

the reinsurance program for each benefit 

year for at least 10 years. 

§ 153.250 Coordination with high-risk 

pools. 

(a) General requirement. The State 

must eliminate or modify any State 

high-risk pool to the extent necessary to 

carry out the reinsurance program 

established under this subpart. 

(b) Coordination with high-risk pools. 

The State may coordinate the State highrisk pool with the reinsurance program 

to the extent that the State high-risk 

pool conforms to the provisions of this 

subpart. 

Subpart D—State Standards Related to 

the Risk Adjustment Program 

§ 153.300 [Reserved] 

§ 153.310 Risk adjustment administration. 

(a) State eligibility to establish a risk 

adjustment program. (1) A State that 

elects to operate an Exchange is eligible 

to establish a risk adjustment program. 

(2) Any State that does not elect to 

operate an Exchange, or that HHS has 

not approved to operate an Exchange, 

will forgo implementation of all State 

functions in this subpart, and HHS will 

carry out all of the provisions of this 

subpart on behalf of the State. 

(3) Any State that elects to operate an 

Exchange but does not elect to 

administer risk adjustment will forgo 

implementation of all State functions in 

this subpart, and HHS will carry out all 

of the provisions of this subpart on 

behalf of the State. 

(b) Entities eligible to carry out risk 

adjustment activities. If a State is 

operating a risk adjustment program, the 

State may elect to have an entity other 

than the Exchange perform the State 

functions of this subpart, provided that 

the entity meets the standards 

promulgated by HHS to be an entity 

eligible to carry out Exchange functions. 

(c) Timeframes. A State, or HHS on 

behalf of the State, must implement risk 

adjustment for the 2014 benefit year and 

every benefit year thereafter. For each 

benefit year, a State, or HHS on behalf 

of the State, must notify issuers of risk 

adjustment payments due or charges 

owed annually by June 30 of the year 

following the benefit year. 

(d) State summary reports. Each State 

operating a risk adjustment program 

must submit to HHS an annual 

summary of risk adjustment program 

operations in the manner and timeframe 

specified by HHS. 

§ 153.320 Federally certified risk 

adjustment methodology. 

(a) General requirement. Any risk 

adjustment methodology used by a 

State, or HHS on behalf of the State, 

must be a Federally certified risk 

adjustment methodology. A risk 

adjustment methodology may become 

Federally certified by one of the 

following processes: 

(1) The risk adjustment methodology 

is developed by HHS and published in 

an annual HHS notice of benefit and 

payment parameters; or 

(2) An alternate risk adjustment 

methodology is submitted by a State in 

accordance with § 153.330, reviewed 

and certified by HHS, and published in 

an annual HHS notice of benefit and 

payment parameters. 

(b) Publication of methodology in 

notices. The publication of a risk 

adjustment methodology by HHS in an 

annual HHS notice of benefit and 

payment parameters or by a State in an 

annual State notice of benefit and 

payment parameters described in 

subpart B of this part must include: 

(1) A complete description of the risk 

adjustment model, including— 

(i) Factors to be employed in the 

model, including but not limited to 

demographic factors, diagnostic factors, 

and utilization factors, if any; 

(ii) The qualifying criteria for 

establishing that an individual is 

eligible for a specific factor; 

(iii) Weights assigned to each factor; 

and 

(iv) The schedule for the calculation 

of individual risk scores. 


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(2) A complete description of the 

calculation of plan average actuarial 

risk. 

(3) A complete description of the 

calculation of payments and charges. 

(4) A complete description of the risk 

adjustment data collection approach. 

(5) The schedule for the risk 

adjustment program. 

(c) Use of methodology for States that 

do not operate a risk adjustment 

program. HHS will specify in the annual 

HHS notice of benefit and payment 

parameters for the applicable year the 

Federally certified risk adjustment 

methodology that will apply in States 

that do not operate a risk adjustment 

program. 

§ 153.330 State alternate risk adjustment 

methodology. 

(a) State request for alternate 

methodology certification. (1) A State 

request to HHS for the certification of an 

alternate risk adjustment methodology 

must include: 

(i) The elements specified in 

§ 153.320(b); 

(ii) The calibration methodology and 

frequency of calibration; and 

(iii) The statistical performance 

metrics specified by HHS. 

(2) The request must include the 

extent to which the methodology: 

(i) Accurately explains the variation 

in health care costs of a given 

population; 

(ii) Links risk factors to daily clinical 

practice and is clinically meaningful to 

providers; 

(iii) Encourages favorable behavior 

among providers and health plans and 

discourages unfavorable behavior; 

(iv) Uses data that is complete, high 

in quality, and available in a timely 

fashion; 

(v) Is easy for stakeholders to 

understand and implement; 

(vi) Provides stable risk scores over 

time and across plans; and 

(vii) Minimizes administrative costs. 

(b) State renewal of alternate 

methodology. If a State is operating a 

risk adjustment program, the State may 

not implement a recalibrated risk 

adjustment model or otherwise alter its 

risk adjustment methodology without 

first obtaining HHS certification. 

(1) Recalibration of the risk 

adjustment model must be performed at 

least as frequently as described in 

paragraph (a)(1)(ii) of this section; 

(2) A State request to implement a 

recalibrated risk adjustment model or 

otherwise alter its risk adjustment 

methodology must include any changes 

to the parameters described in 

paragraph (a)(1) of this section. 

§ 153.340 Data collection under risk 

adjustment. 

(a) Data collection requirements. If a 

State is operating a risk adjustment 

program, the State must collect risk 

adjustment data. 

(b) Minimum standards. (1) If a State 

is operating a risk adjustment program, 

the State may vary the amount and type 

of data collected, but the State must 

collect or calculate individual risk 

scores generated by the risk adjustment 

model in the applicable Federally 

certified risk adjustment methodology; 

(2) If a State is operating a risk 

adjustment program, the State must 

require that issuers offering risk 

adjustment covered plans in the State 

comply with data privacy and security 

standards set forth in the applicable risk 

adjustment data collection approach; 

and 

(3) If a State is operating a risk 

adjustment program, the State must 

ensure that any collection of personally 

identifiable information is limited to 

information reasonably necessary for 

use in the applicable risk adjustment 

model, calculation of plan average 

actuarial risk, or calculation of 

payments and charges. Except for 

purposes of data validation, the State 

may not collect or store any personally 

identifiable information for use as a 

unique identifier for an enrollee’s data, 

unless such information is masked or 

encrypted by the issuer, with the key to 

that masking or encryption withheld 

from the State. 

(4) If a State is operating a risk 

adjustment program, the State must 

implement security standards that 

provide administrative, physical, and 

technical safeguards for the individually 

identifiable information consistent with 

the security standards described at 45 

CFR 164.308, 164.310, and 164.312. 

§ 153.350 Risk adjustment data validation 

standards. 

(a) General requirement. The State, or 

HHS on behalf of the State, must ensure 

proper implementation of any risk 

adjustment software and ensure proper 

validation of a statistically valid sample 

of risk adjustment data from each issuer 

that offers at least one risk adjustment 

covered plan in that State. 

(b) Adjustment to plan average 

actuarial risk. The State, or HHS on 

behalf of the State, may adjust the plan 

average actuarial risk for a risk 

adjustment covered plan based on errors 

discovered with respect to 

implementation of risk adjustment 

software or as a result of data validation 

conducted pursuant to paragraph (a) of 

this section. 

(c) Adjustment to charges and 

payments. The State, or HHS on behalf 

of the State, may adjust charges and 

payments to all risk adjustment covered 

plan issuers based on the adjustments 

calculated in paragraph (b) of this 

section. 

(d) Appeals. The State, or HHS on 

behalf of the State, must provide an 

administrative process to appeal 

findings with respect to the 

implementation of risk adjustment 

software or data validation. 

Subpart E—Health Insurance Issuer 

and Group Health Plan Standards 

Related to the Reinsurance Program 

§ 153.400 Reinsurance contribution funds. 

(a) General requirement. Each 

contributing entity must make 

reinsurance contributions at the 

national contribution rate (and any 

additional contribution rate if the State 

has elected to collect additional 

contributions pursuant to § 153.220(g)) 

for the reinsurance program for all 

reinsurance contribution enrollees who 

reside in a State, in a frequency and 

manner determined by HHS or the State, 

to HHS or the applicable reinsurance 

entity, as applicable. 

(1) A contributing entity must make 

reinsurance contributions on behalf of 

its group health plans and health 

insurance coverage, except as set forth 

in paragraph (a)(2) of this section. 

(2) A contributing entity is not 

required to make contributions on 

behalf of plans or health insurance 

coverage that consist solely of excepted 

benefits as defined by section 2791(c) of 

the PHS Act. 

(b) Multiple reinsurance entities. If the 

State establishes or contracts with more 

than one applicable reinsurance entity, 

the contributing entity must make 

reinsurance contributions to each 

applicable reinsurance entity for the 

reinsurance contribution enrollees who 

reside in the applicable geographic area. 

(c) Timeframe for Federal collections. 

Each contributing entity must submit 

contributions to HHS on a quarterly 

basis beginning January 15, 2014. 

(d) Data requirements. Each 

contributing entity must submit to HHS 

and each applicable reinsurance entity, 

if the State elects to collect reinsurance 

contributions, data required to 

substantiate the contribution amounts 

for the contributing entity, in the 

manner and timeframe specified by the 

State or HHS. 

§ 153.410 Requests for reinsurance 

payment. 

(a) General requirement. An issuer of 

a reinsurance-eligible plan may make a 


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Federal Register / Vol. 77, No. 57 / Friday, March 23, 2012 / Rules and Regulations 17251 

request for payment when an enrollee of 

that reinsurance-eligible plan has met 

the criteria for reinsurance payment set 

forth in the annual HHS notice of 

benefit and payment parameters for the 

applicable year or the State notice of 

benefit and payment parameters 

described in subpart B of this part, as 

applicable. 

(b) Manner of request. An issuer of a 

reinsurance-eligible plan must make 

requests for payment in accordance with 

the requirements of the annual HHS 

notice of benefit and payment 

parameters for the applicable benefit 

year or the State notice of benefit and 

payment parameters described in 

subpart B of this part, as applicable. 

Subpart F—Health Insurance Issuer 

Standards Related to the Risk 

Corridors Program 

§ 153.500 Definitions. 

The following definitions apply to 

this subpart: 

Administrative costs mean, with 

respect to a QHP, total non-claims costs 

incurred by the QHP issuer for the QHP, 

as described in § 158.160(b) of this 

subchapter. 

Allowable administrative costs mean, 

with respect to a QHP, administrative 

costs of the QHP, up to 20 percent of the 

premiums earned with respect to the 

QHP (including any premium tax credit 

under any governmental program). 

Allowable costs mean, with respect to 

a QHP, an amount equal to the sum of 

incurred claims of the QHP issuer for 

the QHP, within the meaning of 

§ 158.140 of this subchapter (including 

adjustments for any direct and indirect 

remuneration); expenditures by the QHP 

issuer for the QHP for activities that 

improve health care quality as set forth 

in § 158.150 of this subchapter; 

expenditures by the QHP issuer for the 

QHP related to health information 

technology and meaningful use 

requirements as set forth in § 158.151 of 

this subchapter; and the adjustments set 

forth in § 153.530(b). 

Charge means the flow of funds from 

QHP issuers to HHS. 

Direct and indirect remuneration 

means prescription drug rebates 

received by a QHP issuer within the 

meaning of § 158.140(b)(1)(i) of this 

subchapter. 

Payment means the flow of funds 

from HHS to QHP issuers. 

Premiums earned mean, with respect 

to a QHP, all monies paid by or for 

enrollees with respect to that plan as a 

condition of receiving coverage, 

including any fees or other 

contributions paid by or for enrollees, 

within the meaning of § 158.130 of this 

subchapter. 

Risk corridors means any payment 

adjustment system based on the ratio of 

allowable costs of a plan to the plan’s 

target amount. 

Target amount means, with respect to 

a QHP, an amount equal to the total 

premiums earned with respect to a QHP, 

including any premium tax credit under 

any governmental program, reduced by 

the allowable administrative costs of the 

plan. 

§ 153.510 Risk corridors establishment 

and payment methodology. 

(a) General requirement. A QHP issuer 

must adhere to the requirements set by 

HHS in this subpart and in the annual 

HHS notice of benefit and payment 

parameters for the establishment and 

administration of a program of risk 

corridors for calendar years 2014, 2015, 

and 2016. 

(b) HHS payments to health insurance 

issuers. QHP issuers will receive 

payment from HHS in the following 

amounts, under the following 

circumstances: 

(1) When a QHP’s allowable costs for 

any benefit year are more than 103 

percent but not more than 108 percent 

of the target amount, HHS will pay the 

QHP issuer an amount equal to 50 

percent of the allowable costs in excess 

of 103 percent of the target amount; and 

(2) When a QHP’s allowable costs for 

any benefit year are more than 108 

percent of the target amount, HHS will 

pay to the QHP issuer an amount equal 

to the sum of 2.5 percent of the target 

amount plus 80 percent of allowable 

costs in excess of 108 percent of the 

target amount. 

(c) Health insurance issuers’ 

remittance of charges. QHP issuers must 

remit charges to HHS in the following 

amounts, under the following 

circumstances: 

(1) If a QHP’s allowable costs for any 

benefit year are less than 97 percent but 

not less than 92 percent of the target 

amount, the QHP issuer must remit 

charges to HHS in an amount equal to 

50 percent of the difference between 97 

percent of the target amount and the 

allowable costs; and 

(2) When a QHP’s allowable costs for 

any benefit year are less than 92 percent 

of the target amount, the QHP issuer 

must remit charges to HHS in an 

amount equal to the sum of 2.5 percent 

of the target amount plus 80 percent of 

the difference between 92 percent of the 

target amount and the allowable costs. 

§ 153.520 Attribution and allocation of 

revenue and expense items. 

(a) Attribution to QHP. Each item of 

revenue or expense in allowable costs or 

the target amount with respect to a QHP 

must be reasonably attributable to the 

operation of the QHP, with the 

attribution based on a generally 

accepted accounting method, 

consistently applied. To the extent that 

an issuer utilizes a specific method for 

allocating expenses for purposes of 

§ 158.170 of this subchapter, the method 

used for purposes of this paragraph 

must be consistent. 

(b) Allocation across plans. Each item 

of revenue or expense in allowable costs 

or the target amount must be reasonably 

allocated across a QHP issuer’s plans, 

with the allocation based on a generally 

accepted accounting method, 

consistently applied. To the extent that 

an issuer utilizes a specific method for 

allocating expenses for purposes of 

§ 158.170 of this subchapter, the method 

used for purposes of this paragraph 

must be consistent. 

(c) Disclosure of attribution and 

allocation methods. A QHP issuer must 

submit to HHS a report, in the manner 

and timeframe specified in the annual 

HHS notice of benefit and payment 

parameters, with a detailed description 

of the methods and specific bases used 

to perform the attributions and 

allocations set forth in paragraphs (a) 

and (b) of this section. 

(d) Attribution of reinsurance and risk 

adjustment to benefit year. A QHP 

issuer must attribute reinsurance 

payments and contributions and risk 

adjustment payments and charges to 

allowable costs for the benefit year with 

respect to which the reinsurance 

payments or contributions or risk 

adjustment calculations apply. 

(e) Maintenance of records. A QHP 

issuer must maintain for 10 years and 

make available to HHS upon request the 

data used to make the attributions and 

allocations set forth in paragraphs (a) 

and (b) of this section, together with all 

supporting information required to 

determine that these methods and bases 

were accurately implemented. 

§ 153.530 Risk corridors data 

requirements. 

(a) Premium data. A QHP issuer must 

submit to HHS data on the premiums 

earned with respect to each QHP that 

the issuer offers in the manner and 

timeframe set forth in the annual HHS 

notice of benefit and payment 

parameters. 

(b) Allowable costs. A QHP issuer 

must submit to HHS data on the 

allowable costs incurred with respect to 

each QHP that the QHP issuer offers in 

the manner and timeframe set forth in 

the annual HHS notice of benefit and 

payment parameters. For purposes of 

this subpart, allowable costs must be— 


srobinson on DSK4SPTVN1PROD with RULES3
17252 Federal Register / Vol. 77, No. 57 / Friday, March 23, 2012 / Rules and Regulations 

(1) Increased by— 

(i) Any risk adjustment charges paid 

by the issuer for the QHP under the risk 

adjustment program established 

pursuant to subpart D of this part; and 

(ii) Any reinsurance contributions 

made by the issuer for the QHP under 

the transitional reinsurance program 

established pursuant to subpart C of this 

part. 

(2) Reduced by— 

(i) Any risk adjustment payments 

received by the issuer for the QHP 

under the risk adjustment program 

established pursuant to subpart D of this 

part; 

(ii) Any reinsurance payments 

received by the issuer for the QHP 

under the transitional reinsurance 

program established pursuant to subpart 

C of this part; and 

(iii) Any cost-sharing reduction 

payments received by the issuer for the 

QHP. 

(c) Allowable administrative costs. A 

QHP issuer must submit to HHS data on 

the allowable administrative costs 

incurred with respect to each QHP that 

the QHP issuer offers in the manner and 

timeframe set forth in the annual HHS 

notice of benefit and payment 

parameters. 

Subpart G—Health Insurance Issuer 

Standards Related to the Risk 

Adjustment Program 

§ 153.600 [Reserved] 

§ 153.610 Risk adjustment issuer 

requirements. 

(a) Data requirements. An issuer that 

offers risk adjustment covered plans 

must submit or make accessible all 

required risk adjustment data for those 

risk adjustment covered plans in 

accordance with the risk adjustment 

data collection approach established by 

the State, or by HHS on behalf of the 

State. 

(b) Risk adjustment data storage. An 

issuer that offers risk adjustment 

covered plans must store all required 

risk adjustment data in accordance with 

the risk adjustment data collection 

approach established by the State, or by 

HHS on behalf of the State. 

(c) Issuer contracts. An issuer that 

offers risk adjustment covered plans 

may include in its contract with a 

provider, supplier, physician, or other 

practitioner, provisions that require 

such contractor’s submission of 

complete and accurate risk adjustment 

data in the manner and timeframe 

established by the State, or HHS on 

behalf of the State. These provisions 

may include financial penalties for 

failure to submit complete, timely, or 

accurate data. 

(d) Assessment of charges. An issuer 

that offers risk adjustment covered plans 

that has a net balance of risk adjustment 

charges payable, including adjustments 

made pursuant to § 153.350(c), will be 

notified by the State, or by HHS on 

behalf of the State, of those net charges, 

and must remit those risk adjustment 

charges to the State, or to HHS on behalf 

of the State, as applicable. 

(e) Charge submission deadline. An 

issuer must remit net charges to the 

State, or HHS on behalf of the State, 

within 30 days of notification of net 

charges payable by the State, or HHS on 

behalf of the State. 

§ 153.620 Compliance with risk adjustment 

standards. 

(a) Issuer support of data validation. 

An issuer that offers risk adjustment 

covered plans must comply with any 

data validation requests by the State or 

HHS on behalf of the State. 

(b) Issuer records maintenance 

requirements. An issuer that offers risk 

adjustment covered plans must retain 

any information requested to support 

risk adjustment data validation for a 

period of at least ten years after the date 

of the report. 

Dated: March 14, 2012. 

Marilyn Tavenner, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Approved: March 14, 2012. 

Kathleen Sebelius, 

Secretary. 

[FR Doc. 2012–6594 Filed 3–16–12; 11:15 am] 

BILLING CODE 4120–01–P 


srobinson on DSK4SPTVN1PROD with RULES3