76596 Federal Register / Vol. 76, No. 235 / Wednesday, December 7, 2011 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

45 CFR Part 158 

[CMS–9998–IFC2] 

RIN 0938–AR35 

Medical Loss Ratio Rebate 

Requirements for Non-Federal 

Governmental Plans 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Interim final rule with request 

for comments. 

SUMMARY: This interim final rule with 

comment period revises the regulations 

implementing medical loss ratio (MLR) 

requirements for health insurance 

issuers under the Public Health Service 

Act in order to establish rules governing 

the distribution of rebates by issuers in 

group markets for non-Federal 

governmental plans. 

DATES: Effective date. This rule is 

effective on January 3, 2012. 

Comment date. To be assured 

consideration, comments must be 

received at one of the addresses 

provided below, no later than 5 p.m. on 

February 6, 2012. 

Applicability Date. The amendments 

to Part 158 generally apply beginning 

January 1, 2012, to health insurance 

issuers offering group health insurance 

coverage. 

ADDRESSES: In commenting please refer 

to file code CMS–9998–IFC2. Because of 

staff and resource limitations, we cannot 

accept comments by email or facsimile 

(FAX) transmission. 

You may submit comments in one of 

four ways (please choose only one of the 

ways listed): 

1. Electronically. You may submit 

electronic comments on this regulation 

to http://www.regulations.gov. Follow 

the instructions under the ‘‘More Search 

Options’’ tab. 

2. By regular mail. You may mail 

written comments to the following 

address ONLY: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–9998–IFC2, P.O. Box 8010, 

Baltimore, MD 21244–8010. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments to the 

following address only: Centers for 

Medicare & Medicaid Services, 

Department of Health and Human 

Services, Attention: CMS–9998–IFC2, 

Mail Stop C4–26–05, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

4. By hand or courier. Alternatively, 

you may deliver (by hand or courier) 

your written comments only to the 

following addresses prior to the close of 

comment period: 

a. For delivery in Washington, DC— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Room 445–G, Hubert 

H. Humphrey Building, 200 

Independence Avenue SW., 

Washington, DC 20201. 

(Because access to the interior of the 

Hubert H. Humphrey Building is not 

readily available to persons without 

Federal government identification, 

commenters are encouraged to leave 

their comments in the CMS drop slots 

located in the main lobby of the 

building. A stamp-in clock is available 

for persons wishing to retain a proof of 

filing by stamping in and retaining an 

extra copy of the comments being filed.) 

b. For delivery in Baltimore, MD— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

If you intend to deliver your 

comments to the Baltimore address, 

please call telephone number (410) 786– 

9994 in advance to schedule your 

arrival with one of our staff members. 

Comments erroneously mailed to the 

addresses indicated as appropriate for 

hand or courier delivery may be delayed 

and received after the comment period. 

Inspection of Public Comments: All 

comments received before the close of 

the comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

been received: http://regulations.gov. 

Follow the search instructions on that 

Web site to view public comments. 

Comments received timely will be 

also available for public inspection as 

they are received, generally beginning 

approximately 3 weeks after publication 

of a document, at the headquarters of 

the Centers for Medicare & Medicaid 

Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday 

through Friday of each week from 

8:30 a.m. to 4 p.m. To schedule an 

appointment to view public comments, 

phone (800) 743–3591. 

FOR FURTHER INFORMATION CONTACT: 

Carol Jimenez, (301) 492–4457. 

SUPPLEMENTARY INFORMATION: Comment 

Subject Areas: We will consider 

comments on the rules for providing 

rebates to group enrollees in nonFederal governmental plans, as 

discussed in this interim final rule with 

comment period, that are received by 

the date and time indicated in the DATES

section of this interim final rule with 

comment period. 

I. Background 

The Patient Protection and Affordable 

Care Act (Pub. L. 111–148) was enacted 

on March 23, 2010; the Health Care and 

Education Reconciliation Act (Pub. L. 

111–152) was enacted on March 30, 

2010. In this preamble, we refer to the 

two statutes collectively as the 

Affordable Care Act. The Affordable 

Care Act reorganizes, amends, and adds 

to the provisions of Part A of title XXVII 

of the Public Health Service Act (PHS 

Act) relating to group health plans and 

health insurance issuers in the group 

and individual markets. 

A request for information relating to 

the medical loss ratio (MLR) provisions 

of PHS Act section 2718 was published 

in the Federal Register on April 14, 

2010 (75 FR 19297). On December 1, 

2010, HHS published an interim final 

rule (75 FR 74864) with 60-day public 

comment period, entitled ‘‘Health 

Insurance Issuers Implementing Medical 

Loss Ratio (MLR) Requirements Under 

the Patient Protection and Affordable 

Care Act,’’ that added a new 45 CFR Part 

158. A technical correction to the 

interim final rule was issued on 

December 30, 2010 (75 FR 82277). The 

Department of Health and Human 

Services (HHS) published a final rule 

entitled ‘‘Medical Loss Ratio 

Requirements under the Patient 

Protection and Affordable Care Act,’’ 

published elsewhere in this Federal 

Register (hereinafter referred to as the 

Medical Loss Ratio final rule). 

II. Provisions of the Interim Final Rule 

Rebates to Enrollees in Non-Federal 

Governmental Plans in Group Markets 

(45 CFR 158.242(b)) 

As stated in the Medical Loss Ratio 

final rule published elsewhere in this 

Federal Register, with respect to nonFederal governmental plans, there 

currently is no legal framework set forth 

in Federal law governing the use of 

rebates received from an issuer under 

the MLR regulations. However, CMS has 

direct authority over non-Federal 

governmental plans. Accordingly, for 

reasons discussed in the preamble of the 

Medical Loss Ratio final rule, under the 

authority in section 2792 of the PHS Act 

to promulgate regulations determined 

‘‘appropriate’’ to ‘‘carry out’’ the 

provisions of part A of title XXVII of the 

PHS Act, which include PHS Act 

section 2718, this interim final rule with 


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comment period directs that issuers 

distribute the entire rebate to the group 

policyholder and the group 

policyholder is required to use the 

portion of rebates attributable to the 

amount of premium paid by subscribers 

of non-Federal governmental plans for 

the benefit of subscribers, ensuring that 

enrollees in such plans receive the 

benefit of rebates. For example, if an 

issuer whose MLR is lower than the 

applicable MLR standard owes a rebate 

of $20,000 to the policyholder and 

subscribers of a group health plan, the 

issuer would provide the $20,000 

directly to the policyholder. If the nonFederal governmental plan’s subscribers 

paid 40 percent of the total premium, 

then the policyholder must use 40 

percent of the rebate, or $8,000, for the 

benefit of the subscribers. 

With respect to rebates paid to nonFederal governmental plans, we direct 

in this interim final rule with comment 

period that the subscriber portion of the 

rebate be used, at the option of the 

policyholder, in one of the following 

ways—(1) To reduce subscribers’ 

portion of the annual premium for the 

subsequent policy year for all 

subscribers covered under any group 

health policy offered by the plan; (2) to 

reduce subscribers’ portion of the 

annual premium for the subsequent 

policy year for only those subscribers 

covered by the group health policy on 

which the rebate was based; or (3) to 

provide a cash refund only to 

subscribers that were covered by the 

group health policy on which the rebate 

is based. In all three options, the rebate 

is used to reduce premiums or is paid 

to subscribers enrolled during the year 

in which the rebate is actually paid, 

rather than the MLR reporting year on 

which the rebate was calculated. We 

believe that this results in 

administrative simplicity, as it does not 

require tracking former enrollees or 

determining who was covered by which 

issuer the prior year while maintaining 

the law’s intent of benefitting enrollees. 

These options were created to provide 

maximum flexibility to policyholders 

and employers while ensuring that 

enrollees receive the benefits of the 

rebate. No single option is preferred by 

CMS. The first option allows all 

subscribers who receive health care 

coverage through the plan, and not just 

those participants that were covered by 

the policy that produced the rebate, to 

receive reduced premiums in the 

subsequent policy year. While this 

option allows some employees to 

benefit from a rebate despite the fact 

that they did not contribute to the 

premium paid to the particular issuer 

providing the rebate, we believe that 

this option provides for ease of rebate 

calculation and administration, 

especially for large employers with 

enrollees in multiple states who offer 

multiple policy choices and may get 

rebates from several issuers. 

We request comment on the treatment 

of rebates in the non-Federal 

governmental group market. Since we 

provide, in this interim final rule with 

comment period, three specific methods 

for non-Federal governmental plans to 

distribute to current subscribers rebates 

attributable to subscribers’ aggregated 

contribution to premium, we request 

comments specifically on whether the 

mechanism provided in this interim 

final rule with comment period solves 

or meaningfully reduces the logistical 

challenges of providing rebates to nonFederal governmental plans and 

distributing them to their subscribers 

and on other potential solutions to these 

challenges while ensuring that enrollees 

benefit when rebates are paid. 

III. Collection of Information 

Requirements 

This interim final rule with comment 

period does not impose any new 

reporting requirements and generally 

conforms to the requirements under the 

interim final regulation published on 

December 1, 2010. 

IV. Response to Comments 

Because of the large number of public 

comments CMS receives on Federal 

Register documents, CMS is not able to 

acknowledge or respond to them 

individually. CMS will consider all 

comments CMS receives by the date and 

time specified in the DATES section of 

this preamble, and, when CMS proceeds 

with a subsequent document, CMS will 

respond to the comments in the 

preamble to that document. 

V. Waiver of Proposed Rulemaking 

This interim final rule with comment 

period includes in § 158.242(b) a 

provision governing how a non-Federal 

governmental plan is required to 

distribute rebates. A non-Federal 

governmental plan would not have had 

any reason to believe that the MLR 

regulations would impose any 

requirements on them, as this 

possibility was not discussed in the 

interim final rule published on 

December 1, 2010. Thus, ordinarily, 

before imposing such a requirement, the 

Administrative Procedure Act (APA) 

would require that they be provided 

with an opportunity for prior public 

comment. 

Section 2792 of the PHS Act, 

however, authorizes the Secretary of 

HHS to promulgate interim final rules 

determined appropriate to carry out the 

provisions of part A of title XXVII of the 

PHS Act, which include PHS Act 

section 2718, without subjecting the 

rules to prior notice and comment. CMS 

accordingly is relying on the authority 

in section 2792 to implement this 

provision on an interim final basis 

without a prior opportunity for public 

comment. CMS will consider public 

comments received on this provision. 

CMS notes that under the APA (5 

U.S.C. 551 et seq.), while an opportunity 

for public comment is generally 

required before promulgation of 

regulations, this is not required when an 

agency, for good cause, finds that notice 

and public comment thereon are 

impracticable, unnecessary, or contrary 

to the public interest. The provisions of 

the APA that ordinarily require a notice 

of proposed rulemaking do not apply 

here because of the specific authority in 

section 2792 of the PHS Act cited above. 

However, even if the APA 

requirements for notice and comment 

were applicable to the revisions to 

§ 158.242(b), regarding permissible 

distribution of rebates by non-Federal 

governmental plans, these APA 

requirements have been satisfied. This 

is because the Secretary finds that 

providing an additional opportunity for 

public comment on this provision 

would be impractical and contrary to 

the public interest, for the reasons set 

forth below. 

Specifically, the Department waives 

notice and comment for § 158.242(b)(1) 

and (2), regarding permissible 

distribution of rebates by non-Federal 

governmental group plan policyholders, 

due to the immediate problematic 

operational impact a failure to put these 

changes in place would have on issuers 

and non-Federal governmental group 

plan policyholders (that is, mostly 

employers). 

As stated in the Medical Loss Ratio 

final rule published contemporaneously 

with this interim final rule with 

comment period, the Department 

received many comments expressing 

significant concern with the 

requirement that issuers in the group 

markets distribute the enrollee portion 

of the rebate directly to the subscriber. 

Additionally, there are tax implications 

to distributing rebates directly to 

subscribers. To address these concerns, 

both the Medical Loss Ratio final rule 

and this interim final rule with 

comment period require issuers to send 

group policyholders the entire rebate 

attributable to the group health plan. 

However, as noted in the preamble to 

the separate Medical Loss Ratio final 

rule, a provision that simply permits 

issuers to pay rebates to a non-Federal 


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governmental plan would not ensure 

that enrollees in those plans would 

benefit from the rebate, as is ensured 

under Federal law in the case of plans 

governed by the Employee Retirement 

Income Security Act of 1974 (ERISA), as 

amended (29 CFR 1001 et seq.). The 

new provisions eliminating burdens for 

making rebate payments in 2012 put in 

place by the Medical Loss Ratio final 

rule published today thus could not 

effectively be implemented for nonFederal governmental plans without 

measures to ensure that rebates are used 

for the benefit of enrollees. CMS has 

authority to regulate non-Federal 

governmental plans and, therefore, is 

setting requirements that are necessary 

in order to combine the efficiencies of 

paying rebates to the non-Federal 

governmental plan with the assurance 

that enrollees of the plan will benefit 

from such payments. 

Informing issuers and non-Federal 

governmental plans of these changes as 

soon as possible is necessary so that 

they may take them into account in 

negotiating their group health insurance 

contracts for the 2012 MLR reporting 

year, as those preparations are currently 

underway. In addition, issuers are 

pricing their insurance products and the 

regulatory requirement regarding 

disbursement of rebates is a component 

of their pricing structure. 

The changes CMS makes in this 

interim final rule with comment period 

are necessary in order for the provisions 

of the Medical Loss Ratio final rule 

simplifying the procedures that issuers 

must follow to work effectively, and 

thus are necessary in order to reduce 

administrative burdens. Issuers and 

policyholders will welcome and support 

these changes, which need to be 

communicated immediately, providing 

just cause for waiving the notice of 

proposed rulemaking. Therefore, CMS 

finds good cause to waive prior notice 

and comment with respect to the new 

rules governing distribution of rebates 

by non-Federal governmental plans. 

CMS is providing a 30-day public 

comment period on provisions in this 

interim final rule. 

VI. Regulatory Impact Statement 

A. Summary 

This interim final rule with comment 

period is designed to address a specific 

issue that has arisen regarding section 

2718 of the PHS Act, which sets forth 

standards for reporting of certain 

medical loss ratio (MLR) related data to 

the Secretary on an annual basis by 

issuers offering coverage in the 

individual and group markets, and 

calculating and providing rebates to 

policyholders in the event that an 

issuer’s MLR fails to meet or exceed the 

statutory standard. This interim final 

rule with comment period establishes 

rules for the distribution of rebates in 

non-Federal governmental plans in the 

group market. These provisions are 

generally effective beginning January 1, 

2012. 

CMS is publishing this interim final 

rule with comment period to implement 

the protections intended by the 

Congress in the most economically 

efficient manner possible. CMS has 

examined the effects of this rule as 

required by Executive Order 12866 (58 

FR 51735, September 1993, Regulatory 

Planning and Review), Executive Order 

13563 on Improving Regulation and 

Regulatory Review (January 18, 2011), 

the Regulatory Flexibility Act (RFA) 

(September 19, 1980, Pub. L. 96–354), 

section 1102(b) of the Social Security 

Act, section 202 of the Unfunded 

Mandates Reform Act of 1995 (March 

22, 1995, Pub. L. 104–4), Executive 

Order 13132 on Federalism (August 4, 

1999), and the Congressional Review 

Act (5 U.S.C. 804(2)). 

B. Executive Orders 12866 and 13563 

Executive Orders 12866 and 13563 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects; distributive impacts; and 

equity). Executive Order 13563 

emphasizes the importance of 

quantifying both costs and benefits, of 

reducing costs, of harmonizing rules, 

and of promoting flexibility. 

Section 3(f) of Executive Order 12866 

defines a ‘‘significant regulatory action’’ 

as an action that is likely to result in a 

rule (1) Having an annual effect on the 

economy of $100 million or more in any 

one year, or adversely and materially 

affecting a sector of the economy, 

productivity, competition, jobs, the 

environment, public health or safety, or 

State, local or Tribal governments or 

communities (also referred to as 

‘‘economically significant’’); (2) creating 

a serious inconsistency or otherwise 

interfering with an action taken or 

planned by another agency; (3) 

materially altering the budgetary 

impacts of entitlement grants, user fees, 

or loan programs or the rights and 

obligations of recipients thereof; or (4) 

raising novel legal or policy issues 

arising out of legal mandates, the 

President’s priorities, or the principles 

set forth in the Executive Order. 

A regulatory impact analysis (RIA) 

must be prepared for major rules with 

economically significant effects ($100 

million or more in any one year); and 

a ‘‘significant’’ regulatory action is 

subject to review by the Office of 

Management and Budget (OMB). CMS 

has concluded that this interim final 

rule with comment period is not likely 

to have economic impacts of $100 

million or more in any one year, and 

therefore does not meet the definition of 

‘‘economically significant rule’’ under 

Executive Order 12866. 

1. Need for Regulatory Action 

Consistent with the provisions in 

Section 2718 of the PHS Act, this 

interim final rule with comment period 

establishes rules for providing rebates to 

enrollees in non-Federal governmental 

group health plans when the MLR 

standard is not met by an issuer. Section 

2718(b) of the PHS Act (captioned 

‘‘ensuring that consumers receive value 

for their premium payments’’) requires 

issuers to provide an annual rebate to 

each enrollee if the ratio of the amount 

of premium revenue expended on 

reimbursement for clinical services and 

activities that improve quality is less 

than the applicable minimum standard 

and specifies how the rebate is to be 

calculated. This interim final rule with 

comment period directs that issuers 

distribute the entire rebate to the group 

policyholder and the group 

policyholder is required to use the 

portion of rebates attributable to the 

amount of premium paid by subscribers 

of non-Federal governmental plans for 

the benefit of subscribers, ensuring that 

enrollees in such plans receive the 

benefit of rebates. 

2. Summary of Impacts 

This interim final rule with comment 

period provides for a more efficient and 

cost effective way for issuers to disburse 

rebate payments to subscribers of nonFederal governmental plans by allowing 

issuers in group markets to provide 

rebates to the policyholders for 

distribution. As stated in the Medical 

Loss Ratio final rule published 

contemporaneously with this interim 

final rule with comment period, it is 

estimated that for the years 2012 and 

2013, 0.8 million enrollees in the small 

group market and 1 million enrollees in 

the large group market would receive 

rebates each year. Only a fraction of 

these enrollees will be in non-Federal 

governmental plans. This provision will 

lower administrative costs related to 

rebate disbursement for issuers of group 

health plans and will largely eliminate 

the tax burden on employers and 

consumers inherent in the prior rebate 


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mechanism as explained in the Medical 

Loss Ratio final rule published 

contemporaneously with this interim 

final rule with comment period. 

Policyholders will experience an 

increase in administrative costs related 

to the disbursement of rebates, although 

these administrative costs will be offset 

by eliminating the administrative 

burden and tax consequences inherent 

in the prior rebate mechanism that 

directed issuers to pay rebates directly 

to policyholders and each of their 

subscribers. As a result, CMS has 

concluded that the impacts are not 

economically significant. 

An alternative to the rebate 

distribution methodology set forth in 

this interim final rule with comment 

period is to require issuers to send 

rebate payments directly to subscribers 

of non-Federal governmental group 

health plans. As described previously, 

this would result in increased tax 

burden for consumers and for their 

employers, as well as increased 

administrative costs for issuers 

associated with rebate payments. 

C. Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 

requires agencies that issue a regulation 

to analyze options for regulatory relief 

of small businesses if a rule has a 

significant impact on a substantial 

number of small entities. The RFA 

generally defines a ‘‘small entity’’ as: 

(1) A proprietary firm meeting the size 

standards of the Small Business 

Administration (SBA); (2) a nonprofit 

organization that is not dominant in its 

field; or (3) a small government 

jurisdiction with a population of less 

than 50,000 (States and individuals are 

not included in the definition of ‘‘small 

entity’’). 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. 

CMS has estimated that the provisions 

of the interim final rule with comment 

period do not impose any additional 

costs on small entities. Therefore, the 

Secretary has determined that this 

interim final rule with comment period 

will not have a significant impact on a 

substantial number of small entities. In 

addition, section 1102(b) of the Social 

Security Act requires us to prepare a 

regulatory impact analysis if a rule may 

have a significant economic impact on 

the operations of a substantial number 

of small rural hospitals. This analysis 

must conform to the provisions of 

section 604 of the RFA. This interim 

final rule with comment period would 

not affect small rural hospitals. 

Therefore, the Secretary has determined 

that this interim final rule with 

comment period would not have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. 

D. Unfunded Mandates Reform Act 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

requires that agencies assess anticipated 

costs and benefits before issuing any 

rule that includes a Federal mandate 

that could result in expenditure in any 

one year by State, local or Tribal 

governments, in the aggregate, or by the 

private sector, of $100 million in 1995 

dollars, updated annually for inflation. 

In 2011, that threshold level is 

approximately $136 million. This 

interim final rule with comment period 

has no consequential effect on State, 

local, or Tribal governments in the 

aggregate, or by the private sector. 

UMRA does not address the total cost 

of a rule. Rather, it focuses on certain 

categories of cost, mainly those ‘‘Federal 

mandate’’ costs resulting from: (1) 

Imposing enforceable duties on State, 

local, or Tribal governments, or on the 

private sector; or (2) increasing the 

stringency of conditions in, or 

decreasing the funding of, State, local, 

or Tribal governments under 

entitlement programs. 

E. Federalism 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a rule 

that imposes substantial direct 

requirement costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

This interim final rule with comment 

period does not impose substantial 

direct requirement costs on State and 

local governments, and also does not 

have effects on the distribution of power 

and responsibilities among the State and 

Federal governments. 

Throughout the process of developing 

this interim final regulation the 

Department has attempted to balance 

the States’ interests and Congress’ intent 

to provide uniform minimum 

protections to consumers in every State. 

By doing so, it is the Department’s view 

that we have complied with the 

requirements of Executive Order 13132. 

Pursuant to the requirements set forth in 

section 8(a) of Executive Order 13132, 

and by the signatures affixed to this 

regulation, the Department certifies that 

the Centers for Medicare & Medicaid 

Services has complied with the 

requirements of Executive Order 13132 

for the attached interim final regulation 

in a meaningful and timely manner. 

F. Congressional Review Act 

This interim final regulation is not 

subject to the Congressional Review Act 

provisions of the Small Business 

Regulatory Enforcement Fairness Act of 

1996 (5 U.S.C. 801 et seq.). 

List of Subjects in 45 CFR Part 158 

Administrative practice and 

procedure, Claims, Health care, Health 

insurance, Health plans, Penalties, 

Reporting and recordkeeping 

requirements. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services amends 45 CFR part 

158 as set forth below: 

PART 158—ISSUER USE OF PREMIUM 

REVENUE: REPORTING AND REBATE 

REQUIREMENTS 

■ 1. The authority citation for part 158 

continues to read as follows: 

Authority: Section 2718 of the Public 

Health Service Act (42 U.S.C. 300gg–18), as 

amended. 

■ 2. Section 158.242 is amended by— 

■ a. Adding new paragraphs (b)(1) and 

(2). 

■ b. Revising paragraph (b)(3). 

The additions and revision read as 

follows: 

§ 158.242 Recipients of rebates. 

* * * * * 

(b) * * * 

(1) In the case of a policyholder that 

is a non-Federal governmental group 

health plan, the policyholder must use 

the amount of the rebate that is 

proportionate to the total amount of 

premium paid by all subscribers under 

the policy, for the benefit of subscribers 

in one of the following ways, at the 

option of the policyholder: 

(i) For all subscribers covered under 

any option offered under the 

policyholder’s group health plan at the 

time the rebate is received by the 

policyholder, to reduce the subscribers’ 

portion of premium for the subsequent 

policy year; 

(ii) For subscribers covered, at the 

time the rebate is received by the 

policyholder, under the group health 

plan option for which the issuer is 

providing a rebate, to reduce the 

subscribers’ portion of premium for the 

subsequent policy year; 

(iii) A cash refund to subscribers 

enrolled in the group health plan 

option, at the time the rebate is received 

by the policyholder, for which the 

issuer is providing a rebate; and 

(iv) The reduction in future premium 

or the cash refund provided under 

paragraphs (b)(1)(i), (ii), or (iii) of this 


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section may, at the option of the 

policyholder, be: Divided evenly among 

such subscribers; divided based on each 

subscriber’s actual contributions to 

premium; or apportioned in a manner 

that reasonably reflects each 

subscriber’s contributions to premium. 

(2) In the case of a policyholder that 

is a non-Federal governmental group 

health plan, the portion of a rebate 

based upon former subscribers’ 

contributions to premium must be 

aggregated and used for the benefit of 

current subscribers in the group health 

plan in any manner permitted by 

paragraph (b)(1) of this section. 

(3) If the policyholder is a group 

health plan that is not a governmental 

plan and not subject to the Employee 

Retirement Income Security Act of 1974, 

as amended (29 U.S.C. 1001 et seq.) 

(ERISA), rebates may only be paid to the 

policyholder if the issuer receives a 

written assurance from the policyholder 

that the rebates will be used as provided 

in paragraphs (b)(1) and (2) of this 

section; otherwise, the issuer must 

distribute the rebate directly to the 

subscribers of the group health plan 

covered by the policy during the MLR 

reporting year on which the rebate is 

based by dividing the entire rebate, 

including the amount proportionate to 

the amount of premium paid by the 

policyholder, in equal amounts to all 

subscribers entitled to a rebate without 

regard to how much each subscriber 

actually paid toward premiums. 

* * * * * 

Dated: December 1, 2011. 

Donald M. Berwick, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: December 1, 2011. 

Kathleen Sebelius, 

Secretary, Department of Health and Human 

Services. 

[FR Doc. 2011–31291 Filed 12–2–11; 11:15 am] 

BILLING CODE 4120–01–P 


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