Vol. 78 Monday, 

No. 231 December 2, 2013 

Part IV 

Department of Health and Human Services 

45 CFR Parts 144, 147, 153, et al. 

Patient Protection and Affordable Care Act; HHS Notice of Benefit and 

Payment Parameters for 2015; Proposed Rule 


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72322 Federal Register / Vol. 78, No. 231 / Monday, December 2, 2013 / Proposed Rules 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

45 CFR Parts 144, 147, 153, 155, and 

156 

[CMS–9954–P] 

RIN 0938–AR89 

Patient Protection and Affordable Care 

Act; HHS Notice of Benefit and 

Payment Parameters for 2015 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: This proposed rule sets forth 

payment parameters and oversight 

provisions related to the risk 

adjustment, reinsurance, and risk 

corridors programs; cost-sharing 

parameters and cost-sharing reductions; 

and user fees for Federally-facilitated 

Exchanges. It also proposes additional 

standards with respect to composite 

rating, privacy and security of 

personally identifiable information, the 

annual open enrollment period for 2015, 

the actuarial value calculator, the 

annual limitation in cost sharing for 

stand-alone dental plans, the 

meaningful difference standard for 

qualified health plans offered through a 

Federally-facilitated Exchange, patient 

safety standards for issuers of qualified 

health plans, and the Small Business 

Health Options Program. 

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. on December 26, 2013. 

ADDRESSES: In commenting, please refer 

to file code CMS–9954–P. Because of 

staff and resource limitations, we cannot 

accept comments by 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 ‘‘Submit a comment’’ instructions. 

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– 

9954–P, P.O. Box 8016, Baltimore, 

MD 21244–8016. 

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– 

9954–P, 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 

the 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, call 

telephone number (410) 786–7195 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. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: For 

general information: Sharon Arnold, 

(301) 492–4286; Laurie McWright, (301) 

492–4311; or Jeff Wu, (301) 492–4305. 

For matters related to student health 

insurance coverage and composite 

rating: Jacob Ackerman, (301) 492–4179. 

For matters related to the risk 

adjustment program generally, the small 

group counting requirements, the risk 

adjustment methodology, and the 

methodology for determining the 

reinsurance contribution rate and 

payment parameters: Kelly Horney, 

(410) 786–0558. 

For matters related to reinsurance 

generally, oversight of the premium 

stabilization programs, distributed data 

collection, and administrative appeals: 

Adrianne Glasgow, (410) 786–0686. 

For matters related to reinsurance 

contributions: Adam Shaw, (410) 786– 

1019. 

For matters related to risk corridors: 

Jaya Ghildiyal, (301) 492–5149. 

For matters related to cost-sharing 

reductions, the premium adjustment 

percentage, and Federally-facilitated 

Exchange user fees: Johanna Lauer, 

(301) 492–4397. 

For matters related to the annual 

limitation on cost sharing for standalone dental plans, privacy and security 

of personally identifiable information, 

the annual open enrollment period for 

the 2015 benefit year, and the 

meaningful difference standard: Leigha 

Basini, (301) 492–4380. 

For matters related to the Small 

Business Health Options Program: Scott 

Dafflitto, (301) 492–4198. 

For matters related to the actuarial 

value calculator: Allison Wiley at 

(410)786–1740. 

For matters related to patient safety 

standards for issuers of qualified health 

plans: Nidhi Singh Shah, (301) 492– 

5110. 

For matters related to netting of 

payments and charges: Pat Meisol, (410) 

786–1917. 

SUPPLEMENTARY INFORMATION: 

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://

www.regulations.gov. Follow the search 

instructions on that Web site to view 

public comments. 

Comments received timely will also 

be 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 1–800–743–3951. 

Table of Contents 

I. Executive Summary 

II. Background 

A. Legislative Authority 

B. Stakeholder Consultation and Input 

C. Structure of Proposed Rule 

III. Provisions of the Proposed HHS Notice of 

Benefit and Payment Parameters for 2015 

A. Part 144—Requirements Relating to 

Health Insurance Coverage 

B. Part 147—Health Insurance Reform 

Requirements for the Group and 

Individual Health Insurance Markets 

1. Composite Rating 


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1The word ‘‘Exchanges’’ refers to both State 

Exchanges, also called State-based Exchanges, and 

Federally-facilitated Exchanges (FFEs). In this 

proposed rule, we use the terms ‘‘State Exchange’’ 

or ‘‘FFE’’ when we are referring to a particular type 

of Exchange. When we refer to ‘‘FFEs,’’ we are also 

referring to State Partnership Exchanges, which are 

a form of FFE. 

2. Student Health Insurance Coverage 

C. Part 153—Standards Related to 

Reinsurance, Risk Corridors, and Risk 

Adjustment under the Affordable Care 

Act 

1. Provisions and Parameters for the 

Permanent Risk Adjustment Program 

a. Risk adjustment user fees 

b. HHS risk adjustment methodology 

considerations 

c. Small group determination for risk 

adjustment 

d. Risk adjustment data validation 

e. HHS audits of issuers of risk adjustment 

covered plans 

2. Provisions and Parameters for the 

Transitional Reinsurance Program 

a. Major medical coverage 

b. Self-insured plans without third party 

administrators 

c. Uniform reinsurance contribution rate 

d. Uniform reinsurance payment 

parameters 

e. Adjustment options 

f. Deducting cost-sharing reduction 

amounts from reinsurance payments 

g. Audits 

h. Same covered life 

i. Reinsurance contributions and enrollees 

residing in the territories 

j. Form 5500 counting method 

3. Provisions for the Temporary Risk 

Corridors Program 

a. Definitions 

b. Compliance with risk corridors 

standards 

c. Participation in the risk corridors 

program 

e. Adjustment options for transitional 

policy 

4. Distributed Data Collection for the HHSoperated Risk Adjustment and 

Reinsurance Programs 

a. Discrepancy resolution process 

b. Default risk adjustment charge 

D. Part 155—Exchange Establishment 

Standards and Other Related Standards 

under the Affordable Care Act 

1. Election to Operate an Exchange after 

2014 

2. Ability of States to Permit Agents and 

Brokers to Assist Qualified Individuals, 

Qualified Employers, or Qualified 

Employees Enrolling in Qualified Health 

Plans 

3. Privacy and Security of Personally 

Identifiable Information 

4. Annual Open Enrollment Period for 

2015 

5. Functions of a Small Business Health 

Options Program 

6. Eligibility Determination Process for 

SHOP 

7. Application Standards for SHOP 

E. Part 156—Health Insurance Issuer 

Standards under the Affordable Care Act, 

Including Standards Related to 

Exchanges 

1. Provisions Related to Cost Sharing 

a. Premium adjustment percentage 

b. Reduced maximum annual limitation on 

cost sharing 

c. Design of cost-sharing reduction plan 

variations 

d. Advance payments of cost-sharing 

reductions 

2. Provisions on User Fees for a Federallyfacilitated Exchange 

a. FFE user fee for the 2015 benefit year 

b. Adjustment of FFE user fee 

3. Actuarial Value Calculation for 

Determining Level of Coverage 

4. National Annual Limit on Cost Sharing 

for Stand-alone Dental Plans in an 

Exchange 

5. Additional Standards Specific to SHOP 

6. Meaningful Difference Standard for 

Qualified Health Plans in the FFEs 

7. Quality Standards: Establishment of 

Patient Safety Standards for QHPs 

Issuers 

8. Financial Programs 

a. Netting of payments and charges 

b. Confirmation of HHS payment and 

collections reports 

c. Administrative appeals 

IV. Collection of Information Requirements 

V. Response to Comments 

VI. Regulatory Impact Analysis 

A. Statement of Need 

B. Overall Impact 

C. Impact Estimates of the Payment Notice 

Provisions 

D. Regulatory Flexibility Act 

E. Unfunded Mandates 

F. Federalism 

G. Congressional Review Act 

VII. Regulations Text 

Acronyms 

Affordable Care Act—The collective term 

for the Patient Protection and Affordable 

Care Act (Pub. L. 111–148) and the 

Health Care and Education 

Reconciliation Act of 2010 (Pub. L. 111– 

152) 

AV—Actuarial Value 

CFR—Code of Federal Regulations 

CMS—Centers for Medicare & Medicaid 

Services 

EHB—Essential Health Benefits 

ERISA—Employee Retirement Income 

Security Act of 1974 (Pub. L. 93–406) 

FFE—Federally-facilitated Exchange 

FF–SHOP—Federally-facilitated Small 

Business Health Options Program 

FPL—Federal poverty level 

HCC—Hierarchical condition category 

HHS—United States Department of Health 

and Human Services 

HIPAA—Health Insurance Portability and 

Accountability Act of 1996 (Pub. L. 104– 

191) 

IRS—Internal Revenue Service 

MLR—Medical Loss Ratio 

NAIC—National Association of Insurance 

Commissioners 

OMB—Office of Management and Budget 

OPM—United States Office of Personnel 

Management 

PHS Act—Public Health Service Act 

PII—Personally identifiable information 

PSO—Patient Safety Organization 

PRA—Paperwork Reduction Act of 1985 

PSES—Patient safety evaluation system 

QHP—Qualified health plan 

SHOP—Small Business Health Options 

Program 

The Code Internal Revenue Code of 1986 

I. Executive Summary 

Qualified individuals and qualified 

employers are now able to purchase 

private health insurance coverage that 

begins as early as January 1, 2014, 

through competitive marketplaces 

called Affordable Insurance Exchanges, 

or ‘‘Exchanges’’ (also called Health 

Insurance Marketplaces, or 

‘‘Marketplaces’’).1 Individuals who 

enroll in qualified health plans (QHPs) 

through individual market Exchanges 

may receive premium tax credits to 

make health insurance more affordable 

and financial assistance to reduce cost 

sharing for health care services. In 2014, 

HHS will also operationalize the 

premium stabilization programs 

established by the Affordable Care Act— 

the risk adjustment, reinsurance, and 

risk corridors programs—which are 

intended to mitigate the impact of 

possible adverse selection and stabilize 

the price of health insurance in the 

individual and small group markets. We 

believe that these programs, together 

with other reforms of the Affordable 

Care Act, will make high-quality health 

insurance affordable and accessible to 

millions of Americans. 

HHS has previously outlined the 

major provisions and parameters related 

to the advance payments of the 

premium tax credit, cost-sharing 

reductions, and premium stabilization 

programs. This proposed rule proposes 

additional provisions related to the 

implementation of these programs. 

Specifically, we propose certain 

oversight provisions for the premium 

stabilization programs, as well as key 

payment parameters for the 2015 benefit 

year. 

The Patient Protection and Affordable 

Care Act; HHS Notice of Benefit and 

Payment Parameters for 2014 final rule 

(78 FR 15410) (2014 Payment Notice) 

finalized the risk adjustment 

methodology that HHS will use when it 

operates risk adjustment on behalf of a 

State. This proposed rule proposes 

minor updates to this risk adjustment 

methodology for 2014 to account for 

certain private market Medicaid 

expansion plans, and seeks comment on 

how to adjust the geographic cost factor 

in the payment transfer formula to 

account for less populous rating areas in 

future benefit years. In this proposed 

rule, we also propose to clarify the 

counting methods for determining small 


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2Letter to Insurance Commissioners, Center for 

Consumer Information and Insurance Oversight, 

November 14, 2013. See http://www.cms.gov/

CCIIO/Resources/Letters/Downloads/commissionerletter-11–14–2013.PDF. 

3Available at: https://www.regtap.info/uploads/

library/ACA_HHS_OperatedRADVWhitePaper_

062213_5CR_062213.pdf 

group size for participation in the risk 

adjustment and risk corridors programs. 

Using the methodology set forth in the 

2014 Payment Notice for determining 

the uniform reinsurance contribution 

rate and uniform reinsurance payment 

parameters, we propose in this rule a 

2015 uniform reinsurance contribution 

rate of $44 annually per capita, and the 

2015 uniform reinsurance payment 

parameters—a $70,000 attachment 

point, a $250,000 reinsurance cap, and 

a 50 percent coinsurance rate. We also 

propose to decrease the attachment 

point for 2014 from $60,000 to $45,000. 

Additionally, in order to maximize the 

financial effect of the transitional 

reinsurance program, we propose that if 

reinsurance contributions collected for a 

benefit year exceed the requests for 

reinsurance payments for the benefit 

year, we would increase the coinsurance 

rate on our reinsurance payments, 

ensuring that all of the contributions 

collected for a benefit year are expended 

for claims for that benefit year. 

We also propose several provisions 

related to cost sharing. First, we propose 

a methodology for estimating average 

per capita premium and for calculating 

the premium adjustment percentage for 

2015 which is used to set the rate of 

increase for several parameters detailed 

in the Affordable Care Act, including 

the maximum annual limitation on cost 

sharing and the maximum annual 

limitation on deductibles for health 

plans in the small group market for 

2015. We also propose to set the same 

reduced maximum annual limitations 

on cost sharing for the 2015 benefit year 

as we established for the 2014 benefit 

year for cost-sharing reduction plan 

variations. Additionally, we are 

proposing certain modifications to the 

methodology for calculating advance 

payments for cost-sharing reductions for 

the 2015 benefit year. We also propose 

standards for updating the actuarial 

value (AV) calculator. 

This proposed rule provides for a 

2015 Federally-facilitated Exchange 

(FFE) user fee rate of 3.5 percent of 

premium. Additionally, we propose a 

user fee adjustment allowance for 

administrative costs in the 2015 benefit 

year to reimburse third party 

administrators that provide payment for 

contraceptive services for enrollees in 

certain self-insured group health plans 

that receive an accommodation from the 

obligation to cover these services in 

2014. 

On November 14, 2013, the Federal 

government announced a policy under 

which it will not consider certain nongrandfathered health insurance coverage 

in the individual or small group market 

renewed between January 1, 2014, and 

October 1, 2014, under certain 

conditions to be out of compliance with 

specified 2014 market rules, and 

requested that States adopt a similar 

non-enforcement policy.2

Issuers have set their 2014 premiums 

for individual and small group market 

plans by estimating the health risk of 

enrollees across all of their plans in the 

respective markets, in accordance with 

the single risk pool requirement at 45 

CFR 156.80. These estimates assumed 

that individuals currently enrolled in 

the transitional plans described above 

would participate in the single risk 

pools applicable to all nongrandfathered individual and small 

group plans, respectively (or a merged 

risk pool, if required by the State). 

Individuals who elect to continue 

coverage in a transitional plan (forgoing 

premium tax credits and cost-sharing 

reductions that might be available 

through an Exchange plan, and the 

essential health benefits package offered 

by plans compliant with the 2014 

market rules, and perhaps taking 

advantage of the underwritten 

premiums offered by the transitional 

plan) may have lower health risk, on 

average, than enrollees in individual 

and small group plans subject to the 

2014 market rules. 

If lower health risk individuals 

remain in a separate risk pool, the 

transitional policy could increase an 

issuer’s average expected claims cost for 

plans that comply with the 2014 market 

rules. Because issuers would have set 

premiums for QHPs in accordance with 

45 CFR 156.80 based on a risk pool 

assumed to include the potentially 

lower health risk individuals that enroll 

in the transitional plans, an increase in 

expected claims costs could lead to 

unexpected losses. 

To help address the effects of this 

transitional policy on the risk pool, we 

are exploring modifications to a number 

of programs. We have outlined various 

options under consideration throughout 

this proposed rule, including 

adjustments to the reinsurance and risk 

corridors programs. We are seeking 

comment on these proposals, as well as 

soliciting suggestions for alternate 

proposals. As the impact of the 

transitional policy becomes clearer, we 

will determine what, if any, adjustments 

are appropriate. 

The success of the premium 

stabilization programs depends on a 

robust oversight program. This proposed 

rule expands on provisions of the 

Premium Stabilization Rule (77 FR 

17220), the 2014 Payment Notice (78 FR 

15410), and the first and second final 

Program Integrity Rules (78 FR 54070 

and 78 FR 65046). In this proposed rule, 

we propose that HHS may audit Stateoperated reinsurance programs, 

contributing entities, and issuers of risk 

adjustment covered plans and 

reinsurance eligible-plans. We also 

clarify participation standards for the 

risk corridors program, and outline a 

proposed process for validating risk 

corridors data submissions and 

enforcing compliance with the 

provisions of the risk corridors program. 

We also propose several provisions 

regarding the HHS-operated risk 

adjustment data validation process. On 

June 22, 2013, we issued ‘‘The 

Affordable Care Act HHS-operated Risk 

Adjustment Data Validation Process 

White Paper’’ 3 and on June 25, 2013, we 

held a public meeting to discuss how to 

best ensure the accuracy and 

consistency of the data we will use 

when operating the risk adjustment 

program on behalf of a State. In this 

proposed rule, we propose standards for 

risk adjustment data validation, 

including a sampling methodology for 

the initial validation audit and detailed 

audit standards. These proposed 

standards would be tested for 2 years 

before they are used as a basis for 

payment adjustments. This proposed 

rule also includes a proposal to 

implement, over time, the requirements 

related to patient safety standards that 

QHP issuers must meet, and proposes 

reducing the time period for which a 

State electing to operate an Exchange 

after 2014 must have in effect an 

approved, or conditionally approved, 

Exchange Blueprint and operational 

readiness assessment from at least 12 

months to 6.5 months prior to the 

Exchange’s first effective date of 

coverage. We also propose provisions 

related to the privacy and security of 

personally identifiable information (PII), 

the annual open enrollment period for 

2015, the annual limitation on cost 

sharing for stand-alone dental plans, 

and the meaningful difference standards 

for QHPs offered through an FFE. We 

also propose certain standards for the 

Small Business Health Options Program 

(SHOP) and for composite rating in the 

small group market. 

II. Background 

A. Legislative and Regulatory Overview 

The Patient Protection and Affordable 

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


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on March 23, 2010. The Health Care and 

Education Reconciliation Act of 2010 

(Pub. L. 111–152), which amended and 

revised several provisions of the Patient 

Protection and Affordable Care Act, was 

enacted on March 30, 2010. In this 

proposed rule, we refer to the two 

statutes collectively as the ‘‘Affordable 

Care Act.’’ 

Section 1302 of the Affordable Care 

Act directs the Secretary of Health and 

Human Services (referred to throughout 

this rule as the Secretary) to define 

EHBs and provides for cost-sharing 

limits and AV requirements. Sections 

1302(d)(1) and (d)(2) of the Affordable 

Care Act describe the determination of 

the levels of coverage based on AV. 

Consistent with section 1302(d)(2)(A) of 

the Affordable Care Act, AV is 

calculated based on the provision of 

EHB to a standard population. Section 

1302(d)(3) of the Affordable Care Act 

directs the Secretary to develop 

guidelines that allow for de minimis 

variation in AV calculations. 

Section 1311(b)(1)(B) of the 

Affordable Care Act directs that the 

SHOP assist qualified small employers 

in facilitating the enrollment of their 

employees in QHPs offered in the small 

group market. Under section 

1312(f)(2)(B) of the Affordable Care Act, 

beginning in 2017, States will have the 

option to allow issuers to offer QHPs in 

the large group market through the 

SHOP. 

Section 1311(c)(6)(B) of the 

Affordable Care Act states that the 

Secretary is to require an Exchange to 

provide for annual open enrollment 

periods for calendar years after the 

initial enrollment period. 

Section 1311(h)(1) of the Affordable 

Care Act specifies that a QHP may 

contract with health care providers and 

hospitals with more than 50 beds only 

if they meet certain patient safety 

standards, including use of a patient 

safety evaluation system, a 

comprehensive hospital discharge 

program, and implementation of health 

care quality improvement activities. 

Section 1311(h)(2) of the Affordable 

Care Act also provides the Secretary 

flexibility to establish reasonable 

exceptions to these patient safety 

requirements and section 1311(h)(3) of 

the Affordable Care Act allows the 

Secretary flexibility to issue regulations 

to modify the number of beds described 

in section 1311(h)(1)(A) of the 

Affordable Care Act. 

Section 1313 of the Affordable Care 

Act, combined with section 1321 of the 

Affordable Care Act, provides the 

Secretary with the authority to oversee 

the financial integrity of State 

Exchanges, their compliance with HHS 

standards, and the efficient and nondiscriminatory administration of State 

Exchange activities. Section 1321(a) of 

the Affordable Care Act provides 

general authority for the Secretary to 

establish standards and regulations to 

implement the statutory requirements 

related to Exchanges, QHPs, and other 

components of Title I of the Affordable 

Care Act. 

When operating an FFE under section 

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

HHS has the authority under sections 

1321(c)(1) and 1311(d)(5)(A) of the 

Affordable Care Act to collect and spend 

user fees. In addition, 31 U.S.C. 9701 

permits a Federal agency to establish a 

charge for a service provided by the 

agency. Office of Management and 

Budget (OMB) Circular A–25 Revised 

establishes Federal policy regarding 

user fees and specifies that a user charge 

will be assessed against each 

identifiable recipient for special benefits 

derived from Federal activities beyond 

those received by the general public. 

Section 1341 of the Affordable Care 

Act requires the establishment of a 

transitional reinsurance program in each 

State to help pay the cost of treating 

high-cost enrollees in the individual 

market from 2014 through 2016. Section 

1342 of the Affordable Care Act directs 

the Secretary to establish a temporary 

risk corridors program that provides for 

the sharing in gains or losses resulting 

from inaccurate rate setting from 2014 

through 2016 between the Federal 

government and certain participating 

plans. Section 1343 of the Affordable 

Care Act establishes a permanent risk 

adjustment program that is intended to 

provide increased payments to health 

insurance issuers that attract higher-risk 

populations, such as those with chronic 

conditions, and thereby reduce 

incentives for issuers to avoid higherrisk enrollees. Sections 1402 and 1412 

of the Affordable Care Act establish a 

program for reducing cost sharing for 

individuals with lower household 

income and Indians. 

Section 1411(g) of the Affordable Care 

Act provides that any person who 

receives information specified in section 

1411(b) provided by an applicant or 

information specified in section 1411(c), 

(d), or (e) from a Federal agency must 

use the information only for the purpose 

of and to the extent necessary to ensure 

the efficient operation of the Exchange, 

and may not disclose the information to 

any other person except as provided in 

that section. Section 6103(l)(21)(C) of 

the Code additionally provides that 

return information disclosed under 

section 6103(l)(21)(A) or (B) may be 

used only for the purpose of and to the 

extent necessary in establishing 

eligibility for participation in the 

Exchange, verifying the appropriate 

amount of any premium tax credit or 

cost-sharing reduction, or determining 

eligibility for participation in a health 

insurance affordability program as 

described in that section. 

1. Premium Stabilization Programs 

In the July 15, 2011 Federal Register 

(76 FR 41930), we published a proposed 

rule outlining the premium stabilization 

programs. We implemented the 

premium stabilization programs in a 

final rule, published in the March 23, 

2012 Federal Register (77 FR 17220) 

(Premium Stabilization Rule). In the 

December 7, 2012 Federal Register (77 

FR 73118), we published a proposed 

rule outlining the benefit and payment 

parameters for 2014 to expand the 

provisions related to the premium 

stabilization programs and set forth 

payment parameters in those programs 

(proposed 2014 Payment Notice). We 

published the 2014 Payment Notice in 

the March 11, 2013 Federal Register (78 

FR 153410). 

As discussed above, we published a 

white paper on risk adjustment data 

validation on June 22, 2013, and hosted 

a public meeting on June 25, 2013, to 

discuss the white paper. 

2. Program Integrity 

In the June 19, 2013 Federal Register 

(78 FR 37032), we published a proposed 

rule that proposed certain program 

integrity standards related to Exchanges 

and the premium stabilization programs 

(proposed Program Integrity Rule). The 

provisions of that proposed rule were 

finalized in two rules, the ‘‘first final 

Program Integrity Rule’’ published in 

the August 30, 2013 Federal Register 

(78 FR 54070) and the ‘‘second final 

Program Integrity Rule’’ published in 

the October 30, 2013 Federal Register 

(78 FR 65046). 

3. Exchanges, Essential Health Benefits, 

Actuarial Value 

A proposed rule relating to EHBs and 

AV was published in the November 26, 

2012 Federal Register (77 FR 70644). 

We proposed standards related to the 

premium adjustment percentage in the 

Standards Related to Essential Health 

Benefits, Actuarial Value, and 

Accreditation Final Rule, published in 

the February 25, 2013 Federal Register 

(78 FR 12834) (EHB Rule). We 

established standards for the 

administration and payment of costsharing reductions and the SHOP in the 

2014 Payment Notice and in the 

Amendments to the HHS Notice of 

Benefit and Payment Parameters for 

2014 interim final rule, published in the 


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March 11, 2013 Federal Register (78 FR 

15541). The provisions established in 

the interim final rule were finalized in 

the second final Program Integrity Rule. 

We set forth standards related to 

Exchange user fees in the 2014 Payment 

Notice. We also established an 

adjustment to the FFE user fee in the 

Coverage of Certain Preventive Services 

Under the Affordable Care Act final 

rule, published in the July 2, 2013 

Federal Register (78 FR 39870) 

(Preventive Services Rule). 

A Request for Comment relating to 

Exchanges was published in the August 

3, 2010 Federal Register (75 FR 45584). 

An Initial Guidance to States on 

Exchanges was issued on November 18, 

2010. A proposed rule was published in 

the July 15, 2011 Federal Register (76 

FR 41866) to implement components of 

the Exchange. A proposed rule 

regarding Exchange functions in the 

individual market, eligibility 

determinations, and Exchange standards 

for employers was published in the 

August 17, 2011 Federal Register (76 FR 

51202). A final rule implementing 

components of the Exchanges and 

setting forth standards for eligibility for 

Exchanges was published in the March 

27, 2012 Federal Register (77 FR 18310) 

(Exchange Establishment Rule). 

4. Market Rules 

Provisions relating to the 2014 market 

reforms and rate review were published 

in Patient Protection and Affordable 

Care Act; Health Insurance Market 

Rules; Rate Review proposed rule in the 

November 26, 2012 Federal Register (77 

FR 70584). A final rule implementing 

these provisions was published in the 

February 27, 2013 Federal Register (78 

FR 13406) (Market Reform Rule). 

5. Medical Loss Ratio 

We published a request for comment 

on PHS Act section 2718 in the April 

14, 2010 Federal Register (75 FR 

19297), and published an interim final 

rule with a 60-day comment period 

relating to the medical loss ratio (MLR) 

program on December 1, 2010 (75 FR 

74864). A final rule with a 30-day 

comment period was published in the 

December 7, 2011 Federal Register (76 

FR 76574). 

B. Stakeholder Consultation and Input 

In addition to seeking advice from the 

public on risk adjustment data 

validation, HHS has consulted with 

stakeholders on policies related to the 

operation of Exchanges, including the 

SHOP and the premium stabilization 

programs. HHS has held a number of 

listening sessions with consumers, 

providers, employers, health plans, the 

actuarial community, and State 

representatives to gather public input. 

HHS consulted with stakeholders 

through regular meetings with the 

National Association of Insurance 

Commissioners (NAIC), regular contact 

with States through the Exchange 

Establishment grant and Exchange 

Blueprint approval processes, and 

meetings with Tribal leaders and 

representatives, health insurance 

issuers, trade groups, consumer 

advocates, employers, and other 

interested parties. We considered all of 

the public input as we developed the 

policies in this proposed rule. 

C. Structure of Proposed Rule 

The regulations outlined in this 

proposed rule would be codified in 45 

CFR parts 144, 147, 153, 155 and 156. 

The proposed regulations in parts 144 

and 147 propose amendments relating 

to student health insurance coverage. 

The proposed regulations in part 147 

also outline market-wide provisions 

regarding composite rating. The 

proposed regulations in part 153 outline 

the 2015 uniform contribution rate and 

uniform reinsurance payment 

parameters for the 2015 benefit year and 

oversight provisions related to the 

premium stabilization programs, such as 

provisions related to risk adjustment 

data validation, risk corridors data 

validation, and HHS’s authority to audit 

entities participating in these programs. 

The proposed regulations in part 153 

propose that excess reinsurance 

contributions collected for a benefit year 

be used for claims for that benefit year. 

The proposed regulations in part 155 

propose to reduce the time that States 

that elect to establish and operate an 

Exchange after 2014 must have in effect 

an approved or conditionally approved 

Exchange Blueprint and readiness 

assessment from 12 months to 6.5 

months prior to the Exchange’s first 

effective date of coverage. The proposed 

regulations also include a change to the 

annual open enrollment period for the 

2015 benefit year and certain proposals 

related to the SHOP Exchanges, which 

we discuss in greater detail below. We 

also propose in part 155 to amend 

§ 155.260 to allow the Secretary to 

determine that additional uses or 

disclosures of PII not specifically 

permitted by § 155.260 ensure the 

efficient operation of the Exchange. In 

addition, we propose to establish a 

process under which Exchanges may 

seek the Secretary’s approval for other 

uses of applicant PII not specifically 

permitted by § 155.260. We also propose 

to amend § 155.260 to more specifically 

define the term ‘‘non-Exchange entity’’ 

and to provide a baseline for the privacy 

and security standards to which 

Exchanges must bind non-Exchange 

entities through written contracts or 

agreements. 

The proposed regulations in part 156 

set forth provisions related to cost 

sharing, including the premium 

adjustment percentage, the maximum 

annual limitation on cost sharing, the 

maximum annual limitation on 

deductibles for health plans in the small 

group market, the reductions in the 

maximum annual limitation for cost 

sharing plan variations, and the 

methodology to calculate advance 

payments of cost-sharing reductions for 

2015. They also outline the 2015 FFE 

user fee rate and propose a user fee 

adjustment to reimburse third party 

administrators that pay for 

contraceptive services for enrollees in 

certain self-insured group health plans 

that receive an accommodation from the 

obligation to cover these services. They 

also include provisions related to 

parameters for making updates to the 

AV calculator in future plan years. The 

proposed 2015 AV Calculator and a 

proposed 2015 AV Calculator 

methodology, which would supersede 

the 2014 versions of these documents 

incorporated by reference in the EHB 

Rule, are being incorporated by 

reference in this proposed rule. In part 

156 we also propose a meaningful 

difference standard for QHPs offered 

through an FFE and patient safety 

standards for issuers of QHPs. Finally, 

we propose an administrative appeals 

process applicable to the premium 

stabilization, cost-sharing reduction, 

advance payments of the premium tax 

credit, and FFE user fee programs. 

In parts 155 and 156, we also propose 

the following provisions related to the 

SHOP: 

• We propose to permit all SHOPs 

performing premium aggregation to 

establish one or more standard 

processes for premium calculation, 

payment, and collection. 

• We propose that in the FF–SHOPs, 

for plan years when premium 

aggregation is available, employers be 

required to make premium payments to 

the FF–SHOP according to a timeline 

and process established by HHS. We 

further propose that for plan years 

beginning on or after January 1, 2015, 

unless the QHP issuer receives a 

cancellation notice from the FF–SHOP, 

the issuer would be required to 

effectuate coverage. 

• We propose a standard premium 

pro-rating methodology for the FF– 

SHOPs, for plan years when premium 

aggregation is available, providing that 

groups will be charged for the portion 


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4Beginning in 2017, States will have the option 

to allow issuers to offer QHPs in the large group 

market through the SHOP. If a State elects this 

option, the rating rules in section 2701 and its 

implementing regulations will apply to all coverage 

offered in such State’s large group market (except 

for self-insured group health plans) under to section 

2701(a)(5) of the PHS Act. 

5States that do not permit rating for age or 

tobacco use may require health insurance issuers in 

the individual and small group markets to use 

uniform family tiers and corresponding multipliers 

established by the State. § 147.102(c)(2). 

of the month for which an enrollee is 

enrolled. 

• We propose to make explicit our 

interpretation of current regulations that 

no SHOPs would be permitted to collect 

information on a SHOP application 

unless that information is necessary to 

determine SHOP eligibility or effectuate 

enrollment through the SHOP. 

• We propose that no SHOPs would 

be permitted to perform individual 

market Exchange eligibility 

determinations or verifications. 

• We propose that a qualified 

employer that becomes a large employer 

but continues to purchase coverage 

through a SHOP would continue to be 

rated as a small employer. 

• We propose to limit the employer 

and employee eligibility adjustment 

periods to circumstances when the 

SHOP has an optional verification 

process, and collects information 

through that verification process that is 

inconsistent with the information 

provided by an employer or employee 

on a SHOP application. 

• We propose for plan years 

beginning on or after January 1, 2015 to 

give SHOPs in States that permit this 

activity under State law, the option of 

permitting enrollment in a SHOP 

through the Internet Web site of an 

agent or broker. 

• We propose to limit the availability 

of composite premiums in the FF– 

SHOPs after employee choice and 

premium aggregation become available. 

• We propose methods for employers 

in the FF–SHOPs to offer stand-alone 

dental coverage after employee choice 

becomes available in those SHOPs. 

• We propose for plan years 

beginning on or after January 1, 2015 to 

permit FF–SHOPs to give employers the 

flexibility to define different premium 

percentage contributions for full-time 

employees and non-full-time 

employees. 

We note that nothing in these 

proposed regulations would limit the 

authority of the Office of the Inspector 

General (OIG) as set forth by the 

Inspector General Act of 1978 or other 

applicable law. 

III. Provisions of the Proposed HHS 

Notice of Benefit and Payment 

Parameters for 2015 

A. Part 144—Requirements Relating to 

Health Insurance Coverage 

In § 144.103, the term ‘‘policy year,’’ 

as amended by the second final Program 

Integrity Rule, is defined as: (1) With 

respect to a grandfathered health plan 

offered in the individual health 

insurance market, the 12-month period 

that is designated as the policy year in 

the policy documents of the individual 

health insurance coverage. If there is no 

designation of a policy year in the 

policy document (or no such policy 

document is available), then the policy 

year is the deductible or limit year used 

under the coverage. If deductibles or 

other limits are not imposed on a yearly 

basis, the policy year is the calendar 

year; and (2) with respect to a nongrandfathered health plan offered in the 

individual health insurance market, or 

in a market in which the State has 

merged the individual and small group 

risk pools (merged market), for coverage 

issued or renewed beginning January 1, 

2014, a calendar year for which health 

insurance coverage provides coverage 

for health benefits. Further, § 147.104, 

as amended by the second final Program 

Integrity Rule, establishes individual 

market open enrollment periods based 

on a calendar policy year and provides 

that non-grandfathered coverage in the 

individual or merged markets must be 

offered on a calendar year basis, with a 

policy year beginning on January 1 and 

ending on December 31 of each year. 

Under regulations at § 147.145(a), 

student health insurance coverage is 

defined as individual health insurance 

coverage. Section 147.145(b), however, 

exempts student health insurance 

coverage from certain PHS Act and 

Affordable Care Act requirements that 

apply to individual health insurance 

coverage, including certain guaranteed 

availability provisions of section 2702 of 

the PHS Act, implemented at § 147.104. 

As discussed below, because student 

health insurance coverage is 

traditionally offered on a school year 

basis (for example, a policy year 

beginning on September 1 of each year 

and ending on August 30 of the 

following year), we are proposing to 

modify § 147.145 to exempt student 

health insurance coverage from the 

requirement under section 2702 to 

establish open enrollment periods and 

coverage effective dates that are based 

on a calendar policy year, including the 

requirement that non-grandfathered 

coverage in the individual and merged 

markets be offered on a calendar year 

basis. We are also proposing conforming 

amendments to the definition of ‘‘policy 

year’’ to reflect that student health 

insurance coverage would not be 

required to be offered on a calendar year 

basis. We seek comment on this 

proposal. 

B. Part 147—Health Insurance Reform 

Requirements for the Group and 

Individual Health Insurance Markets 

1. Composite Rating 

Section 2701 of the PHS Act, as added 

by section 1201 of the Affordable Care 

Act, establishes permissible rating 

factors that may be used to vary the 

premium rate charged by a health 

insurance issuer for non-grandfathered 

health insurance coverage (including 

QHPs) in the individual and small 

group markets beginning in 2014.4 The 

factors are: family size, rating area, age, 

and tobacco use (within limits). Section 

2701(a)(4) of the PHS Act provides that 

with respect to family coverage under a 

group health plan or health insurance 

coverage, any rating variation for age or 

tobacco use must be applied based on 

the proportion of the premium 

attributable to each family member 

covered under the plan or coverage. 

In the Market Reform Rule, we 

applied the per-member rating 

requirement of PHS Act section 

2701(a)(4) in both the individual and 

small group markets. Thus, at 

§ 147.102(c), we generally directed that 

issuers calculate a separate premium for 

each individual covered under the plan 

or coverage based on allowable rating 

factors including age and tobacco use, 

and sum the individual rates to 

determine the total premium charged by 

the issuer to a family or to a group 

health plan.5

We recognized that in the small group 

market it is common industry billing 

practice to charge an employer a 

uniform premium for a given family 

composition by adding the per-member 

rates and dividing by the total number 

of employees covered under the 

employer’s health insurance plan. We 

indicated that nothing prevents an 

issuer from converting per-member rates 

into average enrollee premium amounts 

(calculated composite premiums), 

provided that the total group premium 

is the same total amount derived in 

accordance with the process established 

by the regulations. 

Because calculated composite 

premiums are average rates for a 

particular group, changes in employee 


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6 In cases where the composite premium does not 

incorporate the age or tobacco use rating factor, an 

issuer would be required to accept the group’s 

composite premium, calculated based on applicable 

employee enrollment at the beginning of the plan 

year, multiplied by any applicable age or tobacco 

rating factor, as the applicable premium for any 

new individual who enrolls in the plan during the 

plan year. Under § 147.102(a)(1)(iv), rating for 

tobacco use is subject to the nondiscrimination and 

wellness provisions under section 2705 of the PHS 

Act and its implementing regulations, regardless of 

whether the composite premium incorporates the 

tobacco use rating factor. 

census would typically cause a change 

in the average rate. For example, a new 

average rate per enrollee would 

typically result from employees adding 

or dropping coverage during the course 

of the plan year, causing employer and 

employee contributions to change as 

well. We have been asked about such 

mid-year changes in group composition 

and how issuers should address the 

resulting changes in the calculated 

composite premium for the group. 

In this proposed rule, we propose to 

add a provision at § 147.102(c)(3) 

clarifying that if an issuer offers a 

composite premium calculated when 

the employer obtains or renews 

coverage, the issuer must ensure that 

such amount does not vary for any plan 

participant or beneficiary during the 

plan year with respect to the particular 

plan involved. Under this approach, an 

issuer would be required to accept the 

group’s composite premium, calculated 

based on applicable employee 

enrollment at the beginning of the plan 

year, as the applicable premium rate for 

any new individual who enrolls in the 

plan during the plan year.6

Terminations of coverage during the 

plan year also would not change the 

composite premium. At the time of 

renewal, the issuer would recalculate a 

group’s composite premium based on 

plan enrollment at that time for 

subsequent coverage. This will allow 

calculated composite premiums, and 

thus employer and employee 

contributions to coverage, to remain 

stable during the plan year, regardless of 

changes in the group’s composition. 

This proposed policy would generally 

apply to health insurance issuers 

offering non-grandfathered health 

insurance coverage in the small group 

market, through a SHOP or outside of a 

SHOP, for plan years beginning on or 

after January 1, 2015. However, we 

encourage issuers to voluntarily adopt 

this approach for plan years beginning 

in 2014. As discussed in more detail 

below, we propose a limited exception 

to this policy in § 155.705(b)(11)(ii)(D) 

and § 156.285(a)(4)(ii) of this proposed 

rule, under which composite rating 

would not be available when an 

employer participating in a Federallyfacilitated SHOP elects to offer its 

employees all QHPs within a single 

level of coverage under 

§ 155.705(b)(3)(iv)(A). 

We are considering establishing a 

uniform tiered-composite rating 

structure that would apply market wide 

unless a State requires and HHS 

approves an alternate tiered-composite 

rating methodology. Under the approach 

we are considering, a small group 

market issuer offering composite rating 

would calculate the composite premium 

for different tiers of enrollees covered 

under the employer’s plan. For example, 

in a two-tier structure, one composite 

premium would be calculated for 

covered adults (employees and adult 

dependents) and another composite 

premium would be calculated for 

covered children. Alternatively, in a 

three-tier structure, there would be one 

composite premium for covered 

employees, a second composite 

premium for covered adult dependents, 

and a third composite premium for 

covered children. The premium for a 

given family composition would simply 

be determined by summing the 

applicable tiered-composite rates. We 

believe a tiered-composite approach 

would promote simplicity for issuers 

and employers, and ensure that 

premiums for family coverage 

appropriately reflect the lower rates for 

children. 

We seek comments on all aspects of 

this approach to composite rating. We 

also seek comments on whether to 

establish a default uniform tieredcomposite rating structure, including 

the appropriate number and types of 

enrollee tiers (for example, an 

employee-only tier, an adult dependent 

tier, and a child dependent tier). 

2. Student Health Insurance Coverage 

As discussed above, under 

§ 147.145(a), student health insurance 

coverage is defined as a type of 

individual health insurance coverage. 

However, § 147.145(b) provides that for 

purposes of the guaranteed availability 

requirements of section 2702 of the PHS 

Act, a health insurance issuer that offers 

student health insurance coverage is not 

required to accept individuals who are 

not students or dependents of student in 

such coverage. Because student health 

insurance coverage is traditionally 

offered on a school year basis that does 

not align with the calendar year, we do 

not believe student health insurance 

should be required to establish open 

enrollment periods and coverage 

effective dates under § 147.104(b)(1) and 

(2) that are based on a calendar policy 

year, including the requirement that 

non-grandfathered coverage in the 

individual and merged markets be 

offered on a calendar year basis. 

Accordingly, we are proposing to amend 

§ 147.145(b)(1)(ii) to exempt student 

health insurance coverage from these 

guaranteed availability requirements. 

We seek comments on this proposal and 

whether other modifications are 

necessary for student health insurance 

coverage. 

C. Part 153—Standards Related to 

Reinsurance, Risk Corridors, and Risk 

Adjustment under the Affordable Care 

Act 

1. Provisions and Parameters for the 

Permanent Risk Adjustment Program 

The risk adjustment program is a 

permanent program created by section 

1343 of the Affordable Care Act that 

transfers funds from lower risk, nongrandfathered plans to higher risk, nongrandfathered plans in the individual 

and small group markets, inside and 

outside the Exchanges. In subparts D 

and G of the Premium Stabilization 

Rule, we established standards for the 

administration of the risk adjustment 

program. A State that is approved or 

conditionally approved by the Secretary 

to operate an Exchange may establish a 

risk adjustment program, or have HHS 

do so on its behalf. 

a. Risk Adjustment User Fees 

If a State is not approved to operate 

or chooses to forgo operating its own 

risk adjustment program, HHS will 

operate risk adjustment on the State’s 

behalf. As described in the 2014 

Payment Notice, HHS’s operation of risk 

adjustment on behalf of States is funded 

through a risk adjustment user fee. 

Section 153.610(f)(2) provides that an 

issuer of a risk adjustment covered plan 

must remit a user fee to HHS for each 

month equal to the product of its 

monthly enrollment in the plan and the 

per-enrollee-per-month risk adjustment 

user fee specified in the annual HHS 

notice of benefit and payment 

parameters for the applicable benefit 

year. 

OMB Circular No. A–25R establishes 

Federal policy regarding user fees, and 

specifies that a user charge will be 

assessed against each identifiable 

recipient for special benefits derived 

from Federal activities beyond those 

received by the general public. The risk 

adjustment program will provide special 

benefits as defined in section 6(a)(1)(b) 

of Circular No. A–25R to an issuer of a 

risk adjustment covered plan because it 

will mitigate the financial instability 

associated with risk selection as other 

market reforms go into effect. The risk 


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adjustment program also will contribute 

to consumer confidence in the health 

insurance industry by helping to 

stabilize premiums across the 

individual and small group health 

insurance markets. 

In the 2014 Payment Notice, we 

estimated Federal administrative 

expenses of operating the risk 

adjustment program to be $0.96 per 

enrollee per year, based on our 

estimated contract costs for risk 

adjustment operations. For the 2015 

benefit year, we propose to use the same 

methodology to estimate our 

administrative expenses to operate the 

program. These contracts cover 

development of the model and 

methodology, collections, payments, 

account management, data collection, 

data validation, program integrity and 

audit functions, operational and fraud 

analytics, stakeholder training, and 

operational support. We do not propose 

to set the user fee to cover costs 

associated with Federal personnel. To 

calculate the user fee, we would divide 

HHS’s projected total costs for 

administering the risk adjustment 

programs on behalf of States by the 

expected number of enrollees in risk 

adjustment covered plans (other than 

plans not subject to market reforms and 

student health plans, which are not 

subject to payments and charges under 

the risk adjustment methodology HHS 

uses when it operates risk adjustment 

on behalf of a State) in HHS-operated 

risk adjustment programs for the benefit 

year. 

We estimate that the total cost for 

HHS to operate the risk adjustment 

program on behalf of States for 2015 

will be approximately $27.3 million, 

and that the per capita risk adjustment 

user fee would be no more than $1.00 

per enrollee per year. We seek comment 

on this proposed assessment of user fees 

to support HHS-operated risk 

adjustment programs. 

b. HHS Risk Adjustment Methodology 

Considerations 

In the 2014 Payment Notice, we 

finalized the methodology that HHS will 

use when operating a risk adjustment 

program on behalf of a State in 2014. We 

propose to use the same methodology in 

2015. In this proposed rule, we propose 

to clarify the treatment of premium 

assistance Medicaid alternative plans in 

this risk adjustment methodology, and 

seek comment on potential adjustments 

to the geographic cost factor in the HHS 

risk adjustment model for future years. 

(i) Incorporation of Premium Assistance 

Medicaid Alternative Plans in the HHS 

Risk Adjustment Methodology 

Section 1343(c) of the Affordable Care 

Act provides that risk adjustment 

applies to non-grandfathered health 

insurance coverage offered in the 

individual and small group markets. In 

some States, expansion of Medicaid 

benefits under section 2001(a) of the 

Affordable Care Act may take the form 

of enrolling newly Medicaid-eligible 

enrollees into individual market plans. 

For example, these enrollees could be 

placed into silver plan variations— 

either the 94 percent silver plan 

variation or the zero cost sharing plan 

variation—with a portion of the 

premiums and cost sharing paid for by 

Medicaid on their behalf. Because 

individuals in these types of Medicaid 

expansion plans receive significant costsharing assistance, they may utilize 

medical services at a higher rate. To 

address this induced utilization in the 

context of cost-sharing reduction plan 

variations in the HHS risk adjustment 

methodology, we increase the risk score 

for individuals in plan variations by a 

certain factor. We propose to use the 

same factor for individuals enrolled in 

the corresponding Medicaid expansion 

plan variations. Table 1 shows the costsharing adjustments for both 94 percent 

silver plan variation enrollees and zero 

cost-sharing plan variation enrollees for 

silver QHPs as finalized in the 2014 

Payment Notice. We propose to 

implement these adjustments for 2014. 

We plan to evaluate these adjustments 

in the future, after data from the initial 

years of risk adjustment is available. We 

seek comment on this approach. 

TABLE 1—COST-SHARING REDUCTION

ADJUSTMENTS

Plan variation Induced utilization factor 

94 percent Plan 

Variation ............ 1.12 

Zero Cost-Sharing 

Plan Variation of 

Silver QHP ........ 1.12 

(ii) Adjustment to the Geographic Cost 

Factor 

As finalized in the 2014 Payment 

Notice, the geographic cost factor is an 

adjustment in the payment transfer 

formula to account for plan costs such 

as input prices that vary geographically 

and are likely to affect plan premiums. 

For the metal-level risk pool, it is 

calculated based on the observed 

average silver plan premium in a 

geographic area relative to the statewide 

average silver plan premium. It is 

separately calculated for catastrophic 

plans in a geographic area relative to the 

statewide catastrophic pool. However, 

several States have defined a large 

number of rating areas. Less populous 

rating areas raise concerns about the 

accuracy and stability of the calculation 

of the geographic cost factor because in 

less populous rating areas the 

geographic cost factor might be 

calculated based on a small number of 

plans. Inaccurate or unstable geographic 

cost factors could distort premiums and 

the stability of the risk adjustment 

model. 

We seek comment on how to best 

adjust the geographic cost factors or 

geographic rating areas in future years to 

address these potential premium 

distortions. We also seek comments on 

how this adjustment should be 

implemented for a separately risk 

adjusted pool of catastrophic plans. We 

do not intend to make this adjustment 

for 2014. 

c. Small Group Determination for Risk 

Adjustment 

For a plan to be subject to risk 

adjustment, according to section 1343(c) 

of the Affordable Care Act and the 

definition of a ‘‘risk adjustment covered 

plan’’ in § 153.20, a plan must be offered 

in the ‘‘individual or small group 

market.’’ The definition of small group 

market in § 153.20 references the 

definition at section 1304(a)(3) of the 

Affordable Care Act. 

Section 1304(a)(3) of the Affordable 

Care Act, in defining ‘‘small group 

market,’’ references the definition of a 

‘‘small employer’’ in section 1304(b)(2) 

of the Affordable Care Act. That 

definition provides that an employer 

with an average of at least 1 but not 

more than 100 employees on business 

days during the preceding calendar year 

and who employs at least 1 employee on 

the first day of the plan year will be 

considered a ‘‘small employer.’’ 

However, section 1304(b)(3) of the 

Affordable Care Act provides that, for 

plan years beginning before January 1, 

2016, a State may elect to limit ‘‘small 

employer’’ to mean an employer with at 

least 1 but not more than 50 employees. 

In the 2014 Payment Notice, we stated 

that we believe that the Affordable Care 

Act requires the use of a counting 

method that accounts for part-time 

employees, and that the full-time 

equivalent method described in section 

4980H(c)(2)(E) of the Code is a 

reasonable method to apply. Thus, we 

believe that the risk adjustment program 

must also use a counting method that 

takes employees that are not full-time 

into account when determining whether 


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7We note that the IRS has published a proposed 

regulation that contains further details that would 

apply to this calculation (54.4980H–2(c)). 

a group health plan must participate in 

that program. 

However, we also recognize that, 

because risk adjustment is intended to 

stabilize premiums by mitigating the 

effects of the rating rules, it is important 

that the program be available to plans 

that are subject to the rating rules, to the 

extent permissible under the Affordable 

Care Act. We recognize that a number of 

States, which have primary enforcement 

jurisdiction over the market rules, may 

use counting methods that do not take 

non-full-time employees into account. 

Thus, we propose to clarify that in 

determining which group health plans 

participate as small group plans in the 

risk adjustment program, we would 

apply the applicable State counting 

method, unless the State counting 

method does not take into account 

employees that are not full-time. In that 

circumstance, we would apply the fulltime equivalent method described in 

section 4980H(c)(2)(E) of the Code.7 We 

believe that this approach defers to State 

counting methods and aligns with State 

enforcement of rating rules, within the 

bounds of what is permissible under the 

Affordable Care Act. We seek comment 

on our interpretation of the permissible 

counting rules for purposes of risk 

adjustment, the approach described 

above, and on alternate counting 

methods that may be preferable. We also 

seek comment on whether we should 

codify these risk adjustment counting 

rules in regulation text. 

d. Risk Adjustment Data Validation 

The 2014 Payment Notice established 

a risk adjustment data validation 

program that HHS will use when 

operating risk adjustment on behalf of a 

State. In the 2014 Payment Notice, we 

specified a framework for this program 

that includes six stages: (1) Sample 

selection; (2) initial validation audit; (3) 

second validation audit; (4) error 

estimation; (5) appeals; and (6) payment 

adjustments. 

To develop the details of the program, 

we sought the input of issuers, 

consumer advocates, providers, and 

other stakeholders. We issued the 

‘‘Affordable Care Act HHS-Operated 

Risk Adjustment Data Validation 

Process White Paper’’ on June 22, 2013. 

That white paper discussed and sought 

comments on a number of potential 

considerations for the development of 

the risk adjustment data validation 

methodology. On June 25, 2013, we held 

a public meeting to discuss the topics 

considered in the white paper. We 

received submissions from 53 

commenters, including issuers, issuer 

trade groups, advocacy groups, and 

consultants. As we noted in the white 

paper, our overall goals are to promote 

consistency and a level playing field by 

establishing uniform audit 

requirements, and to protect private 

information by limiting data transfers 

during the data validation process. 

In this proposed rule, we propose 

provisions for the risk adjustment data 

validation process and methodology 

that reflect our analysis of the white 

paper comments and our discussions 

with stakeholders. We note that a State 

operating a risk adjustment program is 

not required to adopt these standards. 

These proposed rules are consistent 

with the white paper and lessons drawn 

from our experience with Medicare 

Advantage risk adjustment data 

validation and thus should be familiar 

to issuers. 

(i) Sample Selection 

The first stage in the HHS-operated 

risk adjustment data validation process 

is the selection of a sample of an issuer’s 

enrollees whose risk adjustment data 

will be validated. In the proposed 2014 

Payment Notice, we stated that HHS 

would choose a sample size of enrollees 

such that the estimated risk score errors 

would be statistically sound and the 

enrollee-level risk score distributions 

would reflect enrollee characteristics for 

each issuer. We stated that in 

determining the appropriate sample size 

for data validation, we recognized the 

importance of striking a balance 

between ensuring statistical soundness 

of the sample and minimizing the 

operational burden on issuers, 

providers, and HHS. Additionally, we 

stated that we would ensure that the 

sample would cover critical 

subpopulations of enrollees for each risk 

adjustment covered plan, such as 

enrollees with and without hierarchical 

condition categories (HCCs). To develop 

a proposed sample size for the first year 

of the HHS risk adjustment data 

validation program, we propose to use 

the methodology outlined in the white 

paper. Our goal in determining the 

enrollee sample size for the initial 2 

years of risk adjustment data validation 

is to propose a statistically valid sample 

large enough to inform us to the 

dynamics of the risk adjustment data 

validation process in operation and 

estimation of risk score accuracy. As we 

established in the 2014 Payment Notice, 

for HHS to observe and optimize the 

risk adjustment data validation process, 

no payment adjustments will be made 

based on the risk adjustment data 

validation process for the initial 2 years 

of HHS-operated risk adjustment. 

In general, we propose to select the 

initial validation audit sample for a 

given benefit year by dividing the 

relevant population into a number of 

‘‘strata,’’ representing different 

demographic and risk score bands. We 

are proposing that, for the initial 2 years 

of the risk adjustment data validation 

program, the initial validation audit 

sample will consist of 200 enrollees 

from each issuer. We stated in the 2014 

Payment Notice that the overall sample 

will reflect a disproportionate selection 

of enrollees with HCCs. Here, we 

discuss in detail our proposed sampling 

methodology, including our proposal to 

group enrollees to account for age 

characteristics and health status. Some 

commenters on the white paper 

suggested that we also consider 

sampling based on plan types and other 

characteristics. We will consider other 

sampling strategies in the future, but 

believe that we do not yet have enough 

experience with the risk adjustment 

process to determine the most 

appropriate sampling groups at this 

time. 

Therefore, we are proposing a simple 

age and risk score stratification for at 

least the initial 2 years of the program. 

Following the division of the relevant 

population into strata, we propose to 

use the following formulas to calculate 

a proposed sample size for the initial 

validation audit each year. In general, 

the proposed formula for the overall 

sample size for an issuer (n) is: 


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Where: 

H is the number of strata; 

Nh is the population size of the hth stratum; 

Y is the average risk score of the population, 

adjusted based upon the estimated risk 

score error; 

Sh represents the standard deviation of risk 

score error for the hth stratum; 

Prec represents the desired precision level 

(for example, 10 percent, meaning a 10 

percent margin of error in the estimated 

risk score); and 

z-value is the z-value associated with the 

desired confidence level (for example, 

1.96 for a two-sided 95 percent 

confidence level). 

As noted above, we propose a sample 

size of 200 enrollees from each issuer 

for the initial 2 years of the program. 

The formula above would be used after 

this initial 2-year period to calculate a 

more precise, issuer-specific sample size 

for each issuer. 

The proposed formula for calculating 

the sample size for each stratum is: 

Where: 

Nh is the population size of the hth stratum; 

n is the overall sample size; and 

Sh represents the standard deviation of risk 

score error for the hth stratum. 

For the 2014 benefit year, the 

parameters listed above were developed 

using data from two principal sources: 

Medicare Advantage risk adjustment 

data validation net error rates and 

variances; and expenditures data from 

the Truven Health Analytics 2010 

MarketScan® Commercial Claims and 

Encounters database (MarketScan®). We 

chose to use Medicare Advantage error 

rates because Medicare Advantage 

utilizes an HCC-based methodology 

similar to the one used for HHS risk 

adjustment, and because it uses a 

similar risk adjustment data validation 

process to determine payment error 

rates. 

We also chose to use the MarketScan®

expenditure database because of the 

comprehensiveness of the database, 

which was the primary source for 

calibration for the HHS risk adjustment 

models. The database contains enrolleespecific claims utilization, 

expenditures, and enrollment across 

inpatient, outpatient, and prescription 

drug services from a selection of large 

employers and health plans. The 

database includes de-identified data 

from approximately 100 payers, and 

contains more than 500 million claims 

from insured employees, spouses, and 

dependents. 

We used enrollee predicted 

expenditure results from our risk 

adjustment model calibration, which 

was based on the MarketScan® data, to 

stratify the population (by age group for 

enrollees with HCCs, and within a 

single group for enrollees with no 

HCCs), then calculated risk scores for 

the predicted expenditures to relate 

them to the average expenditures. To 

estimate a sample size for each issuer, 

an average issuer size was estimated 

based on the total expected insured 

population and the total expected 

number of issuers. The average issuer 

population containing enrollees with 

and without HCCs was assumed to be 

split 20 percent with HCCs and 80 

percent without HCCs, consistent with 

the MarketScan® data. 

We propose to group each issuer’s 

enrollee population into 10 strata based 

on age group, risk level, and presence of 

HCCs, as follows: 

• Strata 1–3 would include low, 

medium, and high risk adults with the 

presence of at least one HCC. 

• Strata 4–6 would include low, 

medium, and high risk children with 

the presence of at least one HCC. 

• Strata 7–9 would include low, 

medium, and high risk infants with the 

presence of at least one HCC. 

• Stratum 10 will include the NoHCC population, which will not be 

further stratified by age or risk level, 

because we assume this stratum has a 

uniformly low error rate. 

We calculated a predicted risk score 

for each individual in each stratum by 

dividing the predicted expenditures for 

that individual by the average predicted 

expenditures for the entire population. 

Using these individual predicted risk 

scores, we calculated the overall average 

risk score for all individuals in each 

risk-based stratum. This calculation was 

performed nine times for the HCC 

population—once for each of the three 

risk-based strata within each of the three 

age groups. We set the minimum risk 

score for enrollees without HCCs in the 

tenth stratum. 

This method of stratification is similar 

to that used in the Medicare Advantage 

risk adjustment data validation program. 

That program divides enrollees into 

three strata, representing low, medium, 

and high risk expenditures. Error rates 

and variances are calculated for each of 

these strata. In the initial year, before 

error rate and standard deviation data 

for the population subject to the HHSoperated risk adjustment program are 

available, we propose to use the 

Medicare Advantage error rates and 

variances to calculate sample sizes. 

After the initial year, we will evaluate 

whether sufficient HHS-operated risk 

adjustment error rate and standard 

deviation data are available to calculate 

sample sizes. 

We propose to use the lowest error 

rate across all HCC strata as the error 

rate for the stratum of enrollees without 

HCCs, and we propose to use the 

variance associated with that error rate 

to calculate the standard deviation of 

the error for the stratum of enrollees 

without HCCs. If error rates and 

variances are smaller than assumed for 

this stratum, the resulting sampling 

precision may increase. 

Because the Medicare Advantage error 

rates and variances are not calculated 

for different age bands, and therefore are 

available only for three risk-score 

differentiated subgroups, we used the 

same risk score error rates and standard 


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8Critical value for the two-sided 95 percent 

confidence level. 

9Whether any given organization is a HIPAA 

business associate is a fact-specific inquiry. We 

expect that most independent auditors operating on 

behalf of an issuer of a health plan would be 

performing activities that would render them a 

business associate of the covered plan, and would 

be required to enter into and maintain a business 

associate agreement with the health plan. 

deviation for the age bands for a risk 

category. Thus, we used the same risk 

score error rate and standard deviation 

assumptions for the adult, child, and 

infant strata associated with each risk 

score band. We do not anticipate the 

expected risk score error rate and 

variance to be uniform for all age 

groups; however, in the absence of data, 

we made this simplifying assumption. 

In general, we believe the Medicare 

Advantage error rates and variances 

likely overstate the corresponding error 

rates and assumptions for the HHS risk 

adjusted population, and therefore, the 

estimated precision of our error 

estimates may be understated. 

The formulas identified above require 

data on error rates and standard 

deviations for the strata, and also a 

target confidence interval and sampling 

precision level (or margin of error). For 

the initial year, we propose to use a 10 

percent relative sampling precision at a 

two-sided 95 percent confidence level. 

That is, we wish to obtain a sample size 

such that 1.96 8 multiplied by the 

standard error, divided by the estimated 

adjusted risk score, equals 10 percent or 

less. After actual data are collected from 

the initial year, we will test and 

evaluate the data for use in determining 

the sample size in future years. 

Once the proposed overall sample 

size is calculated, the enrollee count 

will be distributed among the 

population based on the second formula 

above for calculating the sample size of 

each stratum. Because strata with 

enrollees with HCCs have a higher 

standard deviation of risk score error, 

the overall sample will be 

disproportionately allocated to enrollees 

with HCCs (Strata 1–9), helping to 

ensure adequate coverage of the higher 

risk portion of the enrollee population. 

In the proposed rule for the 2014 

Payment Notice, we suggested that an 

issuer’s initial validation audit sample 

for risk adjustment data validation 

would consist of approximately 300 

enrollees. After conducting the 

calculations described above, we believe 

that we can achieve acceptable sampling 

precision with a sample size of 200 

enrollees for the initial years of HHSoperated risk adjustment data 

validation. Therefore, we are proposing 

a sample size of 200 enrollees in the 

initial 2 years of the program. As noted 

above, we may provide for different, or 

issuer-specific, sample sizes in future 

years. 

When data becomes available from 

the program’s first year, we expect to 

examine our sampling assumptions 

using actual enrollee data. We anticipate 

that at least in the initial years of the 

risk adjustment data validation program, 

the stratification design will remain 

consistent with the design outlined 

above—nine HCC strata and one NoHCC stratum. However, the specific size 

and allocation of the sample to each 

stratum may be refined based on average 

issuer enrollee risk score distributions. 

For example, in future years, we are 

considering using larger sample sizes for 

larger issuers or issuers with higher 

variability in their enrollee risk scores, 

and smaller sample sizes for smaller 

issuers or issuers with lower variability 

in their enrollee risk scores. The 

sampling design may also consist of a 

minimum and maximum sample size 

per stratum for each average issuer 

(large, medium, small) to follow when 

selecting the sample. 

We seek comments on this approach, 

including our proposed sample size of 

200 enrollees for the initial 2 years of 

HHS-operated risk adjustment data 

validation. 

(ii) Initial Validation Audit 

The second stage of the HHS-operated 

risk adjustment data validation process 

is the initial validation audit. In 

§ 153.630(b)(1), we require an issuer of 

a risk adjustment covered plan to engage 

one or more independent auditors to 

perform an initial validation audit of a 

sample of its risk adjustment data 

selected by HHS, which will include 

individually identifiable health 

information subject to HIPAA.9 In this 

section of this proposed rule, we discuss 

proposed standards and guidelines 

regarding the qualifications of the initial 

validation auditor, including conflict of 

interest standards, standards for the 

initial validation audit, rater 

consistency and reliability, and 

confirmation of risk adjustment errors. 

As discussed in the white paper, we 

considered existing best practices and 

standards for independent auditors, 

such as those of Medicare Quality 

Improvement Organizations and the 

National Committee for Quality 

Assurance, when establishing our 

standards for initial validation auditors. 

(1) Initial Validation Auditor 

The 2014 Payment Notice established 

certain standards for the initial 

validation auditor. In § 153.630(b)(2) 

and (b)(3), we direct the issuer to ensure 

that the initial validation auditor is 

reasonably capable of performing an 

initial validation audit, and is 

reasonably free of conflicts of interest, 

such that it is able to conduct the initial 

validation audit in an impartial manner 

with its impartiality not reasonably 

open to question. 

In the white paper, we elaborated on 

options for ensuring that an initial 

validation auditor meets these criteria, 

including standardized auditor 

certification processes and 

promulgation of best practices. Many 

commenters sought additional 

information and guidance regarding 

initial validation auditor selection and 

requested that HHS define conflicts of 

interest between an issuer and the 

initial validation auditor. We propose 

certain guidance on these topics here. 

We are considering the following 

criteria for assessing conflicts of interest 

between the issuer and the initial 

validation auditor: 

• Neither the issuer nor any member 

of its management team (or any member 

of the immediate family of such a 

member) may have any material 

financial or ownership interest in the 

initial validation auditor, such that the 

financial success of the initial validation 

auditor could be seen as materially 

affecting the financial success of the 

issuer or management team member (or 

immediate family member) and the 

impartiality of the initial validation 

audit process could reasonably be called 

into question, or such that the issuer or 

management team member (or 

immediate family member) could be 

reasonably seen as having the ability to 

influence the decision-making of the 

initial validation auditor; 

• Neither the initial validation 

auditor nor any member of its 

management team or data validation 

audit team (or any member of the 

immediate family of such a member) 

may have any material financial or 

ownership interest in the issuer, such 

that the financial success of the issuer 

could be reasonably seen as materially 

affecting the financial success of the 

initial validation auditor or management 

team or audit team member (or 

immediate family member) and the 

impartiality of the initial validation 

audit process could reasonably be called 

into question, or such that the initial 

validation auditor or management or 

audit team member (or immediate 

family member) could be seen as having 

the ability to influence the decisionmaking of the issuer; 

• Owners, directors and officers of 

the issuer may not be owners, directors 


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or officers of the initial validation 

auditor, and vice versa; 

• Members of the data validation 

audit team of the initial validation 

auditor may not be married to, in a 

domestic partnership with, or otherwise 

be in the same immediate family as an 

owner, director, officer, or employee of 

the issuer; and 

• The initial validation auditor may 

not have had a role in establishing any 

relevant internal controls of the issuer 

related to the risk adjustment data 

validation process when HHS is 

operating risk adjustment on behalf of a 

State, or serve in any capacity as an 

advisor to the issuer regarding the initial 

validation audit. In addition, we are 

considering standards under which 

issuers would verify that no key 

individuals involved in supervising or 

performing the initial validation audit 

have been excluded from working with 

either the Medicare or Medicaid 

program, are on the Office of the 

Inspector General exclusion list, or are 

under investigation with respect to any 

HHS programs. 

We note that we intend to review the 

initial validation auditor’s qualifications 

and relationship to the issuer to verify 

that the initial validation auditor is 

qualified to perform the audit, and that 

the issuer and initial validation auditor 

are free of actual or apparent conflicts 

of interest, including those stated above. 

We note that HHS could gather 

information through external reporting 

to support that review. Although we are 

confident that most issuers will exercise 

diligence in selecting an initial 

validation auditor that will be able to 

comply with HHS audit standards, we 

intend to monitor the performance of 

initial validation auditors to determine 

whether certification or additional 

safeguards are necessary. 

We propose to amend § 153.630(b)(1) 

to specify that the issuer of a risk 

adjustment covered plan must provide 

HHS with the identity of the initial 

validation auditor, and must attest to 

the absence of conflicts of interest 

between the initial validation auditor 

(or the members of its audit team, 

owners, directors, officers, or 

employees) and the issuer (or its 

owners, directors, officers, or 

employees). We propose to consider any 

individual with a significant ownership 

stake in an entity such that the 

individual could reasonably be seen to 

have the ability to influence the 

decision making of the entity to be an 

‘‘owner,’’ and propose to consider any 

individual that serves on the governing 

board of an entity to be a director of the 

entity. We are contemplating beginning 

the initial validation process at the end 

of the first quarter of the year following 

the benefit year, with the issuer’s 

submission of the initial validation 

auditor’s identity. We expect to identify 

the enrollee sample for the initial 

validation audit in the summer of the 

year following the benefit year. We are 

contemplating requiring delivery of the 

initial validation audit findings to HHS 

in the fourth quarter of that year. We 

include a proposed schedule of the risk 

adjustment data validation process at 

the end of this section. 

Once the audit sample is selected by 

HHS, we expect issuers would ensure 

that the initial validation audit is 

conducted in the following manner: 

• The issuer would provide the initial 

validation auditor with source 

enrollment and source medical record 

documentation to validate issuersubmitted risk adjustment data for each 

sampled enrollee; 

• The issuer and initial validation 

auditor would determine a timeline and 

information-transfer methodology that 

satisfies data security and privacy 

requirements, including the applicable 

provisions of HIPAA, and enables the 

initial validation auditor to meet HHS 

established timelines; 

• The initial validation auditor would 

analyze the enrollment and medical 

record data to validate the demographic 

information, plan or plan variation 

enrollment, and health status of each 

enrollee in the sample in accordance 

with the standards established by HHS; 

and 

• The initial validation auditor would 

provide HHS with the final results from 

the initial validation audit and all 

requested information for the second 

validation audit. 

We note that § 153.630(f)(2) is not 

changed by this proposal, and that the 

issuer would be required to ensure that 

its initial validation auditor comply 

with the security standards described at 

45 CFR 164.308, 164.310, and 164.312 

in connection with the initial validation 

audit. We seek comments on these 

proposals. 

(2) Standards for the Initial Validation 

Audit 

We propose to add a new paragraph 

(b)(5) to § 153.630, in which we propose 

that an initial validation audit review of 

enrollee health status be conducted by 

medical coders certified after 

examination by a nationally recognized 

accrediting agency for medical coding, 

such as the American Health 

Information Management Association 

(AHIMA) or the American Academy of 

Professional Coders (AAPC). We seek 

comment on other nationally recognized 

accrediting agencies that may be 

appropriate to certify medical coders 

who are performing the initial 

validation audit review of enrollee 

health status. 

(3) Validation of Enrollees’ Risk Scores 

An enrollee’s risk score is derived 

from demographic and health status 

factors, which requires the use of 

enrollee identifiable information. Thus, 

we propose to add paragraph (b)(6) to 

§ 153.630, to require an issuer to 

provide the initial validation auditor 

and the second validation auditor with 

all relevant information on each 

sampled enrollee, including source 

enrollment documentation, claims and 

encounter data, and medical record 

documentation (defined below) from 

providers of services to enrollees in the 

applicable sample without unreasonable 

delay and in a manner that reasonably 

assures confidentiality and security of 

data in transmission (‘‘data in transit’’). 

We note that existing privacy and 

security standards, such as standards 

under HIPAA and those detailed at 

§ 153.630(f)(2), would apply. This 

information will be used to validate the 

enrollment, demographic, and health 

status data of each enrollee. Only source 

documentation for encounters with 

dates of services within the applicable 

benefit year would be considered 

relevant. This would require issuers to 

collect the appropriate enrollment and 

claims information from their own 

systems, as well as from all relevant 

providers (particularly with respect to 

medical record documentation). We 

note that only a very small percentage 

of an issuer’s records containing 

personally identifiable information 

would be made available to auditors as 

part of the risk adjustment data 

validation process, and that similar 

transmissions are required today for 

data validation for the Medicare 

Advantage program. As we describe in 

this section at (viii), regarding data 

security standards, we are seeking 

comment on the applicability and 

effectiveness of current standards, as 

well as what other standards HHS 

should promulgate to ensure data 

security and privacy protections. 

We also propose to add paragraph 

(b)(7) to § 153.630 to describe the 

standards for validating each factor of 

an enrollee’s risk score. In paragraph 

(b)(7)(i), we propose that the initial 

validation auditor must validate 

demographic data and enrollment 

information by reviewing plan source 

enrollment documentation, such as the 


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10 Issuers and State Exchanges use the ASC X12 

Standards for Electronic Data Interchange Technical 

Report Type 3—Benefit Enrollment and 

Maintenance (834), August 2006, ASC X12N/

005010X220, as referenced in § 162.1502, or ‘‘834 

form’’ to transmit and update enrollment and 

eligibility to HHS as often as daily but at least 

monthly. In Federal operations, HHS and the issuer 

exchange and update data via this same form. 

11See ‘‘HHS-Operated Data Collection Policy 

FAQ’’ for a discussion of chart review as an 

acceptable source of supplemental diagnosis codes. 

Additional detail will be provided in future 

guidance. https://www.regtap.info/uploads/library/

HHS_OperatedDataCollectionPolicyFAQs_062613. 

834 transaction,10 which is the HIPAAstandard form used for plan benefit 

enrollment and maintenance 

transactions. These enrollment 

transactions reflect the data the issuer 

captured for an enrollee’s age, name, 

sex, plan of enrollment, and enrollment 

periods in the plan. We note that certain 

identifying information from these 

enrollment transactions, such as the 

enrollee’s name, would be used to 

ensure that the appropriate medical 

documentation has been provided. 

The sample audit pool will consist of 

enrollees with and without risk 

adjustment-eligible diagnoses within 

eligible dates of service. For each 

enrollee in the sample with risk 

adjustment HCC scores, the initial 

validation auditor would validate 

diagnoses through a review of the 

relevant risk adjustment-eligible 

medical records. We consider medical 

record documentation generated with 

respect to dates of service that occurred 

during the benefit year at issue to be 

relevant for these purposes. For 

enrollees without risk adjustment HCCs 

for whom the issuer has submitted a risk 

adjustment-eligible claim or encounter, 

we would require the initial validation 

auditor to review all medical record 

documentation for those risk 

adjustment-eligible claims or 

encounters, as provided by the issuer, to 

determine if HCC diagnoses should be 

assigned for risk score calculation, 

provided that the documentation meets 

the requirements for the risk adjustment 

data validation audits. Documents used 

to validate all components of the risk 

score must reflect dates of service 

during the applicable benefit year. In 

the initial years of the data validation 

program, we plan to accept certain 

supplemental documentation, such as 

health assessments, to support the risk 

adjustment diagnosis. We expect to 

provide additional details on acceptable 

supplemental documentation in future 

guidance.11

Therefore, in § 153.630(b)(7)(ii), we 

propose that the validation of enrollee 

health status (that is, the medical 

diagnoses) occur through medical 

record review, that the validation of 

medical records include a check that the 

records originate from the provider of 

the medical services, that they align 

with the dates of service for the medical 

diagnosis, and that they reflect 

permitted providers and services. In this 

paragraph, we also propose, for 

purposes of § 153.630, that ‘‘medical 

record documentation’’ mean: ‘‘clinical 

documentation of hospital inpatient or 

outpatient treatment or professional 

medical treatment from which enrollee 

health status is documented and related 

to accepted risk adjustment services that 

occurred during a specified period of 

time.’’ Medical record documentation 

must be generated in the course of a 

face-to-face or telehealth visit 

documented and authenticated by a 

permitted provider. We expect to 

provide additional guidance on 

telehealth services in future guidance. 

In § 153.630(b)(7)(iii), we propose that 

medical record review and abstraction 

be performed in accordance with 

industry standards for coding and 

reporting. Current industry standards 

are set forth in the International 

Classification of Diseases, Ninth 

Revision, Clinical Modification (ICD–9– 

CM), or the International Statistical 

Classification of Diseases and Related 

Health Problems, Tenth Revision, 4th 

Edition (ICD–10–CM) guidelines for 

coding and reporting. 

(4) Confirmation of Risk Adjustment 

Errors 

We note that the data validation audit 

processes may identify various 

discrepancies, many of which will have 

no impact on an enrollee’s risk score. 

For example, if a medical diagnosis 

underlying an enrollee’s HCC was 

present on a claim but was not 

supported by medical record 

documentation, but the same HCC was 

supported by the medical record for a 

different diagnosis, we propose that no 

risk adjustment error be assessed for the 

enrollee’s HCC. However, if none of the 

medical record documentation supports 

a particular HCC diagnosis for an 

enrollee, we propose that a risk 

adjustment error be assessed. 

We consider a risk adjustment error to 

occur when a discrepancy uncovered in 

the data validation audit process results 

in a change to the enrollee’s risk score. 

A risk adjustment error may result from 

incorrect demographic data, an 

unsupported HCC diagnosis, or a new 

HCC diagnosis identified during the 

medical record review. An unsupported 

HCC diagnosis could be the result of 

missing medical record documentation, 

medical record documentation that does 

not reflect the diagnosis, or invalid 

medical record documentation (such as 

an unauthenticated record or a record 

that does not meet risk adjustment data 

collection standards for the applicable 

benefit year). 

We propose in § 153.630(b)(7)(iv) that 

a senior reviewer must confirm any 

finding of a risk adjustment error. We 

believe that a senior reviewer is a 

reviewer with substantial expertise in 

medical record coding such that the 

initial validation auditor would 

consider the senior reviewer to be the 

standard against which to measure 

inter-rater reliability and coding 

consistency. As such, we propose to 

define a senior reviewer as a medical 

coder certified by a nationally 

recognized accrediting agency who 

possesses at least 5 years of experience 

in medical coding. We seek comment on 

the credentials and expertise that 

should be required of a senior reviewer. 

(5) Review Consistency and Reliability 

Validation audits typically include 

methods of evaluating review 

consistency and reliability. We believe 

such processes help to ensure the 

integrity of the data validation process 

and strengthen the validity of audit 

results. In § 153.630(b)(8), we propose 

that the initial validation auditor 

measure and report to the issuer and 

HHS its inter-rater reliability rates 

among its reviewers. Such processes 

measure the degree of agreement among 

reviewers. We propose to set the 

threshold for the acceptable level of 

consistency among reviewers at 95 

percent for both demographic and 

enrollment data review, and health 

status data review outcome. Reviews 

should be performed using rater-tostandard procedures whereby reviews 

conducted by reviewers with extensive 

qualifications and credentials are used 

to establish testing thresholds or 

standards for consistency. 

(iii) Second Validation Audit 

The initial validation audit will be 

followed by a second validation audit, 

which will be conducted by an auditor 

retained by HHS to verify the accuracy 

of the findings of the initial validation 

audit. 

We propose to select a subsample of 

the initial validation audit sample 

enrollees for review by the second 

validation auditor. The second 

validation auditor would perform the 

data validation audit of the enrollee 

subsample, adhering to the same audit 

standards applicable to the initial 

validation audit described above, but 

would only review enrollee information 

that was originally presented during the 

initial validation audit. In § 153.630(c), 


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we established standards for issuers of 

risk adjustment covered plans related to 

HHS’s second validation audit. In 

§ 153.630(b)(4), we established that 

issuers must submit (or ensure that their 

initial validation auditor submits) data 

validation information, as specified by 

HHS, from their initial validation audit 

for each enrollee included in the initial 

validation sample. Issuers must transmit 

all information to HHS or its second 

validation auditor in a timeframe and 

manner to be determined by HHS. The 

second validation auditor would inform 

the issuer of error findings based on its 

review of enrollees in the second 

validation audit subsample. We will 

provide additional guidance on the 

manner and timeframe of these 

submissions in the future. 

As discussed in the white paper, we 

are considering selecting the second 

validation audit subsample using a 

sampling methodology that will allow 

for pair-wise means testing to establish 

statistical difference between the initial 

and second validation audit results. If 

the pair-wise means test results suggest 

that the difference in enrollee results 

between the initial validation audit and 

second validation audit is not 

statistically significant, the initial 

validation audit error results would be 

used for error estimation and 

calculation of adjustments for plan 

average risk score. If the test results 

suggest a statistical difference, the 

second validation auditor would 

perform another validation audit on a 

larger subsample of the enrollees 

previously subject to the initial 

validation audit. The results from the 

second validation audit of the larger 

subsample would again be compared to 

the results of the initial validation audit 

using the pair-wise means test. Again, if 

no statistical difference is found 

between the initial validation audit and 

the second validation audit conducted 

on the larger subsample, HHS would 

apply the initial validation audit error 

results for error estimation using all 

enrollees selected for the initial 

validation audit sample. However, if a 

statistical difference is found based on 

the second validation audit on the larger 

subsample, HHS would apply the 

second validation audit error results to 

modify the risk scores of the issuer’s 

enrollees, as discussed below. We are 

considering using a 95 percent 

confidence interval, but seek comment 

on the appropriate confidence interval 

to use with respect to these pair-wise 

means tests. 

As discussed in the white paper, we 

are considering a number of ways to 

expedite the second validation audit 

and the subsequent appeals processes. 

One possibility would be to begin the 

second validation audit on those 

enrollees for which the initial validation 

audit is complete, even if the entire 

initial validation audit has not been 

completed. For example, an issuer could 

allow its initial validation auditor to 

submit data validation documentation 

and results a number of months in 

advance of the HHS established 

deadline for submission of initial 

validation audit results. The second 

validation auditor would thus be able to 

begin its review earlier, permitting more 

time to provide feedback to the issuer 

on the results of that review and 

allowing for more opportunity for 

discussion prior to finalizing the second 

validation audit findings. Prior to 

finalizing the risk score adjustment 

based on the second validation audit 

findings, the second validation auditor 

may request discussions with the initial 

validation auditor to identify the source 

of the differences, or may review the 

initial validation auditor’s processes. If 

the initial validation audits are 

substantiated, the second validation 

auditor may adjust its risk scores 

accordingly. This process would not 

allow for any additional documentation 

to be submitted on those enrollees for 

which the second validation audit began 

early. The appeals decision from the 

expedited, concurrent process would be 

final and binding, but would provide 

issuers the opportunity to begin the 

process earlier. If HHS establishes a 

concurrent second validation audit and 

appeals process, we would need to 

develop intermediate timelines for 

initial validation auditor submission of 

audit documentation and data to the 

second validation auditor. We seek 

comments on this approach for 

establishing a concurrent second 

validation audit and appeals process. 

(iv) Error Estimation 

The fourth stage in the HHS risk 

adjustment data validation process is 

error estimation. Upon completion of 

the initial and second validation audits, 

HHS will derive an issuer-level risk 

score adjustment and confidence 

interval. This adjustment would be used 

to adjust the average risk score for each 

risk adjustment eligible plan offered by 

the issuer. HHS intends to provide each 

issuer with enrollee-level audit results 

and the error estimates. 

We are proposing a two-phase 

procedure to accept or correct the 

results of the initial validation audit 

based on the results of the second 

validation audit. In phase one, as 

described above, we conduct a pair-wise 

statistical test for consistency between 

the initial validation and second 

validation audit results (as described 

above for second validation audits). In 

phase two, if we determine that the 

results of the two audits are 

inconsistent, we would adjust the initial 

validation audit results based on the 

second validation audit results. For 

phase two, we describe two options for 

using second validation audit results to 

derive an estimate of an overall 

corrected risk score for each issuer. 

Phase One: Consistency Test between 

Initial and Second Validation Audit 

In phase one, a pair-wise statistical 

test would be performed to determine if 

the initial validation audit sample 

results should be adjusted using the 

results of the second validation audit. 

To illustrate the underlying statistical 

test, consider the following notations: 

x ̃i is the ith initial validation audit 

risk score observation in the second 

validation audit sample of n 

observations; 

y ̃i is the ith second validation audit 

risk score observation in the second 

validation audit sample of n 

observations; 

di is the difference between y ̃i and x ̃i

within the second validation audit 

sample; 

d ̄ is the mean of all di observations 

within the second validation audit 

sample; and 

Sx is standard deviation of all di

observations within the second 

validation audit sample. 

Assume an issuer submits enrollment 

and claims data to its dedicated 

distributed data environment that are 

used to compute a set of ‘‘original’’ risk 

scores. As required by the risk 

adjustment data validation process, the 

issuer engages an independent 

validation auditor, who reviews N 

enrollee records, as sampled by HHS, 

and validates the original enrollee risk 

scores. 

From the N enrollees in the initial 

validation audit sample, HHS selects a 

smaller second validation audit 

subsample of n enrollees. For each 

second validation audit selected record, 

HHS calculates the difference, di = y ̃i ¥ 

x ̃i. HHS then conducts a pair-wise 

means test to determine whether the 

mean difference, d ̄ , is statistically 

significant (that is, unlikely to be zero). 

Specifically, HHS would conduct a 

statistical test to determine if zero (0) is 

contained within the range, 

If so, HHS would conclude that there is 

no statistically significant difference 

between risk scores determined by the 

initial and second validation audit 


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12For a discussion of stratified separate ratio 

estimators, see Cochran, William G., Sampling 

Techniques, third edition, John Wiley & Sons, 1977, 

at 164. 

processes, and would accept the results 

of the initial validation audit. 

However, if zero (0) is not contained 

within this range (that is, the difference 

between d ̄ and zero is statistically 

significant), HHS would expand the 

second validation audit subsample to 

select a larger subset of N, have the 

second validation auditor review the 

enrollee files, and again conduct a pairwise means test using this larger 

subsample. If the statistical test shows 

no statistically significant difference, 

HHS would accept the results of the 

initial validation audit. If the statistical 

test shows a statistically significant 

difference between the initial and larger 

subsample second validation audit 

findings, HHS would conduct phase two 

to adjust the full initial validation audit 

sample based on the larger subsample 

second validation audit findings. 

Phase Two: Adjustment to the Initial 

Validation Audit Sample 

In phase two, we propose that if the 

difference between the initial and 

second validation audits is found to be 

statistically significant, then HHS would 

utilize the risk score error rate 

calculated from the larger second 

validation audit subsample to adjust the 

full initial validation audit sample, 

which could in turn be used to adjust 

the average risk scores for each plan. 

This approach would adjust the entire 

initial validation audit sample using a 

one-for-one replacement for the 

enrollees reviewed by the second 

validation audit, and a uniform 

adjustment for the enrollees that were 

not. We also considered another option, 

as discussed in the white paper and 

below. Under this alternate approach, 

we would use the error rate from the 

larger second validation audit 

subsample directly in our determination 

of whether and by how much to adjust 

the risk scores of all enrollees in the 

issuer’s risk adjustment covered plans. 

This approach would disregard all 

enrollees in the initial validation audit 

sample that were not reviewed as part 

of the larger second validation audit 

subsample. 

To illustrate these two options under 

the phase two adjustment process, 

consider the following notations: 

M is the total number of enrollees in 

the risk adjustment covered plan; 

N is the initial validation audit 

sample size; 

n is the size of the larger second 

validation audit subsample; 

y ̄ N is the mean of the initial validation 

audit-adjusted risk scores in the initial 

validation audit sample N; 

y ̄ n is the mean of the second 

validation audit-adjusted risk scores in 

the second validation audit sample n; 

x ̄ N is the mean of the original risk 

scores in the initial validation audit 

sample N; 

x ̄ n is the mean of the original risk 

scores in the second validation audit 

sample n; 

X ̄ M is the original risk score total 

across all M records; 

Yˆ N is the projected correct risk score 

across all M records using the initial 

validation error rate; and 

yˆ n is the projected correct risk score 

across all M records using the error rate 

from the larger second validation audit 

subsample. 

Under this proposed approach, we 

would undertake the following steps to 

adjust the risk scores in the initial 

validation audit samples: 

(1) Replace the initial validation 

audit-adjusted risk scores with the 

second validation audit-adjusted risk 

scores in the n records that were 

sampled from N (one-for-one risk score 

adjustment). 

(2) Apply a uniform adjustment 

factor, 

to the initial validation audit-adjusted 

risk scores in the (N-n) records not 

reviewed by the second validation 

audit. 

Under the alternate approach, the 

second validation audit-adjusted risk 

scores in the n records in the larger 

second validation audit subsample 

would be used as the basis for 

adjustment of plan-level average risk 

scores. 

Considering the comments in 

response to the white paper, and in 

order to estimate error using a narrower 

confidence interval, we are proposing to 

use the larger second validation audit 

subsample to adjust the initial 

validation audit sample (by direct 

replacement for enrollees reviewed by 

the second validation audit, and by 

proportional adjustment for the other 

enrollees), whose adjusted error rate 

could be used as a basis to adjust plan 

average risk scores for all risk 

adjustment covered plans of the issuer. 

We seek comment on our proposed 

approach. 

Adjusted Risk Score Projections 

Based on the proposals described 

above, the results of the initial or second 

validation audits could be used as the 

basis for projecting a corrected risk 

score for each issuer’s population. The 

projections described above would be 

performed on a stratum-by-stratum level 

and weighted accordingly to achieve an 

estimate of the corrected risk score for 

each issuer. As described in the white 

paper, a stratified separate ratio 

estimator 12 would be used to estimate 

the corrected average risk score for each 

issuer. To compute the stratified 

separate ratio estimator, HHS would 

first extrapolate the total correct risk 

score within each stratum, then sum the 

stratum-specific projected correct risk 

scores for all strata, with the total sum 

divided by the total enrollee count to 

arrive at the corrected average risk 

score. The projected risk score error 

could then be calculated as the 

difference between the recorded average 

risk score across the entire population 

and the point estimate. 

The stratified separate ratio estimator 

of the total correct risk score is 

calculated using the following equation: 

Where: 

Yˆ R is used to estimate the correct risk 

score; 

y ̄ h is the sample mean of the correct risk 

score in stratum h; 

x ̄ h is the sample mean of the original risk 

score in stratum h; 

Xh is the total sum of the original risk score 

in stratum h; and 

H is the total number of strata. 

Yˆ R would then be normalized by the 

enrollment count to derive a corrected 

average risk score for the issuer. 

To estimate the variance of the point 

estimate, HHS will first estimate the 

variance within each stratum and then 

sum the stratum-specific variances for 

all strata. The estimated variance of the 

stratified separate ratio estimate for the 

correct risk score is calculated as 

follows: 


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Federal Register / Vol. 78, No. 231 / Monday, December 2, 2013 / Proposed Rules 72337 

13 If the test passes, then no adjustments would 

be made to the sample of 200 and the projected 

results from this sample would be used to adjust 

average plan liability risk scores. 

Where: 

nh is the number of enrollees sampled in 

stratum h; 

Nh is the population frequency in stratum 

h; 

yih is the corrected risk score for the ith 

sampled enrollee in stratum h; 

xih is the original risk score for the ith 

sampled enrollee in stratum h; and 

The square root of the estimated 

variance is the standard error (SE). 

We are proposing to use the issuer’s 

corrected average risk score to compute 

an adjustment factor, based on the ratio 

between the corrected average risk score 

and the original average risk score that 

could be applied to adjust plan average 

risk for all risk adjustment eligible plans 

within the issuer. We are considering 

two options for applying the adjustment 

factor. Under the first option, we are 

considering directly applying an 

adjustment factor to all of the issuer’s 

risk adjustment covered plans. Under 

the second option, we are considering 

applying this adjustment only if the 

corrected average risk score and the 

recorded average risk score are 

statistically different. 

Were we to implement the second 

option, a critical parameter of the 

statistical test would be the target 

confidence interval, which would 

determine the stringency of the test. For 

example, we could perform the 

statistical test at the 90, 95, or 99 

percent confidence interval. We note 

that the HHS Office of the Inspector 

General performs certain similar data 

validation tests using a 90 percent 

confidence interval, while the Medicare 

Advantage risk adjustment data 

validation program uses a 99 percent 

confidence interval. We also note that 

even if the statistical test finds the two 

risk scores to be statistically different, 

we could apply the adjustment factor to 

adjust plan average risk scores based 

upon using the point estimate of the 

adjusted average risk score, or some 

other value within an interval around 

the point estimate, such as the upper or 

lower bound of a 95 percent confidence 

interval around the point estimate. 

The choice among these options poses 

a tradeoff between reducing issuers’ 

incentives to aggressively report or code 

diagnoses, and increasing the variability 

of issuers’ risk adjustment payments. 

Under the first option, an issuer that 

reports data that systematically 

overstates its risk score would, on 

average, assuming the corrected risk 

scores are unbiased estimates of the true 

risk scores, receive a downward 

adjustment to its reported risk score 

equal in magnitude to the degree of 

overstatement. As a result, this option 

could eliminate an issuer’s incentive to 

overstate its risk score. On the other 

hand, due to sampling variation, the 

first option would routinely introduce 

significant variability in issuers’ risk 

scores (both up and down), even if the 

issuer was making no attempt to 

manipulate its risk scores. While these 

adjustments would make such an 

issuer’s risk adjustment payments less 

predictable in any given year, they 

would not introduce systematic bias in 

risk scores (assuming the corrected risk 

scores are unbiased estimates of the true 

risk scores). 

The second option, in contrast, would 

only adjust an issuer’s risk scores when 

it is very likely that the reported risk 

scores deviated from the true values, so 

issuers’ risk adjustment payments 

would be more predictable. However, 

particularly if the confidence level of 

the statistical test were set at a high 

threshold, this approach would often 

fail to make adjustments when an issuer 

does in fact overstate its risk score. 

Based on commenters’ feedback on 

the white paper, we are proposing to use 

the second approach described above— 

we would adjust the plan average risk 

scores of an issuer based upon the ratio 

between the correct average risk score 

estimate and recorded average risk score 

only if the difference between the 

estimated and recorded average risk 

scores were determined to be 

statistically significant. We are 

proposing to use a 95 percent 

confidence interval to determine if the 

adjusted average risk score and the 

recorded average risk score are 

statistically different. Nevertheless, we 

welcome comments on both options 

discussed above and on the appropriate 

tradeoff between reducing issuers’ 

incentive to aggressively report or code 

diagnoses and increasing the variability 

of issuers’ risk adjustment payments. In 

addition, regarding the proposed 

approach in particular, we seek 

comments on the appropriate 

confidence interval to apply when 

determining whether an adjustment to 

an issuer’s plan average risk score is 

necessary. 

Error Estimation Example 

To illustrate the corrected average risk 

score and error estimation process 

described above, assume that a sample 

of 200 enrollees is selected for initial 

validation audit review for a particular 

issuer. From this sample, assume that a 

subsample of 20 enrollees is selected for 

second validation audit review. Assume 

the issuer’s average recorded population 

risk score is 1.60 and the projected 

correct population risk score from the 

sample of 200 is 1.40, with a two-sided 

95 percent confidence interval of 1.30 to 

1.50. 

The first step in the error estimation 

process will determine if the initial 

validation audit results should be 

corrected based on the second 

validation audit review or accepted 

without adjustment. We would perform 

a pair-wise means test to compare the 

projected risk scores for the sample of 

200 enrollees and the subsample of 20 

enrollees. 

For this example, assume that the 

statistical test fails (that is, there is a 

statistically significant difference 

between the projected risk scores in the 

sample of 200 and the subsample of 

20).13 We would then select an 

expanded subsample from the original 

sample of 200 enrollees. Assume that 

the larger sample is a sample of 100 

enrollees. Following completion of the 

larger second validation audit, we 

would perform the pair-wise means test 

again. Assume the test fails again (that 

is, there is a statistically significant 

difference in the projected risk scores 

between the sample of 200 and the 

larger subsample of 100). We would 

conclude that the risk scores in the 

sample of 200 enrollees need to be 

adjusted. 


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72338 Federal Register / Vol. 78, No. 231 / Monday, December 2, 2013 / Proposed Rules 

In the second step of error estimation, 

HHS would adjust the risk scores in the 

sample of 200 using a one-for-one 

replacement for the risk scores of the 

enrollees reviewed by the second 

validation auditor, and a uniform 

adjustment for the other enrollees in the 

initial validation audit sample. The onefor-one replacement will replace the risk 

scores calculated based on initial 

validation audit findings, with the risk 

scores calculated based on the second 

validation audit findings for the larger 

subsample of 100. The remaining 100 

enrollees that were not included in the 

second validation audit subsample 

would be adjusted based on the ratio of 

two projections: (1) the projected correct 

population risk score using the second 

validation audit findings in the 

subsample of 100 (assume this projected 

risk score is 1.50, with a two-sided 95 

percent confidence interval of 1.30 to 

1.70); divided by (2) the projected 

correct population risk score using the 

initial validation audit findings in the 

sample of 200 (equal to 1.40 based on 

the assumption noted above). The 

adjustment ratio is equal to 1.07 = 1.50/ 

1.40. Therefore, the risk scores of the 

remaining 100 enrollees not included in 

the second validation audit subsample 

would be increased by 7 percent. 

The projected correct population risk 

score from the revised sample of 200 

would therefore be 1.45, with a twosided 95 percent confidence interval of 

1.35 to 1.55. 

(v) Appeals 

We anticipate that the risk adjustment 

data validation appeals process would 

occur annually, beginning in the spring 

of the year in which the error rate will 

be applied to adjust risk scores and 

affect risk adjustment payments and 

charges. Because we are not applying 

error rates to adjust payments and 

charges for the initial 2 years of the risk 

adjustment program, the first year for 

which payments and charges would 

apply would be 2016. Risk scores and 

initial payments and charges would be 

calculated in the spring of 2017 for that 

payment cycle. We anticipate the 

appeals process will begin in the spring 

of 2018, prior to the 2017 payment 

transfers. We will provide additional 

guidance on the appeals process and 

schedule in future rulemaking. 

(vi) Payment Transfer Adjustments 

Risk adjustment payment transfer 

amounts will be based on adjusted plan 

average risk scores. The data validation 

audits would be used to develop a risk 

score error adjustment for each issuer, 

as described above. Each issuer’s risk 

score adjustment would be applied to 

adjust the plan average risk score for 

each of the issuer’s risk adjustment 

covered plans. This adjustment would 

be applied on a prospective basis 

beginning with the risk adjustment data 

for benefit year 2016 (that is, the 

adjustments would take effect in 2018, 

during payment transfers for 2017). 

Because an issuer’s adjusted plan 

average risk score is normalized as part 

of the risk adjustment payment 

calculation, the effect of an issuer’s risk 

score error adjustment will depend 

upon its magnitude and direction 

compared to the average risk score error 

adjustment and direction for the entire 

market. 

We are considering reporting the 

following summary findings to issuers 

for the initial 2 years of the program: 

• State- or market-wide error rates. 

• Issuer error rates. 

• Initial validation audit or error 

rates. 

• Projected financial impact of the 

proposed risk adjustments, as 

determined by the initial and second 

validation auditors. 

• The 2-year interval before risk 

adjustment data validation adjustments 

are applied to risk scores and affect 

payments and charges will provide 

initial validation auditors and issuers 

the opportunity to reform existing 

processes prior to the implementation of 

HHS payment transfer adjustments for 

the 2016 benefit year. We believe that 

the reports described above will help 

issuers and initial validation auditors 

better understand the likely effects of 

the risk adjustment data validation 

program in States where HHS operates 

risk adjustment. We seek comment on 

considerations for reporting error rates 

and any additional information that 

could improve transparency in the 

markets. 

(vii) Oversight 

The second final Program Integrity 

Rule outlined selected oversight 

provisions related to the premium 

stabilization programs, such as 

maintenance of records, sanctions for 

failing to establish a dedicated 

distributed data environment, and the 

application of a default risk adjustment 

charge to issuers in the individual and 

small group market that fail to provide 

data necessary for risk adjustment. We 

are proposing to expand on these 

provisions to include oversight related 

to risk adjustment data validation when 

HHS operates risk adjustment on behalf 

of a State. 

Section 153.620 provides that 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, and that an 

issuer that offers risk adjustment 

covered plans must also maintain 

documents and records, whether paper, 

electronic, or in other media, sufficient 

to enable the evaluation of the issuer’s 

compliance with applicable risk 

adjustment standards, and must make 

that evidence available upon request to 

HHS, OIG, the Comptroller General, or 

their designee, or in a State where the 

State is operating risk adjustment, the 

State or its designee to any such entity. 

Based on our authority under section 

1321(c)(2) of the Affordable Care Act, 

we are proposing in § 153.630(b)(9) that, 

when HHS operates risk adjustment on 

behalf of a State, an issuer of a risk 

adjustment covered plan that does not 

engage an initial validation auditor 

within the timeframe specified by HHS 

of the year following the benefit year, or 

that otherwise does not arrange for a 

risk adjustment initial validation audit 

that complies with applicable 

regulations, may be subject to civil 

money penalties. We note that we 

intend to apply the proposed sanction 

so that the level of the enforcement 

action would be proportional to the 

level of the violation. While we would 

reserve the right to impose penalties up 

to the maximum amounts proposed in 

§ 156.805(c), as a general principle, we 

intend to work collaboratively with 

issuers to address problems in 

conducting the risk adjustment data 

validation process. In our application of 

the proposed sanction, we would take 

into account the totality of the issuer’s 

circumstances, including such factors as 

an issuer’s previous record (if any), the 

frequency and level of the violation, and 

any aggravating or mitigating 

circumstances. Our intent is to 

encourage issuers to address noncompliance and not to severely affect 

their business, especially where the 

issuer demonstrates good faith in 

monitoring compliance with applicable 

standards, identifies any suspected 

occurrences of non-compliance, and 

attempts to remedy any noncompliance. 

We also note that HHS will not 

perform the initial validation audit for 

an issuer that does not hire an initial 

validation auditor or otherwise does not 

submit initial validation audit results 

that comply with the regulations in 

subpart G and subpart H of part 153. For 

these issuers, we propose in 

§ 153.630(b)(10) to assign a default risk 

adjustment charge. We are considering 

whether this charge should be the same 

charge as contemplated in § 153.740(b), 

should be based on a default error rate, 

or should be calculated based on some 

other methodology. We will propose a 


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Federal Register / Vol. 78, No. 231 / Monday, December 2, 2013 / Proposed Rules 72339 

14See Government Auditing Standards (2011 

Revision), available at: http://www.gao.gov/ 

yellowbook. For public companies, the Public 

Company Accounting Oversight Board (PCAOB) 

sets audit standards. See http://pcaobus.org/ 

Standards/Auditing/Pages/default.aspx. For nonpublic companies, the AICPA sets audit standards. 

See http://www.aicpa.org/Research/Standards/ 

AuditAttest/Pages/SAS.aspx. 

methodology for computing the default 

error rate or default charge in future 

rulemaking. 

Issuers may request technical 

assistance from HHS at any stage of the 

risk adjustment data validation process. 

HHS may also offer such assistance 

directly if we become aware of technical 

issues arising at any time during the risk 

adjustment data validation process. We 

plan to provide further assistance and 

clarification around the risk adjustment 

data validation process through a range 

of vehicles, including additional 

guidance, training materials, webinars, 

and user group calls. We welcome 

comment on these proposals. 

(viii) Data Security 

We recognize that the risk adjustment 

data validation process outlined here 

will require the transmission of 

sensitive data and documents between 

the issuer and the initial and second 

validation auditors. HHS takes seriously 

the importance of safeguarding 

protected health information and 

personally identifiable information. As 

outlined in the white paper, we believe 

that it will be necessary to specify 

standards for safeguarding this 

information through proper information 

storage and transmission methods. 

We note that § 153.630(f)(2) requires 

issuers to ensure that it and its initial 

validation auditor comply with the 

security standards described at 45 CFR 

164.308, 164.310, and 164.312 in 

connection with the initial validation 

audit, the second validation audit, and 

any appeal. In addition to these 

requirements, we are considering 

defining standards and expectations that 

would apply to issuers and initial and 

second validation auditors pertaining to 

data security, management, and 

transmission. These standards could 

require systems to safeguard and 

encrypt data ‘‘at rest’’ and ‘‘in transit,’’ 

and to authenticate identities of users. 

They could also prohibit the auditors 

from using or disclosing the information 

they receive for any purpose other than 

the audit and oversight. Similar 

standards have been implemented 

under the Medicare Advantage risk 

adjustment data validation process. We 

intend to address these issues and the 

treatment of initial and second 

validation auditors under HIPAA in 

future rulemaking or guidance, and seek 

comment on the applicability and 

effectiveness of current standards, as 

well as what other standards HHS 

should promulgate to ensure data 

security and privacy protections. 

(ix) Implementation Timeline 

For the 2014 benefit year, we expect 

to implement risk adjustment data 

validation activities in early 2015. 

Implementation activities would begin 

with issuers submitting the identity of 

their initial validation auditor to HHS in 

accordance with § 153.630(b)(1). In the 

spring of 2015, we would utilize the 

data submitted by issuers for risk 

adjustment payments and charges and 

apply the sampling methodology 

described above to select the audit 

sample for each issuer for the initial 

validation audit. During the same 

timeframe, we would train issuers and 

initial validation auditors on the risk 

adjustment data validation process and 

the applicable standards for performing 

the initial validation audit, which 

would begin in the summer of 2015. 

Once the initial validation audit has 

concluded in the fall of 2015, HHS 

would begin the second validation audit 

process, which would continue into 

2016. Risk adjustment data validation 

implementation activities for the 2014 

benefit year data would conclude in 

2016 after distribution of HHS findings 

to issuers, processing of appeals, and 

estimation and reporting of final risk 

scores. Since the 2014 benefit year is the 

first year of implementation of risk 

adjustment data validation, we expect to 

report on lessons learned from these 

activities, and to use this information to 

improve the risk adjustment data 

validation process. 

We expect that the risk adjustment 

data validation implementation 

activities would follow a similar 

schedule for each subsequent benefit 

year. The 2016 benefit year would be 

the first year when payments and 

charges are adjusted. Those adjustments 

would occur after the conclusion of risk 

adjustment data validation activities for 

the 2016 benefit year, in the summer of 

2018. 

e. HHS Audits of Issuers of Risk 

Adjustment Covered Plans 

In order to safeguard Federal funds, 

we propose in § 153.620(c) that HHS or 

its designee may audit an issuer of a risk 

adjustment covered plan, when HHS 

operates risk adjustment on behalf of a 

State, to assess the issuer’s compliance 

with the requirements of subparts G and 

H of 45 CFR part 153. The issuer must 

also ensure that its relevant contractors, 

subcontractors, or agents cooperate with 

the audit. We anticipate conducting 

targeted audits of issuers of risk 

adjustment covered plans informed by, 

among other criteria and sources, the 

data provided to HHS through the 

dedicated distributed data environment 

and any previous history of 

noncompliance with these standards. 

We will provide further details on this 

audit program, including timelines, 

procedures, and substantive 

requirements, in future rulemaking and 

guidance. This audit will focus on those 

aspects of the risk adjustment program 

that are not validated through the risk 

adjustment data validation program, 

described above in this proposed rule. 

In particular, we anticipate that the 

audit will focus on records documenting 

that the plan was a risk adjustment 

covered plan. For example, the audit 

might seek to review records evidencing 

the type of plan at issue (for example, 

an individual market metal level plan 

versus a catastrophic plan), the plan 

renewal date (to ensure the plan was 

subject to the market reform rules 

during the time periods for which data 

was submitted to the dedicated 

distributed data environment), and, in 

the case of an insured group health 

plan, the plan size (to ensure the plan 

was a small employer plan). 

We also propose that if an audit 

results in a finding of material weakness 

or significant deficiency (as these terms 

are defined in GAAS issued by the 

American Institute of Certified Public 

Accountants, and Government Auditing 

Standards issued by the Government 

Accountability Office (GAO) 14) for 

compliance with any requirement of 

subpart G or H of 45 CFR part 153, the 

issuer: (i) Within 30 calendar days of the 

issuance of the final audit report, must 

provide a written corrective action plan 

to HHS for approval; (ii) implement that 

corrective action plan; and (iii) provide 

to HHS written documentation of the 

corrective actions once taken. If HHS 

determines as the result of an audit that 

the issuer of the risk adjustment covered 

plan was required to pay additional risk 

adjustment charges or has received risk 

adjustment payments to which it was 

not entitled, it may require the issuer to 

pay such amounts to the Federal 

government. 

To reduce the burden on issuers and 

HHS, to the extent practical, we intend 

to coordinate any audits of issuers of 

risk adjustment covered plans with 

related audits of Exchange financial 

programs and premium stabilization 

programs, such as reinsurance. We seek 

comment on this proposal, including 


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the standards that should govern these 

audits. 

2. Provisions and Parameters for the 

Transitional Reinsurance Program 

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 from 2014 through 

2016. In the 2014 Payment Notice, we 

expanded on the standards set forth in 

subparts C and E of the Premium 

Stabilization Rule and established the 

reinsurance payment parameters and 

uniform reinsurance contribution rate 

for the 2014 benefit year. In this 

proposed rule, we propose the 

reinsurance payment parameters and 

uniform reinsurance contribution rate 

for the 2015 benefit year and certain 

oversight provisions related to the 

operation of the reinsurance program. 

a. Major Medical Coverage 

Section 1341(b)(3)(B)(i) of the 

Affordable Care Act states that ‘‘the 

contribution amount for each issuer 

[must] proportionally reflect each 

issuer’s fully insured commercial book 

of business for all major medical 

products . . .’’ In the preamble to the 

2014 Payment Notice (78 FR 15456), we 

included a general description of major 

medical coverage for reinsurance 

purposes based on the 

comprehensiveness of the coverage 

provided (for example, a range of 

medical, surgical, and preventive 

services) and the settings in which the 

coverage is provided (for example, 

inpatient and outpatient settings). 

Commenters requested that HHS codify 

a definition of major medical coverage 

for purposes of reinsurance 

contributions in regulation text. 

Codification in regulation text of a 

more specific definition of major 

medical coverage for reinsurance 

contributions purposes would provide 

additional clarification for some 

contributing entities. Therefore, we 

propose to add a definition of major 

medical coverage in § 153.20 to mean 

health coverage for a broad range of 

services and treatments provided in 

various settings that provides minimum 

value in accordance with § 156.145. 

We believe that because minimum 

value is calculated on a broad set of 

services—comparable to the essential 

health benefits applicable to individual 

and small group coverage—it is a 

reasonable measure of 

comprehensiveness of coverage. 

Minimum essential coverage under an 

employer-sponsored plan generally will 

provide minimum value if the plan’s 

share of total allowed costs of benefits 

provided under the plan exceeds 60 

percent of such costs (see section 

36B(c)(2)(C)(II) of the Code). The 

minimum value standards established 

under § 156.145 also deem coverage that 

meets any of the levels of coverage 

requirements described in § 156.140 to 

satisfy this requirement. Because the 

calculation of minimum value is an 

objective process, we believe that the 

use of the concept of minimum value is 

a reasonable way to clarify the 

definition of major medical coverage 

and reduce uncertainty as to whether 

reinsurance contributions are required 

of certain unique plan arrangements. In 

addition, we believe that the concept of 

minimum value will be familiar to 

stakeholders, and will not add undue 

burden to the determination of whether 

a plan offers major medical coverage for 

reinsurance purposes. It is important to 

note that this definition of major 

medical coverage only applies for 

determining reinsurance contributions 

under section 1341 of the Affordable 

Care Act. We seek comment on this 

proposed definition. 

b. Self-insured Plans Without Third 

Party Administrators 

Section 1341(b)(1)(A) of the 

Affordable Care Act provides that 

‘‘health insurance issuers and third 

party administrators on behalf of group 

health plans’’ must make reinsurance 

contributions. We recognize that some 

self-insured group health plans selfadminister the benefits and services 

provided under the plan, and do not use 

the services of a third party 

administrator. We believe that section 

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

clearly applies to both issuers of insured 

plans as well as to self-insured plans 

that use third party administrators. 

However, our continued study of this 

issue leads us to believe that this 

provision may reasonably be interpreted 

in one of two ways—it may be 

interpreted to mean that self-insured, 

self-administered plans must make 

reinsurance contributions, or it may be 

interpreted to mean that such plans are 

excluded from the obligation to make 

reinsurance contributions. For the 

reasons discussed below, we propose to 

modify the definition of a ‘‘contributing 

entity’’ for the 2015 and 2016 benefit 

years to exclude self-insured group 

health plans that do not use a third 

party administrator in connection with 

claims processing or adjudication 

(including the management of appeals) 

or plan enrollment. 

Following consideration of the 

comments submitted with respect to the 

2014 Payment Notice and the proposed 

Program Integrity Rule, we propose that 

for the 2015 and 2016 benefit years, the 

phrase ‘‘third party administrators on 

behalf of group health plans’’ not 

include self-insured, self-administered 

group health plans. An insured plan and 

a self-insured plan administered by a 

third party administrator are similar in 

that each arrangement involves an 

employer and an outside commercial 

entity—an issuer or a third party 

administrator (which is often an 

insurance company or an affiliate)—for 

the administration of the core health 

insurance functions of claims 

processing and plan enrollment. We 

note that under section 1341(b)(3)(B) of 

the Affordable Care Act and 

§ 153.400(a)(1)(ii), reinsurance 

contribution amounts are to reflect a 

‘‘commercial book of business.’’ Our 

consideration of these comments leads 

us to believe that a group health plan 

administered by a third party 

administrator would normally be 

viewed as part of the third party 

administrator’s ‘‘commercial book of 

business,’’ but that a self-insured, selfadministered plan would not normally 

be viewed as part of any entity’s 

‘‘commercial book of business.’’ 

Therefore, we propose that for the 

2015 and 2016 benefit years, a 

‘‘contributing entity’’ would mean: (a) A 

health insurance issuer; or (b) a selfinsured group health plan (including a 

group health plan that is partially selfinsured and partially insured, where the 

health insurance coverage does not 

constitute major medical coverage) that 

uses a third party administrator in 

connection with claims processing or 

adjudication (including the management 

of appeals) or plan enrollment. The 

proposed modification for the 2015 and 

2016 benefit years would exclude from 

the obligation to make reinsurance 

contributions those self-insured plans 

that do not use a third party 

administrator for their core 

administrative processing functions— 

adjudicating, adjusting, and settling 

claims (including the management of 

appeals), and processing and 

communicating enrollment information 

to plan participants and beneficiaries. 

This proposed amendment would 

recognize that some self-insured group 

health plans, which we believe would 

generally not be considered to be using 

the core services of a third party 

administrator, may use third parties for 

ancillary administrative support, and 

we would consider these plans to be 

self-administered for purposes of the 

reinsurance program. 

For purposes of the definition of 

‘‘contributing entity,’’ we propose to 

consider a third party administrator to 

be, with respect to a self-insured group 


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health plan, an entity that is not under 

common ownership or control with the 

self-insured group health plan or its 

sponsor that provides administrative 

services to the self-insured group health 

plan in connection with claims 

processing or adjudication (including 

the management of appeals) or plan 

enrollment. We seek comment on this 

definition, and whether certain types of 

service providers, such as an attorney 

providing legal advice in connection 

with claims adjudication, or an issuer 

administering an insured component of 

a group health plan that is partially selfinsured and partially insured should be 

considered a third party administrator 

for these purposes. 

In addition, we seek comment on 

whether the core administrative 

functions that we have described 

above—claims processing or 

adjudication (including the management 

of appeals) and plan enrollment—are 

the appropriate criteria for this revised 

definition, and what other 

administrative functions, such as 

medical management services, provider 

network development, or other support 

tasks, should be considered in 

determining whether a self-insured 

group health plan uses a third party 

administrator. We also seek comment on 

whether a self-insured plan must 

perform these core administrative 

functions for all healthcare benefits and 

services provided to enrollees under the 

plan in order not to be considered to be 

using a third party administrator, or 

whether certain benefits or services, 

such as pharmaceutical benefits or 

behavioral health benefits, or a de 

minimis or small percentage of all 

benefits and services may be performed 

by an unaffiliated service provider. If so, 

we seek comment on which benefits or 

services should be excluded from this 

criterion, or how such a de minimis 

amount or small percentage should be 

measured. 

While, upon further consideration of 

the issue, we believe the statutory 

language can reasonably be read to 

support the proposition that self-insured 

group health plans that do not use third 

party administrators for the functions 

described above should not be obligated 

to make reinsurance contributions, we 

also recognize, as a public policy matter, 

that it would be disruptive to plans and 

issuers to modify the definition of 

‘‘contributing entity’’ for the 2014 

benefit year at this late date. Health 

insurance issuers have already set 

premiums and developed operational 

processes based on the definition of 

‘‘contributing entity’’ that was 

previously finalized in the 2014 

Payment Notice. To prevent lower 

reinsurance payments, the contribution 

rate would have to be raised for other 

contributing entities, many of whom 

have already set their 2014 premiums 

based on the contribution rate finalized 

in March 2013. Excluding self-insured, 

self-administered group health plans 

from the set of entities that must 

provide reinsurance contributions for 

the 2014 benefit year, without raising 

the rate on other entities, would 

decrease the funds available for 

reinsurance payments for that benefit 

year, and thus upset settled estimates 

with respect to expected reinsurance 

payments that were used to establish 

premiums. 

Therefore, we do not propose to 

change the definition of a ‘‘contributing 

entity’’ for the 2014 benefit year. That 

definition will remain as provided for in 

the second final Program Integrity 

Rule—a health insurance issuer or a 

self-insured group health plan 

(including a group health plan that is 

partially self-insured and partially 

insured, where the health insurance 

coverage does not constitute major 

medical coverage), regardless of whether 

the group health plan uses a third party 

administrator. The modification to the 

definition of ‘‘contributing entity’’ 

described above would be effective only 

for the 2015 and 2016 benefit years. 

Finally, we note that our proposed 

change to the definition of a 

contributing entity may have 

implications for our plan aggregation 

rules at § 153.405(g), and seek comment 

on whether a plan sponsor that 

maintains two or more group health 

plans covering the same covered lives, 

where one or more group health plans 

are insured and one or more are selfinsured and do not use a third party 

administrator for core administrative 

functions, should be required to treat 

the multiple plans as a single group 

health plan for purposes of calculating 

any reinsurance contribution amount 

due. 

c. Uniform Reinsurance Contribution 

Rate 

(i) Uniform Reinsurance Contribution 

Rate for the 2015 Benefit Year 

Section 153.220(c) provides that HHS 

is to publish in the annual HHS notice 

of benefit and payment parameters the 

uniform reinsurance contribution rate 

for the upcoming benefit year. Section 

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

Act specifies that $10 billion for 

reinsurance contributions are to be 

collected from contributing entities in 

2014 (the reinsurance payment pool), $6 

billion in 2015, and $4 billion in 2016. 

Additionally, sections 1341(b)(3)(B)(iv) 

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

Act direct that $2 billion in funds are to 

be collected for contribution to the U.S. 

Treasury in 2014, $2 billion in 2015, 

and $1 billion in 2016. Finally, section 

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

Act allows for the collection of 

additional amounts for administrative 

expenses. Taken together, these three 

components make up the total dollar 

amount to be collected from 

contributing entities for each of the 3 

years of the reinsurance program under 

the uniform reinsurance contribution 

rate. 

As discussed in the 2014 Payment 

Notice, each year, the uniform 

reinsurance contribution rate will be 

calculated by dividing the sum of the 

three amounts (the reinsurance payment 

pool, the U.S. Treasury contribution, 

and administrative costs) by the 

estimated number of enrollees in plans 

that must make reinsurance 

contributions: 

As discussed in greater detail below, we 

are proposing to collect $25.4 million 

for administrative expenses for the 2015 

benefit year (or 0.4 percent of the $6 

billion to be dispersed). Therefore, the 

total amount to be collected would be 

approximately $8.025 billion. Our 

estimate of the number of enrollees in 

plans that must make reinsurance 

contributions yields an annual per 

capita contribution rate of $44 for the 

2015 benefit year. 


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(ii) Timing of Collection of Reinsurance 

Contributions 

As set forth in the 2014 Payment 

Notice, under § 153.405(b), no later than 

November 15 of the 2014, 2015, and 

2016 benefit years, as applicable, a 

contributing entity must submit an 

annual enrollment count of the number 

of covered lives of reinsurance 

contribution enrollees for the applicable 

benefit year to HHS. Under 

§ 153.405(c)(1), HHS is to notify the 

contributing entity of the reinsurance 

contribution amount to be paid for the 

applicable benefit year within 30 days 

of the submission of the annual 

enrollment count, or by December 15 of 

the applicable benefit year. Under 

§ 153.405(c)(2), a contributing entity is 

to remit reinsurance contributions to 

HHS within 30 days after the date of the 

notification. 

We recognize that the reinsurance 

collections provided for in the 

Affordable Care Act—$12 billion for 

2014, $8 billion for 2015, and $5 billion 

for 2016—will result in substantial upfront payments from contributing 

entities for the reinsurance program. 

Therefore, we are proposing to modify 

our collection schedule for the program, 

so that we would collect the reinsurance 

contribution amounts for reinsurance 

payments and for administrative 

expenses earlier in the calendar year 

following the applicable benefit year, 

approximately in accordance with the 

schedule currently described in 

§ 153.405(c), but collect the reinsurance 

contribution amounts for payments to 

the U.S. Treasury in the last quarter of 

the calendar year following the 

applicable benefit year. Therefore, we 

propose to modify § 153.405(c) so that a 

contributing entity would make 

reinsurance contributions in two 

installments to HHS—one at the 

beginning of the calendar year following 

the applicable benefit year, and one at 

the end. As noted in the second final 

Program Integrity Rule, the proposed 

policy is designed to alleviate the 

upfront burden of the reinsurance 

contribution, allowing contributing 

entities additional time to make the 

payment. We note that the proposed 

change in the collection schedule would 

not affect the amount of funds collected 

for reinsurance payments. Additionally, 

the amounts allocated to reinsurance 

payments and administrative expenses 

are needed to operate the reinsurance 

program, while the amounts allocated 

for payments to the U.S. Treasury are 

not needed for the operation of the 

transitional reinsurance program. 

Therefore, collecting the amounts 

allocated to payments to the U.S. 

Treasury later in the calendar year 

following the applicable benefit year 

will not affect the reinsurance program, 

and will alleviate a contributing entity’s 

upfront financial burden. 

Under this proposal, the first of the 

two installments each year would 

include the reinsurance contribution 

amounts allocated to reinsurance 

payments and administrative expenses. 

We propose in § 153.405(c)(1) that 

following submission of the annual 

enrollment count, HHS would notify a 

contributing entity of the reinsurance 

contribution amount allocated to 

reinsurance payments and 

administrative expenses to be paid for 

the applicable benefit year. If the 

enrollment count is timely submitted, 

HHS intends to notify the contributing 

entity by December of benefit year 2014, 

2015, or 2016, as applicable. We note 

that, due to our desire to align the 

notification of reinsurance contributions 

due with our monthly payment and 

collections cycle, this schedule differs 

slightly from the schedule currently set 

forth in § 153.405(c)(3), which provides 

for notification by the later of 30 days 

of the submission of the annual 

enrollment count or by December 15. 

We propose in § 153.405(c)(3) that the 

contributing entity remit this amount 

within 30 days after the date of the first 

notification. 

The second installment would cover 

the portion of the reinsurance 

contribution amount allocated to the 

payments for the U.S. Treasury to be 

paid for a benefit year. We propose in 

§ 153.405(c)(2), that in the fourth quarter 

of the calendar year following the 

applicable benefit year, HHS would 

notify the contributing entity of the 

portion of the reinsurance contribution 

amount allocated for payments to the 

U.S. Treasury for the applicable benefit 

year. Again, under proposed 

§ 153.405(c)(3), a contributing entity 

would remit this amount within 30 days 

after the date of this second notification. 

We note that the contributing entity 

would be required to submit an annual 

enrollment count only once for each 

benefit year under § 153.405(b). 

For example, for the 2014 benefit 

year, of the $63.00 annual per capita 

contribution rate, $52.50 would be 

allocated towards reinsurance payments 

and administrative expenses, and 

$10.50 towards payments to the U.S. 

Treasury. Thus, we contemplate that if 

a contributing entity submits its 

enrollment count for the 2014 benefit 

year in a timely manner (by November 

15, 2014), a reinsurance contribution 

payment of $52.50 per covered life 

would be invoiced in December 2014, 

and payable in January, 2015. Another 

reinsurance contribution payment of 

$10.50 per covered life would be 

invoiced in the fourth quarter of 2015, 

and payable late in the fourth quarter of 

2015. 

We propose that for the 2015 benefit 

year, the proposed $44 annual per 

capita contribution rate be allocated $33 

towards reinsurance payments and 

administrative expenses, and $11 

towards payments to the U.S. Treasury. 

These amounts would similarly be 

payable in January 2016 and late in the 

fourth quarter of 2016, respectively. 

We plan to establish the uniform 

reinsurance contribution rate for the 

2016 benefit year in the HHS notice of 

benefit and payment parameters for 

2016. 

We seek comment on this proposal. 

We note that we are considering a 

variation of this proposal under which 

contributing entities would be provided 

the option of paying the entire 

reinsurance contribution amount with 

the first installment, at the beginning of 

the calendar year following the 

applicable benefit year. We also clarify 

that the two installment payments (or 

one, should a contributing entity be 

permitted and elect to make the entire 

payment with the first installment) 

would be reported with 2014 data for 

purposes of the risk corridors and MLR 

calculations due July 31, 2015, despite 

the fact that the later installment would 

not have been paid at that time. This has 

the effect of leaving the MLR and risk 

corridors calculations unchanged. 

(iii) Allocation of Uniform Reinsurance 

Contribution Rate 

Section 153.220(c) provides that HHS 

is to set in the annual HHS notice of 

benefit and payment parameters for the 

applicable benefit year the proportion of 

contributions collected under the 

uniform reinsurance contribution rate to 

be allocated to reinsurance payments, 

payments to the U.S. Treasury, and 

administrative expenses. In the 2014 

Payment Notice, we stated that 

reinsurance contributions collected for 

2014 will be allocated pro rata to the 

reinsurance pool, administrative 

expenses, and the U.S. Treasury, up to 

$12.02 billion. In Table 2, we specify 

these proportions (or amounts, as 

applicable): 


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TABLE 2—PROPORTION OF REINSURANCE CONTRIBUTIONS COLLECTED UNDER THE UNIFORM REINSURANCE CONTRIBUTION RATE FOR THE 2015 BENEFIT YEAR FOR REINSURANCE PAYMENTS, PAYMENTS TO THE U.S. TREASURY, AND

ADMINISTRATIVE EXPENSES

Proportion or amount for: ............. If total contribution collections under the uniform reinsurance contribution rate are less than or equal 

to $8.025 billion.

If total contribution collections under the uniform reinsurance contribution rate are more than $8.025 

billion. 

Reinsurance payments ................. 74.8 percent ($6 billion/$8.025 billion) ........................ The difference between total collections and those 

contributions allocated to the U.S. Treasury and 

administrative expenses. 

Payments to the U.S. Treasury .... 24.9 percent ($2 billion/$8.025 billion) ........................ $2 billion. 

Administrative expenses ............... 0.3 percent ($25.4 million/$8.025 billion) .................... $25.4 million. 

As shown in Table 2, if the total 

amount of contributions collected is less 

than or equal to $8.025 billion, we 

propose to allocate approximately 74.8 

percent of the reinsurance contributions 

collected to reinsurance payments, 24.9 

percent of the reinsurance contributions 

collected to the U.S. Treasury, and 0.3 

percent of the reinsurance contributions 

collected to administrative expenses. 

We note that the proposed method of 

collection would not affect the 

allocation to reinsurance payments, 

administrative expenses, and payments 

to the U.S. Treasury. 

To provide that all reinsurance 

contributions collected for a benefit year 

are paid out for claims for that benefit 

year, we propose to amend § 153.230(d) 

to provide that if HHS determines that 

the amount of all reinsurance payments 

requested under the national payment 

parameters from all reinsurance-eligible 

plans in all States for a benefit year will 

not be equal to the amount of all 

reinsurance contributions collected for 

reinsurance payments under the 

national contribution rate in all States 

for an applicable benefit year, HHS will 

determine a uniform pro rata adjustment 

(up or down) to be applied to all such 

requests for reinsurance payments for 

all States. We propose that each 

applicable reinsurance entity, or HHS 

on behalf of a State, must reduce or 

increase the reinsurance payment 

amounts for the applicable benefit year 

by any adjustment required under that 

paragraph. 

For example, for 2014, if HHS collects 

$9 billion for the reinsurance payments 

pool and $10 billion in reinsurance 

payments are requested, HHS and each 

applicable reinsurance entity would 

reduce all reinsurance payments by 10 

percent (effectively decreasing the 

coinsurance rate). If HHS collects $11 

billion for the reinsurance payments 

pool and $10 billion in reinsurance 

payments are requested, HHS and each 

applicable reinsurance entity would 

increase all reinsurance payments by 10 

percent (effectively increasing the 

coinsurance rate). 

We seek comment on this payment 

proposal, including on whether any 

excess collections should be allocated to 

increasing coinsurance rates above 100 

percent, or whether such funds should 

be used instead to change other 

reinsurance parameters or used for 

future benefit years. 

Because our proposal above would 

provide that all reinsurance 

contributions collected for a benefit year 

are paid out for claims for that benefit 

year, we propose to delete and reserve 

§ 153.235(b), which currently provides 

that any excess reinsurance 

contributions collected from 

contributing entities for any benefit year 

but unused for the applicable benefit 

year must be used for reinsurance 

payments in subsequent benefit years. 

For years beyond the 2014 benefit year 

(for which we propose to pay out all 

reinsurance contributions collected, as 

described above), we seek comment on 

whether we should have the flexibility 

to use excess contributions collected in 

the applicable benefit year for that 

benefit year or in a subsequent benefit 

year. 

(iv) Administrative Expenses 

In the 2014 Payment Notice, we 

estimated that the Federal 

administrative expenses of operating the 

reinsurance program would be $20.3 

million, based on our estimated contract 

and operational costs. We propose to 

use the same methodology to estimate 

the administrative expenses for the 2015 

benefit year. These estimated costs 

would cover the costs related to 

contracts for developing the uniform 

reinsurance payment parameters and 

the uniform reinsurance contribution 

rate, collecting reinsurance 

contributions, making reinsurance 

payments, and conducting account 

management, data collection, program 

integrity and audit functions, 

operational and fraud analytics, training 

for entities involved in the reinsurance 

program, and general operational 

support. We propose to exclude from 

these administrative expenses the costs 

associated with work performed by 

Federal personnel. To calculate our 

proposed reinsurance administrative 

expenses for 2015, we divided HHS’s 

projected total costs for administering 

the reinsurance programs on behalf of 

States by the expected number of 

enrollees in reinsurance-eligible plans 

for the benefit year. 

We estimate this amount to be 

approximately $25.4 million for the 

2015 benefit year. This estimate has 

increased for the 2015 benefit year 

because we will be making reinsurance 

payments in the 2015 benefit year for 

the 2014 benefit year, and as discussed 

below, will engage in program integrity 

and audit-related activity in 2015 to 

oversee the reinsurance program. We 

believe that this figure reflects the 

Federal government’s significant 

economies of scale, which helps to 

decrease the costs associated with 

operating the reinsurance program. 

Based on our estimate of covered lives 

for which reinsurance contributions are 

to be made for 2015, we are proposing 

a uniform reinsurance contribution rate 

of $0.14 annually per capita for HHS 

administrative expenses. We provide 

details below on the methodology we 

used to develop the 2015 enrollment 

estimates. 

For the 2014 benefit year, we 

allocated the administrative expenses 

equally between contribution and 

payment-related activities. Because we 

anticipate that our additional activities 

in the 2015 benefit year, including our 

program integrity and audit activities, 

will also be divided approximately 

equally between contribution and 

payment-related activities, we again 

propose to allocate the total 

administrative expenses equally 

between these two functions. Therefore, 

as shown in Table 3, we expect to 

apportion the annual per capita amount 

of $0.14 of administrative expenses as 

follows: (a) $0.07 of the total amount 

collected per capita for administrative 

expenses for the collection of 

contributions from health insurance 

issuers and group health plans; and (b) 

$0.07 of the total amount collected per 

capita for administrative expenses for 


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reinsurance payment activities, 

supporting the administration of 

payments to issuers of reinsuranceeligible plans. 

TABLE 3—BREAKDOWN OF ADMINISTRATIVE EXPENSES (ANNUAL, PER

CAPITA) 

Activities Estimated 

expenses 

Collecting reinsurance contributions from health insurance issuers and group 

health plans ....................... $0.07 

Calculation and disbursement of reinsurance payments ................................ 0.07 

Total annual per capita expenses for HHS to perform 

all reinsurance functions ... 0.14 

If HHS operates the reinsurance 

program on behalf of a State, HHS 

would retain the annual per capita fee 

to fund HHS’s performance of all 

reinsurance functions, which would be 

$0.14. If a State establishes its own 

reinsurance program, HHS would 

transfer $0.07 of the per capita 

administrative fee to the State for 

purposes of administrative expenses 

incurred in making reinsurance 

payments, and retain the remaining 

$0.07 to offset the costs of collecting 

contributions. We note that the 

administrative expenses for reinsurance 

payments will be distributed to those 

States that operate their own 

reinsurance program in proportion to 

the State-by-State total requests for 

reinsurance payments made under the 

uniform reinsurance payment 

parameters. 

d. Uniform Reinsurance Payment 

Parameters 

Our goal in setting the reinsurance 

payment parameters is to achieve the 

greatest impact on rate setting, and 

therefore premiums, through reductions 

in plan risk, while complementing the 

current commercial reinsurance market. 

Section 1341(b)(2)(B) of the Affordable 

Care Act directs the Secretary, in 

establishing standards for the 

transitional reinsurance program, to 

include a formula for determining the 

amount of reinsurance payments to be 

made to issuers for high-risk individuals 

that provides for the equitable allocation 

of funds. In the Premium Stabilization 

Rule, we provided that reinsurance 

payments to eligible issuers will be 

made for a portion of an enrollee’s 

claims costs paid by the issuer (the 

coinsurance rate, meant to reimburse a 

proportion of claims while giving 

issuers an incentive to contain costs) 

that exceeds an attachment point (when 

reinsurance would begin), subject to a 

reinsurance cap (when the reinsurance 

program stops paying claims for a highcost individual). The coinsurance rate, 

attachment point, and reinsurance cap 

together constitute the uniform 

reinsurance payment parameters. 

Given the smaller pool of reinsurance 

contributions to be collected for the 

2015 benefit year, we are proposing that 

the uniform reinsurance payment 

parameters for the 2015 benefit year be 

established at an attachment point of 

$70,000, a reinsurance cap of $250,000, 

and a coinsurance rate of 50 percent. We 

estimate that these uniform reinsurance 

payment parameters will result in total 

requests for reinsurance payments of 

approximately $6 billion for the 2015 

benefit year. We believe setting the 

coinsurance rate at 50 percent and 

increasing the attachment point allows 

for the reinsurance program to help pay 

for nearly the same group of high-cost 

enrollees as was the case for the 2014 

benefit year, while still encouraging 

issuers to contain costs. We believe that 

maintaining the reinsurance cap for the 

2015 benefit year while ensuring that 

the coinsurance rate sufficiently 

compensates issuers for high risk 

individuals will make it easier for 

issuers to estimate the effects of 

reinsurance. We believe that these 

uniform reinsurance payment 

parameters will support the reinsurance 

program’s goals of promoting 

nationwide premium stabilization and 

market stability while providing issuers 

incentives to continue to effectively 

manage enrollee costs. We intend to 

continue to monitor individual market 

enrollment and claims patterns to 

appropriately disburse reinsurance 

payments throughout each of the benefit 

years of the transitional reinsurance 

program. 

As discussed in the 2014 Payment 

Notice, to assist with the development 

of the uniform reinsurance payment 

parameters and the premium adjustment 

percentage index, HHS developed the 

Affordable Care Act Health Insurance 

Model (ACAHIM). The ACAHIM 

estimates market enrollment, 

incorporating the effects of State and 

Federal policy choices, and accounting 

for the behavior of individuals and 

employers. The outputs of the ACAHIM, 

especially the estimated enrollment and 

expenditure distributions, were used to 

analyze a number of policy choices 

relating to the uniform reinsurance 

contribution rate and uniform 

reinsurance payment parameters 

proposed in this rule. 

The ACAHIM generates a range of 

national and State-level outputs for 

2015, including the level and 

composition of enrollment across 

markets given the eligible population in 

each State. The ACAHIM is described 

below in two sections: (1) the approach 

for estimating 2015 enrollment; and (2) 

the approach for estimating 2015 

expenditures. The ACAHIM uses recent 

Current Population Survey (CPS) data 

adjusted for small populations at the 

State level, exclusion of undocumented 

immigrants, and population growth in 

2015 to assign individuals to the various 

coverage markets. 

Specifically, the ACAHIM assigns 

each individual to a single health 

insurance market as his or her baseline 

(pre-Affordable Care Act) insurance 

status. In addition to assuming that 

individuals currently in Medicare, 

TRICARE, or Medicaid will remain in 

such coverage, the ACAHIM takes into 

account the probability that a firm will 

offer employment-based coverage based 

on the CPS distribution of coverage 

offers for firms of a similar size and 

industry. Generally, to determine the 

predicted insurance enrollment status 

for an individual or family (the ‘‘health 

insurance unit’’ or ‘‘HIU’’), the ACAHIM 

calculates the probability that the firm 

will offer insurance, then models 

Medicaid eligibility, and finally models 

eligibility for advance payments of the 

premium tax credit and cost-sharing 

reductions under the Exchange. 

Whenever a transition to another 

coverage market is possible, the 

ACAHIM takes into account the costs 

and benefits of the decision for the HIU 

and assigns a higher probability of 

transition to those with the greatest 

benefit. The ACAHIM assumptions of 

the rate at which uninsured individuals 

will take up individual market coverage 

are based on current take-up rates of 

insurance across States, varied by 

demographics and incomes and 

adjusted for post-Affordable Care Act 

provisions, such as advance payments 

of the premium tax credit and costsharing reductions. 

Estimated expenditure distributions 

from the ACAHIM are used to set the 

uniform reinsurance payment 

parameters so that estimated 

contributions from all contributing 

entities equal estimated payments for all 

reinsurance-eligible plans. The 

ACAHIM uses the Health Intelligence 

Company, LLC (HIC) database from 

calendar year 2010, with the claims data 

trended to 2015 to estimate total 

medical expenditures per enrollee by 

age, gender, and area of residence. The 

expenditure distributions are further 

adjusted to take into account plan 

benefit design, or ‘‘metal’’ level (that is, 

‘‘level of coverage,’’ as defined in 


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15We note an increase in reinsurance claims 

spread evenly across the individual market may not 

necessarily result in higher reinsurance payments to 

all issuers in aggregate. However, increased requests 

for reinsurance payments may result in a higher pro 

rata reduction to be applied to all reinsurance 

payments because total reinsurance payments for a 

benefit year cannot exceed the reinsurance 

contributions collected for reinsurance payments 

(see 45 CFR 153.230(d)). 

16We note that because the annual limitation on 

cost sharing applies only to in-network services, it 

is possible that an enrollee could incur additional 

cost-sharing reductions on out-of-network services. 

However, except in the case of zero cost sharing 

plan variations, an issuer is not required to reduce 

cost sharing out-of-network, and we believe that an 

issuer will rarely choose to do so because the AV 

calculator does not recognize any change in AV due 

to a reduction in out-of-network cost sharing. 

Although it is possible that an enrollee in a zero 

cost sharing plan variation could incur significant 

out-of-network cost-sharing reductions beyond the 

standard plan’s annual limitation on cost sharing, 

we believe such a circumstance will be relatively 

rare because of the substantial out-of-pocket costs 

an enrollee would likely incur in the form of 

balance billing. 

§ 156.20) and other characteristics of 

individual insurance coverage in an 

Exchange. To describe a State’s coverage 

market, the ACAHIM computes the 

pattern of enrollment using the model’s 

predicted number and composition of 

participants in a coverage market. These 

estimated expenditure distributions 

were the basis for the uniform 

reinsurance payment parameters. 

e. Adjustment Options 

In the 2014 Payment Notice, we 

finalized the following uniform 

reinsurance payment parameters for the 

2014 benefit year—a $60,000 attachment 

point, a $250,000 reinsurance cap, and 

an 80 percent coinsurance rate. 

However, updated information, 

including the actual premiums for 

reinsurance-eligible plans, as well as 

recent policy changes, suggest that our 

prior estimates of the payment 

parameters may overestimate the total 

covered claims costs of individuals 

enrolled in reinsurance-eligible plans in 

2014. To account for this, we propose to 

decrease the 2014 attachment point to 

$45,000. We seek comment on this 

proposal. 

f. Deducting Cost-Sharing Reduction 

Amounts From Reinsurance Payments 

Subpart H of 45 CFR part 153 governs 

the submission of reinsurance claims to 

an issuer’s dedicated distributed data 

environment. Under § 156.410, if an 

individual is determined eligible to 

enroll in a QHP in the individual market 

offered through an Exchange and elects 

to do so, the QHP issuer must assign the 

individual to a standard plan or costsharing plan variation based on the 

enrollment and eligibility information 

submitted by the Exchange. Issuers of 

QHPs offered in an individual market 

through an Exchange will receive costsharing reduction payments for 

enrollees in their plan variations. 

Therefore, in the 2014 Payment Notice 

(78 FR 15499), we stated that the 

enrollee-level data submitted by an 

issuer of a reinsurance-eligible plan 

must include claims data and data 

related to determining cost-sharing 

reductions provided through a costsharing plan variation, to permit HHS to 

calculate an issuer’s plan paid amounts 

on behalf of an enrollee. Here, we 

propose to explain the methodology 

HHS would use to deduct the amount of 

cost-sharing reductions paid on behalf 

of an enrollee enrolled in a QHP in an 

individual market through an Exchange. 

In this section, we first set forth a 

methodology for policies that cover only 

one enrollee, then policies with more 

than one enrollee, such as family plans, 

and finally, for policies under a limited 

cost sharing plan variation. 

As specified in § 153.230, HHS will 

calculate reinsurance payments by 

applying the uniform reinsurance 

payment parameters for the applicable 

benefit year to the issuer’s plan paid 

amounts on behalf of each enrollee in a 

reinsurance-eligible plan for the benefit 

year. However, this calculation may not 

always account for the cost-sharing 

reduction payments the QHP issuer 

receives for an enrollee, resulting in an 

issuer receiving payments twice for the 

same enrollee’s total costs. We believe 

that the cost-sharing amounts provided 

by HHS to a QHP issuer for an enrollee 

in a plan variation should be deducted 

from the total plan paid amounts to 

avoid ‘‘double payment’’ 15 to the QHP 

issuer of the reinsurance-eligible plan 

because the QHP issuer is already being 

reimbursed for the value of the costsharing reductions provided. 

Under the Secretary’s authority under 

section 1341(b)(2)(B) of the Affordable 

Care Act to establish a payment formula 

for the reinsurance program, we propose 

a method through which HHS intends to 

account for cost-sharing reduction 

payments when calculating reinsurance 

payments for QHP issuers for 

reinsurance-eligible plans offered in an 

individual market. We seek to avoid 

requiring QHP issuers to engage in a 

complicated re-adjudication of claims to 

determine cost-sharing reduction 

amounts multiple times throughout the 

year. We believe that the proposed 

methodology set forth below will 

accurately estimate those cost-sharing 

reduction payments while also 

alleviating the burden on both QHP 

issuers and HHS. 

We propose that for each enrollee 

enrolled in a QHP plan variation, we 

will subtract from the QHP issuer’s total 

plan paid amounts for the enrollee in a 

reinsurance-eligible plan the difference 

between the annual limitation on cost 

sharing for the standard plan and the 

annual limitation on cost sharing for the 

plan variation. Because reinsurance 

payments are made for enrollees only 

when the issuer’s total plan paid 

amounts exceeds the attachment point 

(for example, $60,000 in the 2014 

benefit year), we believe that it is highly 

unlikely that an enrollee for which a 

QHP issuer is eligible for reinsurance 

payments will not have reached the 

annual limitation on cost sharing. 

Therefore, the difference between the 

two annual limitations on cost sharing 

is likely to be an accurate estimate of 

cost-sharing reduction payments 

provided by HHS to the QHP issuer.16

We propose to apply this approach to 

calculating the amounts of cost-sharing 

reductions provided for an enrollee in a 

silver plan variation or a zero cost 

sharing plan variation. 

For policies with multiple enrollees, 

such as family policies, we propose to 

allocate the difference in annual 

limitation in cost sharing across all 

enrollees covered by the family policy 

in proportion to the enrollees’ QHP 

issuer total plan paid amounts. We 

believe that such an approach is 

intuitive and will be easy to 

operationalize. We considered an 

alternative approach that would allocate 

the difference in annual limitation in 

cost sharing equally across all enrollees 

in a family policy, with any difference 

in annual limitations on cost sharing 

that exceeds the total plan paid amounts 

for a particular enrollee to be reallocated 

equally across the other enrollees. That 

approach would tend to result in a 

higher allocation of cost sharing on lowclaims-cost individuals, which we 

believe is unrealistic. 

In contrast, we propose not to reduce 

the QHP issuer’s plan paid amounts for 

purposes of calculating reinsurance 

payments for an Indian in a limited cost 

sharing plan variation. We note that 

such enrollees will have the same 

annual limitation on cost sharing as 

individuals enrolled in standard plans, 

and thus, an approach that calculates 

the difference in annual limitations on 

cost sharing would yield estimated costsharing reductions of zero. We believe 

that this result is reasonable for 

individuals with plan paid amounts 

greater than the attachment point 

because those individuals are likely to 

have incurred significant claims costs 

with providers for which cost sharing is 

not reduced—that is, providers other 


sroberts on DSK5SPTVN1PROD with PROPOSALS
72346 Federal Register / Vol. 78, No. 231 / Monday, December 2, 2013 / Proposed Rules 

17See Government Auditing Standards (2011 

Revision), available at: http://www.gao.gov/

yellowbook. For public companies, the Public 

Company Accounting Oversight Board (PCAOB) 

sets audit standards. See http://pcaobus.org/

Standards/Auditing/Pages/default.aspx. For nonpublic companies, the AICPA sets audit standards. 

See http://www.aicpa.org/Research/Standards/

AuditAttest/Pages/SAS.aspx. 

than the Indian Health Service and 

facilities operated by an Indian Tribe, 

Tribal Organization, or Urban Indian 

Organization. Thus, we believe that 

these individuals are likely to have 

reached the full annual limitation on 

cost sharing for the standard plan. 

We also considered an alternative 

approach that would require issuers to 

re-adjudicate claims periodically 

throughout the year to calculate costsharing reductions provided to date for 

an Indian enrolled in a limited cost 

sharing plan, but believe that such an 

approach would be burdensome to QHP 

issuers and only slightly improve the 

accuracy of cost-sharing reduction 

estimates. Finally, we considered an 

approach under which QHP issuers 

would submit an estimate of the 

effective annual limitation on cost 

sharing for limited cost sharing plans. 

However, we believe that this will be 

difficult for a QHP issuer to estimate 

due to the lack of cost-sharing reduction 

data for the early years of the 

Exchanges. 

g. Audits 

(i) HHS Audits of State-Operated 

Reinsurance Programs 

To safeguard the use of Federal funds 

in the transitional reinsurance program, 

we propose in § 153.270(a) that HHS or 

its designee may conduct a financial 

and programmatic audit of a Stateoperated reinsurance program to assess 

compliance with the requirements of 

subparts B and C of 45 CFR part 153. A 

State that establishes a reinsurance 

program must ensure that its applicable 

reinsurance entity and any relevant 

contractors, subcontractors, or agents 

cooperate with an audit of its 

reinsurance program by HHS or its 

designee. 

Under the proposed rule, HHS may 

conduct targeted audits of Stateoperated reinsurance programs based on 

the State summary report provided to 

HHS for each benefit year described in 

§ 153.260(b), the results of the 

independent external audit conducted 

for each benefit year under § 153.260(c), 

and issuer input, among other factors. 

Such audits may, for example, examine 

the receipt and expenditure of 

reinsurance funds, as well as funds 

received from HHS for administrative 

expenses. The audits may also examine 

the reinsurance program’s compliance 

with the requirements for the State and 

the program under subparts B and C of 

45 CFR part 153. We will provide 

further details on our audit program, 

including timelines, procedures, and 

substantive requirements, in future 

rulemaking and guidance. 

We propose in § 153.270(b) that if an 

audit by HHS results in a finding of 

material weakness or significant 

deficiency (as these terms are defined in 

GAAS issued by the American Institute 

of Certified Public Accountants, and 

Government Auditing Standards issued 

by the Government Accountability 

Office (GAO) 17) with respect to the 

State-operated reinsurance program’s 

compliance with any requirement of 

subparts B or C of 45 CFR part 153, the 

State must ensure that its applicable 

reinsurance entity provide a written 

corrective action plan to HHS for 

approval within 60 calendar days of the 

issuance of the final audit report. The 

applicable reinsurance entity must 

implement the plan and provide to HHS 

written documentation of the corrective 

actions once taken. We seek comment 

on this proposal, including the 

standards that should govern these 

audits. 

(ii) HHS Audits of Contributing Entities 

We propose in § 153.405(i) that HHS 

or its designee may audit a contributing 

entity to assess its compliance with the 

requirements of subpart E of 45 CFR 

part 153. We anticipate conducting 

targeted audits of contributing entities 

based on, among other criteria and 

sources, data provided to HHS through 

the annual enrollment count submitted 

under § 153.405(b) and any previous 

history of noncompliance with these 

standards. We will provide further 

details on this audit program, including 

timelines, procedures, and substantive 

requirements, in future rulemaking and 

guidance. We anticipate that these 

audits will focus on records relating to 

the enrollment of the applicable selfinsured or insured plan, to confirm that 

the number of covered lives was 

correctly counted and that the correct 

amount of reinsurance contributions 

was paid. Audits may also identify 

entities that were required to but did not 

make reinsurance contributions. If HHS 

determines as the result of an audit that 

a contributing entity was required to 

pay additional reinsurance 

contributions, it may require the 

contributing entity to pay such amounts 

to the Federal government. If the 

contributing entity is an issuer subject 

to an audit for other Exchange financial 

programs or premium stabilization 

programs, such as risk adjustment, we 

intend to coordinate these audits, to the 

extent practical, to reduce the burden on 

both the contributing entity and HHS. 

We seek comment on this proposal, 

including the standards that should 

govern these audits. 

(iii) HHS Audits of Issuers of 

Reinsurance-Eligible Plans 

We propose in § 153.410(d) that HHS 

or its designee may audit an issuer of a 

reinsurance-eligible plan to assess its 

compliance with the requirements of 

subparts E and H of 45 CFR part 153, 

and that if an audit results in a finding 

of material weakness or significant 

deficiency, the issuer must: 

• Within 30 calendar days of the 

issuance of the final audit report, 

provide a written corrective action plan 

to HHS for approval; 

• Implement that corrective action 

plan; and 

• Provide to HHS written 

documentation of the corrective actions 

once taken. 

If HHS determines as the result of an 

audit that the issuer of a reinsuranceeligible plan has received reinsurance 

payments to which it was not entitled, 

it may require the issuer to pay such 

amounts back to the Federal 

government. 

We anticipate conducting targeted 

audits of issuers of reinsurance-eligible 

plans based on, among other criteria and 

sources, the data provided to HHS 

through the dedicated distributed data 

environment and any previous history 

of noncompliance with these standards. 

We will provide further details on this 

audit program, including timelines, 

procedures, and substantive 

requirements, in future rulemaking and 

guidance. We anticipate that this audit 

will focus on claims records validating 

the requests for reinsurance payments 

submitted to the dedicated distributed 

data environments, as well as records 

indicating the plan was a reinsuranceeligible plan. To reduce the burden on 

issuers and HHS, to the extent practical, 

we intend to coordinate any audits of 

issuers of reinsurance-eligible plans 

with related audits of Exchange 

financial programs and premium 

stabilization programs, such as risk 

adjustment. 

We seek comment on this proposal, 

including the standards that should 

govern these audits. 

h. Same Covered Life 

In the second final Program Integrity 

Rule (78 FR 65057), we stated that it is 

our intent not to require payment of 

reinsurance contributions more than 

once for the same covered life. We 


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18Plan year as defined in 45 CFR 155.20 as a 

consecutive 12 month period during which a health 

plan provides coverage for health benefits. A plan 

year may be a calendar year or otherwise. 

stated that we recognize that certain 

complex group health plan 

arrangements can lead to situations in 

which lives are covered by multiple 

arrangements, where it is unclear 

whether more than one health plan or 

issuer must make reinsurance 

contributions, and that we intended to 

provide clarity on the matter in future 

rulemaking. 

Therefore, we propose to make two 

changes to § 153.400. In § 153.400(a)(1), 

we propose to clarify the general 

principle that reinsurance contributions 

are required for major medical coverage 

that is considered to be part of a 

commercial book of business, but are 

not required to be paid more than once 

with respect to the same covered life. 

In addition, we propose to add 

paragraph (vi) to § 153.400(a)(1), which 

would provide that no reinsurance 

contributions would be required in the 

case of employer-provided group health 

coverage where (A) such coverage 

applies to individuals who are also 

enrolled in individual market health 

insurance coverage for which 

reinsurance contributions are required; 

or (B) such coverage is supplemental or 

secondary to group health coverage for 

which reinsurance contributions must 

be made for the same covered lives. This 

language would address situations in 

which a person covered under a group 

health plan also obtains individual 

market coverage, and in which multiple 

group health plans cover the same lives, 

such as if a union offers a plan that 

supplements a group health plan offered 

by the employer. It would also address 

a situation in which two spouses are 

each covered as dependents by the 

respective group health plans offered by 

their two independent employers. 

If it is not clear from the terms of the 

health plans which group health plan is 

supplemental, we propose, in keeping 

with § 153.400(a)(3), that the group 

health plan that offers the greater 

portion of inpatient hospitalization 

benefits be deemed the primary health 

plan. If it is not clear from the terms of 

the health plans which group health 

plan is primary and which is secondary, 

we propose to defer to the arrangements 

on primary and secondary liability 

worked out by the respective plan 

sponsors, in accordance with applicable 

State coordination of benefit laws and 

regulations. In such a situation, we 

would hold a plan sponsor harmless 

from non-compliance actions for failure 

to pay reinsurance contributions to the 

extent the sponsor relied in good faith 

upon a written representation by the 

other sponsor that the other sponsor’s 

coverage has primary liability for claims 

for particular covered lives. 

We seek comment on these proposals, 

including which entity should be 

responsible for the reinsurance 

contributions, how that responsibility 

should be determined, and what 

arrangements should be required 

between the entities to assure efficient 

coordination of the responsibility for the 

reinsurance contributions, and what 

other situations we should address in 

which reinsurance contributions might 

be required to achieve the goal of 

preventing more than one contribution 

per covered life. 

i. Reinsurance Contributions and 

Enrollees Residing in the Territories 

Section 1323(a)(1) of the Affordable 

Care Act provides that a U.S. territory 

may establish an Exchange, and any 

territory that elects to establish an 

Exchange will be ‘‘treated as a State’’ for 

purposes of the Exchange standards in 

sections 1311 through 1313 of the 

Affordable Care Act. In a letter dated 

December 10, 2012 to the governors of 

the U.S. territories (Territories Letter), 

HHS stated that ‘‘if a territory 

establishes an approved Exchange, it 

may elect to establish a transitional 

reinsurance program . . . consistent 

with the provisions in section 1341 . . . 

of the Affordable Care Act.’’ The 

Territories Letter further stated that if a 

territory does not establish a transitional 

reinsurance program, HHS would not do 

so on the territory’s behalf, and that in 

order to operate a reinsurance program 

for the 2014 benefit year, the territory 

was required to notify HHS of its 

intention to do so by March 1, 2013. No 

territory has notified HHS of an 

intention to operate a reinsurance 

program. 

In this proposed rule, we propose that 

a contributing entity is not required to 

make reinsurance contributions on 

behalf of enrollees who reside in a 

territory that does not operate a 

reinsurance program. We propose to add 

in § 153.400(a)(1)(v) an exception for 

when a contributing entity must make 

reinsurance contributions for its selfinsured group health plans and health 

insurance coverage. To the extent that 

the coverage applies to enrollees with 

primary residence in a territory when 

that territory does not operate a 

reinsurance program, a contributing 

entity would not be required to make 

reinsurance contributions for those 

enrollees. We believe that this proposal 

aligns with the goals of the reinsurance 

program because reinsurance 

contributions would only be required 

with respect to those jurisdictions that 

benefit from the premium stabilization 

effects of the reinsurance program. 

We propose that a contributing entity 

may use any reasonable method to 

determine the primary residence of an 

enrollee, including using the last-known 

mailing address of the principal 

subscriber on the enrollee’s policy. We 

seek comment on other methods that 

would be acceptable for determining the 

primary residence of an enrollee, 

including the principal work location of 

the principal subscriber on the 

enrollee’s policy. 

We note that a contributing entity is 

required to allocate its covered lives by 

primary residence between the 

territories, on the one hand, and the 50 

States and the District of Columbia, on 

the other hand, only if it wishes to 

exclude covered lives from reinsurance 

contributions under proposed 

§ 153.400(a)(1)(v). 

j. Form 5500 Counting Method 

In the 2014 Payment Notice (78 FR 

15463), we established counting 

methods for calculating the annual 

enrollment for determining reinsurance 

contributions for self-insured group 

health plans, fully insured health plans, 

and plans that are partially insured and 

partially self-insured. One of the 

allowable methods for a self-insured 

group health plan is the Form 5500 

counting method in § 153.405(e)(3). In 

this proposed rule, we seek to clarify 

§ 153.405(e)(3), by changing the 

references from ‘‘benefit year’’ to ‘‘plan 

year’’ 18 to clarify that a self-insured 

group health plan may use the 

enrollment set forth in the Form 5500 

even if the group health plan is based 

on a plan year other than the benefit 

year, which is defined in § 153.20 and 

§ 155.20 as a calendar year for which a 

health plan provides coverage for health 

benefits. Therefore, a self-insured group 

health plan that chooses to use the Form 

5500 counting method and offers selfonly coverage would calculate the 

number of lives covered by adding the 

total participants covered at the 

beginning and end of the most current 

plan year, as reported on the Form 5500, 

then dividing by two. A self-insured 

group health plan that offers both selfonly coverage and coverage other than 

self-only coverage would calculate the 

number of lives covered by adding the 

total participants covered at the 

beginning and the end of the most 

current plan year, as reported on the 

Form 5500. 


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19We note that the good faith provision at 

§ 156.800(c) will not be applicable in this context 

because risk corridors activities, such as data 

submission and payment, occur beginning in 2015. 

3. Provisions for the Temporary Risk 

Corridors Program 

a. Definitions 

In the first final Program Integrity 

Rule, we provided that, in 45 CFR part 

153, subpart F, regarding risk corridors, 

any reference to a ‘‘qualified health 

plan’’ or ‘‘QHP’’ includes plans that are 

the ‘‘same’’ as a QHP or ‘‘substantially 

the same’’ as a QHP. We noted that 

plans that are substantially the same as 

a QHP will continue to be considered 

substantially the same even if they differ 

in terms of benefits, premium, provider 

network or cost-sharing structure, 

provided that the differences are tied 

directly and exclusively to Federal or 

State requirements or prohibitions on 

the coverage of benefits that apply 

differently to plans depending on 

whether they are offered through an 

Exchange or outside of an Exchange. 

In the first final Program Integrity 

Rule, we recognized that OPM might 

issue additional standards for multiState plan (MSP) issuers in the future 

(for example, standards related to 

provider networks) that could create 

situations analogous to the ones we 

discuss above. We are considering 

whether a plan that differs from a QHP 

(as defined at § 155.20) based on these 

standards would be considered to be 

‘‘substantially the same’’ as a QHP for 

the purposes of participating in the risk 

corridors program, and are considering 

amending the definition of a QHP at 

§ 153.500 in response. We seek 

comment on this approach. 

b. Compliance With Risk Corridors 

Standards 

The risk corridors program requires 

the Federal government and 

participating plans to share in profits or 

losses resulting from inaccurate rate 

setting for benefit years 2014 through 

2016. A robust oversight process is 

critical for this program because risk 

corridors payments are Federal funds. In 

this proposed rule, we outline our 

proposed process for validating risk 

corridors data submissions and 

enforcing compliance with the risk 

corridors requirements in subpart F of 

45 CFR part 153. Because the MLR 

program and the risk corridors program 

will require similar data, we propose to 

closely align the data submission, data 

validation, audit provisions, and 

sanctions for the two programs. We note 

that the risk corridors oversight 

provisions will apply to all plans, 

including QHPs and plans that are 

substantially the same as QHPs (as 

defined in the first final Program 

Integrity Rule) that are subject to the 

risk corridors program, whether these 

plans are offered through the Exchange 

or outside of the Exchange. 

For the 2014 benefit year, we propose 

to collect risk corridors data through the 

same form used for MLR data collection, 

at the same time (July 31 of the year 

following the applicable benefit year). 

We note that we would modify the 

collection instrument and adjust the 

operational aspects of data submission 

as necessary to ensure that the data 

collection process adheres to the 

requirements for both programs. We 

would leverage data validation 

procedures that are used by the MLR 

program to uncover data 

inconsistencies, and would add 

additional validation steps that would 

allow us to identify QHP issuers and 

verify QHP-specific premium 

information. In addition, we are 

considering conducting an internal 

quality check of risk corridors data to 

ensure that the information submitted is 

consistent with information submitted 

for other programs (for example, 

premiums and claims reported in the 

dedicated distributed data 

environment). Similar to the MLR 

process, we anticipate requiring issuers 

to resubmit corrected data after risk 

corridors data errors are identified. We 

request comment on this approach. 

To ensure the integrity of risk 

corridors data reporting, we propose in 

§ 153.540(a) to establish HHS authority 

to conduct post-payment audits of QHP 

issuers. Because similar data is used in 

the risk corridors and MLR calculations, 

we are considering conducting the risk 

corridors audits using the existing MLR 

auditing process set forth at § 158.402 to 

reduce the time and expense (for both 

HHS and issuers) of conducting 

multiple audits on similar data. We are 

further contemplating conducting risk 

corridors audits under an overall issuer 

audit program so that we may 

simultaneously obtain the financial 

information necessary to determine 

compliance with other programs, such 

as the risk adjustment and reinsurance 

programs. We believe that this may 

further reduce the overall audit burden 

on issuers. Some States already review 

data and audit issuer information 

related to MLR reporting and rebate 

obligations; HHS does not intend to 

review information that would be 

duplicative of a review that has been 

completed by a State. However, because 

States may not examine all data 

required to be examined for the risk 

corridors program, HHS could audit a 

QHP issuer’s risk corridors data to the 

extent not examined by the State. We 

request comments on all aspects of this 

approach, including appropriate criteria 

for identifying issuers for audit in any 

particular benefit year. 

The second final Program Integrity 

Rule provides that a QHP issuer on an 

FFE that fails to comply with the risk 

corridors provisions may be subject to 

decertification or civil money penalties 

(CMPs), but does not extend this remedy 

to a QHP issuer on a State Exchange. 

State Exchange issuers that fail to 

submit risk corridors charges, and 

consequently owe HHS money, would 

be subject to the Federal debt collection 

processes; however, without risk 

corridors data, HHS will be unable to 

determine whether a debt is owed or the 

amount of a debt. Therefore, in 

§ 153.540(b) we propose to extend our 

CMP authority under sections 1321(a)(1) 

and (c)(2) of the Affordable Care Act to 

all QHP issuers that fail to provide 

timely, accurate, and complete data 

necessary for risk corridors calculations, 

or that otherwise do not comply with 

the standards in subpart F of 45 CFR 

part 153. We propose to assess CMPs on 

QHP issuers in State Exchanges in 

accordance with the same enforcement 

and sanction procedures that apply to 

QHP issuers on FFEs, under § 156.805. 

For purposes of calculating the 

maximum CMP amount, we may 

consider using enrollment information 

acquired from other internal sources (for 

example, risk adjustment and 

reinsurance enrollment data from the 

dedicated distributed data 

environment). Under this approach, we 

would either use enrollment 

information from all of an issuer’s nongrandfathered plans within a State 

market, or would limit calculation of the 

CMP amount to the number of enrollees 

in an issuer’s QHPs (including enrollees 

in plans that are substantially the same 

as a QHP). We note that, consistent with 

our general approach relating to the 

application of sanctions, we would take 

various factors into account when 

determining the amount of a CMP, 

including an issuer’s record of prior 

compliance with risk corridors 

requirements, the gravity and the 

frequency of the violation, and the 

issuer’s demonstrated success in 

correcting violations that HHS has 

identified (for example, errors identified 

in corrective action plans).19 We request 

comments on all aspects of this 

approach, particularly for the 

methodology that we should use to 

determine a CMP amount for a QHP 


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20Letter to Insurance Commissioners, Center for 

Consumer Information and Insurance Oversight, 

November 14, 2013. See http://www.cms.gov/

CCIIO/Resources/Letters/Downloads/commissionerletter-11-14-2013.PDF. 

issuer that does not comply with risk 

corridors data requirements. 

c. Participation in the Risk Corridors 

Program 

Because the premium stabilization 

programs, including the risk corridors 

program, are intended to mitigate 

pricing uncertainty associated with the 

2014 market reforms, particularly the 

rating rules at section 2701 of the PHS 

Act and § 147.102, we believe that the 

protections of these programs should be 

for plans that are subject to the premium 

rating rules. Therefore, in the 2014 

Payment Notice, we clarified that under 

the methodology HHS will use when 

operating risk adjustment on behalf of a 

State, a plan that is not subject to the 

market reform rules, including the 

premium rating rules, is not a risk 

adjustment covered plan. In the second 

final Program Integrity Rule, we further 

clarified that stand-alone dental plans 

would not be subject to the risk 

corridors program because they are not 

subject to the premium rating rules, and 

therefore do not require the protections 

of the risk corridors program. In this 

proposed rule, we are similarly 

proposing to amend the risk corridors 

rules to provide that a plan that is not 

subject to the market reform rules and 

premium rating rules would not 

participate in the risk corridors 

program. We propose to add a paragraph 

(f) to § 153.510 to provide that the risk 

corridors program would apply only to 

qualified health plans, as defined in 

§ 153.500, including all plans offered 

through the individual market Exchange 

or SHOP, regardless of employer size, 

that are subject to the following 

provisions within title 45 of the CFR: 

• § 147.102 (fair health insurance 

premiums). 

• § 147.104 (guaranteed availability of 

coverage). 

• § 147.106 (guaranteed renewability 

of coverage). 

• § 147.150 (essential health benefits). 

• § 156.80 (single risk pool) and 

subpart B of 45 CFR part 156 (essential 

health benefits package). 

We believe that this approach is 

consistent with how QHPs have 

determined their pricing for the 2014 

benefit year. We note that a QHP that 

must adhere to the premium rating rules 

as a condition of participation on the 

SHOP is a plan that is ‘‘subject to the 

rating rules’’ for the purposes of this 

policy. 

We are also proposing that the 

employee counting method applicable 

under State law would determine 

whether a plan is considered to be 

offered in the small group market for 

purposes of the risk corridors program 

even if the State definition does not take 

non-full-time employees into account, 

and thus could include some employers 

as small employers that would be large 

employers under the Federal definition. 

Given our broad authority to establish 

the risk corridors program, we believe 

that we have the discretion to include 

such employers in the program even if 

they do not meet the Federal definition 

of small employer that would apply for 

other purposes. We believe that the 

inclusion of such employers in the 

definition of small employers for 

purposes of the risk corridors program 

would maintain consistency between 

the risk corridors calculation and 

implementation of the single risk pool 

provision, which is generally enforced 

by the State. We further believe that 

clearly specifying the employee 

counting method that is specific to the 

risk corridors program would provide 

clarity for QHP issuers with plans that 

could either be excluded from or subject 

to the risk corridors program, depending 

on the employee counting method used. 

We note that permitting the use of a 

State employee counting method that is 

inconsistent with Federal law for 

purposes of the risk corridors program 

differs from the approach taken under 

the MLR program and the proposed 

counting method for the risk adjustment 

program that is described elsewhere in 

this proposed rule. Under these 

programs, non-full-time employees must 

be counted. We note that the State’s 

employee counting method would also 

be used to determine whether a plan 

that is not a QHP is part of the nongrandfathered individual or small group 

market within a State, and would, 

therefore, be part of a QHP issuer’s risk 

corridors data submission under 

§ 153.530. We also note that the State’s 

employee counting method would 

determine whether any plan offered 

outside of an Exchange that is the 

‘‘same’’ as or ‘‘substantially similar’’ to 

an Exchange QHP (under the definition 

set forth in § 153.500) would be part of 

the individual or small group market for 

purposes of the risk corridors program, 

and, therefore whether it is eligible to 

receive or make risk corridors payments. 

This proposed approach would serve to 

align the market-wide rating rules with 

the protections of the premium 

stabilization programs. However, the 

approach could likely lead to a more 

complex data submission for risk 

corridors and MLR, because we may not 

be able to align the market definitions 

between the two programs. 

We seek comment on our proposal 

that a QHP must be subject to the 

market reform rules in order to 

participate in the risk corridors 

program. We also seek comment on our 

proposal to use the State employee 

counting method to define plans in the 

small group market for purposes of 

determining which plans participate in 

the risk corridors program, even where 

that would include employers that 

would be large employers under the 

Federal definition, or whether we 

should instead use the counting method 

used for the MLR program and proposed 

for risk adjustment purposes. We also 

seek comments on whether we should 

explicitly codify the applicable counting 

rules for each program in regulations 

text. 

d. Adjustment Options for Transitional 

Policy 

As discussed earlier, on November 14, 

2013, the Federal government 

announced a policy under which it will 

not consider certain health insurance 

coverage in the individual or small 

group market between January 1, 2014, 

and October 1, 2014, under certain 

conditions to be out of compliance with 

specified 2014 market rules, and 

requested that States adopt a similar 

non-enforcement policy.20 CMS noted 

in a letter to the insurance 

commissioners of the 50 States and the 

District of Columbia that while this 

transitional policy would not have been 

anticipated by issuers in setting rates for 

2014, the risk corridors program should 

ameliorate the effect of this policy. We 

also stated that we intended to explore 

ways to modify the risk corridors 

program to address any unanticipated 

effects of this policy. 

Therefore, for the 2014 benefit year, 

we are considering whether we should 

make an adjustment to the risk corridors 

formula that would help to further 

mitigate any unexpected losses for 

issuers of plans subject to risk corridors 

that are attributable to the effects of the 

transition policy. One potential option 

we are considering would be to 

implement an adjustment to the risk 

corridors formula set forth in subpart F 

of part 153 for each of the individual 

and small group markets by increasing 

the profit margin floor (from 3 percent 

of after-tax profits) and the allowable 

administrative costs ceiling (from 20 

percent of after-tax profits) in an amount 

sufficient to offset the effects of the 

transitional policy upon the claims costs 

of a model plan (that is, a plan with an 

80 percent allowable costs-to-premium 

ratio). This adjustment could serve to 


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increase a QHP issuer’s risk corridors 

ratio and its risk corridors payment 

amount to help offset the loss in 

premium revenue and profit that might 

occur under the transitional policy as a 

result of predicted increased claims 

costs that were not accounted for when 

setting 2014 premiums. We are 

considering applying this adjustment 

only to plans whose allowable costs (as 

defined at 45 CFR 153.500) are at least 

80 percent of their after-tax premiums, 

because issuers under this threshold 

would generally be required to pay out 

rebates to consumers. We note that for 

plans whose ratio of allowable costs to 

after-tax premium are below 80 percent, 

the 3 percent risk corridors profit 

margin and 20 percent allowable 

administrative cost ceiling would 

continue to apply for these plans. 

The effect on the risk pool of plans 

compliant with the 2014 market rules 

may vary significantly from State to 

State, depending upon the extent to 

which each State elects not to enforce 

the 2014 market rules, as recommended 

under the transition policy, and upon 

the market dynamics of the health 

insurance market within the State. We 

believe that the State-wide effect on this 

risk pool will increase with the increase 

in the percentage enrollment in 

transitional plans in the State, and so 

we are considering having the Statespecific percentage adjustment to the 

risk corridors formula also vary with the 

percentage enrollment in these 

transitional plans in the State. 

We are considering calculating the 

State-specific percentage adjustment by 

analyzing the effects of the transitional 

policy upon a plan with specified 

characteristics. For example, our 

actuaries believe the following are 

reasonable plan assumptions: allowable 

costs (including claims) equal to 80 

percent of premiums, federal income 

taxes equal to 35 percent of pre-tax 

profits, other tax liability equal to 7.5 

percent of premiums, and other 

administrative costs equal to 8 percent 

of premiums. 

We are considering calculating the 

State-specific percentage adjustment to 

the risk corridors profit margin floor and 

allowable administrative costs ceiling in 

a manner that would help to offset the 

effects of the transitional policy upon 

the model plan’s claims costs. 

We propose to estimate the effect of 

the transitional policy upon the model 

plan’s claims costs by assuming that 

allowable costs (including claims) 

among the transitional plans are 80 

percent of the allowable costs that 

would have resulted from the broad risk 

pool, in the absence of the transitional 

policy. After consulting our actuaries, 

we believe that this assumption is a 

reasonable reflection of the effects of 

underwriting on the transitional plans. 

To estimate this State-specific effect of 

the transitional policy on average claims 

costs, we propose to require all issuers 

participating in the individual and 

small group markets in a State to submit 

to HHS a member-month enrollment 

count for transitional plans and nontransitional plans in the individual and 

small group markets. This submission 

would occur in 2015 prior to the risk 

corridors submission. HHS would 

analyze that data, and publish the Statespecific adjustments that issuers would 

use in the risk corridors calculations for 

the 2014 benefit year. 

We have proposed a State-wide 

adjustment for reasons of administrative 

simplicity and due to the analytical 

difficulty in estimating this effect on an 

issuer-by-issuer basis. Although the 

adjustment that we are considering 

would affect each issuer differently, 

depending on its particular claims 

experience and administrative cost rate, 

we believe that, on average, the 

adjustment would suitably offset the 

losses that a standard issuer might 

experience as a result of the transitional 

policy. We also note that, because the 

risk corridors program applies only to 

certain plans defined to be qualified 

health plans at 45 CFR 153.500, the 

extent to which an issuer may receive 

the full effect of this adjustment would 

depend upon the portion of an issuer’s 

individual and small group enrollees in 

plans subject to risk corridors. 

Another option we are considering 

would be to make a similar modification 

to the medical loss ratio formula. We 

would use our authority under section 

2718(c) of the Public Health Service Act 

to ‘‘take into account . . . special 

circumstances of different types of 

plans’’ to ensure that the proposed 

adjustment to the risk corridor program 

does not distort the implementation of 

MLR requirements, so that the rebates 

that would be owed absent the 

transitional policy and this adjustment 

would not substantially change. We 

seek comment on the best way to make 

such a modification, and whether such 

a modification is required. 

We request comment on all aspects of 

these potential approaches to help 

mitigate any potential impact of the 

transitional policy. As we continue to 

analyze its potential impacts, we will 

determine whether such approaches and 

modifications are warranted. We seek 

comment on alternate ways of 

implementing adjustments to current 

risk corridors and reinsurance program 

policy that would help offset issuers for 

any unexpected losses that might be 

incurred as a result of the transitional 

policy. In particular, we seek comment 

on whether this risk corridors 

adjustment should depend upon Statewide market characteristics, as we have 

proposed, or whether it should be 

national, tailored to each issuer, or 

based upon different State-wide 

characteristics. 

We also seek comment on whether the 

characteristics of the standard plan we 

have outlined above are the appropriate 

characteristics to use for our modeling. 

We seek comment on the data that we 

should collect to measure the key 

characteristics for this adjustment, and 

who we should collect that data from. 

We seek comment on whether particular 

ceilings and floors should be placed 

upon the amount of the adjustment. We 

also seek comment on whether the 

adjustment should apply to QHP issuers 

with allowable costs that are below 80 

percent of after-tax premiums. 

4. Distributed Data Collection for the 

HHS-operated Risk Adjustment and 

Reinsurance Programs 

a. Discrepancy Resolution Process 

(i) Confirmation of HHS Dedicated 

Distributed Data Environment Reports 

Because the accuracy of the data on 

an issuer’s dedicated distributed data 

environment is critical to the accuracy 

of the HHS-operated risk adjustment 

and reinsurance calculations, we are 

proposing an iterative discrepancy 

reporting process that would allow an 

issuer of a risk adjustment covered plan 

or a reinsurance-eligible plan to notify 

HHS in a timely fashion of data and 

calculation discrepancies related to the 

data the issuer uploaded to its dedicated 

distributed data environment. We 

anticipate that this process would allow 

HHS and issuers sufficient time to 

resolve discrepancies, prior to HHS 

notifying issuers of final risk adjustment 

payments and charges and reinsurance 

payments. This process would also 

enable HHS to identify and address 

issues that affect multiple issuers 

throughout the benefit year. 

Interim dedicated distributed data 

environment reports: Beginning in 2014, 

HHS anticipates sending interim 

dedicated distributed data environment 

reports to issuers of risk adjustment 

covered plans and reinsurance-eligible 

plans that have loaded data onto their 

dedicated distributed data 

environments. (We also intend to issue 

these interim reports to issuers of risk 

adjustment covered plans and 

reinsurance-eligible plans that do not 

load data, to verify this result.) We 

anticipate that issuers of risk adjustment 

covered plans would receive interim 


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reports that include preliminary risk 

scores based on this data. We anticipate 

that issuers of reinsurance-eligible plans 

would receive interim reports that 

include an estimate of the issuer’s 

aggregated total claims eligible for 

reinsurance payments based on this 

data. Therefore, we propose in 

§ 153.710(d) that within 30 calendar 

days of the receipt of an interim 

dedicated distributed data environment 

report from HHS, the issuer must either 

confirm to HHS that the information in 

the interim report accurately reflects the 

data to which the issuer has provided 

access to HHS through its dedicated 

distributed data environment in 

accordance with § 153.700(a) for the 

timeframe specified in the report, or else 

must describe to HHS any discrepancy 

it identifies in the interim report. 

Following the identification of a 

discrepancy in an interim dedicated 

distributed data environment report, 

HHS would review the evidence 

submitted by the issuer, along with any 

other relevant data, and would 

determine if the preliminary risk score 

or estimated payment amount at issue 

was properly calculated using the 

applicable data. We believe that the 30- 

calendar-day timeframe would provide 

sufficient opportunity for an issuer to 

verify the preliminary risk scores and 

estimated reinsurance payment 

amounts, but note that an issuer may 

notify HHS of a newly discovered 

discrepancy in connection with 

responses to later interim or final 

dedicated distributed environment 

reports until 15 calendar days after the 

final dedicated distributed data 

environment report is issued, as 

discussed below. We anticipate that the 

interim dedicated distributed data 

environment reports would allow 

issuers to proactively address any data 

discrepancies regarding the data the 

issuer made accessible to HHS on the 

dedicated distributed data environment 

and HHS’s analysis of the data. 

We note that under § 153.700(a), an 

issuer of a risk adjustment covered plan 

or a reinsurance-eligible plan in a State 

where HHS operates the risk adjustment 

or reinsurance program on behalf of the 

State, must establish a dedicated 

distributed data environment and 

provide data access to HHS, in a manner 

and timeframe specified by HHS, for 

any HHS-operated risk adjustment or 

reinsurance program. For the issuer and 

HHS to effectively address and resolve 

discrepancies through the proposed 

interim reporting process, we propose 

that once an issuer’s dedicated 

distributed data environment is 

established, the issuer would be 

required, on a quarterly basis, to make 

a complete and current enrollment file 

accessible to HHS through the dedicated 

distributed data environment, and 

would be required to make good faith 

efforts to make accurate and current 

claims files accessible to HHS through 

the dedicated distributed data 

environment. An issuer may later (up 

until April 30 of the year after the 

benefit year, as provided for in 

§ 153.730) adjust these files with the 

most current information to account for 

changing enrollments or more current 

adjudications of claims in later periods. 

However, we believe it is critical for 

issuers to provide quarterly uploads of 

enrollment and claims files to permit 

issuers and HHS to monitor data 

collection. 

We note that, as part of the process for 

making these files available to HHS on 

a dedicated distributed data 

environment, we anticipate providing 

an issuer a transactional process report 

that will identify data that has been 

attempted to be uploaded, but that has 

been rejected. To fulfill its obligation to 

make these files available to HHS, an 

issuer would be required to either 

correct or accept the rejection of this 

data for the submission process to be 

considered complete. 

Final dedicated distributed data 

environment report: We propose that 

HHS would provide issuers with a final 

dedicated distributed data environment 

report following the applicable benefit 

year, after the April 30 data submission 

deadline. The final dedicated 

distributed data environment report 

would include final risk scores and 

claims amounts eligible for reinsurance 

payments, each calculated from the 

issuer’s data that was timely loaded 

onto the dedicated distributed data 

environment. As with the interim 

reports discussed above, we propose in 

§ 153.710(e) that the issuer be required, 

within 15 calendar days of receipt of the 

final report, to either confirm to HHS 

that the information in the final 

dedicated distributed data environment 

report accurately reflects the data to 

which the issuer has provided access to 

HHS through its dedicated distributed 

data environment in accordance with 

§ 153.700(a) for the benefit year 

specified in the report, or to describe to 

HHS any discrepancy it identifies in the 

final dedicated distributed data 

environment report. The shorter 15- 

calendar-day reporting timeframe for the 

final dedicated distributed data 

environment report is necessary so that 

HHS can notify issuers of their final risk 

adjustment payments and charges and 

final reinsurance payments by June 30 

of the year following the applicable 

benefit year, as required under 

§ 153.310(e) and § 153.240(b)(1)(ii). We 

seek comment on these proposals. 

Notification of payments and charges: 

Last, as required under § 153.310(e) and 

§ 153.240(b)(1)(ii), HHS will provide 

issuers a report detailing their final risk 

adjustment payments and charges and 

reinsurance payments for the applicable 

benefit year by June 30 of the year 

following the applicable benefit year. 

We also anticipate providing a report on 

cost-sharing reduction reconciliation 

payments and charges for that benefit 

year in the same timeframe. Although 

we anticipate that the interim and final 

dedicated distributed data environment 

reports would permit HHS and issuers 

to resolve most data and payment 

discrepancies for risk adjustment and 

reinsurance before the June 30 report is 

issued, we recognize that some 

discrepancies might remain unresolved. 

Therefore, we propose in § 153.710(f) 

that if a discrepancy that is first 

identified in an interim or final 

dedicated distributed data environment 

report in accordance with proposed 

§ 153.710(d)(2) or § 153.710(e)(2) 

remains unresolved after issuance of the 

June 30 report, an issuer of a risk 

adjustment covered plan or reinsuranceeligible plan may make a request for 

reconsideration using the process 

proposed in § 156.1220(a). To promote 

the goals of the premium stabilization 

programs and to ensure that risk 

adjustment and reinsurance payments 

are provided to an issuer of a risk 

adjustment covered plan or reinsuranceeligible plan in a timely fashion, HHS 

would assess charges and make 

payments based on the amounts listed 

in the June 30 report, whether or not the 

issuer had submitted a request for 

reconsideration under proposed 

§ 156.1220(a), and would later correct 

any charges or payments determined to 

be inaccurate under the reconsideration 

or administrative appeals process. 

(ii) Reporting of Payments and Charges 

Under Reconsideration 

Because risk adjustment payment and 

charge amounts and reinsurance 

payment amounts are factors in an 

issuer’s risk corridors and MLR 

calculations, a delay in resolving final 

risk adjustment payments and charges 

and reinsurance payments could make it 

difficult for issuers to comply with 

reporting requirements under the risk 

corridors and MLR programs. Therefore, 

to clarify how issuers are to comply 

with these reporting requirements, we 

propose in § 153.710(g)(1) that, 

notwithstanding any discrepancy report 

made under paragraph § 153.710(d)(2) 

or (e)(2), or any request for 


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reconsideration under § 156.1220(a), 

unless the dispute has been resolved, an 

issuer must report, as applicable, for 

purposes of the risk corridors and the 

MLR program, the risk adjustment or 

reinsurance payment to be made to the 

Federal government, or the risk 

adjustment charge assessed by the 

Federal government, as reflected in the 

June 30 report. 

If the amount of cost-sharing 

reductions a QHP issuer has provided is 

at issue because the issuer requested 

reconsideration of a cost-sharing 

reduction reconciliation payment or 

charge under the process proposed in 

§ 156.1220(a), we propose that for the 

purposes of the risk corridors and the 

MLR program, a QHP issuer would be 

required to report a cost-sharing 

reduction amount equal to the amount 

of the advance payments of cost-sharing 

reductions paid to the issuer by HHS for 

the benefit year as reflected in the HHS 

report on cost-sharing reduction 

reconciliation payments and charges. 

Additionally, if a QHP issuer requests 

reconsideration of risk corridors 

payments or charges under the process 

proposed in § 156.1220(a), then for 

purposes of MLR reporting, the QHP 

issuer would be required to report the 

risk corridors payment to be made to the 

Federal government or charge assessed 

by the Federal government as reflected 

in the notification provided under 

§ 153.510(d). 

Finally, we propose in § 153.710(g)(2) 

that an issuer must report any 

adjustment made following any 

discrepancy report made under 

paragraph (d)(2) or (e)(2), or any request 

for reconsideration under § 156.1220(a) 

with respect to any risk adjustment 

payment or charge, including an 

assessment of risk adjustment user fees, 

reinsurance payment, cost-sharing 

reconciliation payment or charge, or risk 

corridors payment or charge, or 

following any audit, where the 

adjustment has not been accounted for 

in a prior risk corridors or medical loss 

ratio report, in the next following risk 

corridors and medical loss ratio report. 

We seek comment on these proposals. 

b. Default Risk Adjustment Charge 

As described in the second final 

Program Integrity Rule, if an issuer does 

not establish a dedicated distributed 

data environment or submits inadequate 

risk adjustment data, HHS would not 

have the required risk adjustment data 

from the issuer to calculate risk scores 

or payment transfers for the issuer. As 

a result, HHS would not be able to 

properly calculate risk adjustment 

payments and charges for the entire 

applicable market for the State. Under 

§ 153.740(b), if an issuer of a risk 

adjustment covered plan fails to 

establish a dedicated distributed data 

environment or fails to provide HHS 

with access to risk adjustment data in 

such environment by April 30 of the 

year following the applicable benefit 

year in accordance with §§ 153.610(a), 

153.700, 153,710, or 153.730, such that 

HHS cannot apply its Federally certified 

risk adjustment methodology to 

calculate the plan’s risk adjustment 

payment transfer amount in a timely 

fashion, HHS will assess a default risk 

adjustment charge. 

As described in the second final 

Program Integrity Rule, the total risk 

adjustment default charge for a risk 

adjustment covered plan would equal a 

per member per month (PMPM) amount 

multiplied by the plan’s enrollment. 

Tn = Cn × En

Where: 

Tn = total default risk adjustment charge for 

a plan n; 

Cn = the PMPM amount for plan n; and 

En = the total enrollment (total billable 

member months) for plan n. 

In the second final Program Integrity 

Rule, we provided that En could be 

calculated using an enrollment count 

provided by the issuer, using enrollment 

data from the issuer’s MLR and risk 

corridors filings for the applicable 

benefit year, or using other reliable data 

sources. 

We are considering several methods 

to calculate Cn—the PMPM amount for 

a plan. As discussed in the proposed 

Program Integrity Rule, one method 

would be to set a PMPM amount that is 

equal to the highest PMPM transfer 

charge that HHS calculates based on risk 

adjustment data submitted by risk 

adjustment covered plans in the 

applicable risk pool in the applicable 

market in the State. Such a method 

could yield a PMPM amount that would 

reflect a PMPM charge that reflects the 

high end of the PMPM distribution in 

certain States. However, in a situation in 

which the risk adjustment covered plans 

that provide the necessary risk 

adjustment data have very similar risk 

scores, a PMPM amount calculated 

under this method may yield a 

relatively low risk adjustment charge, 

and fail to provide adequate incentive 

for prompt establishment of a compliant 

distributed data system. 

A second option would be to assess a 

PMPM amount based on the standard 

deviation of the PMPM charge among all 

risk adjustment covered plans in the 

applicable risk pool in the applicable 

market in the State. The PMPM amount 

used to calculate the default risk 

adjustment charge would be an amount 

equal to the mean PMPM amount plus 

two such standard deviations. Such an 

approach could also yield a PMPM 

amount that is high but reflects the 

PMPM distribution in certain situations, 

but, again, low in others. The amount 

might also be quite unpredictable ex 

ante. 

A third option would be to assess a 

charge equal to a fixed percentage of the 

State-wide weighted average premium, 

which would be calculated as the 

enrollment-weighted mean of all plan 

average premiums of risk adjustment 

covered plans in the applicable risk 

pool in the applicable market in the 

State. This option might be relatively 

straightforward to implement, but 

would yield a charge that is not linked 

to the distribution of PMPM amounts 

within the relevant risk pool in the 

market in the State. 

We note the many possible variations 

of these methods. For example, instead 

of the highest PMPM amount in the risk 

pool in the market in the State, the 

PMPM amount could be a fixed 

percentile along the distribution of 

PMPM charges for the risk pool in the 

market in the State—thus, we could use 

the 75th percentile or an amount equal 

to 10 percent above the 100th 

percentile, for example. Instead of the 

amount based on the mean PMPM 

amount and two standard deviations, a 

different number of standard deviations 

could be used. Also, instead of using a 

fixed percentage of the State-wide 

weighted average premium, a fixed 

percentage of the plan’s premium, or a 

fixed percentage of the average premium 

of a subpopulation of risk adjustment 

covered plans in the State, such as those 

plans in the applicable risk pool, or 

those plans paying risk adjustment 

charges, could be used. 

Commenters to the proposed Program 

Integrity Rule also suggested an 

approach under which the PMPM 

amount would be the highest amount 

calculated under each of the three 

methods described above. Finally, to 

ensure that a total default charge is not 

excessive for a particular plan, we are 

considering setting an upper limit on 

the total default charge for a plan based 

on a percentage of the plan’s own total 

premiums. We seek comment on these 

methods, or other appropriate methods 

for calculating a default risk adjustment 

charge. 

D. Part 155—Exchange Establishment 

Standards and Other Related Standards 

under the Affordable Care Act 

1. Election to Operate an Exchange After 

2014 

HHS has learned through the process 

of approving or conditionally approving 


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the first generation of State Exchanges 

that it is challenging to make an 

accurate assessment of a State’s progress 

and ability to complete an Exchange 

build 10 months prior to open 

enrollment and a year prior to the first 

date that coverage would become 

effective. We are therefore proposing to 

reduce the time that the State must have 

in effect an approved or conditionally 

approved Exchange Blueprint and 

readiness assessment from 12 months to 

6.5 months prior to the Exchange’s first 

effective date of coverage. We propose 

to amend § 155.106(a)(2) by moving the 

deadline for the approval of the 

Exchange Blueprint for States electing to 

establish and operate an Exchange after 

2014 to June 15th of the previous plan 

year rather than January 1st of the 

previous plan year. We believe that this 

proposal will give States more time 

prior to approval of the Blueprint to 

prepare for the transition from an FFE 

or State Partnership Exchange to a State 

Exchange. It will also enable HHS to 

gauge the State’s actual technical, 

business and operational progress as 

more indicative milestones should be 

reached by June 15th. It should be noted 

that § 155.106(a)(2) sets the date by 

which a State electing to operate an 

Exchange after 2014 must ‘‘[h]ave in 

effect’’ an ‘‘approved, or conditionally 

approved, Exchange Blueprint and 

operational readiness assessment’’ and 

that the rule is silent about the date by 

which such a State must submit the 

Exchange Blueprint. HHS, therefore, 

proposes to extend the date by which a 

State must submit the Exchange 

Blueprint from November 15th to June 

1st. 

2. Ability of States to Permit Agents and 

Brokers to Assist Qualified Individuals, 

Qualified Employers, or Qualified 

Employees Enrolling in QHPs 

In § 155.220, we propose to add new 

paragraph (i) to provide that current 

paragraph (c)(3), which addresses 

enrollment through an Internet Web site 

of an agent or broker, and currently 

applies only to the individual market 

Exchanges, would apply to the SHOPs 

for plan years beginning on or after 

January 1, 2015. Agents and brokers 

have traditionally assisted employers in 

the small group market, and many of 

them use Internet Web sites to assist 

employers. Permitting an employer to 

complete QHP selection through the 

Internet Web site of an agent or broker 

would provide an additional potential 

SHOP enrollment option for small 

employers. Under this proposal, 

employers that have not traditionally 

worked with agents and brokers but 

have, in the past, utilized Internet Web 

sites of agents and brokers for 

purchasing insurance would have 

another option to learn about and 

participate in the SHOPs, in a manner 

similar to that already available in the 

current market. We propose to allow 

SHOPs, in States that allow this activity 

under State law, to permit enrollment in 

a SHOP QHP through an Internet Web 

site of an agent or broker under the 

standards outlined in § 155.220(c)(3) if a 

State SHOP or the FF–SHOP has the 

technical capability to make this 

possible. We invite comment on this 

proposal. 

3. Privacy and Security of Personally 

Identifiable Information 

Section 1411(g)(2)(A) of the 

Affordable Care Act provides that 

Exchanges may use information 

provided by an applicant ‘‘. . . only for 

the purposes of, and to the extent 

necessary in, ensuring the efficient 

operation of the Exchange . . .’’ Section 

155.260(a)(1) provides the specific 

circumstances under which an 

Exchange may use or disclose PII the 

Exchange creates or collects for the 

purposes of determining eligibility for 

enrollment in a QHP; determining 

eligibility for other insurance 

affordability programs as defined at 

§ 155.20; or determining eligibility for 

exemptions from the individual 

responsibility provisions in section 

5000A of the Code (collectively referred 

to as ‘‘eligibility and enrollment PII’’). 

We believe, based on considerations 

that have been brought to our attention 

by States as we work together to 

implement the Exchanges, that 

§ 155.260(a)(1) unduly limits the ability 

of an Exchange to ensure its efficient 

operation. We therefore propose to 

amend § 155.260(a)(1) to permit an 

Exchange to use or disclose eligibility 

and enrollment PII to ensure the 

efficient operation of an Exchange 

through uses or disclosures that may not 

be directly connected to the Exchange 

minimum functions described at 

§ 155.200, subject to privacy and 

security standards. 

We anticipate that there may be uses 

or disclosures of eligibility and 

enrollment PII that present additional 

opportunities to ensure the efficient 

operation of the Exchange, consistent 

with the strict protections of section 

1411(g)(2)(A) of the Affordable Care Act. 

Therefore, we propose in 

§ 155.260(a)(1)(ii) that the Secretary may 

approve other uses and disclosures of 

eligibility and enrollment PII, provided 

that HHS determines that the 

information will be used only for the 

purposes of and to the extent necessary 

in ensuring the efficient operation of the 

Exchange consistent with section 

1411(g)(2)(A) of the Affordable Care Act 

and determines that the use or 

disclosure is appropriate and 

permissible under relevant law and 

policy. In addition, prior to an Exchange 

using eligibility and enrollment PII for 

such an approved function, the 

individual would need to provide 

consent before his or her eligibility and 

enrollment PII could be used or 

disclosed for this additional function. 

We anticipate providing additional 

information in future guidance about 

uses or disclosures determined by the 

Secretary that ensure the efficient 

operation of the Exchange while 

maintaining information privacy and 

security, and we seek comment on such 

uses and disclosures. 

Further, in § 155.260(a)(1)(iii) we 

propose a process under which 

Exchanges may seek approval from the 

Secretary for uses or disclosures of 

eligibility and enrollment PII not 

explicitly described in § 155.260(a)(1)(i) 

or (ii). Requestors must show that the 

proposed use or disclosure will ensure 

the efficient operation of the Exchanges 

consistent with section 1411(g)(2)(A) of 

the Affordable Care Act and describe 

how the information to be used or 

disclosed will be protected by privacy 

and security standards that are 

compliant with § 155.260. In addition, 

any time an Exchange is using eligibility 

and enrollment PII for such an approved 

function, the individual would need to 

provide consent before his or her 

eligibility and enrollment PII could be 

used or disclosed. We anticipate 

providing additional information in 

future guidance about this process and 

about the facts and circumstances that 

will be considered in determining 

whether a proposed use or disclosure 

will ensure the efficient operation of an 

Exchange while maintaining 

information privacy and security and is 

also an appropriate and permissible use 

or disclosure under relevant law and 

policy. We seek comment on this 

proposed process, as well as other 

factors or information that should be 

considered when determining whether a 

proposed use or disclosure should be 

approved pursuant to this proposed 

process. 

We further recognize the imperative 

to maintain safeguards for eligibility and 

enrollment PII when it is used or 

disclosed to support functions beyond 

those described in § 155.200. Exchanges 

would be required to limit the 

disclosure of eligibility and enrollment 

PII to the extent necessary to 

accomplish the proposed function and 

obtain an individual’s consent. The 

proposed use and disclosure would be 


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subject to privacy and security 

standards that § 155.260 requires 

Exchanges to establish in relation to 

non-Exchange entities. 

In light of the proposed amendments 

to § 155.260(a)(1), we further propose to 

amend § 155.260(a)(2) to delete the 

specific reference to § 155.200 minimum 

functions and to indicate that all 

permitted uses under § 155.260(a)(1) 

must be consistent with § 155.260. 

Section 155.260(a)(3) provides that 

Exchanges must establish and 

implement privacy and security 

standards consistent with the eight 

principles in § 155.260(a)(3)(i) through 

(a)(3)(viii). Section 155.260(b) addresses 

situations in which Exchanges share PII 

with ‘‘non-Exchange entities,’’ including 

‘‘. . . individuals or entities, such as 

Navigators, agents, and brokers.’’ 

Through public comment to the 

Program Integrity Proposed Rule, we 

received requests for clarification on the 

definition of ‘‘non-Exchange entities’’ 

and also received questions asking if the 

regulatory language ‘‘individuals or 

entities, such as Navigators, agents, and 

brokers,’’ was meant to be an exhaustive 

list. In the preamble to the first final 

Program Integrity Rule (78 FR 54082), 

we stated that we would issue further 

guidance on this topic. We now propose 

to amend the regulation text to address 

these questions. 

In § 155.260(b)(1), we propose that 

any individual or entity that gains 

access to PII submitted to an Exchange 

or collects, uses or discloses PII 

gathered directly from applicants, 

qualified individuals, or enrollees while 

that individual or entity is performing 

the functions agreed to with the 

Exchange, be considered a nonExchange entity, such that a nonExchange entity is defined based on 

access to PII and not based on a 

representative or exhaustive list of 

entities. As clarification, we believe that 

entities that would qualify as ‘‘nonExchange entities’’ based on this 

proposed definition include, but are not 

limited to, Medicaid agencies; CHIP 

agencies; Certified Application 

Counselors; in person assisters; agents 

and brokers, including Web-brokers; 

QHP issuers; Navigators; and other third 

party contractors. We feel very strongly 

about the importance of requiring 

privacy and security standards and 

believe that this proposed definition of 

non-Exchange entity makes even more 

clear which entities are subject to these 

standards. 

At § 155.260(b)(2), we propose to 

maintain the existing requirement for 

Exchanges to enter into a contract or 

agreement with non-Exchange entities, 

while providing more details regarding 

the required elements of these contracts 

and agreements. We propose that the 

contract or agreement between an 

Exchange and a non-Exchange entity 

must include at least five elements. 

First, we believe it is important to 

define in this contract or agreement the 

functions that the non-Exchange entity 

will perform so that both parties agree 

to the circumstances and tasks during 

which the privacy and security 

standards will be applicable, and 

propose to include this requirement in 

§ 155.260(b)(2)(i). This requirement 

already exists in § 155.260(b)(2), where 

reference is made to a non-Exchange 

entity performing the functions outlined 

in the agreement with the Exchange. 

Second, we propose in 

§ 155.260(b)(2)(ii) that in the required 

contract or agreement, the Exchange 

must impose a requirement for 

compliance with privacy and security 

standards and specifically list or 

incorporate by reference the privacy and 

security standards and obligations with 

which the non-Exchange entity must 

comply. A similar requirement also 

already exists in the current text of 

§ 155.260(b), where an Exchange must 

require the same or more stringent 

privacy and security standards as a 

condition of contract or agreement with 

the non-Exchange entity. The nature of 

these standards will be discussed in 

greater detail in the next paragraph. 

Third, we propose in § 155.260(b)(2)(iii) 

that in the contract or agreement, the 

Exchange must require the nonExchange entity to monitor, periodically 

assess, and update its security controls 

and related system risks to ensure the 

continued effectiveness of those 

controls in accordance with 

§ 155.260(a)(5). It is assumed that the 

Exchange would expect this type of 

assessment to occur any time the nonExchange entity has a major change in 

the operational or technical 

environment employed to meet the 

duties outlined in their contracts or 

agreements with the Exchange, and at 

the time of renewal of the contract or 

agreement. Fourth, we propose in 

§ 155.260(b)(2)(iv) that in the contract or 

agreement, the Exchange must require 

the non-Exchange entity to inform the 

Exchange of any change in its 

administrative, technical, or operational 

environment defined within the 

contract that would require an alteration 

of the standards within the contract or 

agreement. The intent of this 

requirement is to provide an 

opportunity to assess and revise 

standards to ensure that the standards 

remain relevant. We seek comment on 

other mechanisms that could be more 

effective in keeping standards aligned 

with operating environments. Fifth, we 

propose in § 155.260(b)(2)(iv) that the 

contract or agreement include a 

requirement that the non-Exchange 

entity, in a written contract or 

agreement, must require any 

downstream entities that also meet the 

definition established in § 155.260(b)(1) 

to comply with the same privacy and 

security standards with which the nonExchange entity agrees to comply under 

its contract or agreement with the 

Exchange. We feel it is important that 

the privacy and security standards 

continue to apply to PII as it moves to 

additional downstream entities. 

Currently, § 155.260(b) states that an 

Exchange must require the same or more 

stringent privacy and security standards 

as a condition of contract or agreement 

with individuals or entities that gain 

access to PII submitted to an Exchange. 

In § 155.260(b)(3), we maintain the 

specification for an Exchange to require 

privacy and security standards as a 

condition of contract or agreement with 

non-Exchange entities and we propose 

criteria for the establishment of these 

standards that allow Exchanges 

flexibility in setting standards for nonExchange entities that will provide 

equivalent or more stringent protection 

while aligning more closely to the 

functions the non-Exchange entity is 

performing and the operating 

environment under which the nonExchange entity is performing. Because 

the definition for non-Exchange entities 

is broad and includes a variety of 

entities, we recognize that there can be 

variation between non-Exchange 

entities. 

Different non-Exchange entity 

functions can result in variation in both 

the amount and type of access to PII (as 

an example, a Certified Application 

Counselor’s access to consumer PII is 

different than the access a consumer’s 

agent or broker would have) and the 

technical characteristics of the nonExchange entity’s environment (as an 

example, some non-Exchange entities, 

such as Medicaid agencies, may have a 

connection to the Data Services Hub, 

whereas others, such as Navigators, do 

not). Additionally, some non-Exchange 

entities already are required by law to 

meet other industry-recognized security 

standards for the environment in which 

they will perform Exchange-related 

functions. Currently there is no 

mechanism within the regulation to take 

environment variations or already 

existing security requirements into 

account, resulting in an operational 

burden for non-Exchange entities that 

does not result in additional protections 

for applicants. 


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As applied to non-Exchange entity 

privacy standards, the introduction of 

this flexibility is not anticipated to 

result in any weakening of Exchange 

privacy standards. Variation is not 

anticipated in the stringency of the 

particular privacy standard but in how 

it is implemented. As an example, a 

written policy and procedure document 

as required by § 155.260(d) regarding 

the collection, use, and disclosure of PII 

may take a different form based on a 

non-Exchange entity’s duties and 

operations. A non-Exchange entity that 

is a QHP issuer currently obligated to 

follow the HIPAA security rule might 

seek to negotiate a contract with the 

Exchange under which it is permitted to 

follow the HIPAA security rules in place 

of the specific security standards 

followed by the Exchange. It would then 

be incumbent upon the Exchange to 

evaluate whether this arrangement 

would meet all of the criteria 

established for privacy and security 

standards under § 155.260(b)(3). We 

intend for these standards to provide the 

same level of protection and safeguards 

as the current § 155.260(b) affords. 

Currently § 155.280 establishes the 

regulatory authority for oversight and 

monitoring of Exchanges and nonExchange entities with regard to privacy 

and security standards. We anticipate 

additional proposed rulemaking on 

oversight, monitoring and enforcement 

during 2014. We invite comment on 

alternative ways to address the 

challenge of implementing effective 

enforcement while allowing the 

proposed flexibility. 

These proposed requirements in 

§ 155.260(b)(3) are intended to provide 

a foundation that Exchanges must use to 

define privacy and security standards 

for non-Exchange entities that afford a 

level of protection equal to that 

provided by the standards the 

Exchanges adopt for themselves. We 

have put forth three criteria that must be 

met by the privacy and security 

standards to which an Exchange must 

bind non-Exchange entities, and require 

that these standards take into specific 

consideration the environment in which 

the non-Exchange entity is operating. 

The first criterion is set out in 

§ 155.260(b)(3)(i) and requires that any 

privacy and security standards must be 

as protective as the standards that the 

Exchange sets for itself and must be 

consistent with all of the principles and 

requirements listed under § 155.260(a). 

This includes the principles of (a)(3), as 

well as the requirements established by 

(a)(1) through (a)(6). 

The second criterion proposed in 

§ 155.260(b)(3)(ii) requires that any 

privacy and security standards must 

also comply with the requirements for 

workforce compliance, written policies 

and procedures, compliance with the 

IRS code, and the consequences of 

improper use and disclosure of 

information established by § 155.260(c), 

(d), (f) and (g). 

The third criterion proposed in 

§ 155.260(b)(3)(iii) requires that the 

privacy and security standards to which 

non-Exchange entities are bound take 

several factors into consideration. 

Section 155.260(b)(3)(iii)(A) requires 

that an Exchange take into consideration 

the operational and technical 

environment in which the nonExchange entity is operating. These 

environments, and the standards 

themselves, should be assessed in light 

of the requirement established by 

§ 155.260(a)(5) to monitor, periodically 

assess, and update the security controls 

and related system risks to ensure the 

continued effectiveness of those 

controls. Should the environment 

change, the standards should change 

accordingly as required by proposed 

§ 155.260(b)(2)(iii) and 

§ 155.260(b)(2)(iv). We would expect 

that an Exchange’s contracts and 

agreements with non-Exchange entities 

provide an opportunity for such 

changes. 

Section 155.260(b)(3)(iii)(B) requires 

standards be relevant and applicable to 

the non-Exchange entity’s duties and 

activities in relation to the Exchange. 

The introduction of the concept of 

‘relevant and applicable’ is intended to 

address the various responsibilities 

assumed by non-Exchange entities, and 

the associated technical infrastructures. 

Although the proposed approach 

affords greater flexibility to Exchanges, 

this flexibility carries with it an 

Exchange’s responsibility to perform an 

assessment of the non-Exchange entity’s 

duties, activities, and environment and 

the standards to which it will bind nonExchange entities to ensure that the 

standards satisfy § 155.260 

requirements. For example, assuming 

§ 155.260 is finalized as proposed, the 

FFE will incorporate privacy and 

security standards into non-Exchange 

entity contracts and agreements only 

after determining that the standards 

satisfy the criteria proposed under 

§ 155.260(b)(3)(i), (ii) and (iii), and 

thereby meet the requirements of 

§ 155.260 and the Affordable Care Act. 

We expect to publish guidance to 

provide additional details regarding the 

process the FFE will follow to evaluate 

privacy and security standards to which 

non-Exchange entities will be bound. 

We seek comments on the proposed 

amendments to § 155.260 and on 

alternate ways to ensure protection for 

information while not imposing 

irrelevant or unnecessarily burdensome 

requirements on non-Exchange entities. 

4. Annual Open Enrollment Period for 

2015 

In 45 CFR 155.410, as finalized in the 

Exchange Establishment Rule, we set 

forth provisions for initial and annual 

open enrollment periods. We now 

propose amending § 155.410(e) and (f), 

which pertain to the annual open 

enrollment period and effective date for 

coverage after the annual open 

enrollment period. 

In paragraph (e), we propose adding a 

paragraph that would change the annual 

open enrollment period for the 2015 

benefit year. We propose that for all 

Exchanges, annual open enrollment 

would begin on November 15, 2014 and 

extend through January 15, 2015. This 

proposed change would give health 

insurance issuers an additional month 

in 2014 before they would need to begin 

accepting plan selections for the 

upcoming plan year. It also staggers the 

start of open enrollment for the 

Exchange from that for Medicare 

Advantage. It would give consumers the 

ability to have coverage starting January 

1, 2015, or if they need more time, until 

January 15, 2015 to shop for, and select 

a QHP for the 2015 plan year. If 

finalized, all Exchanges would be 

expected to delay their QHP 

certification dates by at least one month. 

This would give health insurance 

issuers additional time to monitor 2014 

enrollments, prior to submitting their 

2015 rates. First-year challenges in 

enrolling individuals may mean higher 

than expected enrollment toward the 

end of the initial open enrollment 

period which, under the current 

schedule, coincides with the first day in 

which applications for 2015 can be 

submitted to the FFE. This compressed 

schedule would add uncertainty to 

setting rates for 2015 and potentially 

higher premiums without change. This 

proposed change is applicable for only 

the 2015 coverage year. We seek 

comments on this proposed 

amendment. 

In paragraph (f), we propose adding a 

paragraph to address coverage effective 

dates for plan selections made during 

the annual open enrollment period for 

the 2015 benefit year. We propose that 

coverage must be effective January 1, 

2015, for plan selections received by the 

Exchange on or before December 15, 

2014. We propose that coverage must be 

effective February 1, 2015, for plan 

selections received by the Exchange 

from December 16, 2014 through 

January 15, 2015. In accordance with 45 

CFR 155.335(j), qualified individuals 


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already enrolled in a QHP through the 

Exchange in 2014 who maintain the 

same eligibility would have their 

coverage continue into 2015, but they 

would have the ability to change QHPs 

until January 15, 2015. We seek 

comments regarding whether issuers 

should accept payments up until the 

31st of a given month, in order to 

effectuate coverage by the first of the 

following month. We also seek comment 

on whether there should be 

retrospective coverage to January 1, 

2015, for any individual who signs up 

after December 15, 2014 in the open 

enrollment period to ensure continuity 

of coverage. 

5. Functions of a SHOP 

For plan years beginning before 

January 1, 2015, qualified employers 

participating in a Federally-facilitated 

SHOP (‘‘FF–SHOP’’) are able to select a 

single QHP to offer to their employees. 

For plan years beginning on or after 

January 1, 2015, employers participating 

in the FF–SHOPs will also have the 

option to select a level of coverage as 

described in section 1302(d)(1) of the 

Affordable Care Act, and make all QHPs 

within that level available to their 

qualified employees (‘‘employee 

choice’’). Additionally, the FF–SHOPs 

will begin performing premium 

aggregation services under 

§ 155.705(b)(4) for plan years beginning 

on or after January 1, 2015— 

corresponding with the beginning of 

employee choice in the FF–SHOPs. 

Several of the amendments proposed 

below would take effect when employee 

choice and premium aggregation 

become available, including a 

requirement that employers make 

premium payments to the FF–SHOPs 

according to a timeline and process set 

by HHS, a standard premium pro-rating 

methodology in the FF–SHOPs 

providing that groups will be charged 

for the portion of the month for which 

an enrollee is enrolled, a prohibition on 

composite premiums in the FF–SHOPs 

when an employer utilizes employee 

choice, methods for employers in the 

FF–SHOPs to offer stand-alone dental 

coverage, and flexibility for employers 

in the FF–SHOPs to define different 

premium contributions for full-time 

employees and non-full-time 

employees. 

We propose revising § 155.705(b)(1), 

which lists the rules regarding eligibility 

and enrollment to which the SHOP 

must adhere, to include mention of 

additional provisions regarding 

termination of coverage in the SHOPs 

and SHOP employer and employee 

eligibility appeals that were finalized in 

the first final Program Integrity Rule. 

This provision would become effective 

when this proposed rule is finalized and 

becomes effective. 

We also propose adding a new 

paragraph § 155.705(b)(3) to provide 

qualified employers with options to 

offer dental coverage after employee 

choice becomes available in the FF– 

SHOPs. We propose that for plan years 

beginning on or after January 1, 2015, a 

qualified employer participating in an 

FF–SHOP would have two methods by 

which to offer stand-alone dental plans 

(SADPs) to its employees and their 

dependents. This proposal would 

provide employers with options for 

offering SADPs while preserving the 

flexibility not to contribute to SADP 

coverage. For example, an employer that 

elects to offer a single QHP that lacks 

the pediatric dental benefit may want to 

ensure that its employees with child 

dependents have the option to enroll in 

pediatric dental coverage. 

We considered several options for 

methods by which a qualified employer 

participating in an FF–SHOP could offer 

SADPs to its employees and their 

dependents: the employer could offer a 

single SADP, the employer could offer 

all SADPs at a given dental AV level 

(under 45 CFR 156.150(b)), the 

employer could offer all SADPs in an 

FF–SHOP, or the employer could offer 

a subset of SADPs available in an FF– 

SHOP. All of these options would allow 

an employer flexibility to provide its 

employees and their dependents with 

standalone dental coverage. The single 

SADP option would enable an employer 

to choose the plan offered, and may be 

more administratively appealing to an 

employer already used to offering a 

single plan in the current market. This 

option would have the benefit of 

administrative ease for an FF–SHOP and 

issuer, but it would limit the selection 

for employees more than other options. 

Allowing the option for qualified 

employers to offer all SADPs at a given 

dental AV level option would also 

enable an employer to make decisions 

about the type of plans offered to 

employees while retaining some 

administrative simplicity by only 

requiring a choice between the two 

dental AV levels (high and low) that 

were established for the 2014 benefit 

year. This option would also help 

advance the goal of increased choice 

and competition and is similar to 

employee choice of QHPs where an 

employer selects a metal tier and 

employees may select any QHP within 

that tier. However, the proposed 

changes to § 156.150 in this proposed 

rule would remove the AV standards for 

stand-alone dental plans; thus, this 

option would not be possible if 

§ 156.150 is finalized as proposed. 

Allowing qualified employers to offer 

all SADPs available in an FF–SHOP 

would provide an employer with 

maximum flexibility to offer its 

employees and their dependents the 

ability to choose an SADP that best fits 

their needs. Additionally, it would 

allow an employer to make an offer of 

coverage without needing to compare 

and select among plans or tiers. This 

approach would most advance the goals 

of increased choice and competition 

within the small group market, but 

might create concerns among issuers 

about potential adverse selection arising 

from higher risk employees electing to 

enroll in certain SADPs. 

Finally, we considered an option that 

would allow an employer to make an 

offer to its employees and their 

dependents from a defined subset of 

SADPs in an FF–SHOP. In this option, 

an FF–SHOP would define a subset of 

SADPs from which an employer could 

choose. For example, an employer might 

be allowed to offer any two plans from 

the same issuer. This option would 

allow an employer additional flexibility 

in offering dental plans while 

maintaining some control over the 

particular plans offered to its employees 

and their dependents. Although less 

administratively simple, this option 

could provide some increased level of 

choice for employers and their 

employees. 

After considering the options 

described above, we are proposing that 

a qualified employer in an FF–SHOP 

could offer its employees (and, if 

desired, their dependents) either a 

single SADP or a choice of all SADPs 

available in an FF–SHOP after employee 

choice becomes available in the FF– 

SHOPs. We note that an employer could 

choose either option under this proposal 

regardless of whether it offers one QHP 

or all QHPs available in an FF–SHOP to 

its employees and their dependents 

under § 155.705(b)(3)(iv). We believe 

this proposal provides the best balance 

of advancing the Affordable Care Act’s 

goals of increased choice and 

competition in the small group market, 

providing employers with an 

administratively simple way to offer 

stand-alone dental coverage, providing 

employees with increased dental 

coverage options, and maintaining 

consistency with employee choice. We 

seek comment on these options, 

including on the option of offering all 

plans at a dental AV level if the 

proposal to eliminate dental AV levels 

is not finalized. 

We also propose to re-designate 

§ 155.705(b)(4)(ii) as (b)(4)(iii) and to 


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21See 78 FR 15502. IRS recently proposed 

regulations addressing the uniform premium 

contribution requirement for 2014 at 78 FR 52719, 

52721 (Aug. 26, 2013). 

add new paragraph (b)(4)(ii) to allow all 

SHOPs, both FF–SHOPs and State 

SHOPs, to establish one or more 

standard processes for premium 

calculation, payment, and collection 

after the SHOP makes premium 

aggregation available. Many States do 

not have standardized prorating, 

payment, and collection practices, and 

within a given State, issuers may have 

varying practices. In this environment, a 

standard method of handling premiums 

may be necessary for a SHOP to 

successfully and efficiently implement 

and operate the premium aggregation 

services described in § 155.705(b)(4)(i). 

We also propose provisions related to 

the processes FF–SHOPs would 

establish for premium calculation, 

payment, and collection under proposed 

new § 155.705(b)(4)(ii). Consistent with 

§ 155.720(b), which establishes that all 

SHOPs must establish a uniform 

enrollment timeline and process, 

including establishment of effective 

dates of employee coverage, for all QHP 

issuers and qualified employers to 

follow, and consistent with 

§ 155.720(d), which establishes that all 

SHOPs must follow the requirements set 

forth at § 155.705(b)(4), we are 

proposing at § 155.705(b)(4)(ii)(A) that, 

after premium aggregation becomes 

available in the FF–SHOPs, employers 

in the FF–SHOPs would be required to 

make all premium payments—initial 

and subsequent—according to a 

timeline and process that HHS will 

establish through guidance. We intend 

for this proposed timeline and process 

to include all premium payments and 

considered whether to include ‘‘all’’ in 

the regulation text, but we decided that 

including the word ‘‘all’’ would be 

unnecessary. In developing this timeline 

and process, HHS will consider its 

interest in operating and administering 

the FF–SHOPs efficiently, as well as 

issuers’ interests in ensuring timely 

payment of premiums, and issuers’ and 

employers’ interests in establishing a 

fair and workable premium payment 

process. We anticipate that this payment 

timeline would require employers to 

make an initial premium payment at 

least two days prior to the employer’s 

desired coverage effectuation date, in 

order to provide a reasonable window of 

time for the relevant banks to process 

the payment transaction. However, we 

solicit comments about whether such a 

time frame would be reasonable for 

employers or issuers, about alternative 

time frames that might be more 

appropriate, and about the payment 

timeline and process for the FF–SHOPs 

generally, including the considerations 

HHS should factor into the development 

of the payment timeline and process. 

We are also proposing a conforming 

amendment to § 156.285(c)(7)(iii), 

discussed in greater detail below, to 

establish that an FF–SHOP issuer would 

be required to effectuate coverage unless 

it has received an enrollment 

cancellation from the FF–SHOP, and 

explain in the preamble discussion 

related to that proposal that if the FF– 

SHOP has not received an employer’s 

initial premium payment in accordance 

with the payment timeline and process 

established under proposed 

§ 155.705(b)(4)(ii)(A), the FF–SHOP will 

send the issuer an enrollment 

cancellation. 

At proposed § 155.705(b)(4)(ii)(B), we 

also propose a methodology for 

prorating premiums in FF–SHOPs after 

premium aggregation becomes available 

in those SHOPs in plan years beginning 

on or after January 1, 2015. Because it 

would be impractical for FF–SHOPs to 

accommodate the existing variation in 

premium methodologies that exists 

across States and issuers, we propose a 

standard methodology such that groups 

will be charged for the portion of the 

month for which the enrollee is 

enrolled. We considered several 

methods for prorating partial month 

payment in the FF–SHOPs, including 

not charging for a partial month’s 

coverage, charging a full month’s 

premium if coverage is effective prior to 

the 15th of the month, or not charging 

any premium if coverage is effective 

after the 15th of the month. We propose 

that in the FF–SHOPs, premiums for 

coverage of less than 1 month will be 

prorated by multiplying the number of 

days of coverage in the partial month by 

the premium for 1 month divided by the 

number of days in the month. We 

believe this approach to be the fairest 

for both consumers and issuers because 

the issuer will charge for only the 

portion of coverage provided for a 

partial month. We invite comments 

about this methodology, as well as 

comments about whether a standardized 

methodology regarding prorating 

premiums for partial month enrollment 

should be adopted across all individual 

market Exchanges as well. 

In the proposed 2014 Payment Notice, 

we proposed at § 155.705(b)(11)(ii)(D) to 

permit a qualified employer 

participating in an FF–SHOP to 

establish, to the extent allowed by 

Federal and State law, different 

premium contribution percentages for 

different employee categories. In the 

2014 Payment Notice, we did not 

finalize this proposal because we 

concluded that it would be inconsistent 

with the uniformity provisions 

established in Internal Revenue Service 

Notice 2010–82, which requires 

employers to contribute a uniform 

percentage to all employee premiums in 

order to claim a small business tax 

credit for health insurance premiums 

paid.21 In this proposed rule, we 

propose at paragraph (b)(11)(ii)(C) to 

provide FF–SHOPs, in plan years 

beginning on or after January 1, 2015, 

with the option of permitting a qualified 

employer to define a different 

percentage contribution for full-time 

employees (as defined in § 155.20 and 

section 4980H(c)(4) of the Code) from 

the percentage contribution it defines 

for employees that are not full-time 

employees under that definition, to the 

extent permitted by applicable law. This 

proposal would also allow a FF–SHOP 

to permit an employer to define 

different percentage contributions 

toward premiums for dependent 

coverage for full-time and non-full-time 

employees. We note that, to the extent 

permitted by applicable law, the 

percentage contributions established for 

dependent coverage under this proposal 

could be different from the premium 

contribution percentages established for 

employee-only coverage, consistent 

with current paragraph (b)(11)(ii)(C). 

Thus, an FF–SHOP under this proposal 

could allow an employer to define up to 

four different contribution levels: fulltime employee-only, full-time employee 

dependent, non-full-time employeeonly, and non-full-time employee 

dependent. 

We note that under this proposal, a 

decision by an employer to define 

different contribution levels for fulltime and non-full-time employees 

offered coverage through the SHOP may 

potentially have small business tax 

credit implications. However, the IRS, 

not HHS administers the small business 

tax credit. Therefore, if the proposal is 

finalized as proposed, employers 

considering taking this option should 

consider consulting with the IRS and/or 

their tax advisors about the implications 

of such a decision. Even so, we believe 

that this proposal would provide 

employers with additional flexibility to 

choose whether offering different 

contribution levels would be in the best 

interest of the business and its 

employees. Further, this additional 

flexibility would bring the FF–SHOP 

more in line with current small group 

market practices and provide an 

additional incentive for small employers 

to participate in the FF–SHOP. Finally, 

providing for different contribution 


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levels based on full-time or non-fulltime status may encourage some 

employers to offer coverage to 

employees who do not meet the 

Exchange definition of a ‘‘full-time 

employee.’’ 

We also propose amending 

§ 155.705(b)(11)(ii)(D). When an 

employer offering SHOP coverage elects 

to base premium contributions on a 

composite premium, that premium is 

calculated based on the average permember premiums for the employees 

who initially enroll in coverage. Under 

§ 155.705(b)(6)(ii), the average employee 

premium rate is locked in for the entire 

plan year, regardless of whether any 

employees enter or leave the group 

during the plan year. Additionally, as 

described above, we are proposing in 

this rulemaking to amend § 147.102(c) 

to establish that if an issuer offers a 

composite premium, the premium 

amount would not be permitted to vary 

for any participant during the plan year 

with respect to a particular plan, even 

if the composition of the group changes. 

For example, if several older employees 

joined the group or several employees 

terminated their coverage, the 

composite premium would remain the 

same until renewal. After employee 

choice becomes effective in the FF– 

SHOPs, if an employer participating in 

an FF–SHOP elects to offer employees 

all plans at a single metal level of 

coverage, that employer might have 

employees enrolled in several different 

plans. In that circumstance, mid-year 

changes to the group’s composition 

without a corresponding change to the 

composite rate may adversely affect 

issuers that gain a significant number of 

older employees once a plan year has 

started, without a resulting change in 

premiums to reflect the potentially 

higher risk. Because any risk related to 

a change in the group’s composition is 

divided among issuers in an employee 

choice environment, they would be 

taking on proportionately more risk than 

in a single plan environment where the 

issuer would be assuming the risk— 

good and bad—for the entire group. We 

believe this uncertainty may make 

issuers more hesitant to offer QHPs in 

FF–SHOPs after employee choice is 

available in them—which risks 

undermining the Affordable Care Act’s 

goals of increased choice and 

competition in the small group market. 

Accordingly, we propose a limited 

scope prohibition on composite rating 

in the FF–SHOPs when an employer 

elects to select a level of coverage and 

make all QHPs within that level 

available to its employees. We 

acknowledge that this proposal would 

create a limited exception to 

§ 147.102(c)(3) and that it would 

preempt State laws requiring or 

permitting composite rating in the small 

group market, but we believe this 

proposal to be limited in scope and 

tailored to provide for administrative 

efficiency and uniformity, system 

compatibility among the FF–SHOPs, 

and increased competition and choice 

in the small group market. Therefore, 

we propose amending 

§ 155.705(b)(11)(ii)(D) to not allow an 

employer or State to require that 

employer premium contributions in an 

FF–SHOP be based on a calculated 

composite premium if the employer 

elects to offer its employees all QHPs 

within the employer’s selected level of 

coverage under § 155.705(b)(3)(iv)(A), 

that is, after employee choice is 

available in the FF–SHOPs and when an 

employer elects that option. State-based 

SHOPs may set their own policies. We 

are considering extending the 

prohibition on composite rating to 

SADPs in the FF–SHOPs, and we invite 

comment on whether such a prohibition 

should be adopted, how this policy 

might affect current market practices on 

composite rating of dental plans, 

whether a prohibition on composite 

rating should apply to all SADP offering 

methods or just when an employer 

chooses to offer more than a single 

SADP, and how such a prohibition 

would affect choice and competition in 

the small group dental market. Finally, 

we seek comment on whether the 

calculation of user fees for the FF–SHOP 

should be calculated based upon 

composite premiums or premiums 

calculated on per-member buildup. 

6. Eligibility Determination Process for 

SHOP 

We propose to amend paragraph (c)(4) 

to replace a reference to sections 

1411(b)(2) and (c) of the Affordable Care 

Act with a reference to Subpart D of 45 

CFR part 155, and to add a reference to 

eligibility verifications as well as to 

eligibility determinations. The proposed 

changes would prohibit a SHOP from 

performing any individual market 

eligibility determinations or 

verifications as described in Subpart D, 

which, for example, includes making 

eligibility determinations for advance 

payments of the premium tax credit and 

cost sharing reductions in the 

individual market Exchange. HHS 

already interprets existing regulations at 

§ 155.715(c)(3) and (4) and § 155.730 to 

prohibit SHOPs from performing these 

types of determinations or verifications 

and from collecting through the SHOP 

application process any information 

other than what is required to make 

SHOP eligibility determinations or 

effectuate enrollment through the 

SHOP. However, we wish to make the 

prohibitions explicit in regulation text. 

We propose this amendment because 

the SHOPs are designed to assist small 

employers and employees of small 

businesses in accessing health insurance 

coverage, whereas the individual market 

Exchanges are designed to assist 

individual consumers. We believe that 

this proposal would create efficiencies 

for the SHOP and enable it to focus 

solely on small businesses. 

Additionally, we believe the 

prohibitions in this proposal, in 

conjunction with the proposed 

amendments to § 155.730, would help to 

protect SHOP consumers’ privacy. This 

provision would become effective when 

this proposed rule is finalized and 

becomes effective. 

We propose amending paragraph (d) 

to address when SHOP eligibility 

adjustment periods would be triggered. 

Under current paragraph (d)(1), an 

eligibility adjustment period for an 

employer would be triggered whenever 

the employer submits information on 

the SHOP single employer application 

that is inconsistent with the eligibility 

standards described in § 155.710, which 

effectively means that the inconsistency 

period is triggered whenever an 

employer would be determined 

ineligible. Under current paragraph 

(d)(2), an eligibility adjustment period 

would be triggered for employees if the 

SHOP receives information on the 

employee’s application that is 

inconsistent with the information 

provided by the employer. We are 

proposing to provide instead for 

eligibility adjustment periods for both 

employers and employees only when 

there is an inconsistency between 

information provided by an applicant 

and information collected through 

optional verification methods under 

§ 155.715(c)(2). 

A SHOP applicant who is determined 

ineligible could always resolve the 

reasons for that negative eligibility 

determination and re-file the 

application to obtain a favorable 

eligibility determination. As written, the 

current eligibility adjustment periods 

could delay this process in ways that 

might complicate the enrollment of all 

employees being offered coverage by an 

employer, because they could delay the 

SHOP’s final eligibility determination 

for an employer or for individual 

employees, in order to give the SHOP 

time to resolve issues that may be 

relatively straightforward for employers 

or employees to address without the 

SHOP’s intervention, in a newly filed 

application. However, if the SHOP has 


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opted, under § 155.715(c)(2), to establish 

additional verification methods, and 

has, as part of that process, decided to 

verify SHOP applicant eligibility by 

checking applicant-provided 

information against information 

obtained from a trusted third-party data 

source (such as quarterly wage report 

data), the applicant might be denied 

eligibility because of an inconsistency 

between the information the SHOP 

received from that applicant and 

information contained in a third-party 

data source. Such inconsistencies might 

be difficult for applicants to identify 

and resolve on their own. 

Our proposed amendments to the 

eligibility adjustment periods would 

eliminate the potential for unnecessary 

delay created under the current 

regulation, while providing SHOP 

applicants with an opportunity to 

address inconsistencies between a 

submitted application and trusted thirdparty data sources that a SHOP might 

utilize to verify eligibility under the 

optional verification process established 

in § 155.715(c)(2). Under the proposal, 

the applicability of SHOP eligibility 

adjustment periods would be limited to 

circumstances where such a 

discrepancy occurs, and the applicant 

would be provided an opportunity to 

submit documentation proving the 

information submitted on the 

application is correct without having to 

initiate a formal eligibility appeal. For 

example, if an employer provided its 

commonly used business name on the 

application but that name varies slightly 

from the registered business name listed 

in an unemployment insurance data 

source used by a SHOP to verify 

eligibility under § 155.715(c)(2), or if an 

employee provides a nickname on an 

application that differs from his or her 

formal name in quarterly wage report 

data source used by a SHOP to verify 

eligibility under § 155.715(c)(2), the 

applicants would be able to use the 

adjustment period to address the 

inconsistencies between their 

applications and the third-party data 

sources. If a SHOP does not collect 

information through optional 

verification methods under 

§ 155.715(c)(2), the employer and 

employee would not have to go through 

the eligibility adjustment period before 

re-filing their applications, but would 

still have the right to appeal an adverse 

eligibility determination under 

§ 155.740. Accordingly, we propose to 

amend paragraphs (d)(1) and (d)(2) to 

provide for eligibility adjustment 

periods when information submitted on 

an application is inconsistent with 

information collected through an 

optional verification process under 

§ 155.715(c)(2). This provision would 

become effective when this proposed 

rule is finalized and becomes effective. 

We seek comments on this proposal, 

including comments on whether the 

current eligibility adjustment periods 

should remain in place. 

7. Application Standards for SHOP 

HHS already interprets existing 

regulations at § 155.715(c)(3) and (c)(4) 

and § 155.730 to prohibit SHOPs from 

collecting through the SHOP application 

process any information other than what 

is required to make SHOP eligibility 

determinations or effectuate enrollment 

through the SHOP. We propose 

amendments to § 155.730 that would 

expressly state this prohibition in 

regulation text. Specifically, we propose 

to re-designate paragraph (g) as 

paragraph (g)(1) and add new paragraph 

(g)(2) to provide that a SHOP is not 

permitted to collect information on the 

single employer or single employee 

application that is not necessary to 

determine SHOP eligibility or effectuate 

enrollment through the SHOP. In 

conjunction with the amendments we 

are proposing to § 155.715(c)(4), which 

would prohibit a SHOP from performing 

any individual market eligibility 

determinations or verifications as 

described in Subpart D of 45 CFR part 

155, this proposal seeks to ensure that 

SHOPs are not collecting information on 

the single employer or single employee 

applications that is not pertinent to a 

determination of SHOP eligibility or 

effectuation of enrollment. For example, 

a SHOP could not request through the 

single employee application the income 

information necessary for determining 

eligibility for advance payments of the 

premium tax credit in the individual 

market Exchange. Limiting the 

information required of an applicant 

helps to protect privacy and promote 

efficiency and streamlining of the SHOP 

application process. This provision 

would become effective when this 

proposed rule is finalized and becomes 

effective. 

E. Part 156—Health Insurance Issuer 

Standards Under the Affordable Care 

Act, Including Standards Related to 

Exchanges 

1. Provisions Related to Cost Sharing 

In this section, we propose several 

provisions and parameters for the 2015 

benefit year related to cost sharing. 

a. Premium Adjustment Percentage 

Section 1302(c)(4) of the Affordable 

Care Act directs the Secretary to 

determine an annual premium 

adjustment percentage, which is used to 

set the rate of increase for four 

parameters detailed in the Affordable 

Care Act: The maximum annual 

limitation on cost sharing (defined at 

§ 156.130(a)), the maximum annual 

limitation on deductibles for plans in 

the small group market (defined at 

§ 156.130(b)), and the assessable 

payment amounts under section 

4980H(a) and (b) of the Code (proposed 

at 26 CFR 54.4980H in the ‘‘Shared 

Responsibility for Employers Regarding 

Health Coverage,’’ published in the 

January 2, 2013 Federal Register (78 FR 

218)). Section 156.130(e) provides that 

the premium adjustment percentage is 

the percentage (if any) by which the 

average per capita premium for health 

insurance coverage for the preceding 

calendar year exceeds such average per 

capita premium for health insurance for 

2013, and that this percentage will be 

published annually in the HHS notice of 

benefit and payment parameters. 

We propose to establish a 

methodology for estimating average per 

capita premium for purposes of 

calculating the premium adjustment 

percentage. In selecting this 

methodology, we considered the 

following four criteria: 

(1) Comprehensiveness—the premium 

adjustment percentage should be 

calculated based on the average per 

capita premium for health insurance 

coverage for the entire market, including 

the individual and group markets, and 

both fully insured and self-insured 

group health plans; 

(2) Availability—the data underlying 

the calculation should be available by 

the summer of the year prior to the 

calendar year so that the premium 

adjustment percentage can be published 

in the annual HHS notice of benefit and 

payment parameters in time for issuers 

to develop their plan designs; 

(3) Transparency—the methodology 

for estimating the average premium 

should be easily understandable and 

predictable; and 

(4) Accuracy—the methodology 

should have a record of accurately 

estimating average premiums. 

Based on these criteria, we propose 

that the premium adjustment percentage 

be calculated based on the projections of 

average per enrollee private health 

insurance premiums from the National 

Health Expenditure Accounts (NHEA), 

which is calculated by the CMS Office 

of the Actuary. We considered several 

other sources of premium data, 

including the Medical Expenditure 

Panel Survey (administered by the 

Agency for Healthcare Research and 

Quality), the Employer Health Benefits 

Survey (administered by the Kaiser 


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22See http://www.cms.gov/Research-StatisticsData-and-Systems/Statistics-Trends-and-Reports/

NationalHealthExpendData/Downloads/

ProjectionsMethodology2012.pdf and Table 17 in 

http://www.cms.gov/Research-Statistics-Data-andSystems/Statistics-Trends-and-Reports/

NationalHealthExpendData/Downloads/

Proj2012.pdf for additional information. 

23See http://www.irs.gov/pub/irs-drop/rp-13- 

25.pdf. 

Family Foundation and the Health 

Research and Educational Trust), and 

the Federal Employees Health Benefits 

Program. However, we believe the 

NHEA projections, which are partially 

based on several of the other data 

sources that we considered, best meet 

the selection criteria described above 

and will provide the most accurate 

estimate of the average per capita 

premium for the entire health insurance 

market. We welcome comment on the 

criteria for selecting a methodology, any 

additional sources of premium data that 

we should consider, and the choice of 

methodology. As additional data on 

health insurance premiums become 

available through the Exchanges and 

other sources, we plan to review the 

accuracy of the NHEA projections, and 

if necessary, propose any changes to the 

methodology for estimating the average 

premium through the annual Payment 

Notice. 

To calculate the premium adjustment 

percentage for the 2015 calendar year, 

we propose to use the most recent 

NHEA projections of average per 

enrollee private health insurance 

spending for 2013 and 2014 ($5,128 and 

$5,435, respectively).22 Therefore, we 

are proposing that the premium 

adjustment percentage for 2015 be 

(5,435–5,128)/5,128, and we propose to 

round the result of this formula to the 

nearest decimal point, which, in this 

case, would be 6.0 percent. We are also 

proposing the following cost-sharing 

parameters for calendar year 2015, 

based on our proposed premium 

adjustment percentage for 2015. 

Maximum Annual Limitation on Cost 

Sharing for Calendar Year 2015. Under 

§ 156.130(a)(2), for the 2015 calendar 

year, cost sharing for self-only coverage 

may not exceed the product of the 

maximum annual limitation on cost 

sharing for calendar year 2014 and the 

premium adjustment percentage for 

2015, and for other than self-only 

coverage, the limit is twice the dollar 

limit for self-only coverage. Under 

§ 156.130(d), these amounts must be 

rounded to the next lowest multiple of 

50. Using the proposed premium 

adjustment percentage of 6.0 percent 

and the 2014 maximum annual 

limitation on cost sharing of $6,350 for 

self-only coverage, which was published 

by the IRS on May 2, 2013,23 we 

propose that the 2015 maximum annual 

limitation on cost sharing be $6,750 for 

self-only coverage and $13,500 for other 

than self-only coverage. 

Maximum Annual Limitation on 

Deductibles for Plans in the Small 

Group Market for Calendar Year 2015. 

Under § 156.130(b)(2), for the 2015 

calendar year, the annual deductible for 

a health plan in the small group market 

may not exceed, for self-only coverage, 

the product of the maximum annual 

limitation on deductibles for calendar 

year 2014 and the premium adjustment 

percentage for 2015, and for other than 

self-only coverage, the limit is twice the 

dollar limit for self-only coverage. 

Under § 156.130(d), these amounts must 

be rounded to the next lowest multiple 

of 50. Using the proposed premium 

adjustment percentage of 6.0 percent 

and the 2014 maximum annual 

limitation on deductibles of $2,000 for 

self-only coverage, as specified in 

§ 156.130(b)(1)(i), we propose that the 

2015 maximum annual limitation on 

deductibles be $2,150 for self-only 

coverage and $4,300 for other than selfonly coverage. 

b. Reduced Maximum Annual 

Limitation on Cost Sharing 

Sections 1402(a) through (c) of the 

Affordable Care Act direct issuers to 

reduce cost sharing for EHBs for eligible 

individuals enrolled in a silver level 

QHP. In the 2014 Payment Notice, we 

set forth standards related to the 

provision of these cost-sharing 

reductions. Specifically, in 45 CFR part 

156 subpart E, we specified that QHP 

issuers must provide cost-sharing 

reductions by developing plan 

variations, which are separate costsharing structures for each eligibility 

category that change how the cost 

sharing required under the QHP is to be 

shared between the enrollee and the 

Federal government. At § 156.420(a), we 

detailed the structure of these plan 

variations and specified that QHP 

issuers must ensure that each silver plan 

variation has an annual limitation on 

cost sharing no greater than the 

applicable reduced maximum annual 

limitation on cost sharing specified in 

the annual HHS notice of benefit and 

payment parameters. Although the 

amount of the reduction in the 

maximum annual limitation on cost 

sharing is specified in section 

1402(c)(1)(A) of the Affordable Care Act, 

section 1402(c)(1)(B)(ii) of the statute 

states that the Secretary may adjust the 

cost-sharing limits to ensure that the 

resulting limits do not cause the AVs of 

the health plans to exceed the levels 

specified in 1402(c)(1)(B)(i) (that is, 73 

percent, 87 percent or 94 percent, 

depending on the income of the 

enrollee(s)). Accordingly, in the 2014 

Payment Notice, we set forth a process 

for determining the appropriate 

reductions in the maximum annual 

limitation on cost sharing. First, we 

identified the maximum annual 

limitation on cost sharing applicable to 

all plans that will offer the EHB 

package. As noted above, we propose 

the 2015 maximum annual limitation on 

cost sharing be $6,750 for self-only 

coverage and $13,500 for other than selfonly coverage. Second, we analyzed the 

effect on AV of the reductions in the 

maximum annual limitation on cost 

sharing described in the statute. Last, 

we adjusted the reductions in the 

maximum annual limitation on cost 

sharing, if necessary, to ensure that the 

AV of a silver plan variation will not 

exceed the AV specified in the statute. 

Below, we describe our analysis for the 

2015 benefit year and our proposed 

results. 

Reduced Maximum Annual 

Limitation on Cost Sharing for Benefit 

Year 2015. Consistent with our analysis 

in the 2014 Payment Notice, we 

developed three model silver level 

QHPs and analyzed the impact on their 

AVs of the reductions described in the 

Affordable Care Act to the estimated 

maximum annual limitation on cost 

sharing for self-only coverage ($6,750). 

However, using data collected for QHP 

certification for 2014, we updated the 

model plan designs to ensure that they 

continue to represent a range of plan 

designs that we expect issuers to offer 

at the silver level of coverage through an 

Exchange. For 2015, the model silver 

level QHPs would include a PPO with 

a typical cost-sharing structure ($6,750 

annual limitation on cost sharing, 

$1,700 deductible, and 20 percent innetwork coinsurance rate), a PPO with 

a lower annual limitation on cost 

sharing ($4,500 annual limitation on 

cost sharing, $2,000 deductible, and 20 

percent in-network coinsurance rate), 

and an HMO ($6,750 annual limitation 

on cost sharing, $2,100 deductible, 20 

percent in-network coinsurance rate, 

and the following services with copays 

that are not subject to the deductible or 

coinsurance: $500 inpatient stay per 

day, $350 emergency department visit, 

$25 primary care office visit, and $50 

specialist office visit). All three model 

QHPs meet the AV requirements for 

silver health plans. 

We then entered these model plans 

into the proposed 2015 AV calculator 

developed by HHS and observed how 


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the reductions in the maximum annual 

limitation on cost sharing specified in 

the Affordable Care Act affected the AVs 

of the plans. We found that the 

reduction in the maximum annual 

limitation on cost sharing specified in 

the Affordable Care Act for enrollees 

with a household income between 100 

and 150 percent of the Federal poverty 

line (FPL) (2/3 reduction in the 

maximum annual limitation on cost 

sharing), and 150 and 200 percent of the 

FPL (2/3 reduction), would not cause 

the AV of any of the model QHPs to 

exceed the statutorily specified AV level 

(94 and 87 percent, respectively). In 

contrast, the reduction in the maximum 

annual limitation on cost sharing 

specified in the Affordable Care Act for 

enrollees with a household income 

between 200 and 250 percent of FPL 

(1/2 reduction), would cause the AVs of 

two of the model QHPs to exceed the 

specified AV level of 73 percent. As a 

result, we propose that the maximum 

annual limitation on cost sharing for 

enrollees in the 2015 benefit year with 

a household income between 200 and 

250 percent of FPL be reduced by 

approximately 1/5, rather than 1/2. We 

further propose that the maximum 

annual limitation on cost sharing for 

enrollees with a household income 

between 100 and 200 percent of the FPL 

be reduced by 2/3, as specified in the 

statute, and as shown in Table 4. These 

proposed reductions in the maximum 

annual limitation on cost sharing align 

with the 2014 reductions and should 

adequately account for unique plan 

designs that may not be captured by our 

three model QHPs. Applying the same 

parameters as those specified for 2014 

would reduce the administrative burden 

for issuers related to designing new 

plans, and provide greater continuity for 

enrollees. Furthermore, as noted in the 

preamble to the 2014 Payment Notice, 

selecting a reduction for the maximum 

annual limitation on cost sharing that is 

less than the reduction specified in the 

statute would not reduce the benefit 

afforded to enrollees in aggregate 

because QHP issuers are required to 

further reduce their annual limitation 

on cost sharing, or reduce other types of 

cost sharing, if the required reduction 

does not cause the AV of the QHP to 

meet the specified level. We welcome 

comment on this analysis and the 

proposed reductions in the maximum 

annual limitation on cost sharing for 

2015. We note that for 2015, as 

described in § 156.135(d), States are 

permitted to submit for approval by 

HHS State-specific data sets for use as 

the standard population to calculate AV. 

If States submit such data sets, we 

intend to analyze their effects on the 

reductions we propose here, and we 

will adjust the reductions in the 

maximum annual limitation on cost 

sharing if necessary in the final rule. 

TABLE 4—REDUCTIONS IN MAXIMUM ANNUAL LIMITATION ON COST SHARING FOR 2015 

Eligibility category 

Reduced maximum annual limitation on cost sharing for selfonly coverage for 2015 

Reduced maximum annual limitation on cost sharing for 

other than self-only coverage 

for 2015 

Individuals eligible for cost-sharing reductions under § 155.305(g)(2)(i) (that is, 

100–150 percent of FPL) ................................................................................. $2,250 $4,500 

Individuals eligible for cost-sharing reductions under § 155.305(g)(2)(ii) (that is, 

150–200 percent of FPL) ................................................................................. $2,250 $4,500 

Individuals eligible for cost-sharing reductions under § 155.305(g)(2)(iii) (that 

is, 200–250 percent of FPL) ............................................................................ $5,200 $10,400 

c. Design of Cost-sharing Reduction Plan 

Variations 

In the 2014 Payment Notice, we 

established standards in § 156.420(c)–(e) 

to ensure that each cost-sharing 

reduction plan variation would always 

provide the most cost savings for which 

an enrollee is eligible while providing 

the same benefits and provider network 

as a plan without cost-sharing 

reductions. In this proposed rule, we are 

proposing certain modifications to 

clarify how these standards would 

apply to out-of-pocket spending 

required of an enrollee for benefits other 

than essential health benefits (EHBs). 

Following our implementation of 

Exchange operations for 2014, we have 

learned that a number of issuers 

designed QHPs with cost-sharing 

parameters that apply to both EHB and 

benefits that are not EHB. For example, 

one issuer sought to establish a common 

deductible across all benefits. For the 

zero cost sharing plan variation of this 

QHP, this would result in a substantial 

deductible being applied entirely to 

benefits that are not EHB. We are 

proposing to remove the standards in 

§ 156.420(c) and (d) that require that a 

QHP and each of its plan variations 

have the same out-of-pocket spending 

for benefits other than EHB. Instead, we 

propose that the standard in 

§ 156.420(e)—that cost sharing for an 

essential health benefit from a provider 

(including a provider outside the plan’s 

network) required of an enrollee in a 

silver plan variation may not exceed the 

corresponding cost sharing required in 

the standard silver plan or any other 

silver plan variation of that plan with a 

lower AV—would also apply to out-ofpocket spending required of enrollees in 

silver plan variations for a benefit that 

is not an EHB. Similarly, we propose in 

§ 156.420(d) that the out-of-pocket 

spending required of enrollees in the 

zero cost sharing plan variation of a 

QHP for a benefit that is not an EHB 

from a provider (including a provider 

outside the plan’s network) may not 

exceed the corresponding out-of-pocket 

spending required in the limited cost 

sharing plan variation of the QHP, 

which in turn may not exceed the 

corresponding out-of-pocket spending 

required in the QHP with no costsharing reductions. 

We believe these proposed 

modifications strike the appropriate 

balance between protecting consumers 

and providing QHP issuers with 

flexibility. Each cost-sharing reduction 

plan variation would continue to 

provide the most cost savings for which 

an enrollee is eligible; however, QHP 

issuers would be able to reduce out-ofpocket spending for benefits that are not 

EHB for enrollees in plan variations. We 

believe some issuers may want to 

provide such reductions so as to offer a 

simpler cost-sharing design that is 

consistent across EHB and benefits that 

are not EHBs. We note, however, that in 

accordance with section 1402(d)(4) of 

the Affordable Care Act, any reductions 

in out-of-pocket spending for benefits 

that are not EHB would not be 

reimbursed by the Federal government 

because payments for cost-sharing 

reductions only apply to EHB. 

We seek comment on this proposal, 

including on whether our proposal 

should offer less flexibility. 


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d. Advance Payments of Cost-sharing 

Reductions 

Section 1402(c)(3) of the Affordable 

Care Act directs a QHP issuer to notify 

the Secretary of cost-sharing reductions 

made under the statute, and directs the 

Secretary to make periodic and timely 

payments to the QHP issuer equal to the 

value of those reductions. Section 

1412(c)(3) of the Affordable Care Act 

permits advance payments of costsharing reduction amounts to QHP 

issuers based upon amounts specified 

by the Secretary. Under these 

authorities, we established a payment 

approach in the 2014 Payment Notice 

under which monthly advance 

payments made to issuers to cover 

projected cost-sharing reduction 

amounts are reconciled after the end of 

the benefit year to the actual costsharing reduction amounts. 

To implement this approach, we 

specified in § 156.430(a) that a QHP 

issuer must provide to the Exchange, for 

approval by HHS, an estimate of the 

dollar value of the cost-sharing 

reductions to be provided over the 

benefit year, calculated in accordance 

with the methodology specified by HHS 

in the annual HHS notice of benefit and 

payment parameters. In the 2014 

Payment Notice, we specified that the 

estimates of the cost-sharing reductions 

must be calculated using data that 

issuers submit under §§ 156.420 and 

156.470, including the AV of the 

standard plan and plan variation, and 

the EHB portion of expected allowed 

claims costs. If an issuer seeks advance 

payments for the cost-sharing 

reductions provided under the limited 

cost sharing plan variation of a health 

plan it offers, we specified that the 

issuer must submit an estimate of the 

dollar value of the cost-sharing 

reductions to be provided. As described 

in § 156.430(b)(1), HHS uses these 

estimates to determine the monthly 

advance payments for cost-sharing 

reductions. 

Based on our experience 

implementing this process for the 2014 

benefit year, we propose certain 

modifications to §§ 155.1030, 156.430, 

and 156.470. We believe these 

modifications will simplify the process 

and improve the accuracy of the 

calculations. Specifically, we are 

proposing to remove the requirement 

detailed in § 156.430(a) that issuers 

develop estimates of the dollar value of 

the cost-sharing reductions to be 

provided, and instead propose to 

modify § 155.1030(b)(3) to specify that 

the Exchange must use the methodology 

specified in the annual HHS notice of 

benefit and payment parameters to 

calculate advance payment amounts for 

cost-sharing reductions, and must 

transmit the advance payment amounts 

to HHS, in accordance with 

§ 156.340(a). We anticipate that this 

transmission would occur using the 834 

enrollment transaction. As proposed in 

§ 156.430(b)(1), HHS will provide 

periodic advance payments to QHP 

issuers based on the amounts 

transmitted by the Exchange. 

For the 2015 benefit year, we are 

proposing that the Exchanges use a 

methodology for calculating the advance 

payment amounts that will not require 

QHP issuers to submit an estimate of the 

value of cost-sharing reductions to be 

provided or the EHB portion of expected 

allowed claims costs, as previously 

required under § 156.470(a), nor will it 

require Exchanges to transfer data on 

advance payment amounts to HHS prior 

to the start of the benefit year. 

Specifically, we propose that Exchanges 

calculate the monthly advance payment 

amount for a specific policy as the 

product of (x) the total monthly 

premium for the specific policy, and (y) 

a cost-sharing reduction plan variation 

multiplier. The cost-sharing reduction 

plan variation multiplier would convert 

the monthly premium into the 

appropriate monthly advance payment 

amount, based on the following formula: 

Cost-Sharing Reduction Plan 

Variation Multiplier = Factor to Remove 

Administrative Costs * Factor to 

Convert to Allowed Claims Cost * 

Induced Utilization Factor * (Plan 

Variation AV—Standard Plan AV) 

Where, 

Factor to Remove Administrative Costs = 

0.8 for all plan variations, because issuers in 

the individual market must have a medical 

loss ratio of at least 80 percent, under 

§ 158.210(c); 

Factor to Convert to Allowed Claims Costs 

= the quotient of 1 and the AV for the 

standard plan, not accounting for de minimis 

variation; 

Induced Utilization Factor = one of the 

following factors, depending on the plan 

variation: 

TABLE 5—INDUCED UTILIZATION FACTORS FOR PLAN VARIATIONS

Cost-sharing reduction plan variation Induced utilization factor 

73 percent AV silver plan variation ..................................................................................................................................... 1.00 

87 percent AV silver plan variation ..................................................................................................................................... 1.12 

94 percent AV silver plan variation ..................................................................................................................................... 1.12 

Limited cost sharing plan variation of bronze QHP ............................................................................................................ 1.15 

Limited cost sharing plan variation of silver QHP ............................................................................................................... 1.12 

Limited cost sharing plan variation of gold QHP ................................................................................................................. 1.07 

Limited cost sharing plan variation of platinum QHP .......................................................................................................... 1.00 

Zero cost sharing plan variation of bronze QHP ................................................................................................................. 1.15 

Zero cost sharing plan variation of silver QHP ................................................................................................................... 1.12 

Zero cost sharing plan variation of gold QHP ..................................................................................................................... 1.07 

Zero cost sharing plan variation of platinum QHP .............................................................................................................. 1.00 

Standard Plan AV = the AV specified for 

each level of coverage at § 156.140(b), not 

accounting for de minimis variation (that is, 

60, 70, 80, or 90 percent for a bronze, silver, 

gold, or platinum QHP, accordingly); and 

Plan Variation AV = one of the following 

actuarial values, depending on the plan 

variation, not accounting for de minimis 

variation: 

TABLE 6—ACTUARIAL VALUES FOR

PLAN VARIATIONS

Cost-Sharing Reduction Plan 

Variation 

Plan Variation 

AV 

73 percent AV silver plan 

variation.

73 percent 

87 percent AV silver plan 

variation.

87 percent 

TABLE 6—ACTUARIAL VALUES FOR

PLAN VARIATIONS—Continued 

Cost-Sharing Reduction Plan 

Variation 

Plan Variation 

AV 

94 percent AV silver plan 

variation.

94 percent 

Limited cost sharing plan variation of bronze QHP.87 percent 


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TABLE 6—ACTUARIAL VALUES FOR

PLAN VARIATIONS—Continued 

Cost-Sharing Reduction Plan 

Variation 

Plan Variation 

AV 

Limited cost sharing plan variation of silver QHP.87 percent 

Limited cost sharing plan variation of gold QHP.94 percent 

Limited cost sharing plan variation of platinum QHP.94 percent 

Zero cost sharing plan variation of bronze QHP.100 percent 

Zero cost sharing plan variation of silver QHP.100 percent 

Zero cost sharing plan variation of gold QHP.100 percent 

Zero cost sharing plan variation of platinum QHP.100 percent 

The proposed induced utilization 

factors are consistent with those factors 

established in the 2014 Payment Notice. 

For the limited cost sharing plan 

variations, we derived the induced 

utilization factors based on the actuarial 

values proposed above, and the same 

assumptions used to develop the 

induced utilization factors for the other 

plan variations. We will propose 

updates to the induced utilization 

factors for all plan variations in future 

rulemaking as more data becomes 

available, and at that time will consider 

applying them to the risk adjustment 

methodology that HHS will use when 

operating risk adjustment on behalf of a 

State. We welcome comment on these 

induced utilization factors. 

The proposed methodology also 

utilizes the actuarial values of the 

standard plans and plan variations, not 

accounting for de minimis variation. 

Although this may slightly reduce the 

accuracy of the calculations, we believe 

it would have little overall impact, and 

would reduce administrative burden on 

Exchanges because Exchanges will not 

need to develop specific multipliers for 

each QHP and associated plan 

variations. However, this approach 

would require us to estimate an 

actuarial value for each type of limited 

cost sharing plan variation. We estimate 

that on average, the AV of the limited 

cost sharing plan variations of bronze 

and silver QHPs will be 87 percent, and 

the AV of the limited cost sharing plan 

variations of gold and platinum QHPs 

will be 94 percent. We developed these 

estimates based on the data submitted 

by QHP issuers seeking advance 

payments for limited cost sharing plan 

variations that will be offered in benefit 

year 2014. We welcome comment on 

these actuarial values. 

Overall, we believe this proposed 

methodology would improve the 

accuracy of the advance payments 

because it is based on the total premium 

for each policy, which in accordance 

with the rating rules described in 

§§ 147.102 and 156.80, is based on 

expected allowed claims costs, adjusted 

for the plan design and provider 

network, the number of individuals 

covered by the policy, rating area, age, 

and tobacco use. Although we 

acknowledge that there may be some 

limitations to the multiplier (for 

example, the multiplier does not make 

a plan-specific adjustment for the cost of 

non-EHB, or account precisely for costs 

for large families with children not 

accounted for in the premium), we 

believe that a very small number of 

QHPs would be affected by these 

limitations, and any inaccuracies in the 

advance payments would be corrected 

through the cost-sharing reduction 

reconciliation process. We welcome 

comment on this proposed methodology 

for the 2015 benefit year, and 

suggestions for alternative 

methodologies, including whether the 

methodology for the 2014 benefit year 

would be more appropriate. 

We are also proposing conforming 

modifications to §§ 155.1030(b)(1) and 

156.470(a), to delete the obligation for 

QHP issuers to submit, and Exchanges 

to review, the EHB allocation of the 

expected allowed claims costs for the 

plans, because this data would not be 

used in the proposed 2015 methodology 

for calculating cost-sharing reduction 

advance payments. 

Lastly, we are proposing to modify 

§ 155.1030(b)(4) to clarify that in 

accordance with the proposed 

paragraph (b)(3), the Exchange would 

not be required to submit issuers’ 

advance payment estimates to HHS for 

approval prior to the start of the benefit 

year. We believe such an approval 

process would no longer be necessary 

because under the proposed approach, 

the advance payments will be calculated 

based on the cost-sharing reduction plan 

variation multiplier specified by HHS, 

and the premium for the policy, which 

is reviewed by the Exchange, in 

accordance with § 155.1020. HHS would 

simply validate that the advance 

payment amounts were calculated in 

accordance with the methodology 

specified by HHS, prior to providing 

advance payments to QHP issuers. This 

process will ensure the protection of 

Federal funds, while also limiting the 

administrative burden on QHP issuers 

and Exchanges. We welcome comment 

on these proposed modifications. In 

future years, as more data becomes 

available, we will review the 

methodology for calculating advance 

payments of cost-sharing reductions, 

and will propose additional 

modifications if necessary. 

2. Provisions on FFE User Fees 

a. FFE User fee for the 2015 Benefit Year 

Section 1311(d)(5)(A) of the 

Affordable Care Act contemplates an 

Exchange charging assessments or user 

fees to participating health insurance 

issuers to generate funding to support 

its operations. If a State does not elect 

to operate an Exchange or does not have 

an approved Exchange, section 

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

directs HHS to operate an Exchange 

within the State. In addition, 31 U.S.C. 

9701 permits a Federal agency to 

establish a charge for a service provided 

by the agency. Accordingly, at 

§ 156.50(c), we specified that a 

participating issuer offering a plan 

through an FFE must remit a user fee to 

HHS each month that is equal to the 

product of the monthly user fee rate 

specified in the annual HHS notice of 

benefit and payment parameters for the 

applicable benefit year and the monthly 

premium charged by the issuer for each 

policy under the plan where enrollment 

is through an FFE. 

OMB Circular No. A–25R establishes 

Federal policy regarding user fees, and 

specifies that a user charge will be 

assessed against each identifiable 

recipient for special benefits derived 

from Federal activities beyond those 

received by the general public. As in 

benefit year 2014, issuers seeking to 

participate in an FFE in benefit year 

2015 will receive two special benefits 

not available to the general public: (1) 

the certification of their plans as QHPs; 

and (2) the ability to sell health 

insurance coverage through an FFE to 

individuals determined eligible for 

enrollment in a QHP. These special 

benefits are provided to participating 

issuers through the following Federal 

activities in connection with the 

operation of FFEs: 

• Provision of consumer assistance 

tools. 

• Consumer outreach and education. 

• Management of a Navigator 

program. 

• Regulation of agents and brokers. 

• Eligibility determinations. 

• Administration of advance 

payments of the premium tax credit and 

cost-sharing reductions. 

• Enrollment processes. 

• Certification processes for QHPs 

(including ongoing compliance 

verification, recertification and 

decertification). 

• Administration of a SHOP 

Exchange. 

Activities performed by the Federal 

government that do not provide issuers 


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24OMB granted HHS an exception to the policy 

in Circular No. A–25R, allowing HHS to set the user 

fee rate for 2014 at 3.5 percent, rather than a higher 

rate which would have allowed HHS to recover full 

costs. This rate was chosen because we wished to 

encourage issuers to offer plans on FFEs and to 

align with the administrative cost structure of Statebased Exchanges. 

25The women’s preventive health services 

referenced by PHS Act section 2713(a)(4) are 

provided for in comprehensive guidelines 

supported by the Health Resources and Services 

Administration (HRSA). On August 1, 2011, HRSA 

adopted and released guidelines for women’s 

preventive health services based on 

recommendations of the independent Institute of 

Medicine. 

26Under the Preventive Services Rule, an eligible 

organization is an organization that: (1) Opposes 

providing coverage for some or all of the 

contraceptive services required to be covered under 

section 2713 of the PHS Act and the companion 

provisions of ERISA and the Code on account of 

religious objections; (2) is organized and operates as 

a nonprofit entity; (3) holds itself out as a religious 

organization; and (4) self-certifies that it satisfies 

the first three criteria. 

27We note that the submission of the dollar 

amount of the payments for contraceptive services 

is subject to the oversight standards detailed at 45 

CFR 156.50(d)(7), as well as the False Claims Act, 

31 U.S.C. 3729–3733. 

participating in an FFE with a special 

benefit will not be covered by this user 

fee. 

OMB Circular No. A–25R further 

states that user charges should generally 

be set at a level so that they are 

sufficient to recover the full cost to the 

Federal government of providing the 

service when the government is acting 

in its capacity as sovereign (as is the 

case when HHS operates an FFE). 

Accordingly, we propose to set the 2015 

user fee rate for all participating issuers 

at 3.5 percent. This rate is the same as 

the 2014 user fee rate.24 Because we 

expect enrollment to increase in 2015 as 

awareness of the Exchanges grows, and 

costs to decrease as operations become 

more efficient, we believe this user fee 

rate may allow HHS to recover the full 

cost to the Federal government of 

providing the special benefits to issuers 

participating in an FFE in 2015. 

b. Adjustment of FFE User Fee 

Section 2713(a)(4) of the PHS Act, as 

added by the Affordable Care Act and 

incorporated into the Employee 

Retirement Income Security Act (ERISA) 

and the Code, requires that nongrandfathered group health plans and 

health insurance issuers offering nongrandfathered group or individual 

health insurance coverage provide 

benefits for certain women’s preventive 

health services without cost sharing.25

The Preventive Services Rule (78 FR 

39870, July 2, 2013) established 

accommodations with respect to the 

contraceptive coverage requirement for 

health coverage established or 

maintained or arranged by eligible 

organizations.26

Each organization seeking to be 

treated as an eligible organization under 

the Preventive Services Rule is required 

to self-certify that it meets the definition 

of an eligible organization. In the case 

of an eligible organization with a selfinsured plan, the self-certification must 

be provided to the plan’s third party 

administrator. A third party 

administrator that receives a copy of the 

self-certification must provide or 

arrange for separate payments for 

certain contraceptive services for 

participants and beneficiaries in the 

plan without cost sharing, premium, fee, 

or other charge to plan participants or 

beneficiaries, or to the eligible 

organization or its plan. The third party 

administrator can provide such 

payments on its own, or it can arrange 

for an issuer or other entity to provide 

such payments. In either case, the third 

party administrator can make 

arrangements with an issuer offering 

coverage through an FFE to obtain 

reimbursement for its costs (including 

an allowance for administrative costs 

and margin) through an adjustment to 

the FFE user fee paid by the issuer. 

At § 156.50(d), we established 

standards related to the administration 

of the user fee adjustment. Specifically, 

in § 156.50(d)(3)(ii), we stated that the 

user fee adjustment will include an 

allowance for administrative costs and 

margin that is no less than 10 percent 

of the total dollar amount of the 

payments for contraceptive services, 

and that HHS would specify the 

allowance for a particular calendar year 

in the annual HHS notice of benefit and 

payment parameters. 

For user fee adjustments sought in 

2015 for the cost of payments for 

contraceptive services provided in 2014, 

we propose an allowance for 

administrative costs and margin that is 

equal to 15 percent of the total dollar 

amount of the payments for 

contraceptive services defined in 

§ 156.50(d)(3)(i).27 We propose this 

allowance based on our analysis of the 

administrative costs that we expect each 

entity involved in the arrangement to 

incur. For example, the third party 

administrator will likely incur certain 

variable administrative costs, including 

the cost of provider and medical 

management, and the cost of processing 

payments to providers of the 

contraceptive services. However, 

because payments for contraceptive 

services are not a separate insurance 

product and because the third party 

administrator will have an existing 

arrangement with the self-insured group 

health plan of the eligible organization, 

we do not expect any additional costs 

related to marketing, broker fees, 

enrollment, or billing. We accounted for 

the cost of submitting data to HHS 

under § 156.50(d)(2), and the cost of 

exchanging data between entities 

involved in the arrangement. We also 

added an allowance for margin in 

proportion to the total costs that we 

expect each entity to incur. We seek 

comment on the allowance for 

administrative costs and margin, 

including the appropriate percentage 

and alternative methods for future 

determinations of the allowance. 

3. AV Calculation for Determining Level 

of Coverage 

Section 2707(a) of the PHS Act and 

Section 1302 of the Affordable Care Act 

direct non-grandfathered health 

insurance coverage in the individual 

and small group markets, including 

QHPs, to ensure that plans meet a level 

of coverage specified in section 

1302(d)(1) of the Affordable Care Act 

and codified at § 156.140(b). On 

February 25, 2013, HHS published the 

EHB Rule implementing section 1302(d) 

of the Affordable Care Act, which sets 

forth the requirement that, to determine 

the level of coverage for a given metal 

tier level, the calculation of AV be based 

upon the provision of EHB to a standard 

population. Section 156.135(a) 

establishes that AV is to be calculated 

using the AV Calculator developed and 

made available by HHS. 

The AV Calculator uses national 

claims data to reflect plans of various 

levels of generosity as the underlying 

standard population. This standard 

population is represented in the 

calculator as tables of aggregated data 

called continuance tables. The AV 

methodology document that was 

incorporated by reference in the EHB 

Rule provides an overview of the 

development of these continuance 

tables and the AV Calculator logic. 

As stated in the EHB Rule, HHS does 

not anticipate making annual changes to 

the AV Calculator logic or the 

underlying standard population 

reflected in the continuance tables. 

However, HHS recognizes that certain 

routine changes will on occasion need 

to be made to facilitate the AV 

Calculator’s ongoing operation by 

ensuring that it can accommodate 

changes in the marketplace or product 

design over time and due to the 

changing cost of providing health care 

services. Here, we propose to provide 

for authority to update certain aspects of 

the AV Calculator on a regular basis, but 

no more frequently than annually, based 

on changes to applicable standards or 

the availability of new data that could 


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make the AV Calculator more accurate. 

These types of changes include: 

(1) Updating the annual limit on cost 

sharing and related functions in the 

calculator: Section 1302(c) of the 

Affordable Care Act, codified at 

§ 156.130, imposes an annual limit on 

cost sharing on non-grandfathered plans 

in the individual and small group 

markets. We note that, in accordance 

with section 1302(c)(4) of the Affordable 

Care Act and § 156.130(e), starting in 

2015, HHS will publish the premium 

adjustment percentage in the annual 

HHS notice of benefit and payment 

parameters for purposes of calculating 

the required indexing of the annual 

limit on cost sharing. Because this limit 

is included in the AV Calculator and 

impacts the range of the AV Calculator, 

we propose to update the AV Calculator 

to include an estimated annual limit on 

cost sharing. In order to allow issuers 

the most time possible to develop plans, 

HHS may make available prior to the 

annual HHS notice of benefit and 

payment parameters the AV Calculator 

that would project an estimated annual 

limit on cost sharing for the given plan 

year. Issuers would still be required to 

adhere to the annual limit on cost 

sharing that is published in the 

applicable HHS notice of benefit and 

payment parameters. The intention in 

using an estimated annual limit on cost 

sharing in the AV Calculator is to ensure 

flexibility of the AV Calculator for 

issuers. Since we may make the AV 

Calculator available prior to the 

finalization of the annual limit on cost 

sharing for a given plan year, we are 

proposing to use an estimated annual 

limit on cost sharing in the AV 

Calculator, to ensure that the final AV 

Calculator does not contain an annual 

limit on cost sharing that is lower than 

the finalized one. Accordingly, in the 

proposed 2015 AV Calculator, we 

propose an estimated annual limit on 

cost sharing of $6,850, compared to the 

proposed annual limit for cost sharing 

for 2015, which is $6,750. 

(2) Updating the continuance tables to 

reflect more current enrollment data: 

Starting in 2016, HHS expects to have 

sets of actual enrollment data from 2014 

and to receive the subsequent year’s 

data on an annual basis thereafter. 

These data could be used to reweight 

the standard population in the 

continuance tables that run the AV 

Calculator to more accurately reflect 

true enrollment trends and as a result 

project claims spending. We anticipate 

that during the first several years of 

operation, the demographic mix of the 

enrolled population will likely change 

and may need to be reweighted in the 

AV Calculator annually. After a few 

years, the population may stabilize and 

begin matching the claims data to the 

point where reweighing the AV 

Calculator may not be necessary on an 

annual basis. 

We propose to analyze the most 

recently available data on the enrolled 

population every year, starting in 2016, 

and in cases where we determine that 

the enrolled population has materially 

changed, we propose to reweight the 

continuance tables in the AV Calculator 

to continue to accurately reflect 

enrollment data. We are proposing to 

consider a material change in gender or 

age in the enrolled population as more 

than a 5 percent change. We propose to 

determine this change based on a 

combined measurement of the effects of 

shifts in gender or age statistics. We 

solicit comment on this 5 percent 

standard and whether it should be a 

higher or lower percentage, as well as 

how this change should be determined. 

For the proposed 2015 AV Calculator, 

we did not have actual enrollment data 

to analyze and therefore, we are not 

proposing to reweight the calculator 

based on enrollment data at this time. 

(3) Updating the algorithms behind 

the AV Calculator to adapt to new 

industry practices and plan designs: As 

discussed in the EHB Rule, because the 

AV Calculator is intended to account for 

the vast majority of plan designs in the 

market, in order to ensure that the AV 

Calculator will be available to plans and 

issuers, it will likely need to be 

periodically adapted. To do this, we are 

proposing to make technical, nonsubstantive updates to the AV 

Calculator algorithms as industry 

practices change and as technology 

advances, including adding features to 

the AV Calculator. For example, for the 

proposed 2015 AV Calculator, we are 

able to make improvements to the 

algorithms to allow for additional 

functionality to apply the deductible 

first and then copayments. Adding this 

feature would allow the calculator to be 

applicable for more types of plans and 

would not substantively affect other 

plan designs using the AV calculator. 

Such an adaptation of the AV Calculator 

to allow more types of plan designs to 

use the calculator without adjustment 

and to accommodate new types of plan 

designs in the market would be the basis 

for making these non-substantive 

changes. The standard that we propose 

to apply in making such adaptations 

would be to have the minimum impact 

possible on the outcomes produced by 

the AV Calculator generally while still 

allowing it to be adaptable to the new 

types of plan designs and allowing more 

types of plan designs to use the AV 

Calculator. We propose to make such 

adaptations under the provisions of this 

proposed rule if the adaptations can be 

based on actuarially sound principles 

and these adaptions would only involve 

minor modifications to the AV 

Calculator that would result in only a 

limited or no impact on the majority of 

plan designs that use the AV Calculator. 

We invite public comment on 

suggestions for ways in which this 

standard could best be achieved. 

To identify new industry practices 

and technical advances, we propose to 

consult annually with the American 

Academy of Actuaries to determine 

what new adaptations are needed in the 

AV Calculator as the basis for those 

changes. Under § 156.135(b), the 

American Academy of Actuaries’ 

members play a critical role in 

determining the AV of plan designs that 

are not compatible with the AV 

Calculator and would have insight into 

adjustments that are needed in the AV 

Calculator to meet the needs of the 

involving market and to allow more 

plan designs to use the AV Calculator. 

We also propose taking into 

consideration stakeholder feedback on 

adjustments to the AV Calculator that 

are submitted to the CMS Actuarial 

Value email address at actuarialvalue@

cms.hhs.gov. To accomplish this goal, 

we propose aggregating this information 

annually and assessing which 

modifications would benefit the most 

issuers, are feasible in the AV 

Calculator, and will not substantively 

impact other functions of the calculator. 

If an algorithm change meets these 

criteria, and standards set forth above, 

we would consider incorporating it into 

the AV Calculator’s algorithms. Changes 

that are made to the algorithms would 

be described in the AV Calculator 

Methodology that would be released 

with any updated AV Calculator. 

(4) Updating the continuance tables to 

reflect more current claims data: HHS is 

proposing to update the claims data 

underlying the continuance tables, 

including refreshing the national claims 

database data with new data, as well as 

trending the AV Calculator to account 

for changes in the unit prices, 

utilization and intensity of services 

used. A trending factor could be a 

historical trend factor making use of 

actual premiums that reflect utilization 

and unit price increases, a factor based 

on emerging trends changing the 

demographic, or be based on the 

premiums of the new product designs 

with unique features. Data on these 

changes in insurance could be used to 

develop a trending factor that could be 

applied to the claims data to make 

adjustments in the continuance tables of 

the AV Calculator. For future plan years, 


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28 ‘‘Letter to Issuers on Federally-facilitated and 

State Partnership Exchanges,’’ April 5, 2013, 

available at: http://www.cms.gov/CCIIO/Resources/

Regulations-and-Guidance/Downloads/2014_letter_

to_issuers_04052013.pdf. 

we propose to use two sources of data, 

one to reflect the individual market and 

one to reflect the small group market, to 

develop a single trend factor that could 

be applied to the AV Calculator. For the 

individual market, we propose to use 

the premium rate data and/or the 

standard population data compared 

from year to year, and for the small 

group market, we proposed to use 

similar premium rate data and/or the 

standard population data compared 

from year to year to develop a trending 

factor that we could apply to the claims 

data in the AV Calculator, adjusted for 

key changes, such as the reduction in 

transitional reinsurance that will occur 

from 2014 through 2016. In years when 

we are planning to update the claims 

data from the national claims database 

system in the AV Calculator, we are 

proposing to trend the AV Calculator 

based on the new claims data with the 

dataset currently being used in the 

calculator to ensure that the trend factor 

and claims data are reconciled. 

In considering the factors in adjusting 

the claims data and trending the 

calculator, we recognize the importance 

of market stability for both issuers and 

consumers from year-to-year. At the 

same time, we recognize the importance 

of the AV Calculator reflecting the 

current market. By pursuing the 

approach of not updating the claims 

data every year, we would be providing 

greater stability in an emerging market. 

For these reasons, we are proposing to 

update the baseline claims data no more 

than every 3 and no less than every 5 

years. This proposal of no more than 

every 3 years reflects the duration of the 

transitional reinsurance program and 

the temporary risk corridors program. 

We are also proposing to consider 

trending the AV calculator every year 

and in cases, where the trend factor is 

cumulatively more than 5 percent 

different from the previous time the AV 

Calculator was updated, we would 

implement the trend factor. By 

considering whether to trend the AV 

Calculator every year, we would be 

helping to ensure that the AV Calculator 

more accurately reflects the current 

market and to avoid having any steep 

‘‘cliff’’ changes in the AV Calculator 

every few years. Under the methodology 

proposed above, we are proposing to 

trend the AV Calculator on premium 

data and/or the standard population 

data in years when the underlying 

claims data are not being updated in the 

AV Calculator, and in years where the 

claims data are being updated, we are 

proposing to trend the calculator based 

on the updated claims data. We seek 

comments on this proposed approach, 

including our proposed approach to 

updating the claims data. We are 

proposing to provide details of our 

consideration of the trending factor each 

year in the AV Methodology. For 2015, 

we do not propose to trend the AV 

Calculator since the necessary 2 years of 

data were not available to make the 

adjustment per our proposed policy. 

(5) Updating the AV Calculator user 

interface: HHS is proposing to update 

the AV Calculator user interface as 

needed to improve the user’s 

experience. An example of this type of 

change, which we included in the 

proposed 2015 AV Calculator, is adding 

the ability for the user to save AV 

calculations. The 2014 AV Calculator 

did not incorporate this function, but 

based on comments received, we 

recognized the importance for users to 

have this feature. In the future, we 

anticipate that there will be other ways 

in which we could continue to make 

improvements to the AV Calculator’s 

user interface to assist users and we 

anticipate that we will continue to 

receive feedback from various 

stakeholders to inform future proposed 

improvements to the AV Calculator user 

experience. HHS may consider making 

changes when an improvement would 

be useful to a broad group of users of the 

AV Calculator, would not affect the 

function of the AV Calculator, and 

would be technically feasible. These 

changes would simplify the process for 

providing users with features that could 

help save time and improve processes. 

When making updates to the AV 

Calculator in accordance with this 

proposed rule, we propose to update the 

AV Calculator through guidance that 

will be posted on our CCIIO Web site. 

This guidance will include an updated 

AV Calculator Methodology to explain 

the changes that were made to the AV 

Calculator, along with the updated AV 

Calculator. We also expect that we 

would make any updates that will affect 

the AV Calculator in advance of the 

benefit year for which issuers are using 

the AV Calculator, with the intention of 

making the AV Calculator available no 

later than the end of the first quarter of 

the preceding the benefit year. 

We are soliciting comments on all of 

the above types of updates and the 

accompanying criteria that would be 

used to identify the need for and to 

implement these updates. Outside of the 

above types of updates, we are also 

soliciting comments on whether other 

types of updates should be considered 

routinely for the AV calculator. To 

clarify, we are proposing that, to comply 

with § 156.135(a), issuers would be 

required to use the AV Calculator 

published by HHS for a given benefit 

year or, in cases where a State has 

obtained HHS approval to use State 

specific data in the AV Calculator, 

issuers would be required to use that 

AV Calculator HHS has published for 

the given benefit year, adjusted to use 

the State’s data (State AV Calculator). 

The purpose of requiring that the issuers 

use the AV Calculator of the given 

benefit year or the State AV Calculator 

is to ensure that the AV calculation is 

being more accurately calculated on the 

most recent data each year and that 

there is only one AV Calculator (or State 

AV Calculator) applicable for each 

benefit year. We are also soliciting 

comments on the proposed 2015 AV 

Calculator and AV Calculator 

methodology that would supersede the 

2014 versions of these documents. In 

accordance with our proposed policy, 

we provide an explanation of the 

changes that were made in the proposed 

2015 AV Calculator in the proposed 

2015 AV Methodology. For the 2015 AV 

Calculator, HHS is only proposing to 

make minor changes to the design and 

inputs into the AV Calculator. While 

plans’ AV calculations may be impacted 

by the updated AV Calculator, our 

testing has shown that this impact will 

be limited for the vast majority of plans 

and that only in certain cases will plans 

see a significant change in AV. We 

encourage stakeholders to test the 

proposed 2015 AV Calculator and 

submit technical comments on it during 

the comment period. 

In the preamble to the EHB Rule, we 

discussed the calculation of AV for 

health plans with family cost-sharing 

features. In addition we provided 

guidance in the ‘‘2014 Letter to Issuers 

on Federally-facilitated and State 

Partnership Exchanges’’ 28 on 

accounting for family plans for 2014. 

Since the AV Calculator claims data are 

based on individual claims data that did 

not include family cost-sharing 

information, HHS is seeking the 

necessary empirical data to develop the 

code that can incorporate family plans 

into future versions of the AV 

Calculator. We are now seeking 

comment on how to account for these 

family plan designs and we are 

particularly interested in information 

regarding potential data source options. 

4. National Annual Limit on Cost 

Sharing for Stand-Alone Dental Plans in 

an Exchange 

The EHB Rule established an annual 

limit on cost sharing for the pediatric 

dental essential health benefit offered by 


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29 In the 2014 Payment Notice (78 FR 15418), we 

provided that risk adjustment would not apply to 

a plan unless it was subject to certain market reform 

rules, including the rating rules. Elsewhere in this 

proposed rule, at § 153.510(f), we propose a similar 

approach with respect to risk corridors. Our 

proposed approach here for the SHOP would 

provide that a SHOP QHP that grows into a large 

group plan would continue to receive the 

protections of the risk adjustment and risk corridors 

programs. 

stand-alone dental plans (SADPs) in the 

Exchanges that is separate from the 

annual limit on cost sharing that applies 

to QHPs that offer comprehensive 

medical benefits. The EHB Rule 

established that Exchanges should set a 

‘‘reasonable’’ annual limit on cost 

sharing for SADPs. The CMS Letter to 

Issuers on Federally-facilitated and 

State Partnership Exchanges, published 

on April 5, 2013, established that CMS’s 

interpretation of a reasonable SADP 

annual limit on cost sharing for the 

FFEs is $700 for an SADP with one 

child enrollee and $1,400 for an SADP 

with two or more children enrollees. 

We propose a revised policy for the 

2015 benefit year and beyond in 

response to significant public interest in 

establishing a policy that is consistent 

across Exchanges and that minimizes a 

consumer’s total annual limit on cost 

sharing. HHS also seeks to minimize the 

differences between a consumer’s total 

annual limit on cost sharing when 

purchasing essential health benefits 

through a QHP that includes coverage of 

the pediatric dental essential health 

benefits or through a combination of a 

QHP and an SADP. Thus, we are 

proposing in this rule an amendment to 

§ 156.150 that would establish an 

annual limit on cost sharing for SADPs 

that would be applicable in all 

Exchanges. For the 2015 benefit year, 

the new proposed paragraph (a)(1) 

would impose an annual limit on cost 

sharing for the pediatric dental EHB 

when offered through an SADP of $300 

for one covered child and $400 for two 

or more covered children. We request 

comment on the proposed annual limits 

on cost sharing, and specifically 

whether a higher or lower limit would 

be appropriate for the pediatric dental 

EHB. Further, due to the limited 

variation in cost sharing with a 

decreased annual limit on cost sharing, 

we propose removing the actuarial value 

requirement SADPs offered through the 

Exchanges by deleting paragraph (b) of 

§ 156.150. We request comment on the 

removal of the AV standard as well. 

We understand that under the current 

rules, some State Exchanges have 

interpreted a reasonable annual limit on 

cost sharing to be higher than what is 

proposed in this proposed rule. For 

example, at least two State Exchanges 

have established an annual limit on cost 

sharing for SADPs of $1,000 for one 

covered child and $2,000 for two or 

more covered children. We therefore 

request comment on whether the annual 

limit on cost sharing should be 

consistent nationally, which would be 

more straightforward for consumers and 

issuers, or set by each Exchange, which 

allows for State flexibility to adjust to 

specific market standards and whether 

the limits proposed here are 

appropriate. As stated above, we 

propose to establish the $300/$400 

annual limit on cost-sharing as a 

national maximum annual limit on cost 

sharing applicable in all Exchanges. For 

those States that currently have annual 

limits on cost sharing of $1,000/$2,000, 

we request comment on whether there 

should be a more gradual decrease in 

the annual limit in cost sharing that 

would ultimately reach the national 

level, but would result in a less 

significant one-time decrease. 

HHS considered several other 

alternatives to minimize a consumer’s 

total annual limit on cost sharing when 

purchasing the pediatric dental EHB 

through a SADP, including: Requiring 

issuers of SADPs to consider the annual 

limit on cost sharing to be met once the 

consumer reaches the annual limit on 

cost sharing for the QHP; requiring 

issuers of QHPs without the pediatric 

dental EHB to reduce the annual limit 

on cost sharing by the amount of annual 

limit on cost sharing permitted for 

SADPs; and, requiring issuers of QHPs 

and SADPs to track out of pocket costs 

for a shared consumer and jointly 

consider a consumer’s out of pocket 

commitments to be met once a total 

number has been reached. We note that 

HHS is generally concerned with the 

administrative costs of implementing a 

policy that requires coordination of 

claims to a single annual limit on cost 

sharing. We seek comments on these 

alternatives. 

5. Additional Standards Specific to 

SHOP 

We propose to add new paragraph 

(a)(4)(i) to § 156.285 to provide that a 

qualified employer in the SHOP that 

becomes a large employer would 

continue to be rated as a small 

employer. Under section 1304(b)(4)(D) 

of the Affordable Care Act, a small 

employer that ceases to be a small 

employer by reason of an increase in the 

number of employees continues to be 

treated as a small employer for purposes 

of Subtitle D of Title I of the statute. 

Included within Subtitle D are the 

provisions governing the SHOP and the 

premium stabilization rules. However, 

the fair health insurance premium 

provisions at section 2701 are not 

contained in Title D. To assure 

consistency of pricing within the 

SHOP,29 we propose to require a QHP 

offered through the SHOP to comply 

with the rating rules described in 

§ 147.102. We note that nothing in this 

proposal prevents such an employer 

from choosing to buy a guaranteed issue 

new policy (without small group rating 

rules) in the large group market outside 

of the SHOP. 

We believe that, when employee 

choice becomes available in FF–SHOPs 

for plan years beginning on or after 

January 1, 2015, allowing composite 

rating when an employer chooses to 

offer all plans within a metal tier under 

§ 155.705(b)(3)(iv)(A) could result in 

issuers becoming more hesitant to offer 

QHPs in an employee choice 

environment—undermining the ACA’s 

goals of increased choice and 

competition. As discussed in more 

detail above with regard to proposed 

§ 155.705(b)(11)(ii)(D), composite rating 

when an employer takes advantage of 

employee choice could result in an 

issuer taking on proportionately more 

risk from mid-year changes to the 

employer’s roster than in a single plan 

environment and, therefore, deny an 

issuer the premiums that would 

otherwise be due in a per-member 

premium calculation for the group. We 

proposed in § 155.705(b)(11)(ii)(D) to 

prohibit composite rating in the FF– 

SHOPs when an employer chooses a 

level of coverage and make all QHPs 

within that level available to its 

employees, and we propose in 

§ 156.285(a)(4)(ii) to subject issuers to 

the same prohibition, to assure that 

issuers understand that composite 

billing is not allowed in the FF–SHOPs 

when employee choice becomes 

available and an employer selects a 

level of coverage and not a single plan. 

As with proposed 

§ 155.705(b)(11)(ii)(D), we are 

considering extending the prohibition 

on composite rating to SADPs in the 

FF–SHOPs, and we invite comment on 

whether such a prohibition should be 

adopted, how this policy might affect 

current market practices on composite 

rating of dental plans, whether a 

prohibition on composite rating should 

apply to all SADP offering methods or 

just when an employer chooses to offer 

more than a single SADP, and how such 

a prohibition would affect choice and 

competition in the small group dental 

market. We acknowledge that this 

proposal provides a limited exception to 

§ 147.102(c)(3) and note that this 

proposal would preempt State law in 


sroberts on DSK5SPTVN1PROD with PROPOSALS
72368 Federal Register / Vol. 78, No. 231 / Monday, December 2, 2013 / Proposed Rules 

30Research suggests that consumers may prefer 

more limited arrays of choices. See Iyengar, S.; 

Lepper, M. Journal of Personality and Social 

Psychology, Vol. 79(6), Dec 2000, 995–1006. 

this context, but we believe this 

proposal to be limited in scope and 

tailored to provide for administrative 

efficiency and uniformity, system 

compatibility among the FF–SHOPs, 

and increased competition and choice 

in the small group market. 

If the proposed amendments to 

§ 155.705(b)(4) summarized above are 

finalized as proposed, all SHOPs would 

be permitted to establish standard 

methods for premium payment under 

§ 155.705(b)(4), as part of carrying out 

the premium aggregation function, and 

HHS would establish through guidance 

a process and timeline for employers to 

follow when remitting premium 

payments to the FF–SHOPs once 

premium aggregation becomes available 

in the FF–SHOPs. We anticipate that 

after premium aggregation becomes 

available in the FF–SHOPs, an FF– 

SHOP would transmit premium 

payments—both initial and 

subsequent—to issuers on a regular 

schedule and anticipate that this would 

be no more frequently than once a week. 

We recognize that under this approach, 

an issuer might not receive an 

employer’s initial premium payment 

from the FF–SHOP prior to the coverage 

effective date even though the employer 

has remitted payment to the FF–SHOP 

consistent with the HHS-established 

timeline. We understand that issuers 

may be concerned about effectuating 

coverage prior to receiving payment 

from a FF–SHOP. To address this 

concern, if the FF–SHOP has not 

received the initial premium payment in 

accordance with the payment timeline 

and process established in accordance 

with proposed § 155.705(b)(4)(ii)(A), the 

FF–SHOP will send an enrollment 

cancellation transaction to the issuer to 

ensure that coverage is not effectuated. 

Accordingly, we propose that if the 

issuer does not receive an enrollment 

cancellation transaction, it should 

effectuate coverage. We considered 

whether an FF–SHOP could, 

alternatively, send an issuer a notice 

confirming that it should effectuate 

coverage when the FF–SHOP received 

an employer’s initial premium payment 

but the issuer would not receive that 

payment prior to the coverage effective 

date. However, it would be simpler 

administratively and operationally for 

issuers to assume they should effectuate 

coverage and proceed to effectuate 

coverage unless an FF–SHOP cancels 

the enrollment. Therefore, we propose 

adding § 156.285(c)(7)(iii) to establish 

that a QHP issuer offering a QHP 

through an FF–SHOP would be required 

to enroll a qualified employee unless it 

receives a cancellation notice from the 

FF–SHOP. We note that this operational 

scenario would arise only in the case of 

an employer’s initial premium payment. 

For regular monthly payments from a 

participating SHOP employer, the 

requirements of the payment timeline 

and process established in accordance 

with proposed § 155.705(b)(4)(ii)(A) and 

the termination provisions of § 155.735 

would apply. We seek through this 

proposal to balance issuers’ concerns 

about receiving payment with the need 

for timely FF–SHOP enrollment and 

operational efficiency. We welcome 

comment on the proposed approach, as 

well as on the alternative approach 

discussed above which we considered 

but rejected, and encourage commenters 

to suggest additional alternatives. 

6. Meaningful Difference Standard for 

QHPs in the FFEs 

Section 1311(e)(1)(B) of the 

Affordable Care Act, codified at 

§ 155.1000(c)(2), sets forth the standard 

that the Exchange may certify a health 

plan as a QHP if it determines that 

making the plan available through the 

Exchange is in the interests of qualified 

individuals and qualified employers in 

the State or States in which such 

Exchange operates. Therefore, as a 

means of ensuring that all QHPs offered 

through an FFE are in the interest of 

qualified individuals and qualified 

employers, we propose that, to be 

certified as a QHP in an FFE, a plan 

must be considered ‘‘meaningfully 

different’’ from all other plans offered 

by the same issuer through the same 

Exchange, and we propose a standard 

for what is meant by the term 

‘‘meaningfully different.’’ 

Based on feedback from stakeholders 

and HHS’ experience from 

administering the Medicare program, 

HHS believes that it is in the interests 

of consumers to have an Exchange with 

meaningfully different plan choices, as 

meaningful difference has important 

benefits to consumers, such as ensuring 

the ability to readily differentiate and 

compare plan choices, leading to 

informed decisions.30 A single issuer 

offering a number of plans that lack 

meaningful difference could take virtual 

‘‘shelf space’’ from other competitors 

and stifle competition. Therefore, 

conducting a review for meaningful 

difference will ensure that consumers 

are able to make informed selections 

among an ample—but manageable— 

number of QHPs, while allowing for 

plan innovation. The approach outlined 

below for a meaningful difference 

requirement would allow time for HHS 

to see how the market develops, assess 

the consumer need for a more specific 

meaningful difference standard, and 

consider options to meet this potential 

need. HHS does not intend to set 

numerical limits on the number of QHPs 

that may be offered; rather, the proposed 

approach would serve to avoid having 

an issuer offering multiple QHPs that 

appear the same through an Exchange. 

In § 156.298(a), we propose that the 

FFEs and FF–SHOPs will impose a 

meaningful difference requirement 

when approving a QHP application for 

certification of multiple QHPs within a 

service area and level of coverage in the 

Exchange from a single issuer. Due to 

the special characteristics of the standalone dental plan market, HHS proposes 

not to require meaningful difference as 

a condition for certification among 

stand-alone dental plans at this time. 

HHS seeks comment on this approach. 

We propose, in § 156.298(b), that a plan 

within a service area and metal tier 

(bronze, silver, gold, or platinum, and 

catastrophic coverage) is considered 

meaningfully different from other plans 

if a reasonable consumer (the typical 

consumer buying health insurance 

coverage) would be able to identify at 

least two material differences among 

eight key characteristics between the 

plan and other plans to be offered by the 

same issuer. The key characteristics are 

proposed in paragraphs (b)(1)–(b)(7), 

and would include (1) Cost sharing; (2) 

provider networks; (3) covered benefits 

(including prescription drugs); (4) plan 

type (for example, HMO or PPO); (5) 

premiums; (6) health savings account 

eligibility; and (7) self-only, non-selfonly, or child-only coverage offerings. 

At a minimum, two or more of the 

characteristics proposed at § 156.298(b) 

must be different in order to pass the 

meaningful difference test. Therefore, 

within a service area and level of 

coverage in an Exchange, if two plans 

submitted by a single issuer seeking 

QHP certification vary among their cost 

sharing and covered benefits features 

but have the same premiums, the plans 

may be deemed as having met the 

meaningful difference test. 

Furthermore, to ensure that 

consumers have an adequate number of 

plan options across all metal levels of 

coverage, we propose at § 156.298(c), 

that if HHS determines that the plan 

offerings at a particular metal level 

(including catastrophic plans) within a 

county are limited, plans submitted for 

certification at that level within that 

county will not be subject to the 

meaningful difference requirement. 


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31See http://www.pso.ahrq.gov/regulations/

fnlrule01.pdf. 

32See Report to Congress: National Strategy for 

Quality Improvement in Health Care available at 

http://www.healthcare.gov/law/resources/reports/

quality03212011a.html. 

33See http://www.pso.ahrq.gov/listing/

geolist.htm. 

34Section 1861(e) of the Social Security Act: 

http://www.ssa.gov/OP_Home/ssact/title18/

1861.htm. 

To provide flexibility for issuers that 

merge with or acquire another issuer 

that is a separate legal entity, HHS 

proposes in § 156.298(d), a 2-year 

meaningful difference transition period 

starting from the date on which a QHP 

issuer (acquiring entity) obtains or 

merges with another issuer. We propose 

in paragraph (d) that during the first 2 

plan years after a merger or acquisition, 

the acquiring entity can offer plans that 

were recently obtained or merged from 

another issuer that do not meet the 

meaningful difference standard. After 

the 2-year transition period, HHS may 

approve a QHP application for 

certification that is being offered by the 

acquiring entity only if HHS finds that 

the plan’s benefit package or costs are 

meaningfully different from other QHPs 

offered by the acquiring entity and the 

plan meets all other certification 

requirements. We believe that this 

transition timeframe provides ample 

time for issuers to ensure that benefit 

packages being offered are meaningfully 

different without stifling market 

transactions. 

We seek comment on the proposed 

approach to reviewing meaningful 

difference for QHP certification and 

whether this standard should be 

expanded to all Exchanges, including 

State Exchanges. We also seek comment 

on whether this authority granted to the 

Exchange by section 1311(e)(1) of the 

Affordable Care Act, to act in the 

interests of qualified individuals and 

qualified employers, should be used by 

the Secretary, in conjunction with the 

authority granted by section 1311(e)(2) 

of the Affordable Care Act, to limit an 

issuer’s participation in the FFEs should 

there be significantly different rate 

increases for its QHPs and non-QHPs. 

While the transitional policy regarding 

renewals of certain coverage announced 

in November 2013 and described earlier 

in this preamble was intended to allow 

for continuity of coverage, it was not 

intended to promote adverse selection 

through significantly higher rates for 

QHPs. 

7. Quality Standards: Establishment of 

Patient Safety Standards for QHP Issuers 

Section 1311(h)(1)(A) of the 

Affordable Care Act specifies that, 

beginning on January 1, 2015, a QHP 

may contract with hospitals with greater 

than 50 beds only if the hospitals meet 

certain patient safety standards, 

including use of a patient safety 

evaluation system (PSES) as described 

in part C of Title IX of the PHS Act, and 

a comprehensive hospital discharge 

program. A PSES means the collection, 

management, or analysis of information 

for reporting to or by a patient safety 

organization (PSO).31 Section 

1311(h)(1)(B) of the Affordable Care Act 

specifies that a QHP may contract with 

health care providers that implement 

health care quality mechanisms, if any 

are required by the Secretary in 

regulations. Section 1311(h)(2) of the 

Affordable Care Act provides the 

Secretary with the authority and 

flexibility to establish reasonable 

exceptions to these requirements and 

section 1311(h)(3) of the Affordable Care 

Act allows the Secretary to issue 

regulations to modify the number of 

beds described in section 1311(h)(1)(A). 

As discussed in the National Strategy 

for Quality Improvement in Health Care 

(National Quality Strategy), HHS seeks 

to improve the overall quality of health 

care by making health care more 

patient-centered, reliable, accessible, 

and safe.32 One of the main priorities of 

the National Quality Strategy is making 

care safer by reducing harm caused in 

the delivery of care. In addition, section 

1311(h) of the Affordable Care Act aims 

to strengthen quality improvement and 

patient safety for consumers in 

Exchanges. To effectively balance the 

priorities for making quality health care 

accessible and safe in the Exchanges, we 

propose to implement these patient 

safety standards for QHP issuers over 

time, under the Secretary’s authority in 

section 1311(h)(2) of the Affordable Care 

Act. We believe that implementing all of 

the requirements described in section 

1311(h) by January 1, 2015 could result 

in a shortage of qualified hospitals and 

providers available for contracting with 

QHPs. 

Currently, there are 79 listed PSOs 

nationwide operating in 29 States and 

the District of Columbia.33 PSOs carry 

out a variety of patient safety activities 

with the goal to improve patient safety 

and the quality of health care delivery. 

PSOs are able to collect, aggregate, and 

analyze patient safety events and 

information that is protected under 

privilege and confidentiality standards. 

However, it is not entirely clear that 

there is sufficient capacity to enable all 

hospitals subject to this provision to 

contract with a PSO at this time. HHS 

recognizes the continuously-growing 

capacity of the PSO program and the 

potential to accommodate U.S. hospitals 

subject to § 156.1110 within the 

proposed phase-in period. HHS 

recognizes the significant burden and 

time constraints for hospitals to enter 

into agreements with PSOs for 

appropriate services to improve patient 

safety, especially for particular hospital 

settings and populations. HHS also 

recognizes the significant resources that 

QHP issuers would need to invest to 

track such initiatives, such as ensuring 

that the hospitals and health care 

providers the QHP issuer contracts with 

have appropriate agreements with PSOs 

and adequate hospital discharge 

planning activities. Consequently, we 

believe that this proposed rule would 

provide an opportunity for QHP issuers 

to meaningfully comply with section 

1311(h) of the Affordable Care Act and 

consider how PSOs will work with their 

network hospitals and health care 

providers. This proposal would also 

provide time for hospitals and 

healthcare providers to demonstrate to a 

QHP issuer that they meet the patient 

safety standards in accordance with 

section 1311(h). Moreover, we believe 

that this proposed approach to 

implementation of section 1311(h) 

would ensure that QHP issuers have 

sufficient hospitals and health care 

providers to contract with, while 

providing consumers with access to 

health care that meets adequate safety 

and quality standards. 

In phase one, which would become 

effective for QHP issuer plan years 

beginning on or after January 1, 2015, 

the patient safety standards proposed in 

§ 156.1110 would apply to hospitals, as 

defined in section 1861(e) of the Social 

Security Act,34 that are Medicarecertified, and to Medicaid-only 

hospitals which have been issued a 

Medicaid-only CMS Certification 

Number (CCN). These standards would 

apply to such hospitals that have been 

certified for greater than 50 beds. For 

the reasons described above, HHS is not 

proposing requirements regarding the 

patient safety standards described in 

section 1311(h)(1)(B) at this time. HHS 

is currently in the process of researching 

the establishment of appropriate quality 

and patient safety standards for QHP 

issuers contracting with health care 

providers as described in section 

1311(h)(1)(B). 

In § 156.1110(a), we propose that a 

QHP issuer may contract with hospitals 

that have more than 50 beds, only if 

they are Medicare-certified or have been 

issued a Medicaid-only CCN, both of 

which are subject to Medicare Hospital 

Conditions of Participation (CoPs) 


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35Hospital Conditions of Participation: http://

www.cms.gov/Regulations-and-Guidance/

Legislation/CFCsAndCoPs/Hospitals.html. 

standards found in 42 CFR part 482.35

Specifically, such hospitals must 

develop, implement, and maintain an 

effective, ongoing, hospital-wide, datadriven quality assessment and 

performance improvement (QAPI) 

program, as described in 42 CFR 482.21. 

In addition, a hospital that is Medicarecertified or participates in the Medicaid 

program must have in effect a discharge 

planning process that applies to all 

patients, as described in 42 CFR 482.43. 

HHS believes that the standards of QAPI 

and discharge planning in the Medicare 

hospital CoPs represent the most 

efficient way to balance the need to 

have a sufficient number of hospitals 

available for QHP issuers to contract 

with, and the statutory intent of section 

1311(h) to provide for adequate patient 

safety standards. In addition, based on 

our preliminary research, the vast 

majority of hospitals with greater than 

50 beds are Medicare-certified or are 

Medicaid-only hospitals and must 

comply with the health and patient 

safety standards in the Medicare 

hospital CoPs. Hospitals may be deemed 

to meet the CoP standards if accredited 

per section 1865 of the Social Security 

Act. Therefore, the proposed approach 

would not significantly limit hospital 

participation in QHP networks and 

would provide consumers access to 

health care services from an adequate 

number of hospitals through QHPs in 

the Exchanges. 

In § 156.1110(b), we propose to direct 

QHP issuers to maintain documentation, 

including but not limited to the CCN for 

each hospital. Since both Medicarecertified hospitals and Medicaid-only 

hospitals are issued CCNs, such 

documentation would demonstrate that 

a QHP issuer’s contracted hospital is 

Medicare-certified or has a Medicaidonly CCN and are subject to the 

Medicare hospital CoP standards as 

required in paragraph (a). We believe 

that collecting and maintaining data 

such as the CCN would not be 

burdensome for QHP issuers. In 

§ 156.1110(c), we propose that a QHP 

issuer must make this documentation 

available to the Exchange, upon request 

by the Exchange, and in a time and 

manner specified by the Exchange. We 

intend to include all Exchange types 

when referring to the Exchange in 

§ 156.1110, including a State-based 

Exchange. We anticipate using the data 

collected as part of information used to 

evaluate and oversee QHP issuers in 

FFEs. We note that multi-State plans, as 

defined in § 155.1000(a), are subject to 

these provisions. OPM would determine 

the time and manner for multi-State 

plans to submit the documentation. 

In § 156.1110(d), we propose that a 

QHP issuer must ensure that each of its 

QHPs meets the patient safety standards 

in accordance with paragraph (a) of this 

section for plan or policy years 

beginning on or after January 1, 2015. 

We anticipate that this first phase of 

implementation of QHP-related quality 

standards would be for 2 years 

beginning January 1, 2015 or until we 

issue further regulations based on a 

reassessment of the Exchange market, 

whichever is later. 

We seek comment regarding our 

proposal to apply Medicare hospital 

CoP standards for implementation of 

section 1311(h) of the Affordable Care 

Act. We also request comment on the 

proposed 2-year time period for the first 

phase of implementation. Additionally, 

we propose to maintain the statutory 

distinction between hospitals with 50 or 

fewer beds and hospitals with more 

than 50 beds, but we request comment 

for phase one implementation on 

whether HHS should adjust the number 

of hospital beds to be greater or less 

than the standard under section 

1311(h)(3) of the Affordable Care Act. 

We also seek comment regarding 

whether the proposed standards in 

§ 156.1110 should be applicable to 

hospitals other than Medicare-certified 

and Medicaid-only hospitals. We further 

request comment on whether any other 

documentation would be reasonable to 

require QHP issuers to collect and 

maintain to meet the proposed 

standards described in § 156.1110(c). 

For the next phase of implementation, 

we are considering requiring QHP 

issuers to ensure that their contracted 

hospitals have agreements with PSOs 

and comprehensive hospital discharge 

programs, and that their health care 

providers implement health care quality 

activities. We recognize the various 

important patient safety initiatives, 

including discharge planning activities, 

with which hospitals, health care 

providers, and issuers are already 

involved. In future rulemaking, we 

intend to consider whether and which 

reasonable exceptions under section 

1311(h)(2) of the Affordable Care Act 

should be made. We seek comment on: 

• What core aspects should be 

included in hospital patient safety 

programs. 

• What a comprehensive hospital 

discharge planning program should 

require for each patient. 

• What health care quality 

improvement activities should be 

implemented by health care providers. 

Specifically, we request comment on 

how QHP issuers could effectively track 

patient safety information, such as 

hospital agreements with a PSO, related 

to their contracted hospitals and 

provider networks. We also seek 

comment regarding specific, comparable 

activities that may be included as 

reasonable exceptions to the patient 

safety standards, in accordance with 

section 1311(h)(2) of the Affordable Care 

Act. 

8. Financial Programs 

a. Netting of Payments and Charges 

In the 2014 Payment Notice, HHS 

established a monthly payment and 

collections cycle for the advance 

payments of the premium tax credit, 

cost-sharing reductions, and FFE user 

fees, and an annual payment and 

collections cycle for the premium 

stabilization programs and 

reconciliation of cost-sharing 

reductions. For 2014, to streamline our 

payments and collections process, we 

propose in § 156.1215(a) that each 

month we would determine amounts 

owed to or by a QHP issuer by netting 

amounts owed by the QHP issuer to the 

Federal government against payments 

due to the QHP issuer for advance 

payments of the premium tax credit, 

advance payments of cost-sharing 

reductions, and payment of FFE user 

fees. In addition to this netting across 

these programs, as further described 

below, the monthly calculation of 

amounts due would also reflect current 

information related to enrollment for 

past months, including information 

related to excess payments previously 

made. Finally, we propose that amounts 

owed to or by a QHP issuer would be 

netted across all entities operating 

under the same taxpayer identification 

number (TIN). This process would 

permit HHS to calculate amounts owed 

each month, and pay or collect those 

amounts from issuers more efficiently. 

When netting occurs, HHS would 

demand amounts due only when there 

is a balance due to the Federal 

government. 

In addition to the monthly payment 

flows under the programs described 

above, a number of annual payment 

flows will begin in 2015 for the risk 

adjustment program, the reinsurance 

program, the risk corridors program, and 

cost-sharing reduction reconciliation. 

To streamline payment and charge flows 

from all of these programs—advance 

payments of the premium tax credit, 

advance payments and reconciliation of 

cost-sharing reductions, FFE user fees, 

and the premium stabilization 

programs—we propose in § 156.1215(b) 


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36We note that under proposed 

§ 156.1220(a)(3)(i)–(ii), an issuer may not submit 

data for consideration in the appeal if the data was 

not submitted prior to the applicable data 

submission deadline, but may submit documentary 

evidence that certain data was timely submitted. 

that HHS may net amounts owed to the 

Federal government against payments 

due to an issuer (or an affiliated issuer 

under the same TIN) under these 

programs in 2015 and later years. We 

believe that this process will enable 

HHS to operate a monthly payment 

cycle that will be efficient for both 

issuers and HHS. 

In § 156.1215(c), we propose that any 

amount owed to the Federal government 

by an issuer and its affiliates for 

advance payments of the premium tax 

credit, advance payments of and 

reconciliation of cost-sharing reductions 

after netting be the basis for calculating 

a debt owed to the Federal government. 

We propose that payments and 

collections under all of these programs 

would occur under an integrated 

monthly payment and collection cycle. 

We seek comment on these proposals, 

including on the appropriate payment 

timeframes for these charges so that 

amounts may be netted and invoiced as 

part of an orderly, monthly payment 

cycle. 

b. Confirmation of HHS Payment and 

Collections Reports 

As discussed in the preamble to 

§ 156.1210 of the second final Program 

Integrity Rule, HHS anticipates sending 

a monthly payment and collections 

report—the HIX 820—to issuers 

describing the advance payments of the 

premium tax credit and advance 

payments of cost-sharing reductions that 

an issuer is to receive on behalf of 

eligible enrollees, and the FFE user fee 

charges that the issuer must pay. These 

amounts are based on enrollments 

previously confirmed by the issuer as 

part of the enrollment transaction 

process and the resultant HIX 820 

discrepancy reporting process described 

in § 156.1210. Under § 156.1210 (a), an 

issuer must respond to the payment and 

collections report within 15 calendar 

days of receipt of the report by either 

confirming the report or notifying HHS 

if there is a discrepancy between the 

data provided in the payment and 

collections report and the data that the 

issuer has. Under § 156.1210(b), if an 

issuer reports a discrepancy in a 

payment and collections report later 

than 15 calendar days after receipt of 

the report, HHS will work with the 

issuer to resolve the discrepancy as long 

as the late reporting was not due to 

misconduct on the part of the issuer. As 

described below, any resolution to such 

an identified discrepancy would be 

reflected in a later payment and 

collections report and the invoice 

generated under that later report would 

not affect the debt established by the 

invoice generated in connection with 

the earlier report. 

We propose that an issuer that notifies 

HHS of a discrepancy under § 156.1210 

will trigger an administrative 

discrepancy resolution process. 

Following the end of the benefit year, if 

the issuer remains dissatisfied with the 

results of that process, the issuer may 

make a request for reconsideration as 

proposed below in § 156.1220(a). 

We intend that this discrepancy 

resolution process would permit HHS to 

work with issuers to resolve outstanding 

discrepancies in a cooperative manner. 

Because of the number and timing of the 

daily flows of enrollment and premiumrelated data and confirmations between 

HHS, the Exchange, and the issuer, we 

anticipate that there would be frequent 

adjustments to the enrollment counts 

and therefore the amounts of the 

advance payments of the premium tax 

credit, advance payments of costsharing reductions, and FFE user fees. 

To decrease the administrative burden 

on issuers, HHS, and the Exchanges, 

and in recognition of the number and 

timing of the data flows involved, we 

propose not to retroactively adjust 

previous months’ payment and 

collections reports and amounts 

previously due. Consistent with our 

approach in the Medicare Advantage 

program, the invoice for a particular 

month would be calculated on the 

monthly payment cycle. We propose 

that the amount thus invoiced for a 

particular month, which would reflect 

netted amounts as described above, 

constitute an amount owed to the 

Federal government. As more accurate 

data become available to HHS, the 

Exchange, and the issuer, we propose 

that this later information not reduce or 

increase the previous determination of 

an amount owed. Rather, the 

information would be captured in 

subsequent months and reflected in 

subsequent payment cycles, and 

reflected in later invoices. 

Thus, an issuer would be required to 

pay the full amount of any invoice 

issued in connection with a payment 

and collection report for a month even 

if the issuer notes a discrepancy that 

may later be resolved as a credit in a 

later invoice. 

Therefore, we propose to add 

paragraph (c) to § 156.1210 to provide 

that discrepancies in payment and 

collections reports identified to HHS 

under that section would be addressed 

in subsequent payment and collections 

reports, and would not be used to 

change debts determined pursuant to 

invoices generated under previous 

payment and collections reports. 

We seek comment on this approach. 

c. Administrative Appeals 

We propose an administrative appeals 

process designed to address any 

unresolved discrepancies for advance 

payments of the premium tax credit, 

advance payments of cost-sharing 

reductions, FFE user fee payments, 

payments and charges for the premium 

stabilization programs, cost-sharing 

reduction reconciliation payments and 

charges, and any assessments under 

§ 153.740(b) of a default risk adjustment 

charge. This administrative appeals 

process is similar to that utilized to 

address payment disputes in the 

Medicare Part D program, in which an 

appeal to a CMS hearing officer, and 

then the Administrator of CMS, if 

desired, may be filed after a request for 

reconsideration. 

In § 156.1220(a), we propose that an 

issuer may file a request for 

reconsideration of what the issuer 

believes is a processing error by HHS,36

HHS’s incorrect application of the 

relevant methodology, or HHS’s 

mathematical error only with respect to: 

(1) Advance payments of the premium 

tax credit, advance payment of costsharing reductions and FFE user fee 

charges; (2) risk adjustment payments or 

charges for a benefit year, including an 

assessment of risk adjustment user fees; 

(3) reinsurance payments for a benefit 

year; (4) a risk adjustment default charge 

for a benefit year; (5) a reconciliation 

payment or charge for cost-sharing 

reductions for a benefit year; or (6) risk 

corridors payments or charges for a 

benefit year. For a dispute regarding 

advance payments of the premium tax 

credit, advance payments of costsharing reductions, or FFE user fee 

amounts for a benefit year, we propose 

that a request for reconsideration must 

be filed within 30 calendar days after 

the issuer receives a final 

reconsideration notification specifying 

the aggregate amount of advance 

payments of the premium tax credit, 

advance payments of cost-sharing 

reductions, and FFE user fees for the 

applicable benefit year. We anticipate 

that this final reconsideration 

notification would be provided in the 

summer of the year following the benefit 

year. We believe that the constant flow 

of enrollment data for payments under 

these programs will lead to difficulty in 

finalizing a precise, final calculation for 

a benefit year, and propose to finalize 

payments under these programs 


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including for purposes of appeal by the 

late summer of the following year. We 

are considering permitting 

reconsideration only for material errors. 

We seek comment on this proposal, 

including on the minimum materiality 

threshold that should be required to 

seek reconsideration. For example, we 

are considering a minimum materiality 

threshold of 1 percent or 5 percent of 

total payments made to the issuer for 

the year for advance payments of the 

premium tax credit, advance payments 

of cost-sharing reductions, and FFE user 

fees, or a minimum dollar amount such 

as $10,000. 

For a dispute regarding a risk 

adjustment payment or charge, 

including an assessment of risk 

adjustment user fees, a reinsurance 

payment, a default risk adjustment 

charge, a cost-sharing reduction 

reconciliation payment or charge, or a 

risk corridors payment or charge, we 

propose that a request for 

reconsideration must be filed within 30 

calendar days of receipt of the 

applicable notification of payments and 

charges provided by HHS. We believe 

that because the interim and final 

dedicated distributed data environment 

reporting process proposed at 

§ 153.710(d) and (e) would permit an 

issuer an extended period of time in 

which to review risk adjustment and 

reinsurance data and because the costsharing reduction reconciliation and 

risk corridors payments or charges are 

based on data provided by the issuer, 30 

calendar days should be sufficient for an 

issuer to review the notification and 

make a request for reconsideration. We 

seek comment on this timeline. 

In § 156.1220(a)(3)(i), we propose that 

the request for reconsideration specify 

the findings or issues that the issuer 

challenges and the reasons for the 

challenge. In § 156.1220(a)(3)(ii), we 

propose that a reconsideration with 

respect to a processing error by HHS, 

HHS’s incorrect application of the 

relevant methodology, or HHS’s 

mathematical error may be requested 

only if, to the extent the issue could 

have been previously identified by the 

issuer to HHS under § 153.710(d)(2) or 

(e)(2), it was so identified and remains 

unresolved. Similarly, in 

§ 156.1220(a)(3)(iii), we propose that a 

reconsideration with respect to advance 

payments of the premium tax credit, 

advance payments of cost-sharing 

reductions, and FFE user fees may be 

requested only if, to the extent the issue 

could have been previously identified 

by the issuer to HHS under § 156.1210, 

it was so identified and remains 

unresolved. We propose to clarify that 

an issuer may request reconsideration if 

it previously identified an issue under 

§ 156.1210 after the 15-calendar-day 

deadline, but late discovery of the issue 

was not due to misconduct on the part 

of the issuer. 

In § 156.1220(a)(3)(iv), we propose 

that the issuer may include in the 

request for reconsideration additional 

documentary evidence that HHS should 

consider. Such documents may not 

include data that was to have been filed 

by the applicable data submission 

deadline, but may include evidence of 

the timely submission of such 

documents. 

In § 156.1220(a)(4), we propose that in 

conducting the reconsideration, HHS 

would review the payment 

determination, the evidence and 

findings upon which it was based, and 

any additional documentary evidence 

submitted by the issuer. HHS would 

also have the discretion to review any 

other evidence it believes is relevant in 

deciding the reconsideration (and 

would provide the issuer a reasonable 

opportunity to review and rebut the 

evidence), and would then inform the 

issuer of the final decision in writing. 

We propose that an issuer would be 

required to prove its case by a 

preponderance of the evidence with 

respect to issues of fact. 

In § 156.1220(a)(5), we propose that a 

reconsideration decision would be final 

and binding for decisions regarding the 

advance payments of the premium tax 

credit, advance payments of costsharing reductions, and FFE user fees. A 

reconsideration with respect to other 

matters would be subject to the outcome 

of a request for informal hearing filed in 

accordance with proposed 

§ 156.1220(b). Because the monthly 

iterative discrepancy report process is 

available until the reconsideration 

notice is sent and because of the 

simplicity of the calculation of advance 

payments of the premium tax credit, 

advance payments of cost-sharing 

reductions, or FFE user fees, we believe 

that providing one level of 

administrative appeal for advance 

payments of the premium tax credit, 

advance payments of cost-sharing 

reductions, and FFE user fees is 

sufficient. We propose in § 156.1220(b) 

that an issuer that elects to challenge the 

reconsideration decision for the final 

risk adjustment payment or charge, 

including an assessment of risk 

adjustment user fees; reinsurance 

payment; default risk adjustment 

charge; cost-sharing reduction 

reconciliation payment or charge; or risk 

corridors payment or charge for a 

benefit year provided under paragraph 

(a) of proposed § 156.1220 would be 

entitled to an informal hearing before a 

CMS hearing officer. In § 156.1220(b)(1), 

we propose that a request for an 

informal hearing be made in writing and 

filed with HHS within 15 calendar days 

of the date the issuer receives the 

reconsideration decision. In 

§ 156.1220(b)(2), we propose that the 

request for an informal hearing must 

include a copy of the reconsideration 

decision and must specify the findings 

or issues in the decision that the issuer 

is challenging and its reasons for the 

challenge. We also propose that HHS 

may submit for review by the CMS 

hearing officer a statement of the 

reasons supporting the reconsideration 

decision. 

In § 156.1220(b)(3)(i), we propose that 

the issuer receive a written notice of the 

time and place of the informal hearing 

at least 15 calendar days before the 

scheduled date. In § 156.1220(b)(3)(ii), 

we propose that the CMS hearing officer 

would neither receive testimony nor 

accept any new evidence that was not 

presented with the reconsideration 

request or in any statement provided by 

HHS. We propose that the scope of the 

CMS hearing officer’s review would be 

limited to the statements provided by 

the issuer and HHS and the record that 

was before HHS in making the 

reconsideration determination. We 

would require that the issuer prove its 

case by clear and convincing evidence 

with respect to issues of fact and would 

permit the issuer to be represented by 

counsel in the informal hearing. 

In § 156.1220(b)(4), we propose that, 

following the informal hearing, the CMS 

hearing officer would send the decision 

and the reasons for the decision to the 

issuer. We propose that this decision 

would be final and binding, but subject 

to any Administrator’s review initiated 

in accordance with proposed 

§ 156.1220(c). 

We propose in § 156.1220(c)(1) that if 

the CMS hearing officer upholds the 

reconsideration decision, the issuer may 

request a review by the Administrator of 

CMS within 15 calendar days of receipt 

of the CMS hearing officer’s decision. 

The request for a review by the 

Administrator of CMS must specify the 

findings or issues in the decision that 

the issuer is challenging, and the 

reasons for the challenge. We propose 

that HHS may submit for review by the 

Administrator of CMS a statement 

supporting the decision of the CMS 

hearing officer. 

In § 156.1220(c)(2), we propose that 

the Administrator of CMS or a delegate 

would review the hearing officer’s 

decision, any written documents 

submitted by HHS or the issuer, as well 

as any other information included in the 

record of the CMS hearing officer’s 


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decision, and would determine whether 

to uphold, reverse, or modify the CMS 

hearing officer’s decision. We propose 

that the issuer would be required to 

prove its case by clear and convincing 

evidence with respect to issues of fact. 

We propose that the Administrator’s 

determination would be considered 

final and binding. 

We believe that the administrative 

appeals process outlined above would 

give issuers reasonable opportunity for 

reconsideration and review of their 

payments and charges. Furthermore, 

building on established procedures 

utilized by HHS in Medicare Part D will 

provide a structure for administrative 

appeals with which issuers are already 

familiar. We seek comment on the 

proposed reconsideration and 

administrative appeals process. 

IV. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 30- 

day notice in the Federal Register and 

solicit public comment before a 

collection of information requirement is 

submitted to the Office of Management 

and Budget (OMB) for review and 

approval. This proposed rule contains 

information collection requirements 

(ICRs) that are subject to review by 

OMB. A description of these provisions 

is given in the following paragraphs 

with an estimate of the annual burden, 

summarized in Table 6. To fairly 

evaluate whether an information 

collection should be approved by OMB, 

section 3506(c)(2)(A) of the Paperwork 

Reduction Act of 1995 requires that we 

solicit comment on the following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

We are soliciting public comment on 

each of these issues for the following 

sections of this proposed rule that 

contain ICRs. We generally used data 

from the Bureau of Labor Statistics to 

derive average labor costs (including 

capital costs, overhead, and fringe 

benefits) for estimating the burden 

associated with the ICRs. 

A. ICRs Related to HHS Audits of Stateoperated Reinsurance Programs 

(§ 153.270) 

In § 153.270, we propose that HHS or 

its designee may conduct a financial 

and programmatic audit of a Stateoperated reinsurance program to assess 

compliance with reinsurance program 

requirements. We also propose that, if 

an audit results in a finding of material 

weakness or significant deficiency, a 

State must ensure that the applicable 

reinsurance entity provides a written 

corrective action plan to HHS for 

approval within 60 calendar days of the 

issuance of the final audit report. The 

burden associated with meeting this 

third party disclosure requirement 

includes the burden for a State that 

establishes a reinsurance program to 

ensure that its applicable reinsurance 

entity and any relevant contractors, 

subcontractors, or agents cooperate with 

and take appropriate actions in 

connection with any audit, and the 

burden associated with preparing and 

submitting a corrective action plan to 

HHS for approval. Because only two 

States will operate reinsurance in the 

2014 benefit year, this collection is 

exempt from the PRA under 44 U.S.C. 

3502(3)(A)(i), and we are not seeking 

approval from OMB for this information 

collection requirement. We discuss the 

impact associated with HHS audits of 

State-operated reinsurance programs in 

the Regulatory Impact Analysis section 

of this proposed rule. 

B. ICRs Regarding Issuer and Entity 

Administrative Burden Related to 

Audits for the Premium Stabilization 

Programs (§ 153.405(i); § 153.540(a); 

§ 153.410(d); § 153.620(c)) 

We propose that HHS or its designee 

would have the authority to audit QHP 

issuers, contributing entities, and 

issuers of risk adjustment covered plans 

or reinsurance-eligible plans to assess 

compliance with the requirements of 

subparts E, F, G and H of part 153, as 

applicable. As mentioned earlier in this 

proposed rule, where possible, we 

intend to align the risk corridors audit 

process with the audits conducted for 

the MLR program. Therefore, we believe 

that the issuer burden associated with 

the risk corridors audit is already 

accounted for as part of the Supporting 

Statement for the MLR program 

approved under OMB control number 

0938–1164. 

For issuers of risk adjustment covered 

plans and issuers of reinsurance-eligible 

plans, these provisions would result in 

a third party disclosure requirement for 

issuers to prepare and compile the 

financial and programmatic information 

necessary to comply with the audit. For 

each onsite review, we estimate that it 

will take an average of 40 hours for 

administrative work to assemble the 

requested information, 19.5 hours to 

review the information for 

completeness, and 30 minutes to submit 

the information to HHS in preparation 

for an onsite review. We estimate that 

an onsite review would require an 

additional 2 hours to schedule the 

onsite activities with the compliance 

reviewer (at an hourly wage rate of 

$53.75), 4 hours for introductory 

meeting, 8 hours to tour reviewers 

onsite, 10 hours of interview time, 2 

hours to walk through processes with 

the reviewer, and 4 hours for 

concluding meetings, resulting in a total 

of approximately 60 hours of 

preparation time and an additional 30 

hours of onsite time for each issuer. We 

estimate that it will take 90 hours at a 

cost of approximately $4,838 for each 

issuer to make information available to 

HHS for an onsite review. Because we 

have not finalized our audit protocols, 

it is difficult to accurately estimate an 

audit rate. However, we believe that it 

would be reasonable to assume that 

approximately 120 issuers, representing 

roughly 5 percent of issuers of risk 

adjustment covered plans or 

reinsurance-eligible plans would be 

audited. Therefore, we estimate an 

aggregate burden of 10,800 hours and 

$580,500 for issuers as a result of this 

requirement. 

For contributing entities, we estimate 

that the disclosure burden would be 

substantially less because the audit 

would be simpler. We estimate the 

burden to be approximately one-quarter 

of that of an issuer of a risk adjustment 

covered plan or a reinsurance-eligible 

plan, or approximately 22.5 hours at a 

cost of approximately $1,209 for each 

contributing entity. Similarly, because 

we have not finalized the audit 

protocols, it is difficult to accurately 

estimate an audit rate. However, we 

estimate that approximately 1 percent of 

contributing entities would be audited, 

representing 226 contributing entities. 

Therefore, we estimate an aggregate 

burden of 5,085 hours, or $273,319, as 

a result of this proposed requirement. 

We will revise the information 

collection currently approved under 

OMB Control Number 0938–1155 with 

an October 31, 2015 expiration date to 

account for this additional burden. 

C. ICRs Regarding Potential 

Adjustments for Transitional Plans 

(§ 153.500–§ 153.540) 

For the 2014 benefit year, we are 

considering adjustments to the premium 

stabilization programs that would help 

to further mitigate any unexpected 

losses for QHP issuers with plans that 

are affected by the transitional policy. 

To effectuate potential adjustments, we 

must estimate the State-specific effect 

on average claims costs. We therefore 


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propose to require all issuers 

participating in the individual and 

small group markets in a State to submit 

to HHS a member-month enrollment 

count for transitional plans and nontransitional plans in the individual and 

small group markets. This submission 

would occur in 2015 prior to the risk 

corridors July 31, 2015 data submission 

deadline. HHS would analyze that 

enrollment data, and publish the Statespecific adjustments that issuers would 

use in the risk corridors calculations for 

the 2014 benefit year. To reduce the 

burden on issuers, we are considering 

coordinating this data collection with 

other data collections for the premium 

stabilization programs. We request 

comment on data collection methods 

and the potential effect on issuers’ 

administrative costs. 

We estimate that there will be 

approximately 2,400 issuers in the 

individual and small group market in 

the 2014 benefit year, and that it would 

take an insurance analyst approximately 

30 minutes (at an hourly wage rate of 

$38.49) to estimate enrollment in 

transitional plans and non-transitional 

plans and submit this information to 

HHS. Therefore, we estimate a cost of 

approximately $19.25 for each issuer, 

and an aggregate cost of $46,200 for all 

individual and small group market 

issuers (though this cost may be lower 

depending upon the data collection 

method we adopt). Because we 

anticipate collecting this information in 

2015, and because we expect to issue 

additional clarifying guidance on this 

proposed policy, will seek OMB 

approval and solicit public comment on 

this information collection requirement 

at a future date. 

D. ICRs Regarding Risk Corridors Data 

Validation (§ 153.530 and § 153.540) 

For the 2014 benefit year, we propose 

to collect risk corridors data by using 

the same form as is used for MLR data 

collection, at the same time (July 31st of 

the year following the applicable benefit 

year). We intend to modify the MLR 

collection form for benefit year 2015, 

approved under OMB control number 

0938–1164, to add reporting elements 

(for example, QHP-specific premium 

amounts) that are required under the 

risk corridors data submission 

requirements under § 153.530. We 

intend to include these data elements in 

an amendment to the information 

collection approved under OMB control 

number 0938–1164 for MLR data 

submission that we will publish for 

public comment and advance for OMB 

approval in the future. 

Because the MLR program and the 

risk corridors program will require 

similar data, we estimate that 

submitting the data elements required 

for the risk corridors program will 

impose limited additional burden on 

issuers. We estimate that it will take 

each QHP issuer approximately 1.5 

hours, representing 1 hour for an 

insurance analyst (at an hourly wage 

rate of $38.49) and 30 minutes for a 

senior manager (at an hourly wage rate 

of $77), to input and review data that is 

specific to the risk corridors program in 

the MLR and risk corridors reporting 

form for benefit year 2015. We estimate 

that 1,200 QHP issuers will submit risk 

corridors data for the 2014 benefit year 

in the 2015 risk corridors and MLR 

reporting cycle. Therefore, we estimate 

an aggregate burden of 1,800 hours (at 

a total cost of approximately $92,394) 

for QHP issuers as a result of this 

requirement. We will revise the 

information collection currently 

approved OMB Control Number 0938– 

1155 with an October 31, 2015 

expiration date to account for this 

additional burden. 

In § 153.540(b), we propose that HHS 

may impose CMPs on QHP issuers on a 

State Exchange that do not comply with 

the risk corridors requirements in 

Subpart F. We note that we would 

impose any CMP in accordance with the 

procedures set forth in 45 CFR156.805. 

Although the processes set forth in 

§ 156.805 would result in information 

collection requirements that are subject 

to PRA, we expect to impose CMPs on 

fewer than 10 entities in a year. 

Therefore, we believe that this 

collection is exempt from the PRA 

under 44 U.S.C. 3502(3)(A)(i). 

E. ICRs Regarding Data Validation 

Requirements When HHS Operates Risk 

Adjustment (§ 153.630) 

In § 153.630(b)(1), we propose that an 

issuer of a risk adjustment covered plan 

must engage one or more independent 

auditors to perform an initial validation 

audit of a sample of its risk adjustment 

data selected by HHS. This provision 

also proposes that the issuer provide 

HHS with the identity of the initial 

validation auditor, and attest to the 

absence of conflicts of interest between 

the initial validation auditor (or the 

members of its audit team, owners, 

directors, officers, or employees) and 

the issuer (or its owners, directors, 

officers, or employees), in a timeframe 

and manner to be specified by HHS. We 

previously estimated the cost to issuers 

to conduct an initial validation audit in 

the 2014 Payment Notice and the 

associated information collection 

request approved under OMB Control 

Number 0938–1155 with an October 1, 

2015 expiration date. Therefore, the 

burden associated with this reporting 

requirement is the time and effort 

necessary to report the auditor’s identity 

to HHS. We estimate it will take an 

insurance operations analyst (at an 

hourly wage rate of $38.49) and a senior 

manager (at an hourly wage rate of $77) 

each approximately 15 minutes to 

prepare and send an electronic report to 

HHS. Therefore, for 2,400 risk 

adjustment covered issuers, the 

aggregate burden associated with this 

requirement is 1,200 hours, at an 

approximate cost of $69,300. 

In § 153.630(b)(8), we propose that the 

initial validation auditor measure and 

report to the issuer and HHS, in a 

manner and timeframe specified by 

HHS, the inter-rater reliability rates 

among its reviewers. Also in this 

provision, we propose that the initial 

validation auditor to achieve a 

minimum consistency measure of 95 

percent for demographic, enrollment, 

and health status review outcomes. We 

believe establishing standards for interrater reliability among reviewers is 

standard practice in the industry and 

will not result in extra cost for the 

initial validation auditor. Therefore, the 

burden associated with this reporting 

requirement is the time and effort for 

the initial validation auditor to report 

the inter-rater reliability rate to the 

issuer and to HHS. We estimate it will 

take an insurance operations analyst (at 

an hourly wage rate of $38.49) and a 

senior manager (at an hourly wage rate 

of $77) each approximately 15 minutes 

to report the inter-rater reliability rate to 

the issuer and to HHS. Therefore, 

assuming that 2,400 issuers of risk 

adjustment covered plans each engage 

one independent auditor to perform the 

initial validation audit, the aggregate 

burden associated with this requirement 

is 1,200 hours, at an approximate cost 

of $69,300. We will revise the 

information collection currently 

approved under OMB Control Number 

0938–1155 with an October 31, 2015 

expiration date to account for this 

additional burden. 

F. ICRs Regarding Quarterly Data 

Submissions (§ 153.700(a)) 

Section 153.700 provides that issuers 

of a risk adjustment covered plan or a 

reinsurance-eligible plan must establish 

a dedicated distributed data 

environment and provide data access to 

HHS, in a manner and timeframe 

specified by HHS, for any HHS-operated 

risk adjustment and reinsurance 

program. In this proposed rule, we 

clarify this timeframe, proposing that an 

issuer must make good faith efforts to 

make complete, current enrollment and 

claims files accessible through its 


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dedicated distributed data environments 

no less frequently than quarterly, once 

the issuer’s dedicated distributed data 

environment is established. 

Based on HHS’s most recent estimate 

of fully insured issuers in the individual 

and small group markets, we estimate 

that 2,400 issuers will be subject to the 

requirement to establish a dedicated 

data environment to either receive 

reinsurance payments or make risk 

adjustment transfers. Although we are 

clarifying in this proposed rule that 

issuers must make this data available to 

HHS on a quarterly basis, the aggregate 

burden associated with this requirement 

is already accounted for under the 

Premium Stabilization Rule Supporting 

Statement that is approved under OMB 

control number 0938–1155 with an 

October 31, 2015 expiration date. We 

will revise that supporting statement to 

specify that issuers must comply with 

this information collection requirement 

on a quarterly basis. 

G. ICRs Related to Confirmation of 

Dedicated Distributed Data 

Environment Reports (§ 153.700(d) and 

(e)) 

We propose in § 153.710(d) that 

within 30 calendar days of the date of 

an interim dedicated distributed data 

environment report from HHS, an issuer 

of a reinsurance-eligible or risk 

adjustment covered plan must either 

confirm to HHS that the information in 

the interim reports for the risk 

adjustment and reinsurance programs 

accurately reflect the data to which the 

issuer has provided access to HHS 

through its dedicated distributed data 

environment in accordance with 

§ 153.700(a) for the timeframe specified 

in the report, or describe to HHS any 

inaccuracy it identifies in the interim 

report. Similar to the interim report 

process, we propose in § 153.710(e) that 

the issuer either confirm to HHS that the 

information in the final dedicated 

distributed data environment report 

accurately reflects the data to which the 

issuer has provided access to HHS 

through its dedicated distributed data 

environment in accordance with 

§ 153.700(a) for the benefit year 

specified in the report, or describe to 

HHS any inaccuracy it identifies in the 

final dedicated distributed data 

environment report within 15 calendar 

days of the date of the report. 

We estimate that 2,400 issuers of risk 

adjustment covered plans and 

reinsurance-eligible plans will be 

subject to this requirement, and that 

issuers will compare enrollee condition 

codes with risk scores and analyze 

claims costs to confirm information in 

the interim and final dedicated 

distributed data environment reports. 

On average, we estimate that it will take 

an insurance operations analyst (at an 

hourly wage rate of $38.49) 

approximately 2 hours to respond to an 

interim report and 6 hours to respond to 

the final dedicated distributed data 

environment report. Therefore, we 

estimate an aggregate burden of 19,200 

hours and $739,008 for 2,400 issuers as 

a result of this requirement. We will 

revise the information collection 

currently approved under OMB Control 

Number 0938–1155 with an October 31, 

2015 expiration date to account for this 

additional burden. 

H. ICRs Regarding Privacy and Security 

of Personally Identifiable Information 

(§ 155.260(a)) 

In § 155.260(a), we propose that an 

Exchange may submit to the Secretary a 

proposed use or disclosure of eligibility 

and enrollment PII. The Exchange 

submitting such a request must provide 

a detailed description of the use or 

disclosure and how the proposed use or 

disclosure will ensure the efficient 

operation of the Exchanges consistent 

with section 1411(g)(2)(A) of the 

Affordable Care Act. The requesting 

Exchange must also describe how the 

information to be used or disclosed will 

be protected in compliance with the 

privacy and security standards 

established by the Exchange. We 

estimate fewer than 10 states will 

submit such proposals on a yearly basis. 

While this reporting requirement is 

subject to the PRA, we believe the 

associated burden is exempt under 5 

CFR 1320.3(c)(4) and 44 U.S.C. 

3502(3)(A)(i), since fewer than 10 

entities would be affected. Therefore, 

we are not seeking approval from OMB 

for these information collection 

requirements. We seek comment on this 

estimate from states that are 

contemplating any uses of eligibility 

and enrollment PII for which they 

would submit such a proposal. 

I. ICRs Regarding Quality Standards: 

Establishment of Patient Safety 

Standards for QHP Issuers (§ 156.1110) 

In § 156.1110, we describe the 

information collection, recordkeeping, 

and disclosure requirements that a QHP 

issuer must meet to demonstrate 

compliance with these proposed patient 

safety standards. The burden estimate 

associated with these standards 

includes the time and effort required for 

QHPs to maintain and submit hospital 

CMS Certification Numbers and any 

other information to the Exchange that 

demonstrates that each of its contracted 

hospitals with greater than 50 beds 

meets the patient safety standards 

required in § 156.1110(a). In the near 

future, HHS intends to publish a rule 

proposing more specific quality 

standards for Exchanges and QHPs and 

will solicit public comment. At that 

time and per requirements outlined in 

the PRA, we intend to estimate the 

burden on QHPs to comply with the 

patient safety provisions of § 156.1110. 

Until that time, we are soliciting 

comments on the burden for QHPs to 

maintain and submit such 

documentation to demonstrate meeting 

the patient safety standards proposed 

here. 

J. ICRs Regarding Administrative 

Appeals (§ 156.1220) 

In § 156.1220, we propose an 

administrative appeals process to 

address unresolved discrepancies for 

advance payment of the premium tax 

credit, advance payment and 

reconciliation of cost-sharing 

reductions, FFE user fees, and the 

premium stabilization programs, as well 

as any assessment of a default risk 

adjustment charge under § 153.740(b). 

In § 156.1220(a), we propose that an 

issuer may file a request for 

reconsideration to contest a processing 

error by HHS, HHS’s incorrect 

application of the relevant methodology, 

or HHS’s mathematical error for the 

amount of: (1) Advance payment of the 

premium tax credit, advance payment of 

cost-sharing reductions or Federallyfacilitated user fees charge for a 

particular month; (2) risk adjustment 

payments or charges for a benefit year, 

including an assessment of risk 

adjustment user fees; (3) reinsurance 

payments for a benefit year; (4) a risk 

adjustment default charge for a benefit 

year; (5) a reconciliation payment or 

charge for cost-sharing reductions for a 

benefit year; or (6) risk corridors 

payments or charges for a benefit year. 

While the hours involved in a request 

for reconsideration may vary, for the 

purpose of this burden estimate we 

estimate that it will take an insurance 

operations analyst 1 hour (at an hourly 

wage rate of $38.49) to make the 

comparison and submit a request for 

reconsideration to HHS. We estimate 

that 24 issuers, representing 

approximately 1 percent of all issuers 

that may be eligible for reinsurance 

payments, risk adjustment payments or 

charges (including any assessment of 

risk adjustment user fees or a default 

risk adjustment charge), advance 

payment and reconciliation of costsharing reductions, advance payment of 

the premium tax credit, and FFE user 

fees, will submit a request for 

reconsideration, resulting in a total 

aggregate burden of approximately $924. 


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We will revise the information 

collection currently approved OMB 

Control Number 0938–1155 with an 

October 31, 2015 expiration date to 

account for this additional burden. 

In § 156.1220(b), we propose that an 

issuer that is dissatisfied with the 

reconsideration decision regarding: (1) 

Risk adjustment payments and charges, 

including an assessment of risk 

adjustment user fees; (2) reinsurance 

payments; (3) default risk adjustment 

charge; (4) reconciled cost-sharing 

reduction amounts; or (5) risk corridors 

payments or charges, provided under 

paragraph (a) of § 156.1220, is entitled 

to an informal hearing before a CMS 

hearing officer, if a request is made in 

writing within 15 calendar days of the 

date the issuer receives the 

reconsideration decision. Further 

review is available from the 

Administrator of CMS. However, we 

believe these processes will occur 

extremely infrequently. Since 

collections from fewer than 10 entities 

are exempt from the PRA under 44 

U.S.C. 3502(3)(A)(i), we are not seeking 

PRA approval for this information 

collection requirement. 

TABLE 7—ANNUAL REPORTING, RECORDKEEPING AND DISCLOSURE BURDEN

Regulation 

Section(s) 

Number of 

respondents Responses 

Burden per 

response 

(hours) 

Total annual 

burden 

(hours) 

Hourly labor 

cost of 

reporting 

($) 

Total labor 

cost of 

reporting 

($) 

Total 

capital/ 

maintenance 

costs 

($) 

Total cost 

($) 

§ 153.405 ........ 226 226 22.50 5,085 53.75 273,319 0 273,319 

§ 153.410; 

§ 153.620 .... 120 120 90.00 10,800 53.75 580,500 0 580,500 

§ 153.500– 

§ 153.540– .. 2,400 2,400 0.50 1,200 38.49 46,200 ...................... 46,200 

§ 153.540 ........ 1,200 1,200 1.50 1,200 51.33 92,394 0 92,394 

§ 153.630(b)(1) 2,400 2,400 0.50 1,200 57.75 69,300 0 69,300 

§ 153.630(b)(8) 2,400 2,400 0.50 1,200 57.75 69,300 0 69,300 

(§ 153.700(d) 

and (e)) ....... 2,400 2,400 8.00 19,200 38.49 739,008 0 739,008 

§ 156.1220 ...... 24 24 1.00 24 38.49 924 0 924 

Total ........ a 3,970 ...................... ...................... ...................... ...................... 1,870,945 0 1,870,945 

a ICRs associated with § 153.500, § 153.630(b)(1), § 153.630(b)(8) and § 153.700(d) and (e) apply to the same respondents, so the total number of unique respondents is 3,970. 

We have submitted an information 

collection request to OMB for review 

and approval of the ICRs contained in 

this proposed rule. The requirements 

are not effective until approved by OMB 

and assigned a valid OMB control 

number. 

To obtain copies of the supporting 

statement and any related forms for the 

paperwork collections referenced above, 

access CMS’s Web site at http://

www.cms.gov/Regulations-andGuidance/Legislation/

PaperworkReductionActof1995/PRAListing.html or email your request, 

including your address, phone number, 

OMB number, and CMS document 

identifier, to Paperwork@cms.hhs.gov, 

or call the Reports Clearance Office at 

410–786–1326. 

If you comment on these information 

collection requirements, please do 

either of the following: 

1. Submit your comments 

electronically as specified in the 

ADDRESSES section of this proposed rule; 

or 

2. Submit your comments to the 

Office of Information and Regulatory 

Affairs, Office of Management and 

Budget, Attention: CMS Desk Officer, 

CMS–9972–F. Fax: (202) 395–5806; or 

Email: OIRA_submission@omb.eop.gov. 

V. Response to Comments 

Because of the large number of public 

comments we normally receive on 

Federal Register documents, we are not 

able to acknowledge or respond to them 

individually. We will consider all 

comments we receive by the date and 

time specified in the DATES section of 

this preamble, and, when we proceed 

with a subsequent document, we will 

respond to the comments in the 

preamble to that document. 

VI. Regulatory Impact Statement (or 

Analysis) 

A. Statement of Need 

This proposed rule proposes 

standards related to the premium 

stabilization programs (risk adjustment, 

reinsurance, and risk corridors) that will 

protect issuers from the potential effects 

of adverse selection and protect 

consumers from increases in premiums 

due to issuer uncertainty. The Premium 

Stabilization Rule and 2014 Payment 

Notice provided detail on the 

implementation of these programs, 

including the specific parameters 

applicable to these programs. This 

proposed rule also proposes additional 

standards with respect to composite 

rating, privacy and security of 

personally identifiable information, the 

open enrollment period for 2015, the 

actuarial value calculator, the annual 

limitation on cost sharing for standalone dental plans, the meaningful 

difference standard for qualified health 

plans offered through a Federallyfacilitated Exchange, patient safety 

standards for issuers of qualified health 

plans, the Small Business Health 

Options Program, cost sharing 

parameters, cost-sharing reductions, and 

FFE user fees. 

B. Overall Impact 

We have examined the impacts of this 

rule as required by Executive Order 

12866 on Regulatory Planning and 

Review (September 30, 1993), Executive 

Order 13563 on Improving Regulation 

and Regulatory Review (January 18, 

2011), the Regulatory Flexibility Act 

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

354), section 202 of the Unfunded 

Mandates Reform Act of 1995 (March 

22, 1995, Pub. L. 104–4), Executive 

Order 13132 on Federalism (August 4, 

1999), and the Congressional Review 

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

Executive Orders 12866 and 13563 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 


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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. A 

regulatory impact analysis (RIA) must 

be prepared for rules with economically 

significant effects ($100 million or more 

in any 1 year). 

OMB has determined that this 

proposed rule is ‘‘economically 

significant’’ within the meaning of 

section 3(f)(1) of Executive Order 12866, 

because it is likely to have an annual 

effect of $100 million in any 1 year. 

Accordingly, we have prepared a RIA 

that presents the costs and benefits of 

this proposed rule. 

Although it is difficult to discuss the 

wide-ranging effects of these provisions 

in isolation, the overarching goal of the 

premium stabilization and Exchangerelated provisions and policies in the 

Affordable Care Act is to make 

affordable health insurance available to 

individuals who do not have access to 

affordable employer-sponsored 

coverage. The provisions within this 

proposed rule are integral to the goal of 

expanding coverage. For example, the 

premium stabilization programs 

decrease the risk of financial loss that 

health insurance issuers might 

otherwise expect in 2015 and the 

advance payments of the premium tax 

credit and cost-sharing reduction 

programs assist low- and moderateincome consumers and Indians in 

purchasing health insurance. The 

combined impacts of these provisions 

affect the private sector, issuers, and 

consumers, through increased access to 

health care services including 

preventive services, decreased 

uncompensated care, lower premiums, 

establishment of patient safety 

standards, and increased plan 

transparency. Through the reduction in 

financial uncertainty for issuers and 

increased affordability for consumers, 

these provisions are expected to 

increase access to health coverage. 

In this RIA, we discuss the 

requirements in this proposed rule 

related to cost sharing and FFE user 

fees, as well as new oversight provisions 

for the premium stabilization programs. 

C. Impact Estimates of the Payment 

Notice Provisions and Accounting Table 

In accordance with OMB Circular A– 

4, Table 8 below depicts an accounting 

statement summarizing HHS’s 

assessment of the benefits, costs, and 

transfers associated with this regulatory 

action. 

This proposed rule implements 

standards for programs that will have 

numerous effects, including providing 

consumers with affordable health 

insurance coverage, reducing the impact 

of adverse selection, and stabilizing 

premiums in the individual and small 

group health insurance markets and in 

an Exchange. We are unable to quantify 

certain benefits of this proposed rule— 

such as increased patient safety and 

improved health and longevity due to 

increased insurance enrollment—and 

certain costs—such as the cost of 

providing additional medical services to 

newly-enrolled individuals. The effects 

in Table 8 reflect qualitative impacts 

and estimated direct monetary costs and 

transfers resulting from the provisions 

of this proposed rule for contributing 

entities, States, Exchanges, and health 

insurance issuers. The annualized 

monetized costs described in Table 8 

reflect direct administrative costs 

(including costs associated with labor, 

capital, overhead, and fringe benefits) to 

States and health insurance issuers as a 

result of the proposed provisions, and 

include administrative costs estimated 

in the Collection of Information section 

of this proposed rule. We note estimated 

transfers in Table 8 do not reflect any 

user fees paid by insurance issuers for 

FFEs because we cannot estimate those 

fee totals. We also note that, while we 

are proposing a 2015 reinsurance 

contribution rate that is lower than the 

2014 reinsurance contribution rate, total 

reinsurance administrative expenses, 

including the reinsurance contribution 

rate, will increase from 2014 to 2015. 

TABLE 8—ACCOUNTING TABLE

Benefits: 

Qualitative: 

*Increased enrollment in the individual market leading to improved access to health care for the previously uninsured, especially individuals 

with medical conditions, which will result in improved health and protection from the risk of catastrophic medical expenditures. 

*A common marketing standard covering the entire insurance market, reducing adverse selection and increasing competition. 

*Robust oversight of programs that use Federal funds to ensure proper use of taxpayer dollars. 

*Access to higher quality health care through the establishment of patient safety standards 

*Increasing coverage options for small employers and part-time employees while mitigating the effect of adverse selection. 

Costs: Estimate 

(in millions) 

Year 

dollar 

Discount 

rate 

(percent) 

Period 

covered 

Annualized Monetized ($/year) 1.75 2013 7 2014–2017 

1.82 2013 3 2014–2017 

Qualitative: 

*Costs incurred by issuers and contributing entities to comply with provisions in the proposed rule. 

*Costs incurred by States for complying with audits of State-operated reinsurance programs. 

Transfers: Estimate 

(in millions) 

Year 

dollar 

Discount 

rate 

(percent) 

Period 

covered 

Annualized Monetized ($/year) 11.59 2013 7 2014–2017 

12.04 2013 3 2014–2017 


sroberts on DSK5SPTVN1PROD with PROPOSALS
72378 Federal Register / Vol. 78, No. 231 / Monday, December 2, 2013 / Proposed Rules 

37 ‘‘Updated Estimates for the Insurance Coverage 

Provisions of the Affordable Care Act,’’ 

Congressional Budget Office, May 2013. 

TABLE 8—ACCOUNTING TABLE—Continued 

*Transfers reflect incremental cost increases from 2014–2015 for reinsurance administrative expenses and the risk adjustment user fee, 

which are transfers from contributing entities and health insurance issuers to the Federal government. 

*Unquantified: Lower premium rates in the individual market due to the improved risk profile of the insured, competition, and pooling. 

This RIA expands upon the impact 

analyses of previous rules and utilizes 

the Congressional Budget Office’s (CBO) 

analysis of the Affordable Care Act’s 

impact on Federal spending, revenue 

collection, and insurance enrollment. 

The CBO’s estimates remain the most 

comprehensive for provisions pertaining 

to the Affordable Care Act, and include 

Federal budget impact estimates for 

provisions that HHS has not 

independently estimated. The CBO’s 

May 2013 baseline projections estimated 

that 22 million enrollees will enroll in 

Exchange coverage by 2016, including 

approximately 18 million Exchange 

enrollees who will be receiving 

subsidies.37 Participation rates among 

potential enrollees are expected to be 

lower in the first few years of Exchange 

availability as employers and 

individuals adjust to the features of the 

Exchanges. Table 9 summarizes the 

effects of the risk adjustment and 

reinsurance programs on the Federal 

budget from fiscal years 2014 through 

2017, with the additional, societal 

effects of this proposed rule discussed 

in this RIA. We do not expect the 

provisions of this proposed rule to 

significantly alter CBO’s estimates of the 

budget impact of the risk adjustment 

and reinsurance programs that are 

described in Table 9. For this RIA, we 

are shifting the estimates for the risk 

adjustment and reinsurance programs to 

reflect the 4-year period from fiscal 

years 2014 through 2017, because CBO’s 

scoring of the risk adjustment and 

reinsurance programs assumed that 

payments and charges would begin in 

2014, when in fact these payments and 

charges will begin in 2015. CBO did not 

separately estimate the program costs of 

risk corridors, but assumed aggregate 

collections from some issuers would 

offset payments made to other issuers. 

We note that transfers associated with 

the risk adjustment and reinsurance 

programs were previously estimated in 

the Premium Stabilization Rule; 

therefore, to avoid double-counting, we 

do not include them in the accounting 

statement for this proposed rule (Table 

8). 

In addition to utilizing CBO 

projections, HHS conducted an internal 

analysis of the effects of its regulations 

on enrollment and premiums. Based on 

these internal analyses, we anticipate 

that the quantitative effects of the 

provisions proposed in this rule are 

consistent with our previous estimates 

in the 2014 Payment Notice for the 

impacts associated with the cost-sharing 

reduction program, the advance 

payments of the premium tax credit 

program, the premium stabilization 

programs, and FFE user fee 

requirements for health insurance 

issuers. 

TABLE 9—ESTIMATED FEDERAL GOVERNMENT OUTLAYS AND RECEIPTS FOR THE RISK ADJUSTMENT AND REINSURANCE

PROGRAMS FROM FY 2013–2017, IN BILLIONS OF DOLLARS

Year 2013 2014 2015 2016 2017 2013– 

2017 

Risk Adjustment and Reinsurance Program Payments .......................... — 6 17 18 20 61 

Risk Adjustment and Reinsurance Program Collections * ....................... — 13 16 18 18 65 

* Risk adjustment program payments and receipts lag by one quarter. Receipt will fully offset payments over time. Source: Congressional 

Budget Office. 2012. Letter to Hon. John Boehner. July 24, 2012. 

Risk Adjustment 

The risk adjustment program is a 

permanent program created by the 

Affordable Care Act that transfers funds 

from lower risk, non-grandfathered 

plans to higher risk, non-grandfathered 

plans in the individual and small group 

markets, inside and outside the 

Exchanges. In subparts D and G of the 

Premium Stabilization Rule and the 

2014 Payment Notice, we established 

standards for the administration of the 

risk adjustment program. 

A State approved or conditionally 

approved by the Secretary to operate an 

Exchange may establish a risk 

adjustment program, or have HHS do so 

on its behalf. As described in the 2014 

Payment Notice, if HHS operates risk 

adjustment on behalf of a State, it will 

fund its risk adjustment program 

operations by assessing a risk 

adjustment user fee on issuers of risk 

adjustment covered plans. For the 2015 

benefit year, we estimate that the total 

cost for HHS to operate the risk 

adjustment program on behalf of States 

for 2015 will be approximately $27.3 

million, and that the per capita risk 

adjustment user fee would be less than 

$1.00 per year for HHS to operate the 

risk adjustment program on behalf of 

States for 2015. 

In this proposed rule, we propose in 

§ 153.620(c) that HHS or its designee 

may audit an issuer of a risk adjustment 

covered plan, when HHS operates risk 

adjustment on behalf of a State, to assess 

the issuer’s compliance with the 

requirements of subparts G and H of 45 

CFR part 153. As discussed above, HHS 

intends to fund risk adjustment 

operations (not including Federal 

personnel costs), including risk 

adjustment program integrity and audit 

functions, by collecting a per capita user 

fee from issuers of risk adjustment 

covered plans. Therefore, we believe 

that the costs to the Federal government 

associated with the risk adjustment 

audit activities in this proposed rule 

would be covered through the risk 

adjustment user fee, and that there 

would be no impact for the Federal 

government as a result of the proposed 

audit provisions. The proposed audit 

provision would result in additional 

costs for issuers of risk adjustment 

covered plans related to gathering 

information and preparing for an audit. 

We discuss the administrative costs 

associated with this proposed 

requirement for issuers in the Collection 

of Information section of this proposed 

rule. 


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Federal Register / Vol. 78, No. 231 / Monday, December 2, 2013 / Proposed Rules 72379 

Although this proposed rule would 

result in some additional administrative 

burden for issuers of risk adjustment 

covered plans as a result of the 

proposed requirements for risk 

adjustment data validation and 

submission of discrepancy reports in 

response to interim and final dedicated 

distributed data environment reports, 

we note that much of the impact 

associated with establishing a dedicated 

distributed data environment and a risk 

adjustment data validation process has 

previously been estimated in the 

Premium Stabilization Rule and the 

2014 Payment Notice. We do not believe 

that provisions contained within this 

proposed rule substantially alter the 

previous estimates. We describe these 

administrative costs in the Collection of 

Information Requirements section of 

this proposed rule. 

Reinsurance 

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 from 2014 through 

2016. In the 2014 Payment Notice, we 

expanded upon the standards set forth 

in subparts C and E of the Premium 

Stabilization Rule and established the 

2014 uniform reinsurance payment 

parameters and national contribution 

rate. In this proposed rule, we set forth 

the 2015 uniform reinsurance payment 

parameters and contribution rate, and 

oversight provisions related to the 

operation of the reinsurance program. 

Section 153.220(c) provides that HHS 

will publish the uniform per capita 

reinsurance contribution rate for the 

upcoming benefit year in the annual 

HHS notice of benefit and payment 

parameters. Section 1341(b)(3)(B)(iii) of 

the Affordable Care Act specifies that 

$10 billion for reinsurance contributions 

is to be collected from contributing 

entities in 2014 (the reinsurance 

payment pool), $6 billion in 2015, and 

$4 billion in 2016. Additionally, 

sections 1341(b)(3)(B)(iv) and 1341(b)(4) 

of the Affordable Care Act direct that $2 

billion in funds is to be collected for 

contribution to the U.S. Treasury in 

2014, $2 billion in 2015, and $1 billion 

in 2016. Finally, section 

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

Act allows for the collection of 

additional amounts for administrative 

expenses. Taken together, these three 

components make up the total dollar 

amount to be collected from 

contributing entities for each of the 3 

years of the reinsurance program under 

the uniform per capita contribution rate. 

If HHS operates the reinsurance 

program on behalf of a State, HHS 

would retain $0.14 as an annual per 

capita fee to fund HHS’s performance of 

all reinsurance functions. If a State 

establishes its own reinsurance 

program, HHS would transfer $0.07 of 

the per capita administrative fee to the 

State for purposes of administrative 

expenses incurred in making 

reinsurance payments, and retain the 

remaining $0.07 to offset the costs of 

contribution collection. 

To safeguard the use of Federal funds 

in the transitional reinsurance program, 

we propose in § 153.270(a) that HHS or 

its designee may conduct a financial 

and programmatic audit of a Stateoperated reinsurance program to assess 

compliance with the requirements of 

subparts B and C of 45 CFR part 153. As 

discussed above, HHS intends to fund 

reinsurance operations (not including 

Federal personnel costs), including 

program integrity and audit functions, 

by collecting as part of the uniform 

contribution rate, administrative 

expenses associated with operating the 

reinsurance program from all 

reinsurance contributing entities. 

Therefore, we believe that the costs to 

the Federal government associated with 

the reinsurance audit activities in this 

proposed rule would be covered 

through the reinsurance contribution 

rate, and that there would be no net 

budget impact for the Federal 

government as a result of the proposed 

audit provisions. Because this proposed 

audit requirement would direct a State 

that establishes a reinsurance program 

to ensure that its applicable reinsurance 

entity and any relevant contractors, 

subcontractors, or agents cooperate with 

an audit, and would direct the State to 

provide to HHS for approval a written 

corrective action plan; implement the 

plan; and provide to HHS written 

documentation of the corrective actions 

once taken, if the audit resulted in a 

finding of material weakness or 

significant deficiency, the proposed 

requirement would impose a cost on 

States operating reinsurance. We believe 

that State-operated reinsurance 

programs would already electronically 

maintain the information necessary for 

an audit as part of their normal business 

practices and as a result of the 

maintenance of records requirement set 

forth in § 153.240(c), no additional time 

or effort will be necessary to develop 

and maintain audit information. We 

estimate that it will take a compliance 

analyst (at an hourly wage rate of 

$53.75) 40 hours to gather the necessary 

information required for an audit, 5 

hours to prepare a corrective action plan 

based on the audit findings and 64 

hours to implement and document the 

corrective actions taken if necessary. We 

also estimate a senior manager (at an 

hourly wage rate of $77) will take 5 

hours to oversee the transmission of 

audit information to HHS and to review 

the corrective action plan prior to 

submission to HHS, and 16 hours to 

oversee implementation of any 

corrective actions taken. Therefore, we 

estimate a total administrative cost of 

approximately $7,476 for each Stateoperated reinsurance program as a result 

of this proposed audit requirement. For 

the two States that will operate 

reinsurance for the 2014 benefit year, 

we estimate an aggregate burden of 

approximately $14,952 as a result of this 

requirement. Although we have 

estimated the cost of a potential audit in 

this RIA, we note that we will not audit 

all State-operated reinsurance programs, 

and may not audit any of these 

programs. 

In § 153.405(i) and § 153.410(d), we 

propose that HHS may audit 

contributing entities and issuers of 

reinsurance-eligible plans to assess 

compliance with reinsurance program 

requirements. We discuss the costs to 

contributing entities and issuers of 

reinsurance-eligible plans as a result of 

this proposed requirement in the 

Collection of Information section of this 

proposed rule. We intend to combine 

issuer audits for the premium 

stabilization programs whenever 

practicable to reduce the financial 

burden of these audits on issuers. 

Consequently, we anticipate that, 

because issuers of reinsurance-eligible 

plans may also be subject to risk 

adjustment requirements, we would 

conduct these audits in a manner that 

avoids overlapping review of 

information that is required for both 

programs. 

Risk Corridors 

The Affordable Care Act creates a 

temporary risk corridors program for the 

years 2014, 2015, and 2016 that applies 

to QHPs, as defined in § 153.500. The 

risk corridors program creates a 

mechanism for sharing risk for 

allowable costs between the Federal 

government and QHP issuers. The 

Affordable Care Act establishes the risk 

corridors program as a Federal program; 

consequently, HHS will operate the risk 

corridors program under Federal rules 

with no State variation. The risk 

corridors program will help protect 

against inaccurate rate setting in the 

early years of the Exchanges by limiting 

the extent of issuer losses and gains. 

As mentioned elsewhere in this 

proposed rule, for the 2014 benefit year, 

we are proposing an adjustment to the 

risk corridors formula that would help 


sroberts on DSK5SPTVN1PROD with PROPOSALS
72380 Federal Register / Vol. 78, No. 231 / Monday, December 2, 2013 / Proposed Rules 

38Brook, Robert H., John E. Ware, William H. 

Rogers, Emmett B. Keeler, Allyson Ross Davies, 

Cathy D. Sherbourne, George A. Goldberg, Kathleen 

N. Lohr, Patricia Camp and Joseph P. Newhouse. 

The Effect of Coinsurance on the Health of Adults: 

Results from the RAND Health Insurance 

Experiment. Santa Monica, CA: RAND Corporation, 

1984. Available at: http://www.rand.org/pubs/

reports/R3055. 

to further mitigate potential QHP 

issuers’ unexpected losses that are 

attributable to the effects of the 

transition policy. This proposed 

adjustment may increase the total 

amount of risk corridors payments that 

the Federal government will make to 

QHP issuers, and reduce the amount of 

risk corridors receipts; however, we are 

considering a number of approaches 

that would limit the impact of the 

policy on the Federal budget. Because of 

the difficulty associated with predicting 

State enforcement of 2014 market rules 

and estimating the enrollment in 

transitional plans and in QHPs, we 

cannot estimate the magnitude of this 

impact on aggregate risk corridors 

payments and charges at this time. We 

also estimate that this proposed 

adjustment would result in direct 

administrative costs for individual and 

small group market issuers that are 

discussed in the Collection of 

Information section of this proposed 

rule. 

To ensure the integrity of risk 

corridors data reporting, we propose in 

§ 153.540(a) to establish HHS authority 

to conduct post-payment audits of QHP 

issuers. We are contemplating several 

ways to reduce issuer burden, such as 

conducting the risk corridors audits 

using the existing MLR audit process or 

conducting risk corridors audits under 

an overall issuer audit program. 

Therefore, as described in the Collection 

of Information section of this proposed 

rule, we believe that the cost for issuers 

that would result from this proposed 

audit requirement is already accounted 

for as part of the MLR audit process. 

We also propose in § 153.540(c) to 

extend our CMP authority under 

sections 1321(a)(1) and (c)(2) of the 

Affordable Care Act to all QHP issuers 

that fail to provide timely, accurate, and 

complete data necessary for risk 

corridors calculations, or that otherwise 

do not comply with the standards in 

subpart F of 45 CFR part 153. We 

propose to assess CMPs on QHP issuers 

in State Exchanges in accordance with 

the same enforcement and sanction 

procedures that apply to QHP issuers on 

an FFE under § 156.805. 

As set forth in § 156.805(c), HHS will 

impose a maximum penalty amount of 

$100 per day on a QHP issuer for each 

violation, for each individual adversely 

affected by the non-compliance. As 

noted in the preamble to § 153.540 in 

this proposed rule, for violations of 

subpart F where the number of 

individuals adversely affected by the 

non-compliance cannot be determined, 

we propose giving HHS the authority to 

estimate the number of individuals 

likely to be adversely affected by the 

non-compliance. We note that CMPs 

will be imposed only for serious issues 

of non-compliance. We expect to 

provide technical assistance to issuers, 

as appropriate, to assist them in 

maintaining compliance with the 

applicable standards. We also plan to 

coordinate with States and the MLR 

program in our oversight and 

enforcement activities to avoid 

inappropriately duplicating 

enforcement efforts. Consequently, we 

anticipate that CMPs will be rare, and 

that the impact of this proposed 

requirement on QHP issuers will be 

negligible. 

Provisions Related to Cost Sharing 

The Affordable Care Act provides for 

the reduction or elimination of cost 

sharing for certain eligible individuals 

enrolled in QHPs offered through the 

Exchanges. This assistance will help 

many low- and moderate-income 

individuals and families obtain health 

insurance—for many people, cost 

sharing is a barrier to obtaining needed 

health care.38

To support the administration of the 

cost-sharing reduction program, we set 

forth in this proposed rule the 

reductions in the maximum annual 

limitation on cost sharing for silver plan 

variations and a modified methodology 

for calculating advance payments for 

cost-sharing reductions. For benefit year 

2015, we propose to require the same 

reductions in the maximum annual 

limitation on cost sharing as were 

finalized for benefit year 2014. We note 

that we are proposing certain 

modifications to the methodology for 

calculating advance payments for costsharing reductions, but we do not 

believe these changes will result in a 

significant economic impact. Therefore, 

we do not believe the provisions related 

to cost-sharing reductions in this 

proposed rule will have an impact on 

the program established by and 

described in the 2014 Payment Notice. 

We also proposed a methodology for 

estimating average per capita premium, 

and proposed the premium adjustment 

percentage for the 2015 benefit year. 

Section 156.130(e) provides that the 

premium adjustment percentage is the 

percentage (if any) by which the average 

per capita premium for health insurance 

coverage for the preceding calendar year 

exceeds such average per capita 

premium for health insurance for 2013, 

and that this percentage will be 

published annually in the HHS notice of 

benefit and payment parameters. The 

annual premium adjustment percentage 

that is issued sets the rate of increase for 

four parameters detailed in the 

Affordable Care Act: the annual 

limitation on cost sharing (defined at 

§ 156.130(a)), the annual limitation on 

deductibles for plans in the small group 

(defined at § 156.130(b)), and the section 

4980H(a) and section 4980H(b) 

assessable payment amounts (proposed 

at 26 CFR 54.4980H in the ‘‘Shared 

Responsibility for Employers Regarding 

Health Coverage,’’ published in the 

Federal Register January 2, 2013 (78 FR 

218)). We believe that the proposed 

premium adjustment percentage is well 

within the parameters used in the 

modeling of the Affordable Care Act, 

and do not expect that these proposed 

provisions will alter CBO’s May 2013 

baseline estimates of the budget impact. 

Annual Open Enrollment Period 

We propose amendments to 

§ 155.410(e) and (f) to amend the dates 

for the annual open enrollment period 

and related coverage effective dates. 

These proposed amendments would 

benefit issuers at no additional cost, as 

Exchanges would delay their QHP 

certification dates by at least one month, 

giving issuers additional time. Because 

open enrollment dates would be moved 

forward, Exchanges would still have the 

same amount of time for the QHP 

certification process, and we do not 

anticipate that this would come at an 

additional cost to Exchanges. 

Consumers would have the benefit of a 

more beneficial open enrollment period, 

without any additional demand placed 

on them. 

Calculation of Plan Actuarial Value 

Issuers may incur minor 

administrative costs associated with 

altering cost-sharing parameters of their 

plan designs to ensure compliance with 

AV requirements when utilizing the AV 

calculator from year-to-year. These 

requirements are established in the EHB 

Rule and are in accordance with the 

proposed provisions in this proposed 

rule. Since issuers have extensive 

experience in offering products with 

various levels of cost sharing and since 

these modifications are expected to be 

relatively minor for most issuers, HHS 

expects that the process for computing 

AV with the AV Calculator will not 

demand many additional resources. 


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39Available at: http://cciio.cms.gov/resources/

files/Files2/03162012/hie3r-ria-032012.pdf 

User Fees 

To support the operation of FFEs, we 

require in § 156.50(c) that a 

participating issuer offering a plan 

through an FFE must remit a user fee to 

HHS each month equal to the product 

of the monthly user fee rate specified in 

the annual HHS notice of benefit and 

payment parameters for the applicable 

benefit year and the monthly premium 

charged by the issuer for each policy 

under the plan where enrollment is 

through an FFE. For the 2015 benefit 

year, we propose a monthly user fee rate 

equal to 3.5 percent of the monthly 

premium. We do not have an aggregate 

estimate of the collections from the user 

fee at this time because we do not yet 

have a count of the number of States in 

which HHS will run an FFE or FF– 

SHOP in 2015. 

SHOP 

The SHOPs facilitate the enrollment 

of eligible employees of small 

employers into small group health 

insurance plans. A qualitative analysis 

of the costs and benefits of establishing 

a SHOP was included in the RIA 

published in conjunction with the 

Exchange Establishment Rule.39 This 

RIA addresses the additional costs and 

benefits of the proposed modifications 

in this proposed rule to the SHOP 

sections of the Exchange Establishment 

Rule. 

In this proposed rule, we propose 

revising paragraph § 155.705(b)(1), 

which lists the rules regarding eligibility 

and enrollment to which the SHOPs 

must adhere, to include mention of 

additional provisions regarding 

termination of coverage in SHOPs and 

SHOP employer and employee 

eligibility appeals that were finalized in 

the first final Program Integrity Rule. We 

propose that an employer in the FF– 

SHOPs would have the option to offer 

its employees either a single SADP or a 

choice of all SADPs available in an FF– 

SHOP for plan years beginning on or 

after January 1, 2015. In 

§ 155.705(b)(11)(ii)(D) we propose 

prohibiting an employer in an FF–SHOP 

from basing its contribution on 

composite rates when employee choice 

becomes available and the employer 

elects to offer its employees all plans in 

a metal tier selected by the employer. 

We also propose amendments to 

§ 155.705(b)(4) that would allow SHOPs 

performing premium aggregation to 

establish a standard method for 

premium calculation, payment, and 

collection. We propose that in the FF– 

SHOPs, after premium aggregation 

becomes available in plan years 

beginning on or after January 1, 2015, 

employers would be required to remit 

premiums to the FF–SHOP in 

accordance with a payment timeline 

and process established by HHS through 

guidance, and that premiums for 

coverage of less than 1 month would be 

prorated by multiplying the number of 

days of coverage in the partial month by 

the premium for 1 month divided by the 

number of days in the month. In 

developing the premium payment 

timeline and process, HHS will consider 

its interest in operating and 

administering the FF–SHOPs efficiently, 

as well as issuers’ interests in ensuring 

timely payment of premiums, and 

issuers’ and employers’ interests in 

establishing a fair and workable 

premium payment process. We believe 

the proposed approach to prorating to 

be the fairest for both consumers and 

issuers because an enrollee will pay for 

the portion of coverage provided for a 

partial month. 

We also propose amendments to 

§ 155.705(b)(11) that would provide 

additional flexibility to an employer’s 

ability to define a percentage 

contribution toward premiums under 

the employer selected reference plan in 

the FF–SHOPs. Although we proposed 

and rejected a similar approach in the 

2014 Payment Notice because we 

concluded it was inconsistent with the 

uniformity provisions established in 

Internal Revenue Service Notice 2010– 

82, which require employers to 

contribute a uniform percentage to 

employee premiums in order to claim a 

small business tax credit, we believe 

small employers are best able to 

determine whether offering different 

contribution levels would be in the best 

interest of the business and its 

employees. We believe that this 

additional flexibility would bring the 

FF–SHOPs more in line with current 

small group market practices and 

provide an additional incentive for 

small employers to participate in the 

FF–SHOPs. Additionally, we believe 

that providing a mechanism that would 

allow different contribution levels based 

on full-time or non-full-time status may 

encourage some employers to offer 

coverage to non-full-time employees. 

In § 155.715, we propose amendments 

that would provide for SHOP eligibility 

adjustment periods for both employers 

and employees only when there is an 

inconsistency between information 

provided by an applicant and 

information collected through optional 

verification methods under 

§ 155.715(c)(2) rather than when an 

employer submits information on the 

SHOP single employer application that 

is inconsistent with the eligibility 

standards described in § 155.710 or 

when the SHOP receives information on 

the employee’s application that is 

inconsistent with the information 

provided by the employer, as current 

paragraph § 155.715(d) provides. We 

also propose to amend paragraph (c)(4) 

to replace a reference to sections 

1411(b)(2) and (c) of the Affordable Care 

Act with a reference to Subpart D of 45 

CFR part 155, and to add a reference to 

eligibility verifications as well as to 

eligibility determinations. The proposed 

changes would prohibit a SHOP from 

performing any individual market 

Exchange eligibility determinations or 

verifications as described in Subpart D, 

which, for example, includes making 

eligibility determinations for advance 

payments of the premium tax credit and 

cost sharing reductions in the 

individual market Exchange. 

In § 155.730 we propose to provide 

that SHOPs are not permitted to collect 

information from applicants, employers, 

or employees in the SHOP if that 

information is not necessary to 

determine SHOP eligibility or effectuate 

enrollment through a SHOP. Limiting 

the information required of an applicant 

helps to protect consumer privacy and 

promote efficiency and streamlining of 

the SHOP application process. 

In § 155.220, we propose for plan 

years beginning on or after January 1, 

2015 to allow SHOPs, in States that 

permit this activity under State law, to 

permit enrollment in a SHOP QHP 

through the Internet Web site of an 

agent or broker under the standards set 

forth in § 155.220(c)(3). Permitting an 

employer to complete QHP selection 

through the Internet Web site of an 

agent or broker is an additional 

potential enrollment channel that would 

provide small employers with another 

avenue to the SHOPs. 

In § 156.285, we propose that when 

premium aggregation becomes available 

in FF–SHOPs for plan years beginning 

on or after January 1, 2015, if an issuer 

does not receive an enrollment 

cancellation transaction from the FF– 

SHOP, it should effectuate coverage 

even if the issuer would not receive an 

employer’s initial premium payment 

from the FF–SHOP prior to the coverage 

effective date. We also propose that a 

qualified employer in the SHOP that 

becomes a large employer would 

continue to be rated as a small employer 

and propose to prohibit issuers from 

composite billing in the FF–SHOPs 

when employee choice becomes 

available and an employer selects a 

level of coverage and not a single plan. 

We do not expect the proposed 

policies related to the SHOP to create 


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any new significant costs for small 

businesses, employees, or the FF– 

SHOPs. 

Patient Safety 

The proposed patient safety 

requirements would be implemented in 

phases, to ensure that QHP issuers 

contract with hospitals that meet 

adequate safety and quality standards in 

their networks. The proposed rule 

would require QHP issuers to collect 

and maintain CCNs for each of its 

contracted hospitals that are certified for 

more than 50 beds. It also would require 

that this documentation, if requested by 

the Exchange, be submitted in a form 

and manner specified by the Exchange. 

QHP issuers would already have 

established procedures and 

relationships to contract with hospitals 

including obtaining hospital 

identification information. Therefore, 

HHS believes that there would not be a 

significant additional cost for a QHP 

issuer to collect and maintain CCNs. 

QHP issuers would incur costs to 

submit this information, if requested, to 

the Exchange. We discuss the burden 

associated with submitting this 

information in the Collection of 

Information section of this proposed 

rule. 

D. Regulatory Alternatives Considered 

We considered a number of 

alternatives to our proposed approach to 

program integrity for the premium 

stabilization programs. For example, 

although we finalized in previous 

rulemaking our framework for the risk 

adjustment data validation program to 

be used when we operate risk 

adjustment on behalf of a State, the 

preamble to this proposed rule 

discusses and seeks comment on a 

number of alternative approaches to the 

detailed methodology proposed here. 

For example, we have suggested a 

number of options for confidence 

intervals and whether to use tests of 

statistical significance in determining 

plan average risk score adjustments. We 

have also suggested an expedited 

second validation audit approach to 

permit more time for inter-auditor 

discussions and appeals. We have 

suggested a number of ways to calculate 

a default risk adjustment charge for an 

issuer that fails to provide initial 

validation audits. 

In the preamble discussion of our 

proposed modifications to the risk 

adjustment methodology, we considered 

not providing for an induced demand 

adjustment for Medicaid expansion plan 

variations, but we believe that not doing 

so would underestimate the risk in 

those plans, potentially leading to 

higher premiums in those plans. 

In § 153.270, we propose that HHS 

may audit State-operated reinsurance 

programs to ensure appropriate use of 

Federal funds. We also considered not 

proposing that HHS have such 

authority. However, we believe that 

because HHS will collect reinsurance 

contributions and because a State’s 

issuers’ reinsurance requests affect the 

availability of reinsurance funds for 

issuers in other States, we think it is 

critical for HHS to have the authority to 

perform these audits, so that issuers and 

States are confident that they will 

receive the correct allocation of the 

reinsurance payments. We also 

considered proposing that HHS have the 

authority to audit a State-operated risk 

adjustment program. However, we 

decided not to do so because those 

programs do not take in Federal funds 

and those programs have little impact 

on the health insurance markets in other 

States. 

We considered not proposing that 

HHS have the authority to assess CMPs 

on QHP issuers for non-compliance 

with the risk corridors standards. This 

would reduce the burden on QHP 

issuers on State Exchanges and would 

have reduced Federal oversight costs. 

However, we determined that similar 

standards and oversight were 

appropriate for all issuers of QHPs, 

regardless of whether the QHPs were 

offered through FFEs or State 

Exchanges, in order to ensure 

compliance with the risk corridors 

program and the proper use of Federal 

funds. 

In the preamble discussion of the 

2015 reinsurance payment parameters, 

we also considered, when setting forth 

the proposed 2015 reinsurance payment 

parameters, a set of uniform reinsurance 

payment parameters that would have 

substantially raised the attachment 

point or lowered the reinsurance cap, 

but believe those uniform reinsurance 

payment parameters would have raised 

the complexity of estimating the effects 

of reinsurance for issuers. 

As detailed in the preamble 

discussion regarding our proposed 

approach to estimating cost-sharing 

reduction amounts in connection with 

reinsurance calculations, we considered 

a number of alternative approaches to 

this estimation. Finally, we considered 

a number of different approaches to the 

discrepancy and administrative appeals 

process proposed in § 153.710 and 

§ 156.1220. Some of these approaches 

would have provided for lengthier and 

more formal administrative appeals 

processes, including for advance 

payments of the premium tax credit, 

advance payment for cost-sharing 

reductions, and FFE user fees in 2014. 

We did not adopt that approach for 

these 2014 programs, and instead rely 

on operational discrepancy reports and 

one-level of administrative appeals—a 

request for reconsideration, because we 

believe that this approach will be 

simpler and less expensive, and will 

permit operations specialists, issuers 

and HHS to resolve most problems more 

quickly. We considered relying solely 

on a simpler operational discrepancy 

report process for the premium 

stabilization programs and cost-sharing 

reductions reconciliation in 2015—but 

decided that due to the complexity of 

the calculations involved in these 

programs and the potential magnitude 

of the payment flows, issuers would 

prefer that these calculations be subject 

to more formal administrative processes. 

Multiple alternatives were considered 

to the proposed SHOP approaches and 

are discussed in detail above. 

E. 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 a change in revenues 

of more than 3 to 5 percent as its 

measure of significant economic impact 

on a substantial number of small 

entities. 

In this proposed rule, we propose 

provisions for the risk adjustment, 

reinsurance, and risk corridors 

programs, which are intended to 

stabilize premiums as insurance market 

reforms are implemented and Exchanges 

facilitate increased enrollment. Because 

we believe that insurance firms offering 

comprehensive health insurance 

policies generally exceed the size 

thresholds for ‘‘small entities’’ 

established by the SBA, we do not 

believe that an initial regulatory 

flexibility analysis is required for such 

firms. 

For purposes of the RFA, we expect 

the following types of entities to be 

affected by this proposed rule: 

• Health insurance issuers. 


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• Group health plans. 

• Reinsurance entities. 

We believe that health insurance 

issuers and group health plans would be 

classified under the North American 

Industry Classification System (NAICS) 

code 524114 (Direct Health and Medical 

Insurance Carriers). According to SBA 

size standards, entities with average 

annual receipts of $35.5 million or less 

would be considered small entities for 

these NAICS codes. Issuers could 

possibly be classified in 621491 (HMO 

Medical Centers) and, if this is the case, 

the SBA size standard would be $30 

million or less. 

In this proposed rule, we proposed 

requirements on employers that choose 

to participate in a SHOP Exchange. The 

SHOPs are limited by statute to 

employers with at least one but not 

more than 100 employees. For this 

reason, we expect that many employers 

who would be affected by the proposals 

would meet the SBA standard for small 

entities. We do not believe that the 

proposals impose requirements on 

employers offering health insurance 

through the SHOP that are more 

restrictive than the current requirements 

on small employers offering employer 

sponsored insurance. Additionally, as 

discussed in the RIA, we believe the 

proposed policy will provide greater 

choice for both employees and 

employers. We believe the processes 

that we have established constitute the 

minimum amount of requirements 

necessary to implement the SHOP 

program and accomplish our policy 

goals, and that no appropriate regulatory 

alternatives could be developed to 

further lessen the compliance burden. 

We believe that a substantial number 

of sponsors of self-insured group health 

plans could qualify as ‘‘small entities.’’ 

This proposed rule provides HHS with 

the authority to audit these entities. 

However, we do not believe that the 

burden of these audits is likely to reflect 

more than 3 to 5 percent of such an 

entity’s revenues. 

F. Unfunded Mandates 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

requires that agencies assess anticipated 

costs and benefits and take certain other 

actions before issuing a proposed rule 

that includes any Federal mandate that 

may result in expenditures in any 1 year 

by a State, local, or Tribal governments, 

in the aggregate, or by the private sector, 

of $100 million in 1995 dollars, updated 

annually for inflation. In 2013, that 

threshold is approximately $141 

million. Although we have not been 

able to quantify the user fees that will 

be associated with this proposed rule, 

the combined administrative cost and 

user fee impact on State, local, or Tribal 

governments and the private sector may 

be above the threshold. Earlier portions 

of this RIA constitute our UMRA 

analysis. 

G. Federalism 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed rule that imposes substantial 

direct costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

Because States have flexibility in 

designing their Exchange and Exchangerelated programs, State decisions will 

ultimately influence both administrative 

expenses and overall premiums. States 

are not required to establish an 

Exchange or risk adjustment or 

reinsurance program. For States electing 

to operate an Exchange, risk adjustment 

or reinsurance program, much of the 

initial cost of creating these programs 

will be funded by Exchange Planning 

and Establishment Grants. After 

establishment, Exchanges will be 

financially self-sustaining, with revenue 

sources at the discretion of the State. 

Current State Exchanges charge user 

fees to issuers. 

In HHS’s view, while this proposed 

rule did not impose substantial direct 

requirement costs on State and local 

governments, this regulation has 

Federalism implications due to direct 

effects on the distribution of power and 

responsibilities among the State and 

Federal governments relating to 

determining standards relating to health 

insurance that is offered in the 

individual and small group markets. 

Each State electing to establish an 

Exchange must adopt the Federal 

standards contained in the Affordable 

Care Act and in this proposed rule, or 

have in effect a State law or regulation 

that implements these Federal 

standards. However, HHS anticipates 

that the Federalism implications (if any) 

are substantially mitigated because 

under the statute, States have choices 

regarding the structure and governance 

of their Exchanges and risk adjustment 

and reinsurance programs. Additionally, 

the Affordable Care Act does not require 

States to establish these programs; if a 

State elects not to establish any of these 

programs or is not approved to do so, 

HHS must establish and operate the 

programs in that State. 

In compliance with the requirement 

of Executive Order 13132 that agencies 

examine closely any policies that may 

have Federalism implications or limit 

the policy making discretion of the 

States, HHS has engaged in efforts to 

consult with and work cooperatively 

with affected States, including 

participating in conference calls with 

and attending conferences of the 

National Association of Insurance 

Commissioners, and consulting with 

State insurance officials on an 

individual basis. 

Throughout the process of developing 

this proposed rule, HHS has attempted 

to balance the States’ interests in 

regulating health insurance issuers, and 

Congress’ intent to provide access to 

Affordable Insurance Exchanges for 

consumers in every State. By doing so, 

it is HHS’s view that we have complied 

with the requirements of Executive 

Order 13132. 

H. Congressional Review Act 

This proposed rule is subject to the 

Congressional Review Act provisions of 

the Small Business Regulatory 

Enforcement Fairness Act of 1996 (5 

U.S.C. 801 et seq.), which specifies that 

before a rule can take effect, the Federal 

agency promulgating the rule shall 

submit to each House of the Congress 

and to the Comptroller General a report 

containing a copy of the rule along with 

other specified information, and has 

been transmitted to Congress and the 

Comptroller General for review. 

List of Subjects 

45 CFR Part 144 

Health care, Health insurance, 

Reporting and recordkeeping 

requirements. 

45 CFR Part 147 

Health care, Health insurance, 

Reporting and recordkeeping 

requirements, and State regulation of 

health insurance. 

45 CFR Part 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. 

45 CFR Part 155 

Administrative practice and 

procedure, Health care access, Health 

insurance, Reporting and recordkeeping 

requirements, State and local 

governments, Cost-sharing reductions, 

Advance payments of premium tax 

credit, Administration and calculation 

of advance payments of the premium 

tax credit, Plan variations, Actuarial 

value. 


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45 CFR Part 156 

Administrative appeals, 

Administrative practice and procedure, 

Administration and calculation of 

advance payments of premium tax 

credit, Advertising, Advisory 

Committees, Brokers, Conflict of 

interest, Consumer protection, Costsharing reductions, Grant programshealth, Grants administration, Health 

care, Health insurance, Health 

maintenance organization (HMO), 

Health records, Hospitals, American 

Indian/Alaska Natives, Individuals with 

disabilities, Loan programs-health, 

Organization and functions 

(Government agencies), Medicaid, 

Payment and collections reports, Public 

assistance programs, Reporting and 

recordkeeping requirements, State and 

local governments, Sunshine Act, 

Technical assistance, Women, and 

Youth. 

For the reasons set forth in the 

preamble, the Department of Health and 

Human Services proposes to amend 45 

CFR parts 147, 153, 155, and 156, and 

proposes to further amend 45 CFR parts 

144, 153, and 156, as amended October 

30, 2013, at 78 FR 65091, effective 

December 30, 2013, as set forth below: 

PART 144—REQUIREMENTS 

RELATING TO HEALTH INSURANCE 

COVERAGE 

■ 1. The authority citation for part 144 

continues to read as follows: 

Authority: Secs. 2701 through 2763, 2791, 

and 2792 of the Public Health Service Act 42 

U.S.C. 300gg through 300gg–63, 300gg–91, 

and 300gg–92. 

■ 2. Section 144.103 is amended by 

revising the first sentence in paragraph 

(1) of the definition of ‘‘Policy year’’ to 

read as follows: 

§ 144.103 Definitions. 

* * * * * 

Policy year * * * 

(1) A grandfathered health plan 

offered in the individual health 

insurance market and student health 

insurance coverage, the 12-month 

period that is designated as the policy 

year in the policy documents of the 

individual health insurance coverage. 

* * * 

* * * * * 

PART 147—HEALTH INSURANCE 

REFORM REQUIREMENTS FOR THE 

GROUP AND INDIVIDUAL HEALTH 

INSURANCE MARKETS 

■ 3. The authority citation for part 147 

continues to read as follows: 

Authority: Secs. 2701 through 2763, 2791, 

and 2792 of the Public Health Service Act (42 

U.S.C. 300gg through 300gg–63, 300gg–91, 

and 300gg–92), as amended. 

■ 4. Section 147.102 is amended by 

revising paragraph (c)(3) to read as 

follows: 

§ 147.102 Fair health insurance premiums. 

* * * * * 

(c) * * * 

(3) Application to small group market. 

In the case of the small group market, 

the total premium charged to the group 

is determined by summing the 

premiums of covered participants and 

beneficiaries in accordance with 

paragraph (c)(1) or (2) of this section, as 

applicable. Nothing in this section 

precludes a State from requiring issuers 

to offer, or an issuer from voluntarily 

offering, to a group premiums that are 

based on average enrollee premium 

amounts, provided that the total group 

premium is the same total amount 

derived in accordance with paragraph 

(c)(1) or (2) of this section, as applicable. 

In such case, effective for plan years 

beginning on or after January 1, 2015, an 

issuer must ensure that average enrollee 

premium amounts calculated based on 

applicable employee enrollment at the 

beginning of the plan year do not vary 

for any participant or beneficiary during 

the plan year. 

* * * * * 

■ 5. Section 147.145 is amended by 

revising paragraph (b)(1)(ii) to read as 

follows: 

§ 147.145 Student health insurance 

coverage. 

* * * * * 

(b) * * * 

(1) * * * 

(ii) For purposes of section 2702 of 

the Public Health Service Act, a health 

insurance issuer that offers student 

health insurance coverage is not 

required to accept individuals who are 

not students or dependents of students 

in such coverage, and, notwithstanding 

the requirements of § 147.104(b), is not 

required to establish open enrollment 

periods or coverage effective dates that 

are based on a calendar policy year or 

to offer policies on a calendar year basis. 

* * * * * 

PART 153—STANDARDS RELATED TO 

REINSURANCE, RISK CORRIDORS, 

AND RISK ADJUSTMENT UNDER THE 

AFFORDABLE CARE ACT 

■ 6. The authority citation for part 153 

continues to read as follows: 

Authority: Secs. 1311, 1321, 1341–1343, 

Pub. L. 111–148, 24 Stat. 119. 

■ 7. Section 153.20 is amended by 

revising the definition of ‘‘contributing 

entity’’ and adding a definition of 

‘‘major medical coverage’’ to read as 

follows: 

§ 153.20 Definitions. 

* * * * * 

Contributing entity means— 

(1) A health insurance issuer; or 

(2) For the 2014 benefit year, a selfinsured group health plan (including a 

group health plan that is partially selfinsured and partially insured, where the 

health insurance coverage does not 

constitute major medical coverage), 

whether or not it uses a third party 

administrator; and for the 2015 and 

2016 benefit years, a self-insured group 

health plan (including a group health 

plan that is partially self-insured and 

partially insured, where the health 

insurance coverage does not constitute 

major medical coverage) that uses a 

third party administrator in connection 

with claims processing or adjudication 

(including the management of appeals) 

or plan enrollment. A self-insured group 

health plan that is a contributing entity 

is responsible for the reinsurance 

contributions, although it may elect to 

use a third party administrator or 

administrative services-only contractor 

for transfer of the reinsurance 

contributions. 

* * * * * 

Major medical coverage means, for 

purposes only of the requirements 

related to reinsurance contributions 

under section 1341 of the Affordable 

Care Act, health coverage for a broad 

range of services and treatments 

provided in various settings that 

provides minimum value in accordance 

with § 156.145 of this subchapter. 

* * * * * 

■ 8. Section 153.230 is amended by 

revising paragraph (d) to read as 

follows: 

§ 153.230 Calculation of reinsurance 

payments made under the national 

contribution rate. 

* * * * * 

(d) Uniform adjustment to national 

reinsurance payments. If HHS 

determines that all reinsurance 

payments requested under the national 

payment parameters from all 

reinsurance-eligible plans in all States 

for a benefit year will not be equal to the 

amount of all reinsurance contributions 

collected for reinsurance payments 

under the national contribution rate in 

all States for an applicable benefit year, 

HHS will determine a uniform pro rata 

adjustment to be applied to all such 

requests for reinsurance payments for 

all States. Each applicable reinsurance 

entity, or HHS on behalf of a State, must 

reduce or increase the reinsurance 

payment amounts for the applicable 


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benefit year by any adjustment required 

under this paragraph (d). 

■ 9. Section 153.235 is amended by 

removing and reserving paragraph (b). 

§ 153.235 Allocation and distribution of 

reinsurance contributions. 

* * * * * 

(b) [Reserved] 

■ 10. Section 153.270 is added to 

subpart C to read as follows: 

§ 153.270 HHS audits of State-operated 

reinsurance programs. 

(a) Audits. HHS or its designee may 

conduct a financial and programmatic 

audit of a State-operated reinsurance 

program to assess compliance with the 

requirements of this subpart or subpart 

B of this part. A State that establishes a 

reinsurance program must ensure that 

its applicable reinsurance entity and 

any relevant contractors, subcontractors, 

or agents cooperate with any audit 

under this section. 

(b) Action on audit findings. If an 

audit results in a finding of material 

weakness or significant deficiency with 

respect to compliance with any 

requirement of this subpart or subpart B, 

the State must ensure that the 

applicable reinsurance entity: 

(1) Within 60 calendar days of the 

issuance of the final audit report, 

provides a written corrective action plan 

to HHS for approval; 

(2) Implements that plan; and 

(3) Provides to HHS written 

documentation of the corrective actions 

once taken. 

■ 11. Section 153.400 is amended by 

revising paragraph (a)(1) introductory 

text and adding paragraphs (a)(1)(v) and 

(vi) to read as follows: 

§ 153.400 Reinsurance contribution funds. 

(a) * * * 

(1) In general, reinsurance 

contributions are required for major 

medical coverage that is considered to 

be part of a commercial book of 

business, but are not required to be paid 

more than once with respect to the same 

covered life. In order to effectuate that 

principle, a contributing entity must 

make reinsurance contributions for lives 

covered by its self-insured group health 

plans and health insurance coverage 

except to the extent that: 

* * * * * 

(v) Such plan or coverage applies to 

individuals with primary residence in a 

territory that does not operate a 

reinsurance program. 

(vi) In the case of employer-provided 

group health coverage: 

(A) Such coverage applies to 

individuals with individual market 

health insurance coverage for which 

reinsurance contributions are required; 

or 

(B) Such coverage is supplemental or 

secondary to group health coverage for 

which reinsurance contributions must 

be made for the same covered lives. 

* * * * * 

■ 12. Section 153.405 is amended by 

revising paragraphs (c) and (e)(3) and 

adding paragraph (i) to read as follows: 

§ 153.405 Calculation of reinsurance 

contributions. 

* * * * * 

(c) Notification and payment. (1) 

Following submission of the annual 

enrollment count described in 

paragraph (b) of this section, HHS will 

notify the contributing entity of the 

reinsurance contribution amount 

allocated to reinsurance payments and 

administrative expenses to be paid for 

the applicable benefit year. 

(2) In the fourth quarter of the 

calendar year following the applicable 

benefit year, HHS will notify the 

contributing entity of the portion of the 

reinsurance contribution amount 

allocated for payments to the U.S. 

Treasury for the applicable benefit year. 

(3) A contributing entity must remit 

reinsurance contributions to HHS 

within 30 days after the date of a 

notification. 

* * * * * 

(e) * * * 

(3) Using the number of lives covered 

for the most current plan year calculated 

based upon the ‘‘Annual Return/Report 

of Employee Benefit Plan’’ filed with the 

Department of Labor (Form 5500) for the 

last applicable time period. For 

purposes of this paragraph (e)(3), the 

number of lives covered for the plan 

year for a plan offering only self-only 

coverage equals the sum of the total 

participants covered at the beginning 

and end of the plan year, as reported on 

the Form 5500, divided by 2, and the 

number of lives covered for the plan 

year for a plan offering self-only 

coverage and coverage other than selfonly coverage equals the sum of the 

total participants covered at the 

beginning and the end of the plan year, 

as reported on the Form 5500. 

* * * * * 

(i) Audits. HHS or its designee may 

audit a contributing entity to assess its 

compliance with the requirements of 

this subpart. 

■ 13. Section 153.410 is amended by 

adding paragraph (d) to read as follows: 

§ 153.410 Requests for reinsurance 

payment. 

* * * * * 

(d) Audits. HHS or its designee may 

audit an issuer of a reinsurance-eligible 

plan to assess its compliance with the 

requirements of this subpart and subpart 

H. The issuer must ensure that its 

relevant contractors, subcontractors, or 

agents cooperate with any audit under 

this section. If an audit results in a 

finding of material weakness or 

significant deficiency with respect to 

compliance with any requirement of 

this subpart or subpart H, the issuer 

must complete all of the following: 

(1) Within 30 calendar days of the 

issuance of the final audit report, 

provide a written corrective action plan 

to HHS for approval. 

(2) Implement that plan. 

(3) Provide to HHS written 

documentation of the corrective actions 

once taken. 

■ 14. Section 153.510 is amended by 

adding paragraph (f) to read as follows: 

§ 153.510 Risk corridors establishment 

and payment methodology. 

* * * * * 

(f) Eligibility under health insurance 

market rules. The provisions of this 

subpart apply only for plans offered by 

a QHP issuer in the SHOP or the 

individual or small group market, as 

determined according to the employee 

counting method applicable under State 

law, that are subject to the following 

provisions: §§ 147.102, 147.104, 

147.106, 147.150, 156.80, and subpart B 

of part 156 of this subchapter. 

■ 15. Section 153.540 is added to 

subpart F to read as follows: 

§ 153.540 Compliance with risk corridors 

standards. 

(a) Audits. HHS or its designee may 

audit a QHP issuer to assess its 

compliance with the requirements of 

this subpart. HHS will conduct an audit 

in accordance with the procedures set 

forth in § 158.402(a) through (e) of this 

subchapter. 

(b) Enforcement actions. If an issuer of 

a QHP on a State-based Exchange fails 

to comply with the requirements of this 

subpart, HHS may impose civil money 

penalties in accordance with the 

procedures set forth in § 156.805 of this 

subchapter. 

■ 16. Section 153.620 is amended by 

adding paragraph (c) to read as follows: 

§ 153.620 Compliance with risk adjustment 

standards. 

* * * * * 

(c) Audits. HHS or its designee may 

audit an issuer of a risk adjustment 

covered plan to assess its compliance 

with the requirements of this subpart 

and subpart H of this part. The issuer 

must ensure that its relevant 

contractors, subcontractors, or agents 

cooperate with any audit under this 

section. If an audit results in a finding 


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of material weakness or significant 

deficiency with respect to compliance 

with any requirement of this subpart or 

subpart H of this part, the issuer must 

complete all of the following: 

(1) Within 30 calendar days of the 

issuance of the final audit report, 

provide a written corrective action plan 

to HHS for approval. 

(2) Implement that plan. 

(3) Provide to HHS written 

documentation of the corrective actions 

once taken. 

■ 17. Section 153.630 is amended by 

revising paragraph (b)(1) and adding 

paragraphs (b)(5) through (10) to read as 

follows: 

§ 153.630 Data validation requirements 

when HHS operates risk adjustment. 

* * * * * 

(b) * * * 

(1) An issuer of a risk adjustment 

covered plan must engage one or more 

independent auditors to perform an 

initial validation audit of a sample of its 

risk adjustment data selected by HHS. 

The issuer must provide HHS with the 

identity of the initial validation auditor, 

and must attest to the absence of 

conflicts of interest between the initial 

validation auditor (or the members of its 

audit team, owners, directors, officers, 

or employees) and the issuer (or its 

owners, directors, officers, or 

employees), in a timeframe and manner 

to be specified by HHS. 

* * * * * 

(5) An initial validation audit must be 

conducted by medical coders certified 

as such and in good standing by a 

nationally recognized accrediting 

agency. 

(6) An issuer must provide the initial 

validation auditor and the second 

validator auditor with all relevant 

source enrollment documentation, all 

claims and encounter data, and medical 

record documentation from providers of 

services to each enrollee in the 

applicable sample without unreasonable 

delay and in a manner that reasonably 

assures confidentiality and security in 

transmission. 

(7) The risk score of each enrollee in 

the sample must be validated by— 

(i) Validating the enrollee’s 

enrollment data and demographic data 

through review of source enrollment 

documentation; 

(ii) Validating enrollee health status 

through review of all relevant medical 

record documentation. Medical record 

documentation must originate from the 

provider of the services and align with 

dates of service for the medical 

diagnoses, and reflect permitted 

providers and services. For purposes of 

this section, ‘‘medical record 

documentation’’ means clinical 

documentation of hospital inpatient or 

outpatient treatment or professional 

medical treatment from which enrollee 

health status is documented and related 

to accepted risk adjustment services that 

occurred during a specified period of 

time. Medical record documentation 

must be generated under a face-to-face 

or telehealth visit documented and 

authenticated by a permitted provider of 

services; 

(iii) Validating medical records 

according to industry standards for 

coding and reporting; and 

(iv) Having a senior reviewer confirm 

any enrollee risk adjustment error 

discovered during the initial validation 

audit. For purposes of this section, a 

‘‘senior reviewer’’ is a reviewer certified 

as a medical coder by a nationally 

recognized accrediting agency who 

possesses at least 5 years of experience 

in medical coding. 

(8) The initial validation auditor must 

measure and report to the issuer and 

HHS, in a manner and timeframe 

specified by HHS, its inter-rater 

reliability rates among its reviewers. 

The initial validation auditor must 

achieve a consistency measure of at 

least 95 percent for demographic, 

enrollment, and health status review 

outcomes. 

(9) Enforcement actions: If an issuer of 

a risk adjustment covered plan fails to 

engage an initial validation auditor or to 

submit the results of an initial 

validation audit to HHS, HHS may 

impose civil money penalties in 

accordance with the procedures set 

forth in § 156.805 of this subchapter. 

(10) Default data validation charge: If 

an issuer of a risk adjustment covered 

plan fails to engage an initial validation 

auditor or to submit the results of an 

initial validation audit to HHS, HHS 

will impose a default risk adjustment 

charge. 

* * * * * 

■ 18. Section 153.710 is amended by 

adding paragraphs (d), (e), (f), and (g) to 

read as follows: 

§ 153.710 Data requirements. 

* * * * * 

(d) Interim dedicated distributed data 

environment reports. Within 30 

calendar days of the date of an interim 

dedicated distributed data environment 

report from HHS, the issuer must, in a 

format specified by HHS, either: 

(1) Confirm to HHS that the 

information in the interim report 

accurately reflects the data to which the 

issuer has provided access to HHS 

through its dedicated distributed data 

environment in accordance with 

§ 153.700(a) for the timeframe specified 

in the report; or 

(2) Describe to HHS any discrepancy 

it identifies in the interim dedicated 

distributed data environment report. 

(e) Final dedicated distributed data 

environment report. Within 15 calendar 

days of the date of the final dedicated 

distributed data environment report 

from HHS, the issuer must, in a format 

specified by HHS, either: 

(1) Confirm to HHS that the 

information in the final report 

accurately reflects the data to which the 

issuer has provided access to HHS 

through its dedicated distributed data 

environment in accordance with 

§ 153.700(a) for the benefit year 

specified in the report; or 

(2) Describe to HHS any discrepancy 

it identifies in the final dedicated 

distributed data environment report. 

(f) Unresolved discrepancies. If a 

discrepancy first identified in an 

interim or final dedicated distributed 

data environment report in accordance 

with paragraphs (d)(2) or (e)(2) of this 

section remains unresolved after the 

issuance of the notification of risk 

adjustment payments and charges or 

reinsurance payments under 

§ 153.310(e) or § 153.240(b)(1)(ii), 

respectively, an issuer of a risk 

adjustment covered plan or reinsuranceeligible plan may make a request for 

reconsideration regarding such 

discrepancy under the process set forth 

in § 156.1220(a). 

(g) Risk corridors and medical loss 

ratio reporting. (1) Notwithstanding any 

discrepancy report made under 

paragraph (d)(2) or (e)(2) of this section, 

or any request for reconsideration under 

§ 156.1220(a) with respect to any risk 

adjustment payment or charge, 

including an assessment of risk 

adjustment user fees; reinsurance 

payment; cost-sharing reconciliation 

payment or charge; or risk corridors 

payment or charge, unless the dispute 

has been resolved, an issuer must 

report, for purposes of the risk corridors 

and medical loss ratio programs: 

(i) The risk adjustment payment to be 

made or charge assessed, including an 

assessment of risk adjustment user fees, 

by HHS in the notification provided 

under § 153.310(e); 

(ii) The reinsurance payment to be 

made by HHS in the notification 

provided under § 153.240(b)(1)(ii); 

(iii) A cost-sharing reduction amount 

equal to the amount of the advance 

payments of cost-sharing reductions 

paid to the issuer by HHS for the benefit 

year; and 

(iv) For medical loss ratio report only, 

the risk corridors payment to be made 

or charge assessed by HHS as reflected 


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in the notification provided under 

§ 153.510(d). 

(2) An issuer must report any 

adjustment made following any 

discrepancy report made under 

paragraph (d)(2) or (e)(2) of this section, 

or any request for reconsideration under 

§ 156.1220(a) with respect to any risk 

adjustment payment or charge, 

including an assessment of risk 

adjustment user fees; reinsurance 

payment; cost-sharing reconciliation 

payment or charge; or risk corridors 

payment or charge; or following any 

audit, where such adjustment has not be 

accounted for in a prior risk corridors or 

medical loss ratio report, in the next 

following risk corridors or medical loss 

ratio report. 

PART 155—EXCHANGE 

ESTABLISHMENT STANDARDS AND 

OTHER RELATED STANDARDS 

UNDER THE AFFORDABLE CARE ACT 

■ 19. Authority citation for part 155 is 

revised to read as follows: 

Authority: Title I of the Affordable Care 

Act, sections 1301, 1302, 1303, 1304, 1311, 

1312, 1313, 1321, 1322, 1331, 1332, 1334, 

1402, 1411, 1412, 1413, Pub. L. 111–148, 124 

Stat. 119 (42 U.S.C. 18021–18024, 18031– 

18033, 18041–18042, 18051, 18054, 18071, 

and 18081–18083). 

■ 20. Section 155.106 is amended by 

revising paragraph (a)(2) to read as 

follows: 

§ 155.106 Election to operate an Exchange 

after 2014. 

(a) * * *

(2) Have in effect an approved, or 

conditionally approved, Exchange 

Blueprint and operational readiness 

assessment at least 6.5 months prior to 

the Exchange’s first effective date of 

coverage; and 

* * * * * 

■ 21. Section 155.220 is amended by 

adding paragraph (i) as follows: 

§ 155.220 Ability of States to permit agents 

and brokers to assist qualified individuals, 

qualified employers, or qualified employees 

enrolling in QHPs. 

* * * * * 

(i) For plan years beginning on or after 

January 1, 2015, in States that permit 

this activity under state law, a SHOP 

may permit agents and brokers to use an 

Internet Web site to assist qualified 

employers and facilitate enrollment of 

qualified employees in a QHP through 

the Exchange, under paragraph (c)(3) of 

this section. 

■ 22. Section 155.260 is amended by 

revising paragraphs (a)(1), (a)(2) and (b) 

to read as follows: 

§ 155.260 Privacy and security of 

personally identifiable information. 

(a) * * * 

(1) Where the Exchange creates or 

collects personally identifiable 

information for the purposes of 

determining eligibility for enrollment in 

a qualified health plan; determining 

eligibility for other insurance 

affordability programs, as defined in 

§ 155.20; or determining eligibility for 

exemptions from the individual 

responsibility provisions in section 

5000A of the Code, the Exchange may 

only use or disclose such personally 

identifiable information to the extent 

such information is necessary: 

(i) For the Exchange to carry out the 

functions described in § 155.200; 

(ii) For the Exchange to carry out 

other functions not described in 

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

the Secretary determines to be in 

compliance with section 1411(g)(2)(A) 

of the Affordable Care Act and for 

which an individual provides consent 

for his or her information to be used or 

disclosed; or 

(iii) For the Exchange to carry out 

other functions not described in 

paragraphs (a)(1)(i) and (ii) of this 

section, for which an individual 

provides consent for his or her 

information to be used or disclosed, and 

which the Secretary determines are in 

compliance with section 1411(g)(2)(A) 

of the Affordable Care Act under the 

following substantive and procedural 

requirements: 

(A) Substantive requirements. The 

Secretary may approve other uses and 

disclosures of personally identifiable 

information created or collected as 

described in paragraph (a)(1) of this 

section that are not described in 

paragraphs (a)(1)(i) or (a)(1)(ii) of this 

section, provided that HHS determines 

that the information will be used only 

for the purposes of and to the extent 

necessary in ensuring the efficient 

operation of the Exchange consistent 

with section 1411(g)(2)(A) of the 

Affordable Care Act, and that the uses 

and disclosures are also permissible 

under relevant law and policy. 

(B) Procedural requirements for 

approval of a use or disclosure of 

personally identifiable information. To 

seek approval for a use or disclosure of 

personally identifiable information 

created or collected as described in 

paragraph (a)(1) of this section that is 

not described in paragraphs (a)(1)(i) or 

(a)(1)(ii), the Exchange must submit the 

following information to HHS: 

(1) Identity of the Exchange and 

appropriate contact persons; 

(2) Detailed description of the 

proposed use or disclosure, which must 

include, but not necessarily be limited 

to, a listing or description of the specific 

information to be used or disclosed and 

an identification of the persons or 

entities that may access or receive the 

information; 

(3) Description of how the use or 

disclosure will ensure the efficient 

operation of the Exchange consistent 

with section 1411(g)(2)(A) of the 

Affordable Care Act; and 

(4) Description of how the 

information to be used or disclosed will 

be protected in compliance with privacy 

and security standards that meet the 

requirements of this section or other 

relevant law, as applicable. 

(2) The Exchange may not create, 

collect, use, or disclose personally 

identifiable information unless the 

creation, collection, use, or disclosure is 

consistent with this section. 

* * * * * 

(b) Application to non-Exchange 

entities. (1) Non-Exchange entities. A 

non-Exchange entity is any individual 

or entity that: 

(i) Gains access to personally 

identifiable information submitted to an 

Exchange; or 

(ii) Collects, uses, or discloses 

personally identifiable information 

gathered directly from applicants, 

qualified individuals, or enrollees while 

that individual or entity is performing 

functions agreed to with the Exchange. 

(2) Prior to any person or entity 

becoming a non-Exchange entity, 

Exchanges must execute with the person 

or entity a contract or agreement that 

includes: 

(i) A description of the functions to be 

performed by the non-Exchange entity; 

(ii) A provision(s) binding the nonExchange entity to comply with the 

privacy and security standards and 

obligations adopted in accordance with 

paragraph (b)(3) of this section, and 

specifically listing or incorporating 

those privacy and security standards 

and obligations; 

(iii) A provision requiring the nonExchange entity to monitor, periodically 

assess, and update its security controls 

and related system risks to ensure the 

continued effectiveness of those 

controls in accordance with paragraph 

(a)(5) of this section; 

(iv) A provision requiring the nonExchange entity to inform the Exchange 

of any change in its administrative, 

technical, or operational environments 

defined as material within the contract; 

and 

(v) A provision that requires the nonExchange entity to bind any 

downstream entities to the same privacy 

and security standards and obligations 


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to which the non-Exchange entity has 

agreed in its contract or agreement with 

the Exchange. 

(3) When collection, use or disclosure 

is not otherwise required by law, the 

privacy and security standards to which 

an Exchange binds non-Exchange 

entities must: 

(i) Be consistent with the principles 

and requirements listed in paragraphs 

(a)(1) through (a)(6) of this section, 

including being at least as protective as 

the standards the Exchange has 

established and implemented for itself 

in compliance with paragraph (a)(3) of 

this section; 

(ii) Comply with the requirements of 

paragraphs (c), (d), (f) and (g) of this 

section; and 

(iii) Take into specific consideration: 

(A) The environment in which the 

non-Exchange entity is operating; 

(B) Whether the standards are relevant 

and applicable to the non-Exchange 

entity’s duties and activities in 

connection with the Exchange; and 

(C) Any existing legal requirements to 

which the non-Exchange entity is bound 

in relation to its administrative, 

technical, and operational controls and 

practices, including but not limited to, 

its existing data handling and 

information technology processes and 

protocols. 

* * * * * 

■ 23. Section 155.410 is amended by 

revising paragraphs (e) and (f) to read as 

follows: 

§ 155.410 Initial and annual open 

enrollment periods. 

* * * * * 

(e) Annual open enrollment period. 

For benefit years beginning— 

(1) On January 1, 2015, the annual 

open enrollment period begins 

November 15 of 2014, and extends 

through January 15 of 2015. 

(2) On or after January 1, 2016, the 

annual open enrollment period begins 

October 15 of the preceding calendar 

year, and extends through December 7 

of the preceding calendar year. 

(f) Effective date for coverage after the 

annual open enrollment period. For the 

benefit years beginning— 

(1) On January 1, 2015, the Exchange 

must ensure coverage is effective— 

(i) January 1, 2015, for plan selections 

received by the Exchange on or before 

December 15, 2014. 

(ii) February 1, 2015, for plan 

selections received by the Exchange 

from December 16, 2015 through 

January 15, 2015. 

(2) On or after January 1, 2016, the 

Exchange must ensure coverage is 

effective as of the first day of the 

following benefit year for a qualified 

individual who has made a QHP 

selection during the annual open 

enrollment period. 

* * * * * 

■ 24. Section 155.705 is amended by: 

■ a. Revising paragraph (b)(1); 

■ b. Adding paragraph (b)(3)(v); 

■ c. Redesignating paragraph (b)(4)(ii) as 

(b)(4)(iii); 

■ d. Adding new paragraph (b)(4)(ii); 

and 

■ e. Revising paragraphs (b)(11)(ii)(C) 

and (D). 

The additions and revisions read as 

follows: 

§ 155.705 Functions of a SHOP. 

* * * * * 

(b) * * * 

(1) Enrollment and eligibility 

functions. The SHOP must adhere to the 

requirements outlined in §§ 155.710, 

155.715, 155.720, 155.725, 155.730, 

155.735, and 155.740. 

* * * * * 

(3) * * * 

(v) For plan years beginning on or 

after January 1, 2015, a Federallyfacilitated SHOP will provide a 

qualified employer a choice of two 

methods to make stand-alone dental 

plans available to qualified employees 

and their dependents: 

(A) The employer may choose to make 

available a single stand-alone dental 

plan. 

(B) The employer may choose to make 

available all stand-alone dental plans 

offered through the Federally-facilitated 

SHOP. 

(4) * * * 

(ii) The SHOP may establish one or 

more standard processes for premium 

calculation, premium payment, and 

premium collection. 

(A) Qualified employers in a 

Federally-facilitated SHOP must make 

premium payments according to a 

timeline and process established by 

HHS; 

(B) For a Federally-facilitated SHOP, 

the premium for coverage lasting less 

than 1 month must equal the product of: 

(1) The premium for 1 month of 

coverage divided by the number of days 

in the month; and 

(2) The number of days for which 

coverage is being provided in the month 

described in paragraph (b)(4)(ii)(B)(1) of 

this section. 

* * * * * 

(11) * * * 

(ii) * * * 

(C) The employer will define a 

percentage contribution toward 

premiums for employee-only coverage 

under the reference plan and, if 

dependent coverage is offered, a 

percentage contribution toward 

premiums for dependent coverage under 

the reference plan. To the extent 

permitted by other applicable law, for 

plan years beginning on or after January 

1, 2015, the Federally-facilitated SHOP 

may permit an employer to define a 

different percentage contribution for 

full-time employees from the percentage 

contribution it defines for non-full-time 

employees, and it may permit an 

employer to define a different 

percentage contribution for dependent 

coverage for full-time employees from 

the percentage contribution it defines 

for dependent coverage for non-full-time 

employees. 

(D) In a Federally-facilitated SHOP, 

for plan years beginning on or after 

January 1, 2015, if the employer elects 

to offer coverage to its employees under 

§ 155.705(b)(3)(iv)(A), neither State law 

nor the employer may require that 

employer contributions be based on a 

calculated composite premium for the 

reference plan for employees, for adult 

dependents of employees, and for 

dependents of employees under age 21. 

* * * * * 

■ 25. Section 155.715 is amended by 

revising paragraphs (c)(4), (d)(1) 

introductory text, and (d)(2) 

introductory text to read as follows: 

§ 155.715 Eligibility determination process 

for SHOP. 

* * * * * 

(c) * * * 

(4) May not perform individual 

market Exchange eligibility 

determinations or verifications 

described in subpart D of this part. 

(d) * * * 

(1) When the information submitted 

on the SHOP single employer 

application is inconsistent with 

information collected from third-party 

data sources through the verification 

process described in § 155.715(c)(2), the 

SHOP must— 

* * * * * 

(2) When the information submitted 

on the SHOP single employee 

application is inconsistent with 

information collected from third-party 

data sources through the verification 

process described in § 155.715(c)(2), the 

SHOP must— 

* * * * * 

■ 26. Section 155.730 is amended by 

redesignating paragraph (g) as paragraph 

(g)(1) and by adding paragraph (g)(2) to 

read as follows: 

§ 155.730 Application standards for SHOP. 

* * * * * 

(g) * * * 

(1) * * * 


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(2) The SHOP is not permitted to 

collect information on the single 

employer or single employee 

application unless that information is 

necessary to determine SHOP eligibility 

or effectuate enrollment through the 

SHOP. 

■ 27. Section 155.1030 is amended by 

revising paragraphs (b)(1), (3), and (4) to 

read as follows: 

§ 155.1030 QHP certification standards 

related to advance payments of the 

premium tax credit and cost-sharing 

reductions. 

* * * * * 

(b) * * * 

(1) The Exchange must collect and 

review annually the rate allocation and 

the actuarial memorandum that an 

issuer submits to the Exchange under 

§ 156.470 of this subchapter, to ensure 

that the allocation meets the standards 

set forth in § 156.470(c) and (d). 

* * * * * 

(3) The Exchange must use the 

methodology specified in the annual 

HHS notice of benefit and payment 

parameters to calculate advance 

payment amounts for cost-sharing 

reductions, and must transmit the 

advance payment amounts to HHS, in 

accordance with § 156.340(a). 

(4) HHS may use the information 

provided to HHS by the Exchange under 

this section for oversight of advance 

payments of cost-sharing reductions and 

premium tax credits. 

* * * * * 

PART 156—HEALTH INSURANCE 

ISSUER STANDARDS UNDER THE 

AFFORDABLE CARE ACT, INCLUDING 

STANDARDS RELATED TO 

EXCHANGES 

■ 28. The authority citation for part 156 

is revised to read as follows: 

Authority: Title I of the Affordable Care 

Act, sections 1301–1304, 1311–1312, 1321– 

1322, 1324, 1334, 1342–1343, 1401–1402, 

and 1412, Pub. L. 111–148, 124 Stat. 119 (42 

U.S.C. 18021–18024, 18031–18032, 18041– 

18042, 18044, 18054, 18061, 18063, 18071, 

18082, 26 U.S.C. 36B, and 31 U.S.C. 9701). 

■ 29. Section 156.135 is amended by 

revising paragraph (a) and adding 

paragraph (g) to read as follows: 

§ 156.135 AV calculation for determining 

level of coverage. 

(a) Calculation of AV. Subject to 

paragraphs (b) and (d) of this section, to 

calculate the AV of a health plan, the 

issuer must use the AV Calculator 

developed and made available by HHS 

for the given benefit year. 

* * * * * 

(g) Updates to the AV calculator. HHS 

will update the AV Calculator as 

follows, HHS will: 

(1) Update the annual limit on cost 

sharing and related functions based on 

a projected estimate to enable the AV 

Calculator to comply with 

§ 156.130(a)(2); 

(2) Update the continuance tables to 

reflect more current enrollment data 

when HHS has determined that the 

enrolled population has materially 

changed; 

(3) Update the algorithms when HHS 

has determined the need to adapt the 

AV Calculator for use by additional plan 

designs or to allow the AV Calculator to 

accommodate potential new types of 

plan designs, where such adaptations 

can be based on actuarially sound 

principles and will not have a 

substantial effect on the AV calculations 

performed by the then current AV 

Calculator; 

(4) Update the continuance tables to 

reflect more current claims data no more 

than every 3 and no less than every 5 

years and to annually trend the claims 

data when the trending factor is more 

than 5 percent different, calculated on a 

cumulative basis; and 

(5) Update the AV Calculator user 

interface when a change would be 

useful to a broad group of users of the 

AV Calculator, would not affect the 

function of the AV Calculator, and 

would be technically feasible. 

■ 30. Section 156.150 is revised to read 

as follows: 

§ 156.150 Application to stand-alone 

dental plans inside the Exchange. 

(a) Annual limitation on cost-sharing. 

For a stand-alone dental plan covering 

the pediatric dental EHB under 

§ 155.1065 of this subchapter in any 

Exchange, cost sharing may not exceed 

$300 for one covered child and $400 for 

two or more covered children. 

(b) [Reserved] 

■ 31. Section 156.285 is amended by 

adding paragraph (a)(4) and revising 

paragraph (c)(7) to read as follows: 

§ 156.285 Additional standards specific to 

SHOP. 

(a) * * * 

(4)(i) Adhere to the premium rating 

standards described in § 147.102 

regardless of whether the QHP is sold in 

the small group market or the large 

group market; and 

(ii) Effective in plan years beginning 

on or after January 1, 2015, a QHP issuer 

in a Federally-facilitated SHOP may not 

offer to an employer premiums that are 

based on average enrollee amounts 

under § 147.102(c)(3), if the employer 

elects to offer coverage to its employees 

under § 155.705(b)(3)(iv)(A). 

* * * * * 

(c) * * * 

(7) A QHP issuer must enroll a 

qualified employee only if the SHOP— 

(i) Notifies the QHP issuer that the 

employee is a qualified employee; 

(ii) Transmits information to the QHP 

issuer as provided in § 155.400(a) of this 

subchapter; and 

(iii) Effective for QHPs offered 

through a Federally-facilitated SHOP in 

plan years beginning on or after January 

1, 2015, does not send a cancellation 

notice to the QHP issuer prior to the 

effective date of coverage. 

* * * * * 

■ 32. Section 156.298 is added to 

subpart C to read as follows: 

§ 156.298 Meaningful difference standard 

for Qualified Health Plans in the Federallyfacilitated Exchanges. 

(a) General. Subject to paragraph 

(b)(2) of this section, starting in the 2015 

coverage year, in order to be certified as 

a QHP offered through a Federallyfacilitated Exchange, a plan must be 

meaningfully different from all other 

QHPs offered by the same issuer of that 

plan within a service area and level of 

coverage in the Exchange, as defined in 

paragraph (b) of this section. 

(b) Meaningful difference standard. A 

plan is considered meaningfully 

different from another plan in the same 

service area and metal tier (including 

catastrophic plans) if a reasonable 

consumer would be able to identify two 

or more material differences among the 

following characteristics between the 

plan and other plan offerings: 

(1) Cost sharing; 

(2) Provider networks; 

(3) Covered benefits; 

(4) Plan type; 

(5) Premiums; 

(6) Health Savings Account eligibility; 

or 

(7) Self-only, non-self-only, or childonly coverage offerings. 

(c) Exception for limited plan 

availability. If HHS determines that the 

plan offerings at a particular metal level 

(including catastrophic plans) within a 

county are limited, plans submitted for 

certification in that particular metal 

level (including catastrophic plans) 

within that county will not be subject to 

the meaningful difference requirement 

set forth in paragraph (b) of this section. 

(d) Two-year transition period for 

issuers with new acquisitions. During 

the first 2 years after a merger or 

acquisition in which an acquiring issuer 

obtains or merges with another issuer, 

the FFEs may certify plans as QHPs that 

were previously offered by the acquired 


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or merged issuer without those plans 

meeting the meaningful difference 

standard set forth in paragraph (b) of 

this section. 

■ 33. Section 156.420 is amended by 

revising paragraphs (c), (d), and (e) to 

read as follows: 

§ 156.420 Plan variations. 

* * * * * 

(c) Benefit and network equivalence in 

silver plan variations. A standard silver 

plan and each silver plan variation 

thereof must cover the same benefits 

and providers. Each silver plan 

variation is subject to all requirements 

applicable to the standard silver plan 

(except for the requirement that the plan 

have an AV as set forth in 

§ 156.140(b)(2)). 

(d) Benefit and network equivalence 

in zero and limited cost sharing plan 

variations. A QHP and each zero cost 

sharing plan variation or limited cost 

sharing plan variation thereof must 

cover the same benefits and providers. 

The out-of-pocket spending required of 

enrollees in the zero cost sharing plan 

variation of a QHP for a benefit that is 

not an essential health benefit from a 

provider (including a provider outside 

the plan’s network) may not exceed the 

corresponding out-of-pocket spending 

required in the limited cost sharing plan 

variation of the QHP, and the out-ofpocket spending required of enrollees in 

the limited cost sharing plan variation 

of the QHP for a benefit that is not an 

essential health benefit from a provider 

(including a provider outside the plan’s 

network) may not exceed the 

corresponding out-of-pocket spending 

required in the QHP with no costsharing reductions. A limited cost 

sharing plan variation must have the 

same cost sharing for essential health 

benefits not described in paragraph 

(b)(2) of this section as the QHP with no 

cost-sharing reductions. Each zero cost 

sharing plan variation or limited cost 

sharing plan variation is subject to all 

requirements applicable to the QHP 

(except for the requirement that the plan 

have an AV as set forth in § 156.140(b)). 

(e) Decreasing cost sharing and out-ofpocket spending in higher AV silver 

plan variations. The cost sharing or outof-pocket spending required of enrollees 

under any silver plan variation of a 

standard silver plan for a benefit from 

a provider (including a provider outside 

the plan’s network) may not exceed the 

corresponding cost sharing or out-ofpocket spending required in the 

standard silver plan or any other silver 

plan variation thereof with a lower AV. 

* * * * * 

■ 34. Section 156.430 is amended by 

removing and reserving paragraph (a) 

and by revising paragraph (b)(1) to read 

as follows: 

§ 156.430 Payment for cost-sharing 

reductions. 

(b) * * * 

(1) A QHP issuer will receive periodic 

advance payments based on the advance 

payment amounts calculated in 

accordance with § 155.1030(b)(3). 

* * * * * 

■ 35. Section 156.470 is amended by 

revising paragraph (a) to read as follows: 

§ 156.470 Allocation of rates for advance 

payments of the premium tax credit. 

(a) Allocation to additional health 

benefits for QHPs. An issuer must 

provide to the Exchange annually for 

approval, in the manner and timeframe 

established by HHS, for each health 

plan at any level of coverage offered, or 

intended to be offered, in the individual 

market on an Exchange, an allocation of 

the rate for the plan to: 

(1) EHB, other than services described 

in § 156.280(d)(1); and 

(2) Any other services or benefits 

offered by the health plan not described 

in paragraph (a)(1) of this section. 

* * * * * 

■ 36. Section 156.1110 is added to 

Subpart L to read as follows: 

§ 156.1110 Establishment of patient safety 

standards for QHP issuers. 

(a) Patient safety standards. A QHP 

issuer that contracts with a hospital 

with greater than 50 beds must verify 

that the hospital, as defined in section 

1861(e) of the Social Security Act, is 

Medicare-certified or has been issued a 

Medicaid-only CMS Certification 

Number (CCN) and is subject to the 

Medicare Hospital Condition of 

Participation requirements for— 

(1) A quality assessment and 

performance improvement program as 

specified in 42 CFR 482.21; and 

(2) Discharge planning as specified in 

42 CFR 482.43. 

(b) Documentation. A QHP issuer 

must collect, from each of its contracted 

hospitals with greater than 50 beds, 

information that demonstrates that those 

hospitals meet patient safety standards 

required in paragraph (a) of this section 

including, but not limited to, the CCN. 

(c) Reporting. (1) A QHP issuer must 

make available to the Exchange the 

documentation referenced in paragraph 

(b) of this section, upon request by the 

Exchange, in a time and manner 

specified by the Exchange. 

(2) Issuers of multi-State plans, as 

defined in § 155.1000(a) of this 

subchapter, must provide the 

documentation described in paragraph 

(b) of this section to the U.S. Office of 

Personnel Management, in the time and 

manner specified by the U.S. Office of 

Personnel Management. 

(d) Effective date. A QHP issuer must 

ensure that each QHP meets patient 

safety standards in accordance with 

paragraph (a) of this section effective for 

plan years beginning on or after January 

1, 2015. 

■ 37. Section 156.1210 is amended by 

adding paragraph (c) to read as follows: 

§ 156.1210 Confirmation of HHS payment 

and collections reports. 

* * * * * 

(c) Discrepancies to be addressed in 

future reports. Discrepancies in 

payment and collections reports 

identified to HHS under this section 

will be addressed in subsequent 

payment and collections reports, and 

will not be used to change debts 

determined pursuant to invoices 

generated under previous payment and 

collections reports. 

■ 38. Section 156.1215 is added to 

Subpart M to read as follows: 

§ 156.1215 Payment and collections 

processes. 

(a) Netting of payments and charges 

for 2014. In 2014, as part of its monthly 

payment and collections process, HHS 

will net payments owed to QHP issuers 

and their affiliates under the same 

taxpayer identification number against 

amounts due to the Federal government 

from the QHP issuers and their affiliates 

under the same taxpayer identification 

number for advance payments of the 

premium tax credit, advance payments 

of cost-sharing reductions, and payment 

of Federally-facilitated Exchange user 

fees. 

(b) Netting of payments and charges 

for later years. In 2015 and later years, 

as part of its payment and collections 

process, HHS may net payments owed 

to issuers and their affiliates operating 

under the same tax identification 

number against amounts due to the 

Federal government from the issuers 

and their affiliates under the same 

taxpayer identification number for 

advance payments of the premium tax 

credit, advance payments of and 

reconciliation of cost-sharing 

reductions, payment of Federallyfacilitated Exchange user fees, and risk 

adjustment, reinsurance, and risk 

corridors payments and charges. 

(c) Determination of debt. Any 

amount owed to the Federal government 

by an issuer and its affiliates for 

advance payments of the premium tax 

credit, advance payments of and 

reconciliation of cost-sharing 

reductions, Federally-facilitated 

Exchange user fees, risk adjustment, 


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reinsurance, and risk corridors, after 

HHS nets amounts owed by the Federal 

government under these programs, is a 

determination of a debt. 

■ 39. Section 156.1220 is added to 

subpart M to read as follows: 

§ 156.1220 Administrative appeals. 

(a) Requests for reconsideration. (1) 

Matters for reconsideration. An issuer 

may file a request for reconsideration 

under this section to contest a 

processing error by HHS, HHS’s 

incorrect application of the relevant 

methodology, or HHS’s mathematical 

error only with respect to the following: 

(i) The amount of advance payment of 

the premium tax credit, advance 

payment of cost-sharing reductions or 

Federally-facilitated Exchange user fees 

charge for a benefit year; 

(ii) The amount of a risk adjustment 

payment or charge for a benefit year, 

including an assessment of risk 

adjustment user fees; 

(iii) The amount of a reinsurance 

payment for a benefit year; 

(iv) The amount of a risk adjustment 

default charge for a benefit year; 

(v) The amount of a reconciliation 

payment or charge for cost-sharing 

reductions for a benefit year; or 

(vi) The amount of a risk corridors 

payment or charge for a benefit year. 

(2) Time for filing a request for 

reconsideration. The request for 

reconsideration must be filed in 

accordance with the following 

timeframes: 

(i) For advance payments of the 

premium tax credit, advance payments 

of cost-sharing reductions, or Federallyfacilitated Exchange user fee charges, 

within 30 calendar days after the issuer 

receives a final reconsideration 

notification specifying the aggregate 

amount of advance payments of the 

premium tax credit, advance payments 

of cost-sharing reductions, and 

Federally-facilitated Exchange user fees 

for the applicable benefit year; 

(ii) For a risk adjustment payment or 

charge, including an assessment of risk 

adjustment user fees, within 30 calendar 

days of receipt of the notification 

provided by HHS under § 153.310(e); 

(iii) For a reinsurance payment, 

within 30 calendar days of receipt of the 

notification provided by HHS under 

§ 153.240(b)(1)(ii); 

(iv) For a default risk adjustment 

charge, within 30 calendar days of 

receipt of the notification of the default 

risk adjustment charge; 

(v) For reconciliation of cost-sharing 

reductions, within 30 calendar days of 

receipt of the notification provided by 

HHS of the cost-sharing reduction 

reconciliation payment or charge; and 

(vi) For a risk corridors payment or 

charge, within 30 calendar days of 

receipt of the notification provided by 

HHS under § 153.510(d). 

(3) Content of request. (i) The request 

for reconsideration must specify the 

findings or issues specified in paragraph 

(a)(1) of this section that the issuer 

challenges, and the reasons for the 

challenge. 

(ii) Notwithstanding paragraph 

(a)(3)(i) of this section, a reconsideration 

with respect to a processing error by 

HHS, HHS’s incorrect application of the 

relevant methodology, or HHS’s 

mathematical error may be requested 

only if, to the extent the issue could 

have been previously identified by the 

issuer to HHS under § 153.710(d)(2) or 

(e)(2) of this subchapter, it was so 

identified and remains unresolved. 

(iii) Notwithstanding paragraph 

(a)(3)(i) of this section, a reconsideration 

with respect to advance payments of the 

premium tax credit, advance payments 

of cost-sharing reductions, and 

Federally-facilitated Exchange user fees 

may be requested only if, to extent the 

issue could have been previously 

identified by the issuer to HHS under 

§ 156.1210 of this subpart, it was so 

identified and remains unresolved. An 

issuer may request reconsideration if it 

previously identified an issue under 

§ 156.1210 of this subpart after the 15- 

calendar-day deadline, but late 

discovery of the issue was not due to 

misconduct on the part of the issuer. 

(iv) The issuer may include in the 

request for reconsideration additional 

documentary evidence that HHS should 

consider. Such documents may not 

include data that was to have been filed 

by the applicable data submission 

deadline, but may include evidence of 

timely submission. 

(4) Scope of review for 

reconsideration. In conducting the 

reconsideration, HHS will review the 

appropriate payment and charge 

determinations, the evidence and 

findings upon which the determination 

was based, and any additional 

documentary evidence submitted by the 

issuer. HHS may also review any other 

evidence it believes to be relevant in 

deciding the reconsideration, which 

will be provided to the issuer with a 

reasonable opportunity to review and 

rebut the evidence. The issuer must 

prove its case by a preponderance of the 

evidence with respect to issues of fact. 

(5) Reconsideration decision. HHS 

will inform the issuer of the 

reconsideration decision in writing. A 

reconsideration decision is final and 

binding for decisions regarding the 

advance payments of the premium tax 

credit, advance payment of cost-sharing 

reductions, or Federally-facilitated 

Exchange user fees. A reconsideration 

decision with respect to other matters is 

subject to the outcome of a request for 

informal hearing filed in accordance 

with paragraph (b) of this section. 

(b) Informal hearing. An issuer may 

request an informal hearing before a 

CMS hearing officer to appeal HHS’s 

reconsideration decision. 

(1) Manner and timing for request. A 

request for an informal hearing must be 

made in writing and filed with HHS 

within 15 calendar days of the date the 

issuer receives the reconsideration 

decision under paragraph (a)(5) of this 

section. 

(2) Content of request. The request for 

informal hearing must include a copy of 

the reconsideration decision and must 

specify the findings or issues in the 

decision that the issuer challenges, and 

its reasons for the challenge. HHS may 

submit for review by the CMS hearing 

officer a statement of its reasons for the 

reconsideration decision. 

(3) Informal hearing procedures. (i) 

The issuer will receive a written notice 

of the time and place of the informal 

hearing at least 15 calendar days before 

the scheduled date. 

(ii) The CMS hearing officer will 

neither receive testimony nor accept any 

new evidence that was not presented 

with the reconsideration request and 

HHS statement under paragraph (b) of 

this section. The CMS hearing officer 

will review only the documentary 

evidence provided by the issuer and 

HHS, and the record that was before 

HHS when HHS made its 

reconsideration determination. The 

issuer may be represented by counsel in 

the informal hearing, and must prove its 

case by clear and convincing evidence 

with respect to issues of fact. 

(4) Decision of the CMS hearing 

officer. The CMS hearing officer will 

send the informal hearing decision and 

the reasons for the decision to the 

issuer. The decision of the CMS hearing 

officer is final and binding, but is 

subject to the results of any 

Administrator’s review initiated in 

accordance with paragraph (c) of this 

section. 

(c) Review by the Administrator. (1) If 

the CMS hearing officer upholds the 

reconsideration decision, the issuer may 

request review by the Administrator of 

CMS within 15 calendar days of receipt 

of the CMS hearing officer’s decision. 

The request for review must specify the 

findings or issues that the issuer 

challenges. HHS may submit for review 

by the Administrator a statement 

supporting the decision of the CMS 

hearing officer. 


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(2) The Administrator will review the 

CMS hearing officer’s decision, the 

statements of the issuer and HHS, and 

any other information included in the 

record of the CMS hearing officer’s 

decision, and will determine whether to 

uphold, reverse, or modify the CMS 

hearing officer’s decision. The issuer 

must provide its case by clear and 

convincing evidence with respect to 

issues of fact. The Administrator will 

send the decision and the reasons for 

the decisions to the issuer. 

(3) The Administrator’s determination 

is final and binding. 

Dated: November 21, 2013. 

Marilyn Tavenner, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: November 21, 2013. 

Kathleen Sebelius, 

Secretary, Department of Health and Human 

Services. 

[FR Doc. 2013–28610 Filed 11–25–13; 4:15 pm] 

BILLING CODE 4120–01–P 


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