```

[Federal Register Volume 79, Number 47 (Tuesday, March 11, 2014)]
[Rules and Regulations]
[Pages 13743-13843]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-05052]

[[Page 13743]]

Vol. 79

Tuesday,

No. 47

March 11, 2014

Part II

Department of Health and Human Services

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

Patient Protection and Affordable Care Act; HHS Notice of Benefit and 
Payment Parameters for 2015; Final Rule

Federal Register / Vol. 79 , No. 47 / Tuesday, March 11, 2014 / Rules 
and Regulations

[[Page 13744]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Parts 144, 147, 153, 155, 156 and 158

[CMS-9954-F]
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: Final rule.

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SUMMARY: This final 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 
provides additional standards with respect to composite premiums, 
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: These regulations are effective on May 12, 2014.

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 
premiums: Jacob Ackerman, (301) 492-4179.
For matters related to the risk adjustment program: Kelly Horney, (410) 
786-0558.
For general matters related to the reinsurance program: 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 medical loss ratio: Christina Pavlus, (301) 492-
4172.
For matters related to cost-sharing reductions and netting of payments 
and charges: Pat Meisol, (410) 786-1917.
For matters related to the premium adjustment percentage: Johanna 
Lauer, (301) 492-4397.
For matters related to Federally-facilitated Exchange user fees: 
Michael Cohen, (301) 492-4277.
For matters related to the annual limitation on cost sharing for stand-
alone dental plans, privacy and security of personally identifiable 
information, the annual open enrollment period for 2015, and the 
meaningful difference standard: Leigha Basini, (301) 492-4380.
For matters related to the Small Business Health Options Program: 
Christelle Jang, (410) 786-8438.
For matters related to the actuarial value calculator: Allison Yadsko, 
(410) 786-1740.
For matters related to patient safety standards for issuers of 
qualified health plans: Nidhi Singh Shah, (301) 492-5110.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Executive Summary
II. Background
    A. Legislative and Regulatory Overview
    B. Stakeholder Consultation and Input
    C. Intended Future Rulemaking
III. Provisions of the Final Regulations and Analysis and Responses 
to Public Comments
    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 Premiums
    2. Student Health Insurance Coverage
    C. Part 153--Standards Related to Reinsurance, Risk Corridors, 
and Risk Adjustment Under the Affordable Care Act
    1. Provisions for the State Notice of Benefit and Payment 
Parameters
    2. 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
    f. State-Submitted Alternate Risk Adjustment Methodology
    3. Provisions and Parameters for the Transitional Reinsurance 
Program
    a. Major Medical Coverage
    b. Self-Administered, Self-Insured Plans
    c. Uniform Reinsurance Contribution Rate
    d. Uniform Reinsurance Payment Parameters for 2015
    e. Adjustment Options
    f. Reinsurance-Eligible Plans
    g. Deducting Cost-Sharing Reduction Amounts From Reinsurance 
Payments
    h. Audits
    i. Same Covered Life
    j. Reinsurance Contributions and Enrollees Residing in the 
Territories
    k. Form 5500 Counting Method
    4. Provisions for the Temporary Risk Corridors Program
    a. Definitions
    b. Compliance With Risk Corridors Standards
    c. Participation in the Risk Corridors Program
    d. Adjustment for the Transitional Policy
    5. Distributed Data Collection for the HHS-Operated Risk 
Adjustment and Reinsurance Programs
    a. Discrepancy Resolution Process
    b. Default Risk Adjustment Charge
    c. Clarification of the Good Faith Safe Harbor
    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 QHPs
    3. Privacy and Security of Personally Identifiable Information
    4. Annual Open Enrollment Period for 2015
    5. Functions of a SHOP
    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 FFE User Fees
    a. FFE User Fee for the 2015 Benefit Year
    b. Adjustment of FFE User Fee
    3. AV 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 QHPs in the FFEs
    7. Quality Standards: Establishment of Patient Safety Standards 
for QHP 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. Provisions of Final Regulation
VIII. Regulations Text

[[Page 13745]]

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
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 1995
PSES Patient safety evaluation system
QHP Qualified health plan
SADP Stand-alone Dental Plan
SHOP Small Business Health Options Program
The Code Internal Revenue Code of 1986
TPA Third party administrator

I. Executive Summary

    Qualified individuals and qualified employers are now able to 
purchase private health insurance coverage 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 be eligible to receive premium tax 
credits to make health insurance more affordable and reductions in 
cost-sharing payments to reduce out-of-pocket expenses for health care 
services. In 2014, HHS began operationalizing the premium stabilization 
programs established by the Affordable Care Act. These programs--the 
risk adjustment, reinsurance, and risk corridors programs--are intended 
to mitigate the potential impact of 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.
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    \1\ The word ``Exchanges'' refers to both State Exchanges, also 
called State-based Exchanges, and Federally-facilitated Exchanges 
(FFEs). In this 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.
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    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 rule finalizes 
additional provisions related to the implementation of these programs, 
including certain oversight provisions for the premium stabilization 
programs, as well as key payment parameters for the 2015 benefit year.
    The 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 final rule establishes updates to the risk 
adjustment methodology for 2014 to account for certain private market 
Medicaid expansion alternative plans. It also establishes the counting 
methods for determining small group size for participation in the risk 
adjustment and risk corridors programs.
    Using the methodology set forth in the 2014 Payment Notice, we 
establish 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 are also finalizing our proposal 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 provide that if reinsurance contributions collected for a 
benefit year exceed total requests for reinsurance payments for the 
benefit year, we will increase the coinsurance rate on our reinsurance 
payments for that benefit year up to 100 percent, rolling over any 
remaining funds for use as reinsurance payments for the subsequent 
benefit year.
    We also finalize several provisions related to cost sharing. First, 
we establish a methodology, with certain modifications described below, 
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 are establishing the reduced maximum annual 
limitations on cost sharing for the 2015 benefit year for cost-sharing 
reduction plan variations. We are relaxing the requirement that a QHP 
and its plan variations have the same out-of-pocket spending for non-
EHBs. We are finalizing our proposal to modify the methodology for 
calculating advance payments for cost-sharing reductions for the 2015 
benefit year. We are also finalizing parameters for updating the AV 
Calculator.
    For 2015, we are finalizing the FFE user fee rate of 3.5 percent of 
premium. Additionally, with respect to the FFE user fee adjustment set 
forth under 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), we are finalizing an 
allowance for administrative costs and margin associated with the 
payment for contraceptive services. We are also finalizing proposed 
modifications to the risk corridors program for the 2014 benefit year.
    The success of the premium stabilization programs depends on a 
robust oversight program. This final rule expands on the 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). We are finalizing HHS's authority to 
audit State-operated reinsurance programs, contributing entities, and 
issuers of risk adjustment covered plans and reinsurance eligible-
plans. We also finalize participation standards for the risk corridors 
program, and outline a process for validating risk corridors data 
submissions and enforcing compliance with the provisions of the risk 
corridors program.
    We also finalize several aspects of our methodology for 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'' \2\ 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 final rule, we establish certain 
standards for risk adjustment data validation, including a sampling 
methodology for the initial validation audit and detailed audit 
standards. These standards will be used and evaluated for 2 years 
before

[[Page 13746]]

they are used as a basis for payment adjustments.
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    \2\ Available at: https://www.regtap.info/uploads/library/ACA_HHS_OperatedRADVWhitePaper_062213_5CR_062213.pdf.
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    This rule also includes a reduction in 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 finalize certain 
provisions related to the privacy and security of personally 
identifiable information (PII) in the Exchange, the Exchange annual 
open enrollment period for 2015, the annual limitation on cost sharing 
for stand-alone dental plans, the meaningful difference standards for 
QHPs offered through an FFE, the SHOP, patient safety standards for QHP 
issuers, and composite premiums 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 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 rule, we refer to the two 
statutes collectively as the ``Affordable Care Act.''
    Section 1201 of the Affordable Care Act added section 2701 of the 
Public Health Service Act (PHS Act) regarding fair health insurance 
premiums. Section 2701(a)(1) limits the variation in premium rates 
charged by a health insurance issuer for non-grandfathered health 
insurance coverage (including QHPs) in the individual or small group 
market to four factors: Family size; rating area; age; and tobacco use. 
Section 2701(a)(4) of the PHS Act requires that any family premium 
using age or tobacco rating may only apply those rates to the portion 
of the premium that is attributable to each family member.
    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 essential health benefits (EHBs) and provides for 
cost-sharing limits and actuarial value (AV) requirements. Section 
1302(d) of the Affordable Care Act describes the various 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.\3\
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    \3\ If a State elects this option, the rating rules in section 
2701 of the PHS Act and its implementing regulations will apply to 
all coverage offered in such State's large group market (except for 
self-insured group health plans) pursuant to section 2701(a)(5) of 
the PHS Act.
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    Section 1311(c)(6)(B) of the Affordable Care Act states that the 
Secretary is to set annual open enrollment periods for Exchanges 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. For hospitals 
with more than 50 beds, this includes the use of a patient safety 
evaluation system and a comprehensive hospital discharge program. 
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.
    Sections 1313 and 1321 of the Affordable Care Act provide the 
Secretary with the authority to oversee the financial integrity of 
State Exchanges, their compliance with HHS standards, and the efficient 
and non-discriminatory 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 health 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 higher-risk enrollees. 
Sections 1402 and 1412 of the Affordable Care Act establish a program 
for reducing cost sharing for qualified individuals with lower 
household income and Indians.
    Section 1411(g) of the Affordable Care Act requires that any person 
who receives information specified in section 1411(b) from 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.
    Section 1560(c) of the Affordable Care Act provides that nothing in 
title I of the Affordable Care Act (or an amendment made by Title I of 
the Affordable Care Act) shall be construed to prohibit an institution 
of higher education (as such term is defined for purposes of the Higher 
Education Act of 1965) from offering a student health insurance plan, 
to the extent that such requirement is

[[Page 13747]]

otherwise permitted under applicable Federal, State or local law.
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) (proposed 2014 Payment Notice), we published a proposed rule 
outlining the benefit and payment parameters for the 2014 benefit year 
to expand the provisions related to the premium stabilization programs 
and set forth payment parameters in those programs. We published the 
final rule in the March 11, 2013 Federal Register (78 FR 153410) (2014 
Payment Notice).
    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 finalized 
standards related to the premium adjustment percentage and AV 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 cost-sharing 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 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 established standards related to Exchange user fees in the 2014 
Payment Notice. We also established an adjustment to the FFE user fee 
in the 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
    We published a proposed rule relating to the 2014 market reforms in 
the November 26, 2012 Federal Register (77 FR 70584), and a final rule 
implementing these provisions 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, 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 final rule.

C. Intended Future Rulemaking

    Some of the public input suggested changes for 2015 that require 
additional rulemaking. In the interest of transparency, we describe 
here the potential policies that we intend to include in such future 
rulemaking for public comment.
    Eligibility & Enrollment: We intend to propose in future rulemaking 
a limited number of revisions to our rules on eligibility, enrollment, 
and eligibility appeals. For example, we intend to propose that an 
appeals entity be required to dismiss an appeal if the employer or 
employee withdraws the request in writing or by telephone. In future 
rulemaking, we also intend to propose that an Exchange may establish 
one or more standard processes for prorating premiums for partial month 
enrollment, and that the FFE will establish one consistent with the 
methodology finalized in this rule for the FF-SHOPs.
    Index of Premium Growth and Income Growth: To implement section 
5000A(e)(1)(D) of the Code, we intend to propose a methodology for 
determining the excess of the rate of premium growth over the rate of 
income growth for years after 2014. We are also considering modifying 
our rounding rules to always round certain cost-sharing parameters down 
to the next lower multiple of $50.
    Plan Management: In future rulemaking, we intend to propose 
technical amendments to standards for issuing civil money penalties 
against QHP issuers and for decertifying QHPs, as currently set forth 
in 45 CFR 156.805 and 156.810.
    Plan Changes: We intend to outline in future guidance the 
distinction between when a plan is being modified and when it is being 
terminated for purposes of plan renewal. For example, if an issuer 
makes changes to a plan that cause it to be in a different metal level, 
it would in fact be considered to be a new plan. We also intend to 
propose that issuers utilize standard notices in a format designated by 
the Secretary when discontinuing a product.
    HIPAA Opt-Out for Self-Funded, Non-Federal Governmental Plans: 
Prior to enactment of the Affordable Care Act, sponsors of self-funded, 
non-Federal governmental plans were permitted to elect to exempt those 
plans from certain provisions of title XXVII of the PHS Act. We intend 
to propose amendments to

[[Page 13748]]

the non-Federal governmental plan regulations (45 CFR 146.180) to 
reflect the amendments made by the Affordable Care Act to these 
provisions, consistent with previously released guidance.\4\
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    \4\ Amendments to the HIPAA opt-out provision (formerly section 
2721(b)(2) of the Public Health Service Act) made by the Affordable 
Care Act (September 21, 2010). Available at: http://www.cms.gov/CCIIO/Resources/Files/Downloads/opt_out_memo.pdf.
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    Fixed Indemnity Insurance in the Individual Market: As indicated in 
previously released guidance, we intend to propose to amend the 
criteria for fixed indemnity insurance to be treated as an excepted 
benefit in the individual health insurance market.\5\
---------------------------------------------------------------------------

    \5\ FAQs about Affordable Care Act Implementation (Part XVIII) 
and Mental Health Parity Implementation, Q11 (January 9, 2014). 
Available at: http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs18.html and http://www.dol.gov/ebsa/faqs/faq-aca18.html.
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    Minimum Essential Coverage: On October 31, 2013, we published 
guidance indicating that certain types of foreign group coverage are 
recognized as minimum essential coverage.\6\ We intend to propose 
amendments to in future rulemaking that would codify the treatment of 
foreign group coverage as described in the October 31, 2013 guidance. 
We also intend to clarify that entities other than plan sponsors (for 
example, issuers) can apply for their coverage to be recognized as 
minimum essential coverage, pursuant to the process outlined in 45 CFR 
156.604 and guidance thereunder.\7\
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    \6\ See CCIIO Sub-Regulatory Guidance: Process for Obtaining 
Recognition as Minimum Essential Coverage (October 31, 2013). 
Available at: http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/mec-guidance-10-31-2013.pdf.
    \7\ See CCIIO Sub-Regulatory Guidance: Process for Obtaining 
Recognition as Minimum Essential Coverage (October 31, 2013). 
Available at: http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/mec-guidance-10-31-2013.pdf.
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    Navigator, Non-Navigator Assistance Personnel, and Certified 
Application Counselor Program Standards: We also intend to specify in 
future rulemaking certain types of State laws applicable to Navigators, 
non-Navigator assistance personnel, and certified application 
counselors that HHS would consider to prevent the application of the 
provisions of title I of the Affordable Care Act. We intend to propose 
through future rulemaking to update the standards applicable to 
Navigators and non-Navigator assistance personnel. In addition, we 
intend to propose standards specific to certified application 
counselors and certified application counselor designated organizations 
that would prohibit them from receiving consideration, directly or 
indirectly, from health insurance issuers or stop loss insurance 
issuers in connection with the enrollment of consumers in QHPs or non-
QHPs, and that would require certified application counselors to be 
recertified on at least an annual basis. We further intend to propose 
that, in specific circumstances, certified application counselor 
designated organizations may serve targeted populations without 
violating the broad non-discrimination requirement related to Exchange 
functions.
    Civil Money Penalties for Consumer Assistance Entities: In future 
rulemaking, we intend to propose that HHS may impose civil money 
penalties against Navigators, non-Navigator assistance personnel, 
certified application counselor designated organizations, and certified 
application counselors in Federally-facilitated and State Partnership 
Exchanges, if these entities or individuals violate Federal 
requirements.
    Quality: In future rulemaking, we intend to propose quality 
reporting requirements for Exchanges and QHP issuers, including 
standards related to the implementation of the quality rating system 
(QRS), enrollee satisfaction survey (ESS), and a monitoring and appeals 
process for survey vendors. We intend to propose a beta testing period 
of the QRS and ESS in 2015 to provide early feedback to Exchanges and 
QHP issuers and begin public reporting of quality rating information in 
2016.
    Risk Corridors: In response to our proposed adjustments to the risk 
corridors program to account for the transitional policy, we received 
comments urging us to raise the ceiling on allowable administrative 
costs for QHP issuers in all States. We are carefully analyzing it to 
consider proposing for the 2015 benefit year, considering its policy 
and budgetary implications, and would consider making corresponding 
changes to the risk corridors profit floor and to the MLR regulations 
at that time. We would implement this policy up to the point of budget 
neutrality, and may make downward adjustments to parameters if 
necessary.
    SHOP: In future rulemaking, we intend to propose amendments to 
align the dates for the annual election periods for qualified employers 
in all SHOPs with the start of open enrollment in the corresponding 
individual market Exchange for the 2015 benefit year. We also plan to 
propose to remove the required minimum lengths of both the employer 
election period and the employee open enrollment period to provide 
additional flexibility to SHOPs and qualified employers, which would 
permit SHOPs to complete the entire election and enrollment processes 
in fewer than 45 days.
    We are considering proposing through future rulemaking specific 
circumstances under which States could recommend that a SHOP modify the 
employee choice provision in 2015 if doing so would preserve and 
promote affordable insurance for employees and small businesses.
    Medical Loss Ratio: We intend to propose several amendments to the 
MLR regulations (45 CFR Part 158). We intend to propose standardized 
methodologies to take into account the special circumstances of issuers 
associated with the initial open enrollment and other changes to the 
market in 2014, including incurred costs due to technical problems 
during the launch of the State and Federal Exchanges. We also intend to 
propose amendments that would improve the consistency of MLR and rebate 
calculations in States that require the individual and small group 
markets to be merged. In addition, we intend to propose an extension to 
the period during which issuers may include ICD-10 conversion costs in 
the MLR numerator and a clarification to the rules for distribution of 
de minimis rebates.

III. Provisions of the Final Regulations and Analysis and Responses to 
Public Comments

    A proposed rule, titled ``Patient Protection and Affordable Care 
Act: HHS Notice of Benefit and Payment Parameters for 2015'' was 
published in the December 2, 2013 Federal Register (78 FR 72322) with a 
comment period ending on December 26, 2013. In total, we received 129 
comments from various stakeholders, including States, health insurance 
issuers, consumer groups, labor entities, industry groups, provider 
groups, patient safety groups, national interest groups, and other 
stakeholders. The comments ranged from general support or opposition to 
the proposed provisions to very specific questions or comments 
regarding proposed changes. We received a number of comments and 
suggestions that were outside the scope of the proposed rule and 
therefore will not be addressed in this final rule.
    Another proposed rule, entitled ``Patient Protection and Affordable 
Care Act; Program Integrity: Exchange, SHOP, and Eligibility Appeals'' 
(78 FR 37032), was published in the Federal Register on June 19, 2013 
with a comment period ending on July 19, 2013. We received a total of 
99

[[Page 13749]]

comments from various stakeholders, including States, health insurance 
issuers, consumer groups, agents and brokers, provider groups, Members 
of Congress, individuals, Tribal organizations, and other stakeholders. 
In this final rule, we are only finalizing from that proposed rule 
provisions related to standards for the SHOP to require all QHP issuers 
to make any change to rates at a uniform time.\8\ In this final rule, 
we are finalizing language proposed at Sec.  155.705(b)(6)(ii) at Sec.  
155.705(b)(6)(i)(A) instead of at (b)(6)(ii), to make clear that we 
never intended for this proposal to supersede the language at current 
Sec.  155.705(b)(6)(ii), and are making a minor change to replace the 
word FF-SHOP with the term ``Federally-facilitated SHOP.''
---------------------------------------------------------------------------

    \8\ Other 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).
---------------------------------------------------------------------------

    In this final rule, we provide a summary of each proposed 
provision, a summary of the public comments received and our responses 
to them, and the provisions we are finalizing. We note that nothing in 
these regulations limits the authority of the Office of the Inspector 
General (OIG) as set forth by the Inspector General Act of 1978 or 
other applicable law.
    Comment: We received a number of comments requesting that the 
comment period be extended to 60 days.
    Response: While we are sympathetic to these concerns, we received 
numerous detailed, substantive submissions on the contents of the rule. 
Additionally, the timeline for publication of this final rule 
accommodates issuer deadlines applicable for the 2015 benefit year.

A. Part 144--Requirements Relating to Health Insurance Coverage

    In 45 CFR 144.103, we proposed to amend the definition of ``policy 
year'' for student health insurance coverage to mean generally the 12-
month period that is designated as the policy year in the policy 
documents of the student health insurance coverage (rather than a 
calendar year). This amendment takes into account that student health 
insurance coverage is traditionally offered on an academic year basis 
with a policy year other than the calendar year. It is also consistent 
with our proposal in Sec.  147.145 to exempt student health insurance 
coverage, a type of individual coverage, from certain calendar year 
requirements that apply to individual health insurance coverage.
    We received comments supporting this proposal. We are finalizing 
the amendment to the definition of ``policy year'' with the following 
minor modification. We remove the word ``individual'' from the 
reference to ``individual health insurance coverage'' so that the 
terminology is appropriate for both grandfathered individual market and 
student health insurance coverage. Accordingly, the definition of 
``policy year'' with respect to grandfathered individual health 
insurance coverage and student health insurance coverage generally now 
reads as ``the 12-month period that is designated as the policy year in 
the policy documents of the health insurance coverage.''

B. Part 147--Health Insurance Reform Requirements for the Group and 
Individual Health Insurance Markets

1. Composite Premiums
    Section 2701(a)(1) of the PHS Act restricts the variation in 
premium rating for a particular plan or coverage to four factors: 
family size, geography, age, and tobacco use (within limits). Section 
2701(a)(4) of the PHS Act further requires that any rating variation 
for age and tobacco use must be applied based on the portion of the 
premium attributable to each family member covered under a group health 
plan or health insurance coverage. These rules generally apply to 
health insurance issuers offering non-grandfathered individual market 
and small group market coverage, both through and outside an Exchange, 
for plan or policy years beginning on or after January 1, 2014.\9\
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    \9\ Section 2701(a)(5) of the PHS Act provides that if a State 
exercises the option of offering large group market QHPs in the 
SHOP, the rating rules in section 2701 that apply to the small group 
market will also apply to all coverage offered in that State's large 
group market, except for self-insured group health plans.
---------------------------------------------------------------------------

    Consistent with the rating rules of section 2701 of the PHS Act, we 
established in 45 CFR 147.102(c) of the Market Reform Rule that the 
total premium charged by an issuer to a group health plan (in the small 
group market) or family (in the individual market) is generally 
determined by summing the premiums of each individual enrolled in the 
plan or coverage based on their age and tobacco use. This rating 
practice is known as per-member rating (also referred to as ``list 
billing'').
    In the small group market, section 2701 of the PHS Act regulates 
the premium ``rate'' that may be charged by an issuer for a group 
health plan based on the age and tobacco use of each enrollee; however 
the statute does not preclude the possibility that the group could be 
charged an amount for enrollees based on the average premium per member 
of the group, rather than their own specific per-member amount. We 
codified this interpretation in Sec.  147.102(c)(3) of the Market 
Reform rule, which provides that nothing prevents an issuer in the 
small group market from dividing the total group premium by the total 
number of enrollees covered under the plan to develop an average 
premium amount per enrollee. The preamble to the proposed rule referred 
to this practice as ``composite rating.'' However, to avoid unintended 
confusion with the traditional industry use of that term, we use only 
the terms ``composite premiums'' or ``average enrollee premium 
amounts'' when referring to average per-enrollee premium amounts in 
this final rule.\10\ An issuer may offer composite premiums in 
connection with a small group health plan as long as the total group 
premium calculated at the time of applicable enrollment at the 
beginning of the plan year equals the amount that is derived from per-
member rating.\11\
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    \10\ The term ``composite rating'' has historically referred to 
an issuer rating practice that used the rating characteristics of a 
group as a whole--average employee health risk, average employee 
age, group size, and industrial code, among others--to determine an 
average rate per employee and corresponding average rates for 
different coverage tiers (for example, employee only, employee plus 
spouse, employee plus one or more children, and family coverage). 
This rating practice is no longer permitted under section 2701 of 
the PHS Act.
    \11\ Under 45 CFR 147.102(c)(2), States 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. In 
States that elect this approach, a small group market issuer may 
offer composite premiums in connection with a group health plan, as 
long as the total group premium equals the amount that is derived 
from family-tier rating. For ease of reference, we do not discuss 
this alternative each time we refer to a total group premium 
equaling the sum of per-member premiums. However, we note that 
references in this preamble to the total group premium equaling the 
sum of per-member premiums also include references to the total 
group premium equaling the sum of family-tier premiums in States 
with community rating that have established uniform family tiers.
---------------------------------------------------------------------------

    In the proposed rule, we proposed to amend Sec.  147.102(c)(3) to 
specify that if an issuer offers a composite premium in connection with 
a group health plan in the small group market, the composite premium 
that was calculated based on applicable enrollment at the beginning of 
the plan year cannot vary during the plan year. For example, if a new 
hire enrolls in the plan in the middle of the plan year, the issuer 
would not adjust the average enrollee premium amount

[[Page 13750]]

for the group based on the addition of the new enrollee. Rather, the 
amount that would be charged to the group for the new hire would be the 
same average enrollee premium amount that was established at the 
beginning of the plan year, and that amount would be added to the total 
group premium. The issuer would recalculate the average enrollee 
premium amount for the group only upon renewal.
    We proposed this policy to ensure that composite premiums for small 
group coverage--and thus employer contributions to coverage--could 
remain stable during the plan year even if the composition of the group 
changes (for example, due to employees adding or dropping coverage). 
Additionally, we indicated that we were considering establishing a 
``tiered-composite'' premium structure under which a separate composite 
premium could be calculated for different tiers or categories of 
enrollees covered under a group health plan (such as employees, adult 
dependents, and child dependents). We described several possible 
alternatives for implementing tiered-composite premiums and sought 
comment on whether and how to establish such approach.
    We are finalizing our composite premium proposals with the addition 
of a tiered-composite premium structure based on one of the 
alternatives discussed in the preamble to the proposed rule. 
Specifically, we provide that a composite premium charged to a small 
group health plan must be based on enrollment of ``participants and 
beneficiaries'' at the beginning of the plan year, and may not vary 
until renewal. We also provide that any rating for tobacco use cannot 
be included in the composite premium for all enrollees but instead must 
be applied on a per-member basis. Finally, we specify that an issuer 
offering composite premiums with respect to a particular product 
offered in the small group market in a State must do so uniformly for 
all group health plans enrolling in that product, giving those group 
health plans the option to pay premiums based on a composite premium 
methodology (to the extent permitted by applicable State law and except 
as provided in Sec.  156.285(a)(4) of this final rule when employee 
choice is offered in the FF-SHOPs).
    Comment: In response to the composite premium proposals, we 
received a few comments that suggested some concern and confusion that 
per-member rating would no longer be required.
    Response: We have not changed the basic per-member rating 
requirement under section 2701 of the PHS Act, or the policy that in 
the small group market, an issuer may convert a group's per-member 
premiums into average enrollee premium amounts as long as the total 
premium owed by the plan to the issuer is the same total produced by 
per-member rating. The proposed rule and this final rule simply provide 
clarity about when the per-member rating requirement is satisfied. 
Specifically, we recognize that, where an issuer offers a composite 
premium in connection with a group health plan, requiring strict 
adherence to a per-member buildup at all times throughout the plan year 
may impose undue administrative burden on issuers and create premium 
instability for employers and employees. Given that the statute can 
reasonably be read to support either interpretation, we are finalizing 
amendments to Sec.  147.102(c)(3) which make clear that the requirement 
that the sum of composite premiums must equal the sum of per-member 
premiums is determined at the time of applicable enrollment at the 
beginning of the plan year.
    Comment: Some commenters urged HHS to make compositing premiums 
mandatory for all small group market issuers. Other commenters 
emphasized that the decision to offer composite premiums should 
continue to be voluntary at the option of the issuer (or as required by 
applicable State law). One commenter noted that issuers historically 
have offered composite rates to some group health plans but not others 
(for example, groups with more than ten employees) and requested 
clarification of whether this practice could continue.
    Response: This final rule neither requires nor prohibits the 
compositing of premiums in connection with a small group health plan 
(except with respect to employee choice in the FF-SHOPs as discussed 
below). This decision is within the discretion of the issuer unless 
applicable State law requires composite premiums. However, in response 
to comments, we are clarifying that if an issuer elects to offer 
composite premiums with respect to a particular product offered in the 
small group market in a State, the issuer cannot do so for only certain 
group health plans; the issuer must make the option to composite 
premiums uniformly available to all group health plans enrolling in 
that product, to the extent permitted by applicable State law and 
subject to Sec.  156.285(a)(4) of this final rule (prohibiting QHP 
issuers from offering composite premiums when employers offer employee 
choice in the FF-SHOPs). Plan sponsors selecting a product that offers 
composite premiums may then decide whether to pay premiums based on a 
per-member or composite premium methodology. This does not affect what 
portion of the group premium will be paid by the employer or the 
employee.\12\
---------------------------------------------------------------------------

    \12\ This separate pricing decision is governed by section 
2705(b) of the PHS Act, as amended by the Affordable Care Act and 
incorporated into ERISA and the Code (providing that a group health 
plan, and a health insurance issuer offering group or individual 
health insurance coverage, generally may not require any individual 
(as a condition of enrollment or continued enrollment under the plan 
or coverage) to pay a premium or contribution which is greater than 
the premium or contribution for a similarly situated individual 
enrolled in the plan or coverage based on any health factor of the 
individual or a dependent of the individual).
---------------------------------------------------------------------------

    Comment: One commenter stated that requiring issuers to accept a 
premium based on a group's composite premium at the beginning of the 
plan year as the standard rate for the entire plan year could affect 
the premium charged to the group health plan.
    Response: Depending on whether a new enrollee added to the plan 
mid-year is above or below the average age of the group, the composite 
premium might be higher or lower than the per-member premium that would 
otherwise be charged for that individual. Consequently, the total group 
premium would at that point no longer precisely equal the sum of the 
per-member premiums for each enrollee until the next renewal. Although 
this policy may thus create some variation from the result that would 
be produced by calculating premiums based on a strict per-member 
approach, we do not believe it will result in any material under-rating 
or over-rating in the market generally, because rates on average should 
balance out over the issuer's single risk pool for the small group 
market. Additionally, as described above, we believe this method of 
calculating premiums is still based on a per-member rating methodology 
that is consistent with the statute. However, we will monitor the 
effects of this policy on the small group market and assess whether 
future changes may be necessary.
    Comment: In response to the request for comment regarding a uniform 
tiered-composite premium structure, we received comments that both 
supported and opposed the tiered-composite approach under 
consideration. Commenters who opposed the suggested alternatives for 
implementing tiered-composite premiums emphasized the differences 
between the suggested alternatives and current standard industry 
practice, which commonly

[[Page 13751]]

establishes four or five coverage tiers and corresponding premiums that 
do not vary based on the number of children covered. Some commenters 
opposed the use of composite premiums altogether, suggested alternative 
tiered-composite approaches using coverage tiers and corresponding 
multipliers, or advocated for a ``pure'' composite that averages the 
per-member rates of all enrollees in a plan, including the rates of 
both adults and children. Commenters who supported a tiered-composite 
methodology generally thought it would ensure that premiums for family 
coverage appropriately reflect the lower rates of children.
    Response: We agree with commenters who suggested a tiered-composite 
premium approach would benefit families with children enrolled in plans 
using composite premiums. Based on our analysis, without a tiered 
approach, the composite premium charged for a family consisting of two 
adults (both age 24) and three children (all under age 21) would be 
about 35 to 55 percent higher than the composite premium charged for 
the same family under a tiered approach, depending on the average age 
of the group.\13\ Accordingly, this rule establishes a tiered-composite 
methodology based on one of the alternatives discussed in the preamble 
to the proposed rule.
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    \13\ For illustration, we assumed per-member premiums for family 
members of different ages enrolled in employer-group coverage and 
assumed various average ages for the group. For each average age, we 
calculated the total composite family premium that would be charged 
under a pure composite and two-tiered composite approach. The 
difference in the total composite premium for the family between the 
pure composite and two-tiered composite approach ranged from 35 to 
55 percent, depending on the average age of the group.
---------------------------------------------------------------------------

    The rule creates a two-tiered composite premium structure for small 
group market issuers that offer composite premiums, effective for plan 
years beginning on or after January 1, 2015. Under this approach, an 
issuer offering composite premiums will calculate a composite premium 
(or average enrollee premium amount) for each individual age 21 and 
older and a composite premium for each individual under age 21 covered 
under the plan. We note that an individual's status as an employee or 
adult dependent is not relevant for this purpose. To determine the 
total premium charged by the issuer for a given family composition, the 
issuer sums the average enrollee premium amount for each covered family 
member age 21 and older and the average enrollee premium amount for 
each covered family member under age 21, as applicable, taking into 
account no more than three covered children under age 21 and applying 
any applicable tobacco rating factor on a per-member basis (as 
discussed below).
    For example, suppose the composite premium for a group health plan 
is $200 for each covered individual age 21 and older and $100 for each 
covered individual under age 21. Also suppose that none of the 
enrollees uses tobacco. In this example, the premium charged for a 
single employee (over age 21) would be $200; the premium charged for an 
employee and spouse (both over age 21) would be $400 ($200 + $200); and 
the premium charged for a family consisting of an employee and spouse 
(both over age 21) and four children (all under age 21) would be $700 
($200 + $200 + $100 + $100 + $100 + $0). An example of how a tobacco 
rating factor would be applied is provided below.
    We discussed in the proposed rule that, under the approach we were 
considering, States could establish different tiered-composite premium 
standards with approval from HHS. We are finalizing this flexibility 
for States in this final rule. Thus, the tiered-composite premium 
methodology established in this rule will apply in the small group 
market in a State, both for coverage offered through a SHOP (subject to 
the amendments in Sec.  156.285(a)(4) of this final rule that limit the 
availability of composite premiums in the FF-SHOPs when employee choice 
is offered) and for coverage outside of a SHOP, unless a State 
establishes and HHS approves an alternate tiered-composite methodology 
for the State.
    Section 147.103 of the Market Reform Rule directs States to report 
certain information to HHS about State-specific rating requirements, 
including State-specific standards or requirements concerning average 
enrollee premium amounts. We interpret Sec.  147.103(a)(5) to include a 
requirement that States report any State-proposed tiered-composite 
premium methodology that relates to average enrollee premium amounts. 
Accordingly, States seeking to adopt tiered-composite premium standards 
that differ from the Federal standards will submit information about 
such standards to HHS in accordance with the State reporting provisions 
set forth in Sec.  147.103 and as further described in guidance. HHS 
will review a State's composite premium standards to ensure (1) the 
State standards are at least as consumer protective as the Federal 
standards; and (2) the State methodology produces a total group premium 
that equals the amount that is derived through per-member rating 
established at the time of applicable enrollment at the beginning of 
the plan year.
    We believe these composite premium standards will guarantee minimum 
consumer protections in every State to assure that children are charged 
only child premium rates, while promoting administrative simplicity for 
issuers and employers and providing flexibility for States to establish 
alternative approaches for their health insurance market.
    Comment: Tobacco rating is subject to the non-discrimination and 
wellness provisions under section 2705 of the PHS Act (providing that 
an issuer in the group market may vary the premium rate based on legal 
use of tobacco only in connection with a wellness program meeting the 
standards of section 2705(j) of the PHS Act and its implementing 
regulations).\14\ The preamble to the proposed rule indicates that this 
is true regardless of whether a tobacco rating factor is applied on a 
per-member or composite basis.\15\ One commenter suggested that 
including any surcharge for tobacco use in a composite premium was 
inconsistent with the rationale of ensuring that tobacco rating is 
applied only to portion of the premium attributable to each individual 
covered under the plan or coverage.
---------------------------------------------------------------------------

    \14\ 26 CFR 54.9802-1(f); 29 CFR 2590.702(f); and 45 CFR 
146.121(f).
    \15\ 78 FR at 72328, footnote 6.
---------------------------------------------------------------------------

    Response: To ensure that non-tobacco users do not have to pay any 
portion of a premium that is attributable to tobacco users enrolled in 
the plan, and to promote consistency with the wellness program 
requirements, this rule excludes any rating for tobacco use (as defined 
in Sec.  147.102(a)(1)(iv)) from any enrollee's composite premium. If 
an issuer offering composite premiums wishes to rate for tobacco use, 
consistent with applicable Federal and State law, the issuer must 
calculate the tobacco rating factor based on the applicable enrollee's 
per-member premium, not the composite premium for all enrollees. The 
resulting tobacco rating factor is added to the composite premium for 
the enrollee who uses tobacco to create a premium specific to each 
tobacco user. For example, assume that the rate of a non-tobacco user 
is $100 and the issuer does not rate based on age. The issuer imposes a 
1.5:1 tobacco rating factor for individuals age 45 and older who use 
tobacco (that is, a $50 tobacco surcharge) and a 1.3:1 tobacco rating 
factor for individuals under age 45 who use tobacco (that is, a $30 
tobacco surcharge). Further, assume that the composite premium for a 
group health plan is $100 for each

[[Page 13752]]

covered individual age 21 and older. In this example, the premium 
charged for a single employee (over age 45) who uses tobacco would be 
$150 ($100 + $50), and the premium charged for a single employee (under 
age 45) who uses tobacco would be $130 ($100 + $30), subject to the 
non-discrimination and wellness provisions under section 2705 of the 
PHS Act.
    Comment: Some commenters questioned how a composite premium would 
be established for adult and child dependents under a two-tiered or 
three-tiered composite approach if none were enrolled at the time of 
initial enrollment (or re-enrollment).
    Response: This rule establishes a two-tiered rather than a three-
tiered composite premium structure in response to these comments. The 
composite premium calculated at the beginning of the plan year for 
covered adults applies for all covered individuals age 21 and older 
regardless of whether they are an employee or adult dependent or when 
they enroll during the plan year. The composite premium calculated for 
covered individuals under age 21 is simply the per-member child age 
rate, which is a single rate for children ages 0 through 20 pursuant to 
Sec.  147.102(d) and (e), regardless of the total number of children 
covered under the plan (taking into account no more than three covered 
children under age 21 with respect to a given family). For these 
reasons, and because a tobacco rating factor may be applied only on 
per-member basis, a composite premium will apply for both adult and 
child dependents who enroll after the start of the plan year (subject 
to the applicability of the tobacco rating factor).
    Comment: Commenters suggested modifying the regulation text to 
clarify that a composite premium is calculated based on applicable 
employee ``and dependent'' enrollment at the beginning of the plan 
year.
    Response: Because composite premiums will be generated for 
employees and dependents, as well as other types of group health plan 
enrollees (for example, retirees), we now refer to ``participants'' and 
``beneficiaries'' in the regulation text for consistency with the terms 
generally used under the Employee Retirement Income Security Act of 
1974 (ERISA).
    Comment: The proposed rule provided that the new composite premium 
provisions would become applicable for plan years beginning on or after 
January 1, 2015. Some commenters noted that small group policies are 
issued on a rolling basis throughout the year and recommended the 
requirements become effective prior to 2015.
    Response: We recognize that issuers have developed the expertise 
and resources to comply with the per-member rating methodology 
generally required under the law and regulations and that some issuers 
might need time to adjust their systems to offer composite premiums in 
accordance with this rule. Therefore, the rule will take effect as a 
requirement for plan years beginning on or after January 1, 2015. 
However, as noted in the preamble to the proposed rule, we encourage 
issuers to voluntarily adopt the final rule's composite premium 
standards for plan years beginning in 2014.
2. Student Health Insurance Coverage
    Student health insurance coverage is traditionally offered on an 
academic year basis with a policy year other than a calendar year. 
Accordingly, we proposed in Sec.  147.145 to exempt student health 
insurance from certain calendar year requirements that would otherwise 
apply to student health insurance coverage as a type of individual 
health insurance coverage. We proposed to exempt student health 
insurance coverage from the requirement to establish open enrollment 
periods and coverage effective dates based on a calendar policy year, 
and clarified that student health insurance coverage is not required to 
be offered as a calendar year plan.
    We received comments supporting this proposal and are finalizing 
these provisions as proposed.

C. Part 153--Standards Related to Reinsurance, Risk Corridors, and Risk 
Adjustment Under the Affordable Care Act

1. Provisions for the State Notice of Benefit and Payment Parameters
    Section 1341 of the Affordable Care Act provides that States may 
elect to operate the transitional reinsurance program. Based on HHS's 
communications with States, as of January 31, 2014, Connecticut is the 
only State that elected to operate a transitional reinsurance program. 
We indicated in the 2014 Payment Notice that Maryland had elected to 
operate reinsurance for 2014; however since the publication of the 2014 
Payment Notice, Maryland has indicated that it wishes to defer the 
operation of the transitional reinsurance program to HHS. Because, at 
this time, taking on the operation of the reinsurance program on behalf 
of Maryland would not raise operational concerns, we are confirming 
that HHS will operate reinsurance on Maryland's behalf.
    Section 153.100(c) provides that a State that operates or 
establishes a risk adjustment or reinsurance program, and is required 
to publish a State notice of benefit and payment parameters under Sec.  
153.100(a) or (b), must publish an annual State notice of benefit and 
payment parameters by March 1st of the calendar year prior to the 
benefit year for which the notice applies. However, because the 2014 
Payment Notice was published after March 1, 2013, the 2014 Payment 
Notice extended this deadline to the 30th day following publication of 
that final rule. Similarly, we are extending the deadline for 
publication of a 2015 State notice of benefit and payment parameters 
until the 30th day following publication of this final rule. Consistent 
with this policy, we intend to propose in future rulemaking that for 
future benefit years, the publication deadline for the State notice of 
benefit and payment parameters be the later of March 1st of the 
calendar year prior to the applicable benefit year, or the 30th day 
following publication of the final HHS notice of benefit and payment 
parameters for the calendar year.
2. 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, non-grandfathered plans to higher risk, non-grandfathered plans 
in the individual and small group markets, inside and outside the 
Exchanges. 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.
    In the proposed rule, we proposed a risk adjustment user fee to 
support HHS operation of the risk adjustment program in 2015. We also 
considered two adjustments to our risk adjustment methodology: One 
concerning adjustments for Medicaid alternative plans and the other 
concerning adjustments relating to the geographic rating areas. We also 
proposed a default counting method for determining whether a plan is a 
small group plan for purposes of risk adjustment when a State's 
counting method does not account for non-full-time employees. We 
proposed standards for risk adjustment data validation, including a 
sampling methodology, audit standards, internal consistency standards, 
a methodology to adjust risk scores, and actions upon noncompliance. We 
proposed that HHS have the authority to

[[Page 13753]]

conduct audits of issuers of risk adjustment covered plans.
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 a risk 
adjustment program 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 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.
    For the 2015 benefit year, we proposed to use the same methodology 
that we used in the 2014 Payment Notice to estimate our administrative 
expenses to operate the risk adjustment program. That proposed 
methodology was based upon our contract costs in operating risk 
adjustment on behalf of States. The contract costs we considered 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 proposed not to set the user fee 
to cover costs associated with Federal personnel. We proposed to 
calculate the user fee by dividing 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 in HHS-
operated risk adjustment programs for the benefit year (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).
    We estimated that the total cost for HHS to operate the risk 
adjustment program on behalf of States for 2015 would 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 are finalizing the 
proposed methodology for benefit year 2015, and are finalizing a per 
capita risk adjustment user fee of $0.96 per enrollee per year, which 
we will apply as a per-enrollee-per-month risk adjustment user fee of 
$0.08.
    We received no comments on the risk adjustment user fee, and are 
therefore finalizing this proposal as proposed.
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 proposed to use the same methodology in 2015, but proposed 
to amend the methodology by applying an adjustment for individuals 
enrolled in premium assistance Medicaid alternative plans. We proposed 
to apply the amended methodology beginning in 2014. We also sought 
comment on potential adjustments to the geographic cost factor to 
account for rating areas with low populations in the HHS risk 
adjustment methodology for future years.
    We received a number of general comments regarding the HHS risk 
adjustment methodology.
    Comment: Commenters requested that HHS provide additional guidance 
on the ICD-10 transition for risk adjustment, including the ICD-10 
mappings, as soon as possible.
    Response: We will publish updated ICD-9 instructions and software 
and then a combined set of ICD-9 and ICD-10 instructions and software 
on our Web site, as we did for the original ICD-9 software and 
instructions.\16\ Because ICD-10 codes will be accepted for risk 
adjustment beginning October 1, 2014, we intend to publish these 
documents shortly.
---------------------------------------------------------------------------

    \16\ The HHS-Developed Risk Adjustment Model Algorithm Software 
is available at: http://www.cms.gov/CCIIO/Programs-and-Initiatives/Premium-Stabilization-Programs/index.html under ``Regulations & 
Guidance'' (posted under ``Guidance'' on May 7, 2013).
---------------------------------------------------------------------------

    Comment: One commenter requested that the risk adjustment model be 
calibrated for 2015 using the most current data possible. Other 
commenters suggested that HHS incorporate pharmacy utilization in the 
risk adjustment model. One commenter suggested that HHS include 
transitional plans' data in the risk adjustment model, but exclude them 
from payments and charges.
    Response: We believe it is important to maintain model stability in 
implementing the risk adjustment methodology in the initial years of 
risk adjustment, and therefore do not intend to recalibrate the model 
in the initial years. Similarly, we do not intend to significantly 
change the model by including pharmacy utilization, though we continue 
to consider whether and how to include prescription drug data in future 
models. Finally, as we described in the 2014 Payment Notice (78 FR 
15418), under our current methodology, plans not subject to the market 
reform rules are not subject to risk adjustment charges and do not 
receive risk adjustment payments. Because under the transitional 
policy, the Federal government will not consider certain health 
insurance coverage in the individual or small group market renewed 
after January 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, transitional plans are able to 
set premiums and provide coverage as if they were not subject to market 
reform rules.\17\ For this reason, transitional plans are not subject 
to risk adjustment payments and charges under our methodology at this 
time.
---------------------------------------------------------------------------

    \17\ Letter to Insurance Commissioners, Center for Consumer 
Information and Insurance Oversight, November 14, 2013. Available 
at: http://www.cms.gov/CCIIO/Resources/Letters/Downloads/commissioner-letter-11-14-2013.PDF.
---------------------------------------------------------------------------

    Comment: One commenter sought clarification on the risk scoring 
process. The commenter sought clarification on whether an enrollee's 
risk score is calculated monthly and aggregated to reflect changes in 
the receipt of cost-sharing reductions. The commenter also sought 
clarification on whether diagnoses carry through to the new plan if a 
qualifying event results in a special enrollment period and an enrollee 
changes plans, but stays with the same issuer. One commenter questioned 
whether an issuer would receive credit for the diagnoses on risk 
adjustment eligible claims paid by the issuer during a grace period if 
the issuer later processes a retroactive termination because the 
individual does not pay the premium.
    Response: For each enrollee, HHS will use all risk adjustment 
eligible claims or encounters submitted from across all of the issuer's 
risk adjustment covered

[[Page 13754]]

plans to calculate a risk score. The diagnoses would be associated with 
each of the issuer's plans in which the individual enrolls. This means 
that if the enrollee changes plans within the same issuer, then the 
claims data from all of the issuer's plans will be utilized to 
calculate the member's plan-specific risk scores for each of these 
plans. We note that in accordance with our methodology, the risk score 
value could change based on cost-sharing reductions received or plan 
AV. However, to align with our distributed data collection approach, 
which collects data by issuer, we will not link enrollee data across 
different issuers, even if the issuers are affiliated with the same 
insurance company. Diagnoses from risk adjustment eligible claims will 
only be accepted with dates of service that occur during active 
enrollment periods. Therefore, claims associated with months during a 
grace period will be counted toward risk adjustment, so long as the 
months are not later subject to a retroactive termination.
    We are finalizing the use of the 2014 Federal risk adjustment 
methodology when HHS operates a risk adjustment program on behalf of a 
State, for 2015, with the modification for the treatment of Medicaid 
alternative plans discussed below, effective for 2014 risk adjustment.
(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 alternative 
plans receive significant cost-sharing 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, our methodology increases the risk score 
for individuals in plan variations by a certain factor. We proposed to 
use the same factor that we use to adjust for induced utilization for 
individuals enrolled in cost-sharing plan variations to adjust for 
induced utilization for individuals enrolled in the corresponding 
Medicaid alternative plan variations, and to implement these 
adjustments in 2014. Table 1 shows the cost-sharing 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.

               Table 1--Cost-Sharing Reduction Adjustments
------------------------------------------------------------------------
                                                            Induced
                    Plan variation                        utilization
                                                             factor
------------------------------------------------------------------------
94 Percent Plan Variation............................               1.12
Zero Cost-Sharing Plan Variation of Silver QHP.......               1.12
------------------------------------------------------------------------

    We are finalizing the application of the cost-sharing reduction 
adjustments to corresponding Medicaid alternative expansion plans as 
proposed. We plan to evaluate these adjustments in the future, after 
data from the initial years of risk adjustment is available.
    Comment: Commenters agreed with our approach for accounting for 
Medicaid alternative plans under risk adjustment, with one commenter 
recommending that we monitor utilization patterns and consider 
evaluating States' Medicaid alternative plans separately in 2015 and 
beyond.
    Response: We intend to examine the utilization patterns of current 
Medicaid alternative plans and the benefit structure of future Medicaid 
alternative plans, and may make appropriate adjustments in the future.
(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 by geography 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, as we noted in the proposed rule, 
several States have defined a large number of rating areas, potentially 
leading to rating areas with low populations. 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 sought comment in the proposed rule on how to best adjust the 
geographic cost factors or geographic rating areas in future years to 
address these potential premium distortions. We also sought comment on 
how this adjustment should be implemented for a separately risk 
adjusted pool of catastrophic plans. We stated that we did not intend 
to make this adjustment for 2014.
    Based on comments received, we will continue to implement the 
geographic cost factor for each rating area established by the State 
under Sec.  147.102(b) and calculated based on the observed average 
silver plan premium for the metal-level risk pool, as finalized in the 
2014 Payment Notice (78 FR 15433).
    Comment: Commenters did not support making additional adjustments 
to the geographic cost factor. Commenters stated that the time and 
resources needed to calculate and implement such an adjustment would be 
considerable, and that any such adjustment would be unlikely to have a 
material impact on final risk adjustment results.
    Response: We will not adjust the geographic cost factors or 
geographic rating areas, but will monitor 2014 risk adjustment data for 
any potential premium distortions.
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 Sec.  153.20, a plan must be offered

[[Page 13755]]

in the ``individual or small group market.'' The definition of small 
group market in Sec.  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 define ``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 non-full-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 (78 FR 15503). We stated that 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 a group 
health plan must participate in that program.
    However, we also recognize that, because risk adjustment is 
intended to stabilize premiums by mitigating pricing uncertainty 
associated with 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 are finalizing our proposal, with one modification--we are 
changing the cross-reference to the Code so that it references section 
4980H(c)(2). In determining which group health plans participate as 
small group plans in the risk adjustment program, we will apply the 
applicable State counting method, unless the State counting method does 
not take into account employees that are non-full-time. In that 
circumstance, we will apply the counting method described in section 
4980H(c)(2) of the Code and any implementing regulations.\18\ We 
believe that this approach defers to State counting methods and aligns 
with State enforcement of rating rules, within the bounds of what is 
legally permissible under the Affordable Care Act.
---------------------------------------------------------------------------

    \18\ We note that the IRS has published a final regulation that 
contains further details that would apply to this calculation (Sec.  
54.4980H-2(c) (79 FR 8544).
---------------------------------------------------------------------------

    Comment: One commenter supported our proposed counting method when 
a State counting method does not account for non-full-time employees. 
Some commenters urged us to maintain consistency with other counting 
methods, noting the administrative burden of having inconsistent 
counting methods across different Affordable Care Act programs. One 
commenter suggesting that we codify the average number of employees 
during the preceding calendar year as the single counting method across 
Affordable Care Act programs. Some commenters recommended deferring to 
the State counting method in the transitional years while collaborating 
with other Federal agencies to issue a uniform counting method in 
future rulemaking. One commenter recommended that if a group is 
required to be rated as a small group based on rating rules or SHOP 
requirements and is part of the single risk pool pricing, it should be 
included in the small group risk adjustment pool.
    Response: We agree that risk adjustment should apply to plans 
subject to the market reform rating rules, to the extent permissible 
under the Affordable Care Act. We also agree with commenters that 
consistency in counting methods across Affordable Care Act programs is 
important, and we plan to collaborate with other Federal agencies to 
streamline counting methods in future rulemaking. To better address 
commenters' requests for consistency across Affordable Care Act 
programs, we have changed the Code reference from section 
4980H(c)(2)(E) to 4980H(c)(2). This broader cross-reference will 
incorporate the limit in section 4980H(c)(2)(B) on how certain seasonal 
employees are counted, and will be consistent with the counting method 
used by the SHOP, as finalized in the 2014 Payment Notice (78 FR 
15503). Prior to streamlining counting methods, because we interpret 
the employer size definitions in the Affordable Care Act to include 
non-full-time employees for purposes of determining small group status 
for purposes of risk adjustment, in States that do not account for non-
full-time employees, we believe that requiring the large group counting 
method described in section 4980H(c)(2) of the Code (which accounts for 
non-full-time employees) is an appropriate standard because it is used 
by other Affordable Care Act programs and will reduce administrative 
burden for issuers.
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 (78 FR 15436), 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 (the ``white 
paper'').\19\ That white paper discussed and sought comments on a 
number of potential considerations for the development of the risk 
adjustment data validation methodology. 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.
---------------------------------------------------------------------------

    \19\ ``Affordable Care Act HHS-Operated Risk Adjustment Data 
Validation Process White Paper.'' 22 June 2013. https://www.regtap.info/uploads/library/ACA_HHS_OperatedRADVWhitePaper_062213_5CR_062213.pdf.
---------------------------------------------------------------------------

    In the proposed rule, we proposed 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 again note that a State operating a risk adjustment 
program is not required to adopt these standards.
    We received some general comments about our proposed risk 
adjustment data validation methodology and process.
    Comment: We received comments supporting the risk adjustment data 
validation methodology and process, noting that data validation is 
critical to issuer confidence and to encouraging the enrollment of 
individuals with significant health needs. Another commenter suggested 
that we model the HHS risk adjustment data validation program after the 
Medicare Advantage risk adjustment data validation program to the 
extent possible.
    Response: We agree that a robust risk adjustment data validation 
program is

[[Page 13756]]

critical to ensuring that we effectively promote issuer confidence and 
the goals of the risk adjustment program. We note that many aspects of 
the HHS risk adjustment data validation program were modeled after the 
Medicare Advantage risk adjustment data validation program. For 
example, we have adopted a sampling strategy modeled on the one used in 
the Medicare Advantage risk adjustment program. Additionally, we have 
elected to adopt the medical record as the authoritative source to 
verify diagnoses, and have required that certified reviewers perform 
medical record reviews, as discussed below. Both of those program 
features are modeled on the Medicare Advantage risk adjustment data 
validation process. However, because our risk adjustment methodology 
uses a more comprehensive set of data elements, our data collection 
approach is more robust, and our data validation approach is broader.
(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 final 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, in the proposed rule we proposed to use the methodology 
outlined in the white paper. We stated in the proposed rule that our 
goal in determining the enrollee sample size for the initial 2 years of 
risk adjustment data validation is to use a sample large enough to 
inform us in a statistically valid manner of the dynamics of the risk 
adjustment data validation process in operation, and to permit 
statistically valid estimation of risk score accuracy. As we 
established in the 2014 Payment Notice, in order to permit 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 the proposed rule, we proposed selecting 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. For the initial 2 years of the risk 
adjustment data validation program, we proposed an initial validation 
audit sample of 200 enrollees from each issuer. We stated in the 
proposed 2014 Payment Notice and the proposed rule that the overall 
sample will reflect a disproportionate selection of enrollees with 
HCCs. In the proposed rule, we discussed in detail our 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 finalizing a simple age and risk 
score stratification for the initial 2 years of the program. Following 
the division of the relevant population into strata, we will use the 
following formulas to calculate a proposed sample size for the initial 
validation audit each year. In general, the formula for the overall 
sample size for an issuer (n) is:
[GRAPHIC] [TIFF OMITTED] TR11MR14.000

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).

    We are finalizing a sample size of 200 enrollees from each issuer 
for the initial 2 years of the program. The formula above will use real 
data from the HHS-operated risk adjustment program after this initial 
2-year period to calculate a more precise, issuer-specific sample size 
for each issuer.
    The formula for calculating the sample size for each stratum 
(nh) is:
[GRAPHIC] [TIFF OMITTED] TR11MR14.001

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.

    As we described in the proposed rule, 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[supreg] Commercial Claims and 
Encounters database (MarketScan[supreg]). 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[supreg] 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 enrollee-specific 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[supreg] 
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

[[Page 13757]]

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[supreg] data.
    We will group each issuer's enrollee population into 10 strata 
based on age group, risk level, and presence of HCCs, as follows:
     Strata 1-3 will include low, medium, and high risk adults 
with the presence of at least one HCC.
     Strata 4-6 will include low, medium, and high risk 
children with the presence of at least one HCC.
     Strata 7-9 will include low, medium, and high risk infants 
with the presence of at least one HCC.
     Stratum 10 will include the No-HCC 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, which 
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 HHS-operated risk 
adjustment program are available, we will 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 will use the lowest error rate across all HCC strata as the 
error rate for the stratum of enrollees without HCCs, and we will 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 will use the same 
risk score error rates and standard deviation for the age bands for a 
risk category. Thus, we will use 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 are making 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, as we proposed in the proposed rule, we are finalizing 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 \20\ 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.
---------------------------------------------------------------------------

    \20\ Critical value for the two-sided 95 percent confidence 
level.
---------------------------------------------------------------------------

    Once the 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.
    When data becomes available from the program's first year, we 
expect to examine our sampling assumptions using actual enrollee data. 
We anticipate that in the initial 2 years of the risk adjustment data 
validation program, the stratification design will remain consistent 
with the design outlined above--nine HCC strata and one No-HCC 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 are finalizing our sampling approach as proposed for the initial 
2 years of risk adjustment data validation.
    Comment: Several commenters supported reducing the sample size from 
300 to 200 enrollees for the initial years of data validation. 
Commenters supported using sampling experience from the initial years 
to improve the sampling methodology and target issuer-specific sample 
sizes in 2016. Other commenters requested that HHS increase the sample 
size for larger issuers and decrease the sample size for smaller 
issuers. One commenter requested that we use a nationwide sample to 
assess error rates for multi-State carriers, while another commenter 
requested that we combine the risk pools to minimize issuer burden for 
sample selection. Some commenters did not support the smaller sample 
size, noting that questionable enrollment data in the initial years may 
result in erroneous risk scores. One commenter recommended that HHS use 
a statistically sound method to ensure that there is a proportionate 
representation of plan metal levels in each issuer sample.
    Response: We will use our sampling experience in the initial years 
of data validation to evaluate how and if we can appropriately 
establish issuer-specific sample sizes, and whether our sample size is 
adequate. We believe that lowering the sample size from 300 to 200 will 
yield a statistically valid sample, while minimizing the burden on all 
issuers. We also clarify that the enrollee sample totals 200 enrollees 
per issuer across all risk pools, and not per plan. Our sampling 
methodology does not separate risk pools within an issuer.
    Comment: Commenters generally supported our proposed strata. One 
commenter suggested that fewer than ten strata are necessary, while 
another commenter suggested that because our risk adjustment model is 
calibrated for a standard population, it has significantly lower 
predictive power when applied to a pediatric-only population.
    Response: We believe that the ten strata are appropriate for the 
initial years of data validation, in order to ensure that the sample 
targets enrollees

[[Page 13758]]

with HCCs of varying ages and health statuses. We intend to use real 
data as it becomes available to improve our precision in error rate and 
variance estimation by age and health status.
(ii) Initial Validation Audit
    The second stage of the HHS-operated risk adjustment data 
validation process is the initial validation audit. In this section, we 
discuss 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 and the proposed rule, 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 Sec.  153.630(b)(2) and (b)(3), we 
directed 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 potential 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. In the proposed rule, we proposed 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 decision-making of the issuer;
     Owners, directors and officers of the issuer may not be 
owners, directors 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 stated in the proposed rule that we were 
considering establishing standards under which issuers must 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 OIG exclusion list or, to its 
knowledge, are under investigation with respect to any HHS programs.
    We noted in the proposed rule 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 noted that HHS could gather information through external reporting 
to support that review. Although we remain 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.
    In the proposed rule, we proposed to amend Sec.  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 stated that we considered 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 
considered any individual that serves on the governing board of an 
entity to be a ``director'' of the entity. We stated that we were 
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 
stated that we expected to identify the enrollee sample for the initial 
validation audit in the summer of the year following the benefit year, 
and that we were contemplating requiring delivery of the initial 
validation audit findings to HHS in the fourth quarter of that year. We 
included a proposed schedule of the risk adjustment data validation 
process.
    Once the audit sample is selected by HHS, we stated that we expect 
issuers to 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 issuer-submitted risk adjustment data for each sampled 
enrollee;
     The issuer and initial validation auditor would determine 
a timeline and information-transfer methodology that satisfies the data 
security and privacy requirements at Sec.  153.630(f)(2), and enables 
the initial validation auditor to meet HHS established timelines;
     The initial validation auditor would validate the 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

[[Page 13759]]

the initial validation audit and all requested information for the 
second validation audit.
    We noted in the proposed rule that we did not propose amending 
Sec.  153.630(f)(2), and that the issuer would be required to ensure 
that its initial validation auditor comply with the security standards 
described at Sec. Sec.  164.308, 164.310, and 164.312 in connection 
with the initial validation audit.
    We are finalizing these standards as proposed, with certain 
modifications in response to comments to Sec.  153.630(b)(1). Where we 
had proposed requiring an attestation from the issuer as to the absence 
of conflicts of interest with the initial validation auditor on the 
part of the issuer, we are modifying the conflict of interest 
attestation requirement in Sec.  153.630(b)(1) so that the issuer must 
attest to the absence of conflicts of interest with the initial 
validation auditor to its knowledge, following reasonable 
investigation. Similarly, where we had proposed requiring an 
attestation from the issuer as to the absence of conflicts of interest 
on the part of the initial validation auditor, we are modifying the 
attestation requirement so that the issuer may attest that it has 
obtained a representation from the initial validation auditor that to 
its knowledge, following reasonable investigation, there are no 
conflicts of interest. We are also including a standard under which an 
issuer must verify that no key individual involved in supervising or 
performing the initial validation audit appears on the Office of the 
Inspector General List of Excluded Individuals and Entities or, to the 
issuer's knowledge, are under investigation with respect to any HHS 
program.
    Comment: One commenter recommended that HHS provide a pre-certified 
list of auditors to make it easier for issuers to select an independent 
entity to perform the initial data validation audit. Another commenter 
suggested that HHS maintain adequate staff to monitor the performance 
of issuers and their auditors. Commenters suggested that the initial 
validation auditor, rather than the issuer, certify that the entity 
meets the conflict of interest standards, since the issuer may be 
unaware of all potential conflicts. The commenters suggested that the 
initial validation auditor attest to an absence of conflict to both HHS 
and the issuer, and that the issuer attest to the absence of conflicts 
only on the issuer's side. Several commenters recommended that HHS 
require attestation of an absence of conflict of interest only from 
senior management teams of the issuer and the auditor, and permit 
members of the initial validation audit team to simply disclose any 
potential conflicts for issuer evaluation, rather than categorically 
excluding an initial validation auditor. One commenter requested that 
HHS prohibit vendors that provide risk adjustment services from serving 
as initial validation auditors.
    Response: We believe that members of the initial validation audit 
team should be subject to the same conflict-of-interest requirements as 
owners and directors. However, we agree with the commenters that the 
issuer may not be able to provide the full attestation proposed, and 
are finalizing a change in our policy in Sec.  153.630(b)(1) so that 
the issuer is required to attest to the absence of conflicts of 
interest between the initial validation auditor (or the members of the 
audit team, owners, directors, officers, or employees) and the issuer 
(or its owners, directors, officers, or employees), to its knowledge 
following reasonable investigation, and must attest that it has 
obtained an equivalent representation from the initial validation 
auditor.
    We do not intend to pre-certify auditors at this time. However, as 
stated elsewhere in the preamble to this rule, we intend to monitor the 
performance of initial validation auditors to determine whether 
additional certification or safeguards are necessary.
    Comment: Several commenters suggested that HHS require the initial 
validation auditor to provide issuers, as well as HHS, with the results 
of the initial validation audit.
    Response: Nothing in our rules prevents the issuer from requiring 
that the initial validation auditor provide it with the results of the 
initial validation audit.
(2) Standards for the Initial Validation Audit
    In the proposed rule, we proposed 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 are finalizing this provision as proposed.
    Comment: Several commenters supported requiring nationally 
accredited medical coders to review an enrollee's health status during 
an initial validation audit. One commenter recommended that the 
Practice Management Institute be considered a nationally recognized 
accrediting agency for medical coding. Another commenter suggested that 
reviewers receive certification in the specialty area in which they 
work and by the appropriate specialized accrediting agency. Another 
commenter supported coding education and clinical training for medical 
coders, but suggested that HHS should consider other standards, if 
available, to enhance consistency among auditors.
    Response: We will not recognize certification by the Practice 
Management Institute as certification by a nationally recognized 
accrediting agency because we do not believe this organization is 
nationally recognized for the rigor of its coding training and 
accreditation practices. By contrast, AHIMA and AAPC certification is 
intended for a broad group of health providers, issuers, and associated 
industry groups. At this time, while our risk adjustment data 
validation standards are relatively new, we will not require specialty 
certification, but we will consider additional standards in the future.
(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, in the proposed rule we proposed to add paragraph 
(b)(6) to Sec.  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 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. We noted 
that existing privacy and security standards, such as standards under 
HIPAA and those detailed at Sec.  153.630(f)(2), will apply. This 
information would 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 noted that only a very small 
percentage of an issuer's records containing personally identifiable 
information (PII) would be made available to auditors as part of the

[[Page 13760]]

risk adjustment data validation process, and that similar transmissions 
are required today for data validation for the Medicare Advantage 
program. We also proposed to add paragraph (b)(7) to Sec.  153.630, to 
describe the standards for validating an enrollee's risk score. Under 
paragraph (b)(7)(i), we proposed that the initial validation auditor 
would validate information by reviewing plan source enrollment 
documentation, such as the 834 transaction,\21\ which is the HIPAA-
standard 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 noted that certain identifying 
information from these enrollment transactions would be used to ensure 
that the appropriate medical documentation has been provided. We are 
finalizing these standards as proposed, with the modification to Sec.  
153.630(b)(7)(i) that an enrollee's risk score must be validated 
through enrollment and demographic data in a manner to be determined by 
HHS. We have made this change because we are exploring an approach 
under which we would use an automated data validation process for the 
enrollment and demographic data. We believe that such an approach could 
lessen the burden of the data validation process on issuers. We will 
provide further guidance on this topic in the future. We stated in the 
proposed rule that the sample audit pool would consist of enrollees 
with and without risk adjustment eligible diagnoses within eligible 
dates of service. For each enrollee in the sample with risk adjustment 
HCCs, the initial validation auditor would validate diagnoses through a 
review of the relevant risk adjustment eligible medical records. We 
stated we would 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 would be required to 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.\22\
---------------------------------------------------------------------------

    \21\ 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 Sec.  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.
    \22\ See ``HHS-Operated Data Collection Policy FAQ'' for a 
discussion of chart review as an acceptable source of supplemental 
diagnosis codes. Available at: https://www.regtap.info/uploads/library/HHS_OperatedDataCollectionPolicyFAQs_062613. Additional 
detail will be provided in future guidance.
---------------------------------------------------------------------------

    Therefore, we proposed in Sec.  153.630(b)(7)(ii) to require 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. For purposes of Sec.  153.630, ``medical record 
documentation'' would 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 would be required to 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 Sec.  153.630(b)(7)(iii), we proposed 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), or the International Statistical Classification 
of Diseases and Related Health Problems, Tenth Revision, 4th Edition 
(ICD-10) guidelines for coding and reporting.
    We are finalizing these standards as proposed, with the 
modification to Sec.  153.630(b)(7)(i) discussed above.
    Comment: One commenter requested that HHS specify documents other 
than the ``834'' plan benefit and enrollment form that could be used to 
validate demographic data and enrollment information for risk 
adjustment validation when a plan is not part of a State Exchange. One 
commenter recommended that HHS adjust its audit standards to rely on 
medical conditions as described and substantiated in medical claims 
forms rather than medical records. Several commenters supported our 
proposal that medical records generated in the course of telehealth 
encounters be deemed acceptable for risk adjustment data validation, 
and asked HHS for additional guidance. However, another commenter 
stated that limiting medical record documentation to face-to-face 
encounters and telehealth visits would be too restrictive, because of 
the difficulty in obtaining medical records from providers from prior 
insurance plans.
    Response: HHS will provide further guidance on appropriate sources 
of plan enrollment data. We believe that the original medical record 
provides the most complete information on which to assess whether a 
claim is eligible for risk adjustment. With respect to the challenge of 
obtaining prior medical documentation when an enrollee changes issuers, 
we note that the data validation documentation request process for each 
issuer will be specific to periods during which the issuer reported 
plan enrollment for the sampled enrollees.
    Comment: One commenter stated that the proposed process does not 
provide adequate recourse for issuers to identify and correct 
legitimate errors in the provider's medical records. One commenter 
asked that HHS allow initial validation auditors to use analytic tools 
to help providers locate overlooked risk adjustment eligible claims.
    Response: As part of medical record review, HHS expects that the 
initial validation auditor will provide the issuer with adequate time 
to submit accurate medical records from providers. HHS expects that any 
amendments to medical records will be made in the normal course of 
business and according to practice protocols. Although we defer to 
auditors to determine the appropriate tools for their analyses, we 
encourage issuers to be proactive in identifying risk adjustment 
eligible claims during the data collection period and, at the same 
time, to correct for claims identified during data collection that 
should not be included.
    Comment: Another commenter expressed concern that medical

[[Page 13761]]

providers may bear the financial burden of data validation audits.
    Response: We appreciate that issuers may require more extensive 
access to provider medical documentation, and expect issuers and 
providers to negotiate suitable arrangements, as they do today under 
similar data validation processes.
(4) Confirmation of Risk Adjustment Errors
    In the proposed rule, we noted 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, no risk 
adjustment error would be assessed for the enrollee's HCC. However, if 
none of the medical record documentation supports a particular HCC 
diagnosis for an enrollee, we proposed that a risk adjustment error be 
assessed.
    We stated that 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 could 
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 proposed in Sec.  153.630(b)(7)(iv) that a senior reviewer be 
required to confirm any finding of a risk adjustment error. We proposed 
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.
    Comment: Commenters supported requiring senior reviewers to confirm 
an enrollee risk adjustment error during the initial data validation 
audit. However, one commenter suggested increasing the experience 
required for a senior reviewer from 5 years to 7 years; a different 
commenter recommended that HHS require only 2 years of experience for 
the senior reviewer. The commenter said it may be difficult to find 
enough experienced coders. The commenter suggested permitting junior 
coders with 2 years of experience to act as senior reviewers for the 
first 2 years of auditing, after which they could obtain certification 
in their subject area.
    Response: As we discussed in the proposed rule, we believe that 
once risk adjustment data validation is established, 5 years should be 
the minimum experience necessary for a senior coder, and that all 
coders should be certified. We believe that, in the long term, this 
standard appropriately balances the need to assure that senior coders 
are sufficiently experienced with the need to assure a reasonable 
supply of senior coders. However, we recognize that in the initial 
years of risk adjustment data validation, it may be difficult to find 
experienced coders. In recognition of this difficulty, and because we 
believe that by 2016, there will be a sufficient supply of coders with 
5 years' experience, we are modifying this provision to permit coders 
who will have sufficient experience by 2016 to act as senior coders--
thus, we provide that senior coders are required to have at least 3 
years of experience for risk adjustment data validation for the 2014 
and 2015 benefit years.
(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 Sec.  153.630(b)(8), we proposed 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. In the proposed rule, 
we 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. We proposed that reviews 
be performed using rater-to-standard procedures whereby reviews 
conducted by reviewers with extensive qualifications and credentials 
are used to establish testing thresholds or standards for consistency. 
We are amending Sec.  153.630(b)(8) to provide that, for the initial 
years of risk adjustment data validation (the 2014 and 2015 benefit 
years), the initial validation auditor may meet an inter-rater 
reliability standard of 85 percent for validating review outcomes in 
accordance with the standards established by HHS.
(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.
    In the proposed rule, we proposed 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 Sec.  153.630(c), we 
established standards for issuers of risk adjustment covered plans 
related to HHS's second validation audit. In Sec.  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 and in the proposed rule, we would 
select the second validation audit small subsample using a sampling 
methodology that would allow for pair-wise means testing to establish a 
statistical difference between the initial and second validation audit 
results. If the pair-wise means test results were to 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 were to 
be

[[Page 13762]]

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 were to be found based on the second validation 
audit on the larger subsample, HHS would apply the second validation 
audit error results to modify the initial validation sample, which 
would be used for the error estimate and calculation of adjustments for 
the plan average risk score. We stated that we were considering using a 
95 percent confidence interval for these pair-wise means tests.
    As we discussed in the white paper and the proposed rule, we are 
considering 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.
    We are finalizing the second validation audit approach as proposed.
    Comment: Commenters stated that it is unclear how and when 
enrollees will be included in the expedited second validation audit. 
Commenters expressed concern that the expedited process would permit 
the initial validation auditor to review its simplest cases first, 
negating the benefit of additional time for discussion in an expedited 
second validation audit. One commenter suggested that it would not be 
realistic to begin the second validation audit in advance because of 
the time it would take for the health plan to gather the necessary 
medical documentation.
    Response: We will take commenters' suggestions under consideration 
when we issue guidance on this process in the future.
(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 will be used to 
adjust the average risk score for each risk adjustment covered plan 
offered by the issuer. HHS intends to provide each issuer with 
enrollee-level audit results and the error estimates.
    In the proposed rule, we proposed to use 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 would 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. In the proposed rule, for phase two, we 
described 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, we proposed using a pair-wise statistical test 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:
[GRAPHIC] [TIFF OMITTED] TR11MR14.002

    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 niva enrollee records, as sampled by HHS, and 
validates the original enrollee risk scores.

[[Page 13763]]

[GRAPHIC] [TIFF OMITTED] TR11MR14.003

    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 niva, have the second validation auditor review the enrollee 
files, and again conduct a pair-wise 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 validation audit 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, if the difference between the initial and second 
validation audits is found to be statistically significant, 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.
    To illustrate this process, consider the following notations:

[[Page 13764]]

[GRAPHIC] [TIFF OMITTED] TR11MR14.004

[[Page 13765]]

[GRAPHIC] [TIFF OMITTED] TR11MR14.005

    Comment: Commenters were supportive of using a pair-wise means test 
and a larger second validation audit subsample to adjust the initial 
validation audit sample. One commenter recommended that HHS clarify 
whether the larger second validation audit subsample will include the 
small second validation audit sample in the event the second validation 
audit includes the second, larger review.
    Response: The larger subsample will not include the small second 
validation audit subsample if a larger second validation audit 
subsample is necessary. However, all enrollees in both the small second 
validation audit subsample and the larger second validation audit 
subsample will be used for the pair-wise test and risk score 
adjustment, if applicable. We are finalizing this error estimation 
process as proposed.
Adjusted Risk Score Projections
    The results of the initial or second validation audits will be used 
as the basis for projecting a corrected risk score for each issuer's 
population. The full initial validation audit sample of 200, whether 
the initial validation audit sample has been adjusted or not, will be 
used to calculate adjusted risk score projections. In the proposed 
rule, we proposed performing the projections described above on a 
stratum-by-stratum level, weighted to achieve an estimate of the 
corrected risk score for each issuer.
    We proposed to use a stratified separate ratio estimator \23\ 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 would then be 
calculated as the difference between the recorded average risk score 
across the entire population and the point estimate.
---------------------------------------------------------------------------

    \23\ For a discussion of stratified separate ratio estimators, 
see Cochran, William G., Sampling Techniques, third edition, John 
Wiley & Sons, 1977, at 164.
---------------------------------------------------------------------------

    The stratified separate ratio estimator of the total correct risk 
score would be calculated using the following equation:

[[Page 13766]]

[GRAPHIC] [TIFF OMITTED] TR11MR14.006

[[Page 13767]]

[GRAPHIC] [TIFF OMITTED] TR11MR14.007

    We proposed 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 covered 
plans within the issuer. We considered two options for applying the 
adjustment factor. Under the first option, we considered directly 
applying an adjustment factor to all of the issuer's risk adjustment 
covered plans. Under the second option, we considered applying this 
adjustment only if the corrected average risk score and the recorded 
average risk score are statistically different. We are finalizing the 
second option, under which a critical parameter of the statistical test 
is the target confidence interval, which determines the stringency of 
the test. In the proposed rule, we considered performing the 
statistical test at the 90, 95, or 99 percent confidence interval. As 
we noted in the proposed rule, the OIG 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 are finalizing our proposal to apply an adjustment factor only 
if the corrected average risk score and recorded risk score are 
statistically different, using a 95 percent confidence interval. We 
note that we will use this approach with a 95 percent confidence 
interval in the initial years of the risk adjustment data validation 
program but will consider using other error estimation approaches and 
statistical

[[Page 13768]]

tests as risk adjustment data becomes available. Among the approaches 
that we may consider for future years would be an approach under which 
risk scores would be corrected only if a statistically significant 
difference in risk scores was demonstrated, but a more pronounced risk 
score adjustment would be applied.
    Comment: Commenters generally supported applying an adjustment 
factor only if the corrected average risk score and recorded risk score 
are statistically different. However, a few commenters supported using 
a 99 percent confidence interval instead of the proposed 95 percent 
confidence interval. One commenter recommended using both a 90 percent 
and a 95 percent confidence interval but having CMS retain the 
discretion whether to apply an adjustment factor if statistical 
difference is discovered under the 90 percent confidence interval but 
not the 95 percent confidence interval. One commenter also recommended 
that the risk scores for enrollees without HCCs only be adjusted 
upward, not downward, since enrollees without HCCs are assigned the 
lowest error rate from among enrollees with HCCs.
    Response: We believe that a 99 percent confidence interval could 
lead to under correction of bias in risk scores, and therefore, are 
finalizing a 95 percent confidence interval. We believe that this lower 
confidence interval will encourage issuers to correct practices that 
may lead to errors in the data validation process. We note that the 
risk scores of enrollees without HCCs may be adjusted upward or 
downward based on the review of demographic and medical documentation. 
For example, if an enrollee's age was incorrectly recorded, validation 
of that data could change the enrollee risk score, even if the enrollee 
had no HCCs.
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 will 
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).\24\ We will 
then select an expanded subsample from the original sample of 200 
enrollees. Assume that the larger subsample is a sample of 80 
enrollees. Following selection of the larger second validation audit 
subsample, we will perform the pair-wise means test again. Assume the 
test fails again (that is, the pair-wise means test shows a 
statistically significant difference in the projected risk scores 
between the initial validation audit and the second validation audit 
for the sample of 100 enrollees--by assumption, 20 from the first 
subsample and 80 from the second subsample--selected in the second data 
validation audit). We will conclude that the risk scores in the sample 
of 200 enrollees need to be adjusted based on the results of the second 
validation audit.
---------------------------------------------------------------------------

    \24\ 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.
---------------------------------------------------------------------------

    In the second step of error estimation, HHS will adjust the risk 
scores in the sample of 200 using a one-for-one replacement for the 
risk scores of the 100 enrollees reviewed by the second validation 
auditor, and a uniform adjustment for the other enrollees in the 
initial validation audit sample. The one-for-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 100 enrollees. The remaining 100 
enrollees that were not included in the second validation audit 
subsample will 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 for the sample of 200 
enrollees (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 will be increased by 7 percent.
    At that point, the adjusted average risk score of the initial 
validation sample would be calculated to derive a projected correct 
population average risk score for the issuer that would be compared to 
the issuer's recorded average risk score. The plan average risk scores 
for the issuer would then be adjusted, based on the ratio between the 
corrected average risk score and the recorded average risk score, as 
described above, if the issuer's recorded average risk score and the 
projected correct average risk score are significantly different.
(v) Appeals
    We anticipate that the risk adjustment data validation appeals 
process will 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 error rates will be 
applied to payments and charges will be 2016. These error rates will be 
used as the basis for adjustments to the payment transfers for 2017, 
which will take place in spring 2018. 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.
    Comment: Commenters supported beginning the appeals process with 
the 2016 payment year. They also recommended leveraging existing 
appeals processes where applicable and providing at least 60 days to 
file an appeal. We received comments recommending that the individual 
reviewing the appeal be an independent entity with an appropriate level 
of coding, medical documentation, and audit experience. One commenter 
also recommended that the scope of the appeals be expanded to include 
initial validation audit results.
    Response: 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 will be used to 
develop a risk score error adjustment for each issuer, as described 
above. Each issuer's risk score adjustment will be applied to adjust 
the plan average risk score for each of the issuer's risk adjustment 
covered plans. This adjustment will be applied on a prospective basis

[[Page 13769]]

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 are finalizing these provisions as proposed.
    Comment: Commenters requested that HHS provide issuers with reports 
of their risk scores, as well as market risk scores pre- and post-
audit. Commenters also requested that HHS provide issuers with State 
and market-wide error rates, issuer error rates, initial validation 
audit error rates, and the projected financial impact of the proposed 
risk adjustment, as determined by auditors. One commenter requested 
that HHS publicly report issuer error rates both nationally and for 
each State for each issuer. Another commenter was opposed to the public 
reporting of issuer error rates and requested that they be provided 
individually to issuers.
    Response: We plan to publicly report aggregate summaries at the 
State, market, and initial validation auditor level. However, we will 
assess whether to publicly report initial validation auditor-level 
results. We plan to provide issuer-specific reports to the issuer and 
the initial validation auditor. We will provide further details on the 
reports in future guidance.
(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 markets 
that fail to provide data necessary for risk adjustment. We proposed 
expanding on these provisions to include oversight related to risk 
adjustment data validation when HHS operates risk adjustment on behalf 
of a State, and are now finalizing those proposals.
    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 proposed in Sec.  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 CMPs. We stated 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 reserve the right 
to impose penalties up to the maximum amounts proposed in Sec.  
156.805(c), as a general principle, we would work collaboratively with 
issuers to address problems in conducting the risk adjustment data 
validation process. In our application of the 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. We stated that our intent is to encourage issuers to 
address non-compliance 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 non-
compliance.
    We proposed in Sec.  153.630(b)(10) to assign a default risk 
adjustment charge to an issuer that does not hire an initial validation 
auditor or that otherwise does not submit initial validation audit 
results that comply with the regulations in subpart G and subpart H of 
part 153. We stated that we were considering whether this charge should 
be the same as the default charge in Sec.  153.740(b) for failure to 
comply with data requirements, should be based on a default error rate, 
or should be calculated based on some other methodology. We are 
finalizing a default risk adjustment charge that will be calculated in 
the manner provided for in Sec.  153.740(b), which is discussed 
elsewhere in this final rule.
    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, or user group calls.
    Based on the comments received, we are finalizing a default risk 
adjustment charge at Sec.  153.630(b)(10) for issuers that do not 
conduct the initial validation audit.
    Comment: Commenters agreed with our proposal to impose CMPs if 
issuers do not engage an auditor within the specified timeframe, do not 
otherwise arrange for an initial validation audit that complies with 
applicable regulations, or are repeatedly out of compliance with risk 
adjustment data validation requirements, including not providing the 
initial and second validation audit auditors with information. One 
commenter supported assigning the issuer the highest possible default 
error rate that guarantees additional charges as a percent of premium 
or reduced payments as a percent of premium. Another commenter 
recommended that HHS enforce the initial validation audit requirement 
with a significant penalty for issuers that do not conduct the initial 
validation audit, while imposing lesser penalties if the initial 
validation audit results are not submitted in a timely manner.

[[Page 13770]]

    Response: We agree that penalties should correspond to the severity 
of an issuer's non-compliance. We also agree with the commenter who 
suggested that HHS enforce the initial validation audit requirement 
with a significant penalty such as the default risk adjustment charge 
for issuers that do not conduct the initial validation audit, while 
imposing CMPs if the initial validation audit results are not submitted 
in a timely manner. As we noted previously and in the proposed rule, we 
intend to apply any proposed sanction so that the enforcement action 
would be proportional to the level of the violation.
(viii) Data Security
    We recognize that the risk adjustment data validation process 
outlined here will require the transmission of sensitive data and 
documents between an issuer and the initial and second validation 
auditors. HHS takes seriously the importance of safeguarding protected 
health information and PII. As outlined in the white paper and the 
proposed rule, we believe that it will be necessary to specify 
standards for safeguarding this information through proper information 
storage and transmission methods.
    We note that Sec.  153.630(f)(2) currently requires an issuer to 
ensure that it and its initial validation auditor comply with the HIPAA 
information security standards described at Sec. Sec.  164.308, 
164.310, and 164.312 (HIPAA Security Rule) in connection with the 
initial validation audit, the second validation audit, and any appeals. 
In addition to these requirements, we continue to consider 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 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 will 
address these issues and the treatment of initial and second validation 
auditors under HIPAA in future rulemaking or guidance.
    Comment: Several commenters stated that compliance with the current 
provisions of the HIPAA Security Rule by issuers and their auditors 
will effectively safeguard the transmission of sensitive data and 
documents between the issuer and the initial and second validation 
auditors. One commenter recommended that HHS adopt additional data 
security standards. One commenter requested that HHS base data security 
standards on applicable Medicare Advantage risk adjustment data 
validation standards, with specific penalties for breaches.
    Response: Because of the sensitive nature of the risk adjustment 
data validation data, we recognize that it is essential that HHS have 
in place the proper standards and safeguards to ensure data security 
and privacy protections. We are continuing to evaluate the sufficiency 
of the current HIPAA Security Rule provisions, as well as the potential 
effectiveness of requiring additional data security, management, and 
transmission safeguards, including penalties for breaches. We intend to 
clarify our data security approach in future rulemaking or guidance.
(ix) Implementation Timeline
    For the 2014 benefit year, we expect to implement risk adjustment 
data validation activities in early 2015. Implementation activities 
will begin with issuers submitting the identity of their initial 
validation auditor to HHS in accordance with Sec.  153.630(b)(1). In 
the spring of 2015, we intend to 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 will 
train issuers and initial validation auditors on the risk adjustment 
data validation process and the applicable standards for performing the 
initial validation audit, which will begin in the summer of 2015. Once 
the initial validation audit has concluded in the fall of 2015, HHS 
will begin the second validation audit process, which will continue 
into 2016. Risk adjustment data validation implementation activities 
for the 2014 benefit year data will 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 risk adjustment data validation implementation 
activities will follow a similar schedule for each subsequent benefit 
year. The 2016 benefit year will be the first year when payments and 
charges are adjusted. Those adjustments will occur after the conclusion 
of risk adjustment data validation activities for the 2016 benefit 
year, in the summer of 2018.
    Comment: Commenters supported the reporting of lessons learned from 
the initial year risk adjustment data validation activities. One 
commenter was concerned that the initial 2-year time period would be 
insufficient to analyze error rates or determine the appropriate 
sampling approach. Several commenters suggested that issuers would need 
to receive audit results more promptly to be able to improve their 
processes for the 2017 plan year. One commenter urged HHS to begin the 
risk adjustment data validation process as soon as possible.
    Response: We believe that the initial 2 years of risk adjustment 
will be sufficient to analyze error rates, determine a more effective 
sampling approach, and allow issuers to gain experience with the risk 
adjustment data validation process in time for payment adjustments to 
occur for the 2016 benefit year. Though final results for the 2014 
benefit year will not become available until 2016, we believe issuers 
should be able to adjust their 2017 processes in time.
e. HHS Audits of Issuers of Risk Adjustment Covered Plans
    We proposed in Sec.  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 
would also be required to ensure that its relevant contractors, 
subcontractors, or agents cooperate with the audit. We noted that 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. These 
audits would focus on aspects of the risk adjustment program that are 
not validated through the risk adjustment data validation program, such 
as whether a plan was a risk adjustment covered plan.
    We also proposed 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

[[Page 13771]]

Accountability Office (GAO) \25\) with respect to compliance with any 
requirement of subparts G or H of 45 CFR part 153, the issuer would be 
required to: (i) Within 30 calendar days of the issuance of the final 
audit report, 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. We 
proposed that 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 received risk adjustment payments 
to which it was not entitled, we may require the issuer to pay such 
amounts to the Federal government.
---------------------------------------------------------------------------

    \25\ See 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 non-public companies, the AICPA sets audit 
standards. See http://www.aicpa.org/Research/Standards/AuditAttest/Pages/SAS.aspx.
---------------------------------------------------------------------------

    We are finalizing the audit provisions as proposed.
    Comment: One commenter asked that if an audit identifies repeated 
noncompliance with the risk adjustment standards and the issuer fails 
to correct such issues, including failing to implement a corrective 
action plan, the issuer should be subject to a default risk adjustment 
charge or CMPs.
    Response: Under Sec.  153.620(c), an issuer of a risk adjustment 
covered plan must provide and implement a corrective action plan to 
rectify any material weakness or significant deficiency identified by 
HHS through an audit. Enforcement remedies are provided with respect to 
the risk adjustment program under Sec.  153.740 when an issuer of a 
risk adjustment covered plan fails to comply the data requirements in 
Sec. Sec.  153.700 through 153.730 or Sec. Sec.  153.610 through 
153.630. Enforcement remedies may be available through other Federal 
statutes, such as the False Claims Act, as well. While Sec.  153.620(c) 
does not provide specific remedies for the failure to implement a 
corrective action plan, we note that HHS will consider the totality of 
circumstances in assessing penalties for non-compliance with risk 
adjustment standards under Sec.  153.740, including those that occur in 
connection with a corrective action plan.
    Comment: One commenter suggested that when an audit results in 
issuers owing risk adjustment, reinsurance, or risk corridors charges, 
those funds should be paid into the applicable program and, where 
applicable, distributed pro rata to issuers of eligible plans in the 
program. The commenter further suggested that any reinsurance 
deficiencies identified and rectified after the program has ended 
should be directed to the risk adjustment program.
    Response: As we stated in the proposed rule, if HHS determines as 
the result of an audit that an entity or issuer was required to pay 
risk adjustment, reinsurance, or risk corridors charges, HHS has the 
authority to require the entity or issuer to pay such amounts to the 
Federal government. We will address the distribution of funding 
deficiencies, including those identified after a temporary program has 
ended, in future rulemaking.
    Comment: We received a number of comments regarding audit protocols 
and procedures applicable to the premium stabilization programs. In 
order to minimize the number and scope of data requests that issuers 
must respond to, commenters encouraged HHS to identify data elements, 
sample sizes, and other aspects of the audits in advance, and to 
streamline and coordinate data requests, given the overlap in data 
elements supporting the premium stabilization programs and the MLR 
program. Commenters suggested centralized audits so that auditors can 
consolidate data requests and follow-up requests for information. 
Commenters also encouraged HHS to work with States, issuers, 
contributing entities, and other stakeholders in advance of issuing 
data requests for audits. Additionally, commenters encouraged HHS to 
provide significant lead time for data collection and submission, and 
suggested that HHS limit its audits to samples of data when possible 
and expand those sample audits only upon a finding of material non-
compliance. Commenters also suggested that HHS limit issuer audits to 
one per year.
    Response: As stated in the proposed rule, to reduce the burden on 
issuers and HHS, to the extent practical, we intend to coordinate any 
audits of issuers and contributing entities with related audits of 
Exchange financial programs and premium stabilization programs, in 
order to limit the number of potential audits that an organization 
would experience. We intend to provide further details on the audit 
program, including timelines, procedures, and substantive requirements, 
in future rulemaking and guidance. We will consider the comments we 
received to this proposed rule and further feedback from stakeholders 
to ensure that our audit program is transparent and effective.
    Comment: Some commenters asked that HHS perform audits from a 
centralized location, with no on-site audits.
    Response: While we reserve the right to conduct on-site audits, as 
noted above, we intend to provide further details on the audit program 
in future rulemaking and guidance.
f. State-Submitted Alternate Risk Adjustment Methodology
    For 2015, we are recertifying the alternate risk adjustment 
methodology submitted by Massachusetts and certified in the 2014 
Payment Notice (78 FR 15439-15452). We are not certifying any other 
alternate risk adjustment methodologies for 2015.
3. 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 and modified the standards set forth in 
subparts C and E of the Premium Stabilization Rule, and established the 
reinsurance payment parameters and a uniform contribution rate for the 
2014 benefit year. In this final rule, we finalize provisions from the 
proposed rule, including: additional standards regarding reinsurance 
contributions, the 2015 reinsurance payment parameters and uniform 
contribution rate, modifications to the 2014 reinsurance payments 
parameters, and certain oversight provisions for 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 . . .'' To provide additional clarification for 
contributing entities, we proposed to define ``major medical coverage'' 
in Sec.  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 Sec.  156.145. We noted in the proposed rule that 
this definition of major medical coverage only applies for the purpose 
of determining reinsurance contributions under section 1341 of the 
Affordable Care Act.
    We are finalizing this provision as proposed, with one 
modification--we are modifying the definition of major medical coverage 
to include a specific reference to catastrophic plans and

[[Page 13772]]

individual and small group market plans subject to actuarial value 
requirements under Sec.  156.140.
    Comment: Several commenters supported our proposed definition of 
major medical coverage, stating that the reference to minimum value is 
a reasonable method to provide a consistent definition for major 
medical coverage. Other commenters asked that we exclude the reference 
to minimum value and continue to classify fully insured major medical 
coverage as that which provides hospitalization and medical services, 
or retain the definition of major medical coverage as it was defined in 
the preamble to the 2014 Payment Notice (78 FR 15456). One commenter 
stated that coverage before 2014 was not evaluated for minimum value 
and retroactive testing would be difficult to implement, 
administratively burdensome, difficult to audit, and that this 
definition could exclude a fairly large population from reinsurance 
contributions. Another commenter suggested that minimum value is 
confusing because it is not a concept that generally applies to 
individual health coverage and is only relevant for determining whether 
employer-sponsored coverage provides minimum value. One commenter noted 
that because the safe harbor method of calculating minimum value has 
not yet been finalized, minimum value cannot yet be determined.
    Response: We believe that codification of this definition of major 
medical coverage will help issuers and group health plans more 
accurately determine their reinsurance contribution obligations. As 
noted in the proposed rule, we believe that 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 issuers and group health 
plans, and believe that the minimum value calculator will enable the 
calculation of minimum value with minimal burden, regardless of when 
the coverage was first offered. In the event that the minimum value 
calculator is unsuitable for use in determining whether a particular 
plan provides minimum value (and, therefore, major medical coverage), 
the contributing entity may seek certification by an actuary consistent 
with Sec.  156.145(a)(3) to establish whether the plan provides minimum 
value.
    Comment: One commenter asked that we include in the definition of 
major medical coverage any coverage subject to the actuarial value 
requirements because this would eliminate the need for plans subject to 
actuarial value requirements to also calculate minimum value.
    Response: We agree with the commenter that this additional 
clarification would be helpful to eliminate this unneeded complexity, 
and are therefore finalizing a definition of major medical coverage to 
include explicit references to catastrophic plans and individual and 
small group market plans subject to the actuarial value requirements 
under Sec.  156.140. As noted in the proposed rule (78 FR 72340), the 
minimum value standards established under 45 CFR 156.145 deem any 
coverage that meets any of the levels of coverage requirements 
described in 45 CFR 156.140 to satisfy minimum value requirements. The 
levels of coverage, in turn, are determined through calculation of AV 
between 60 to 90 percent. As such, plans that meet the AV requirements 
in accordance with 45 CFR 156.140 would not need to also calculate 
minimum value. We further note that catastrophic plans, as well as 
coverage offered in the individual and small group markets that are 
subject to the Affordable Care Act AV requirements, would be considered 
part of a contributing entity's ``commercial book of business.'' 
Therefore, contributing entities must make reinsurance contributions on 
behalf of their enrollees with catastrophic coverage, as well as 
individual market coverage and small group coverage subject to the AV 
requirements under 45 CFR 156.140, absent another exception in Sec.  
153.400.
    Comment: One commenter suggested that HHS clarify that short-term 
limited duration insurance, which is excluded from the definition of 
``individual health insurance coverage'' under section 2791(b)(5) of 
the PHS Act,\26\ is not major medical coverage and is therefore not 
required to make reinsurance contributions.
---------------------------------------------------------------------------

    \26\ Section 2791(b)(5) of the PHS Act provides: ``The term 
``individual health insurance coverage'' means health insurance 
coverage offered to individuals in the individual market, but does 
not include short-term limited duration insurance.'' Available at: 
http://www.nadp.org/Libraries/HCR_Documents/phsa027.sflb.ashx.
---------------------------------------------------------------------------

    Response: In general, section 1341(b)(3)(B)(i) of the Affordable 
Care Act requires reinsurance contributions for ``major medical 
coverage'' that is considered to be part of a ``commercial book of 
business,'' absent an applicable exemption. We are interpreting the 
term ``major medical coverage'' solely in the context of the obligation 
under the Affordable Care Act to make reinsurance contributions. The 
question of whether coverage is subject to the rules that apply to 
``individual health insurance coverage'' is separate from the question 
of whether it is ``major medical coverage'' for purposes of reinsurance 
contributions.
    As we noted in the preamble to the 2014 Payment Notice (78 FR 
15456), for purposes of whether a reinsurance contribution is required, 
we interpret the term ``major medical coverage'' in terms of the scope 
and extent of the coverage offered, not in terms of what other Federal 
requirements may apply to the coverage. Specifically, in the 2014 
Payment Notice, we indicated that we interpreted ``major medical 
coverage'' to be coverage of a wide range of services not limited in 
scope (for example, vision or dental coverage) or extent (for example, 
coverage with very low annual dollar limits). Therefore, reinsurance 
contributions would be required with respect to a contributing entity's 
enrollees in a short-term limited duration plan to the extent the plan 
provides ``major medical coverage,'' as we have interpreted that term. 
In this final rule, we are adopting as final the language in proposed 
Sec.  153.20 that sets forth a specific standard for implementing our 
interpretation of ``major medical coverage,'' as set forth in the 2014 
Payment Notice. Specifically, under Sec.  153.20, coverage will be 
considered ``major medical coverage'' for reinsurance contribution 
purposes if it covers a wide range of services, is not limited in 
scope, and provides a level of coverage that meets the minimum value 
test under Sec.  156.145. While we are finalizing this standard in this 
final rule, because it implements our interpretation of ``major medical 
coverage'' as set forth in the 2014 Payment Notice, this standard will 
be applied in determining a contributing entity's reinsurance 
contribution liability for the 2014, 2015, and 2016 benefit years.
    We recognize that the non-standard features of a short-term limited 
duration plan may make the minimum value calculator unsuitable for use 
with the plan in determining whether the plan provides minimum value 
(and, therefore, ``major medical coverage''). In such an event, the 
contributing entity may seek certification by an actuary consistent 
with Sec.  156.145(a)(3) to establish whether the plan provides minimum 
value.
b. Self-Administered, Self-Insured Plans
    Following comments submitted with respect to the 2014 Payment 
Notice and the proposed Program Integrity Rule, we proposed to modify 
the definition of a

[[Page 13773]]

``contributing entity'' for the 2015 and 2016 benefit years to exclude 
self-insured group health plans that do not use a third party 
administrator (TPA) in connection with the core administrative 
functions of claims processing or adjudication (including the 
management of internal appeals) or plan enrollment. The preamble to the 
proposed rule discussed how section 1341(b) of the Affordable Care Act 
can reasonably be interpreted in more than one way with respect to 
whether a self-insured, self-administered plan is a contributing 
entity. The proposed modification recognized that some self-insured 
group health plans, which we believe would generally not be considered 
to be using the core services of a TPA, may use third parties for 
ancillary administrative support, and we noted that we would consider 
these plans to be self-administered for purposes of the reinsurance 
program. For purposes of the definition of ``contributing entity,'' we 
proposed to consider a TPA to be, with respect to a self-insured group 
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 functions to the self-insured group health plan in 
connection with the core administrative services noted above. We sought 
comment on this definition, and whether certain types of service 
providers should be considered a TPA for these purposes.
    In addition, we sought comment on whether the core administrative 
functions 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 TPA. We also sought comment on 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, which 
benefits or services should be excluded, and how such a de minimis 
amount or small percentage should be measured.
    We are finalizing the proposed definition of ``contributing 
entity'' as proposed, with minor modifications to permit the use of 
unrelated third parties for provider network development and related 
services, and to provide for a de minimis exception.
    Comment: Some commenters agreed with the proposed exemption, and 
stated that it had adequate statutory support and also accurately 
reflected Congressional intent. Some commenters urged an expanded 
exemption. Some commenters disagreed with the proposed exemption as not 
required or supported by the statute, inconsistent with HHS's prior 
position on the issue, or not supported by a clear policy rationale.
    Response: Section 1341(b)(1)(A) of the Affordable Care Act can 
reasonably be interpreted in more than one way with respect to the 
applicability of reinsurance contributions to self-insured, self-
administered plans. After receipt of comments submitted in response to 
the 2014 Payment Notice and the proposed Program Integrity Rule, we 
reconsidered this issue. Following this in-depth review, our view is 
that the better reading of section 1341 is that a self-insured, self-
administered plan should not be a contributing entity, but in order to 
avoid disruption to contributing entities, we proposed to retain the 
prior definition of contributing entity for the 2014 benefit year. 
Section 1341(b)(1)(A) of the Affordable Care Act states that health 
insurance issuers and TPAs on behalf of group health plans are required 
to make reinsurance contributions, but does not refer to self-insured, 
self-administered plans. The provision's reference to group health 
plans administered by TPAs, coupled with the omission of self-insured, 
self-administered plans, supports the proposed exemption. We also note 
that section 1341 of the Affordable Care Act supports the distinction 
between self-insured, self-administered plans and self-insured plans 
that use a TPA, since sections 1341(b)(1) and (b)(3)(B)(i) specifically 
refer to self-insured plans with TPAs and are silent as to self-
insured, self-administered plans. Further support for this reading is 
found under section 1341(b)(3)(B) of the Affordable Care Act and Sec.  
153.400(a)(1)(ii), which provide that reinsurance contributions are to 
reflect a ``commercial book of business.'' While a group health plan 
administered by a TPA would normally be considered part of a 
``commercial book of business,'' a self-insured, self-administered plan 
would not normally be considered part of an entity's ``commercial book 
of business.'' For the reasons set forth above, HHS is finalizing the 
proposed exemption, with certain modifications discussed below.
    Comment: Some commenters stated that adopting the proposed 
exemption would set a precedent permitting other contributing entities 
to seek exemptions from reinsurance contributions. Several commenters 
stated that the proposed exemption inappropriately treats self-insured 
plans with TPAs differently from self-insured, self-administered plans, 
and will inequitably shift reinsurance costs from self-insured, self-
administered plans to self-insured plans with TPAs and health insurance 
issuers. Several commenters stated that the proposed exemption 
inappropriately favors ``union plans.''
    Response: Self-insured, self-administered plans are a unique subset 
of potential contributing entities. The proposed exemption is narrowly 
drawn so that only a self-insured plan that does not use a TPA to 
perform its claims processing, claims adjudication, and enrollment 
functions would qualify for the exemption. As discussed in the preamble 
to the proposed rule, section 1341 of the Affordable Care Act supports 
the distinction between self-insured, self-administered plans and self-
insured plans that use a TPA, since sections 1341(b)(1)(A) and 
(b)(3)(A) of the Affordable Care Act specifically refer to self-insured 
plans with TPAs and are silent as to self-insured, self-administered 
plans. In addition, section 1341(b)(3)(B) of the Affordable Care Act 
and Sec.  153.400(a)(1)(ii) provide that reinsurance contributions are 
to reflect a ``commercial book of business.'' A self-insured, self-
administered plan is fundamentally different from a health insurance 
issuer as well as a self-insured plan that uses a TPA, in that an 
insured plan and a self-insured plan with a TPA both involve an 
external commercial entity (the issuer or the TPA, which may itself be 
an issuer or an issuer affiliate). There will be no shifting of costs 
for 2014 because the exemption for self-insured, self-administered 
plans will only apply to the 2015 and 2016 benefit years. Based on 
comments received, our understanding is that relatively few plans will 
be eligible for the exemption. In addition, reinsurance payments will 
decrease substantially for the 2015 and 2016 benefit years, so all 
contributing entities will be responsible for substantially lower 
contributions for those years.
    Finally, any self-insured plan that does not use a TPA for the core 
administrative functions of claims processing, claims adjudication 
(including the management of internal appeals), or enrollment may claim 
the exemption for the 2015 and 2016 benefit years, irrespective of 
whether the plan is jointly sponsored by a union and an employer or any 
other type of employer.
    Comment: Several commenters urged HHS to expand the exemption 
significantly. For example, a number of commenters stated that all 
self-insured plans should be exempt from reinsurance contributions, or 
that self-

[[Page 13774]]

insured plans that use non-issuer TPAs should be exempt. Additionally, 
some of the commenters stated that it was inappropriate to have a 
different definition of contributing entity for the 2014 benefit year, 
and that the proposed exemption should apply for all three benefit 
years. According to these commenters, there is adequate time for 
contributing entities to make the necessary adjustments, and 
consequently, the change would not be disruptive in the 2014 benefit 
year.
    Response: For the reasons discussed above and in the preamble to 
the 2014 Payment Notice (78 FR 15455), all self-insured plans are not 
exempt from reinsurance contributions. HHS also does not believe it has 
the authority to differentiate between TPAs that are issuers or issuer 
affiliates and non-issuer TPAs for purposes of the exemption. This is 
because sections 1341(b)(1)(A) and (b)(3)(A) of the Affordable Care Act 
only refers to issuers and TPAs, and does not distinguish between 
issuer TPAs and non-issuer TPAs. Exempting only non-issuer TPAs would 
treat similarly situated TPAs that perform comparable services for 
similar clients differently solely because one TPA is an issuer or 
issuer affiliate. In addition, we continue to believe that making the 
proposed exemption effective for the 2014 benefit year at this late 
stage would be disruptive to plans and issuers that have already set 
contribution rates and premiums, and could upset settled estimates with 
respect to expected reinsurance payments and contribution obligations. 
Therefore, we are retaining the proposal that this exemption only apply 
for the 2015 and 2016 benefit years.
    Comment: Some commenters agreed with the proposed exemption, 
including the core functions test for determining when a self-insured 
plan uses a TPA. Some commenters objected to the proposed core 
functions approach on the grounds that it lacked clarity, was 
ambiguous, overly complex, or took the wrong factors into account. Some 
commenters stated that the proposed test was too broad in that it would 
be too easy for self-insured plans that use outside service providers 
to be deemed to be using a TPA, with the result that very few plans 
would be able to claim the proposed exemption. Another commenter 
indicated that the core functions test was unclear, and that too many 
plans would be able to claim the exemption. Some commenters suggested 
other tests to ascertain when a self-insured plan is self-administered 
or uses a TPA. For example, some commenters suggested a test which 
looks to whether a self-insured plan is using a third party for a 
``full complement'' of administrative functions or all services in 
connection with administering the plan. Another commenter suggested 
that the proper test was whether a plan retains legal responsibility to 
adjudicate claims and decide appeals. Some commenters urged limiting 
the exclusion to self-insured plans that do not utilize the services of 
third parties in any way to facilitate or assist in the proper 
administration of the plan.
    Response: After a thorough review of the comments, we are generally 
retaining the proposed core functions analysis as a reasonable and 
objective indicator of which self-insured plans should be properly 
classified as self-administered for the limited purpose of determining 
whether such plans are contributing entities for reinsurance 
contribution purposes. In response to comments, we are clarifying that 
a self-insured plan must retain responsibility for claims payment, 
claims adjudication (including internal appeals), and enrollment in 
order to be regarded as self-administered during the 2015 and 2016 
benefit years. Thus, subject to the exceptions described below, if a 
self-insured plan uses a third party for claims payment, claims 
adjudication, or enrollment, it would not be treated as self-
administered for purposes of reinsurance contributions during the 2015 
and 2016 benefit years. As suggested in comments, we are adopting 
certain modifications to our proposal regarding such issues as leasing 
of networks and de minimis use of third party services.
    Comment: In the preamble to the proposed rule, HHS sought comment 
as to whether any other administrative functions should be considered 
in determining whether a self-insured plan uses a TPA for core 
administrative functions, including medical management, provider 
network development, and other support tasks.
    Numerous commenters noted that self-insured plans very rarely 
develop and manage their own provider networks, and typically ``lease'' 
such networks from issuers. In these arrangements, the self-insured 
plan pays a fee to the issuer (or other entity) for the use of its 
provider network. The issuer (or other entity) bears the costs of 
developing and maintaining the networks, and also ``reprices'' the 
self-insured plan's claims to take into account provider discounts the 
issuer has negotiated with members of its network. These commenters 
suggested that a self-insured plan that leases a network should not 
lose self-administered status for reinsurance contributions purposes.
    Response: HHS agrees with the commenters' suggestion, and is 
clarifying in regulation text that if a self-insured plan ``leases'' a 
network from an unrelated third party and also obtains provider network 
development, claims repricing, and similar services, the plan will not 
lose self-administered status as a result.
    Comment: In the preamble to the proposed rule, HHS sought comment 
as to whether a self-insured plan may outsource specific services, such 
as those relating to pharmaceutical benefits, without losing self-
administered status, or whether an unaffiliated service provider may 
provide a de minimis or small percentage of all services for the plan. 
Commenters requested that a self-insured, self-administered plan be 
able to obtain prescription drug benefits provided by a pharmacy 
benefits manager (PBM), as well as services from specialized vendors 
for behavioral health, vision/dental benefits, or benefits with respect 
to which Medicare is the primary provider. The commenters noted the 
prevalence of these arrangements in the market, and that some of the 
outsourced benefits are exempt from reinsurance contributions. 
Commenters were divided as to whether a self-insured plan should be 
permitted to receive a de minimis percentage of all benefits and 
services from an unrelated third party without the plan losing self-
administered status.
    Response: In response to comments, we are clarifying the following 
in regulation text. First, a self-insured plan may outsource core 
administrative functions (claims processing, claims adjudication, and 
enrollment services) to an unrelated third party such as a PBM without 
losing self-administered status, provided that the underlying benefits 
are pharmacy benefits or excepted benefits as defined by section 
2791(c) of the PHS Act. We clarify that medical benefits, other than 
pharmacy benefits or excepted benefits, cannot be outsourced by a self-
insured, self-administered plan if the plan wants to retain its 
exemption from the definition of contributing entity. For example, if a 
self-insured plan enters into a separate contract for more than a de 
minimis amount of services related to mental health or substance abuse 
benefits, this contractual arrangement would disqualify the plan from 
the exemption. We also clarify that a self-insured plan may outsource a 
de minimis amount of core administrative services for benefits other 
than excepted benefits or pharmacy benefits to an unrelated party.

[[Page 13775]]

For this purpose, we clarify that a de minimis amount means up to 5 
percent, as measured by the amount of enrollment or claims processing 
transactions for non-pharmacy and non-excepted benefits which are 
outsourced, or by the value of the outsourced enrollment or claims 
processing transactions for non-pharmacy and non-excepted benefits 
(measured by the cost of the outsourced services compared to the sum of 
those costs plus the fully loaded costs--that is, including an 
appropriate share of indirect costs, such as fixed and overhead 
expenses--reasonably allocated, borne by the self-insured plan for such 
services).
    Comment: In certain multiemployer funds, the fund may use an 
administrator for certain purposes that is an affiliate of certain, but 
not all, sponsors. Several commenters requested clarification that this 
structure would not result in the fund losing otherwise applicable 
self-administered status.
    Response: We are clarifying that a service provider that is 
affiliated with one or more sponsors other than the sponsor that is the 
contributing entity in the context of a multiemployer fund will not be 
a TPA, and would therefore not lose its self-administered status for 
purposes of reinsurance contributions in the 2015 and 2016 benefit 
years.
    Comment: One commenter asked that HHS clarify whether a self-
insured plan or its TPA is a contributing entity that must make 
reinsurance contributions. One commenter stated that any entity 
providing services to plans subject to reinsurance should be required 
to submit contributions for their benefits.
    Response: As noted in the preamble of the 2014 Payment Notice (78 
FR 15455), pursuant to the definition of a contributing entity in Sec.  
153.20, ``a self-insured group health plan that is a contributing 
entity is responsible for the reinsurance contributions, although it 
may use a TPA or administrative services-only contractor for transfer 
of the reinsurance contributions.''
    Comment: One commenter stated that exempting self-insured, self-
administered plans from making reinsurance contributions would increase 
the 2015 contribution rate by $3 for all other contributing entities, 
and exempting these health plans has an unfair impact on those 
remaining entities subject to reinsurance contributions.
    Response: Because we expect few entities to qualify for it, we 
estimate that the exclusion of self-insured, self-administered plans 
will have a small effect on the 2015 uniform contribution rate.
c. Uniform Reinsurance Contribution Rate
(i) Uniform Reinsurance Contribution Rate for the 2015 Benefit Year
    Section 153.220(c) requires HHS 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, 
$6 billion in 2015, and $4 billion in 2016 (reinsurance payment pool). 
Additionally, sections 1341(b)(3)(B)(iv) and 1341(b)(4)(B) of the 
Affordable Care Act direct that $2 billion in funds are to be collected 
for contributions 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 (78 FR 15459), 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:
[GRAPHIC] [TIFF OMITTED] TR11MR14.008

    We proposed collecting $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 a 2015 annual 
per capita contribution rate of $44, about $3.67 per month. We are 
finalizing this contribution rate as proposed.
    Comment: One commenter asked that HHS implement a two-tiered 
contribution rate, charging issuers more since they benefit from the 
program and self-insured group health plans less. Other commenters 
suggested that only issuers be required to make contributions allocated 
for the U.S. Treasury.
    Response: The statute does not differentiate between the 
contribution amounts required from issuers and third party 
administrators on behalf of self-insured group health plans. As noted 
in the Premium Stabilization Rule (77 FR 17227), we are using a 
national, per capita contribution rate because it is a simpler approach 
that minimizes the administrative burden of collections.
(ii) Timing of Collection of Reinsurance Contributions
    We proposed modifying our collection schedule for the reinsurance 
program, so that we 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 in Sec.  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.
    Under proposed Sec.  153.405(c)(1), 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 would 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

[[Page 13776]]

forth in Sec.  153.405(c), which provides for notification by the later 
of 30 days of the submission of the annual enrollment count or by 
December 15. Under proposed Sec.  153.405(c)(3), the contributing 
entity must remit this amount within 30 days after the date of the 
first notification.
    The second installment covers the portion of the reinsurance 
contribution amount allocated to the payments for the U.S. Treasury to 
be paid for a benefit year. Under proposed Sec.  153.405(c)(2), 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. In accordance with proposed 
Sec.  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 is required to submit an annual enrollment 
count only once for each benefit year under Sec.  153.405(b), by not 
later than November 15th of the benefit year.
    For the 2014 benefit year, of the $63 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. Therefore, if a contributing entity submits its 
enrollment count 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. For the 2015 
benefit year, the $44 annual per capita contribution rate would 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.
    In order to leave the MLR and risk corridors calculations 
unchanged, we clarified in the proposed rule that the two installment 
payments would be included with 2014, 2015, and 2016 data, for purposes 
of the risk corridors and MLR reports due July 31, 2015, 2016, and 
2017, respectively, despite the fact that the later installment would 
not have been paid at that time.
    We are finalizing the bifurcated contribution collection schedule 
as discussed above.
    Comment: Several commenters supported our proposal to collect 
reinsurance contributions via two collections. Many commenters 
supporting our proposal asked that contributing entities have the 
option to pay the entire contribution in one payment while other 
commenters asked that we return to one annual collection schedule, 
citing the increased administrative burden of making two collections. 
One commenter supporting the bifurcated collection schedule 
specifically supported our proposal that the full 2014 reinsurance 
contribution be included with 2014 MLR reporting, despite the fact that 
the second payment would not have occurred by the MLR reporting 
deadline.
    Response: We recognize that the reinsurance collections provided 
for in the Affordable Care Act will result in substantial upfront 
payments from contributing entities for the reinsurance program. 
Therefore, in consideration of the comments received, we are finalizing 
our proposal to collect contributions via two payments. We will not 
permit contributing entities to choose between collection schedules for 
operational reasons.
    Comment: One commenter expressed concern that the bifurcation of 
the collection of the 2014 contribution rate of $63 per enrollee would 
not evenly divide into a per enrollee per month charge when split into 
payments of $52.50 and $10.50. The commenter suggested that we revise 
the 2014 contribution rate to require $52.44 in the first payment 
($4.37 per enrollee per month) and $10.56 in the second payment ($0.88 
per enrollee per month).
    Response: We do not believe it is necessary that the contribution 
amounts divide evenly into a per enrollee per month charge and further 
note that certain of the permitted counting methods set forth in 45 CFR 
153.405 will yield fractional enrollment counts, whether tallied at the 
annual or monthly level.
    Comment: One commenter sought clarification on when HHS would 
invoice contributing entities if enrollment counts are submitted by 
November 15th of the applicable benefit year pursuant to Sec.  
153.405(b). The commenter asked that HHS invoice contributing entities 
by December 1st.
    Response: As noted in the proposed rule, if a contributing entity 
submits its enrollment count for the 2014 benefit year 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. We 
anticipate that these invoices will align with our monthly payment and 
collections schedule. We will provide more specific timelines in future 
guidance.
    Comment: One commenter asked that HHS defer the collection of 
contributions allocated to the U.S. Treasury until 2016.
    Response: Sections 1341(b)(3)(B)(iv) and 1341(b)(4)(B) of the 
Affordable Care Act specify $2 billion in funds are to be collected for 
contributions to the U.S. Treasury in 2014, $2 billion in 2015, and $1 
billion in 2016. As noted in the 2014 Payment Notice (78 FR 15460), we 
do not believe HHS has authority under the statute to defer this 
collection.
(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 (78 FR 15460), 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. 
Similar to the pro rata approach set forth in the 2014 Payment Notice, 
in Table 2, we specify the proportions for 2015 (or amounts, as 
applicable):

[[Page 13777]]

  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
------------------------------------------------------------------------
                                       If total
                                     contribution          If total
                                   collections under     contribution
                                     the  uniform      collections under
                                      reinsurance        the  uniform
                                   contribution rate      reinsurance
                                   are  less than or   contribution rate
                                   equal  to $8.025      are more than
                                        billion         $8.025 billion
------------------------------------------------------------------------
Proportion or amount for:
    Reinsurance payments........  74.8 percent ($6    The difference
                                   billion/$8.025      between total
                                   billion).           collections and
                                                       those
                                                       contributions
                                                       allocated to the
                                                       U.S. Treasury and
                                                       administrative
                                                       expenses.
    Payments to the U.S.          24.9 percent ($2    $2 billion.
     Treasury.                     billion/$8.025
                                   billion).
    Administrative expenses.....  0.3 percent ($25.4  $25.4 million.
                                   million/$8.025
                                   billion).
------------------------------------------------------------------------

    As shown in Table 2, if the total amount of contributions collected 
is less than or equal to $8.025 billion, we will 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.
    To provide that all reinsurance contributions collected for a 
benefit year are paid out for claims for that benefit year, we proposed 
to amend Sec.  153.230(d) to provide that if HHS determines that the 
amount of all reinsurance payments requested under the uniform 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 uniform 
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 
proposed that each applicable reinsurance entity, or HHS on behalf of a 
State, reduce or increase the reinsurance payment amounts for the 
applicable benefit year by any adjustment required under that 
paragraph.
    We sought comment on the proposal to use excess funds in a current 
benefit year, including 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 proposed changes noted above would provide that all 
reinsurance contributions collected for a benefit year are paid out for 
claims for that benefit year, we proposed to delete and reserve Sec.  
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. We are finalizing our proposal to 
use excess contributions for reinsurance payments for the current 
benefit year by increasing the coinsurance rate up to 100 percent 
before rolling over any remaining funds to the next year. Therefore, we 
are not finalizing our proposal to delete and reserve Sec.  153.235(b). 
We are finalizing our modification to Sec.  153.230(d) to provide that 
if HHS determines that the amount of reinsurance payments requested 
under the uniform payment parameters will not be equal the amount of 
reinsurance contributions collected for reinsurance payments, HHS will 
determine a uniform adjustment (up or down) to be applied to all 
requests for reinsurance payments.
    Comment: Some commenters supported our proposal to use excess funds 
in the current benefit year. Others asked that we roll over excess 
funds to potentially lower the contribution rate in future benefit 
years, or that excess funds be refunded to contributing entities. Some 
commenters who supported the use of excess funds in the current benefit 
year suggested that we only increase the coinsurance rate up to 100 
percent and then roll over any additional funds to a subsequent benefit 
year, in order to avoid perverse incentives to incur claims costs. One 
commenter supported increasing the coinsurance rate above 100 percent.
    Response: We are finalizing our proposal to use excess reinsurance 
contributions for reinsurance payments in the current benefit year by 
increasing the coinsurance rate up to 100 percent before rolling over 
any remaining funds to the next year. We believe that a 100 percent 
ceiling on the coinsurance rate is appropriate, and will permit us to 
increase reinsurance payments in subsequent years if we collect more in 
contributions than are requested in payments.
(iv) Administrative Expenses
    In the 2014 Payment Notice (78 FR 15460), 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 proposed 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 proposed to exclude from 
these administrative expenses the costs associated with work performed 
by Federal personnel. To calculate our proposed reinsurance 
administrative expenses for the 2015 benefit year, we

[[Page 13778]]

divided HHS's projected total costs for administering the reinsurance 
programs on behalf of States by the expected number of covered lives 
for which reinsurance contributions are to be made for the 2015 benefit 
year.
    We estimated this amount to be approximately $25.4 million for the 
2015 benefit year. The 2015 estimate has increased from the 2014 
estimate because we will be making reinsurance payments in 2015 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 the 2015 benefit year, we proposed 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 proposed to allocate the total administrative 
expenses equally between these two functions. Therefore, as shown in 
Table 3, we will 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 reinsurance payment activities, supporting the 
administration of payments to issuers of reinsurance-eligible plans.

              Table 3--Breakdown of Administrative Expenses
                          [Annual, per capita]
------------------------------------------------------------------------
                                                             Estimated
                       Activities                            expenses
------------------------------------------------------------------------
Collecting reinsurance contributions from health                   $0.07
 insurance issuers and group health plans...............
Calculation and disbursement of reinsurance payments....            0.07
    Total annual per capita expenses for HHS to perform             0.14
     all reinsurance functions..........................
------------------------------------------------------------------------

    If HHS operates the reinsurance program on behalf of a State, HHS 
will 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 will 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. We received no 
comments on our proposed 2015 administrative expenses and are 
finalizing this provision as proposed.
d. Uniform Reinsurance Payment Parameters for 2015
    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 (77 FR 17228), 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) that exceeds an attachment point 
(when reinsurance would begin), subject to a reinsurance cap (when the 
reinsurance program stops paying claims for a high-cost 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, as directed by the statute, we proposed that 
the 2015 uniform reinsurance payment parameters 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.
    As discussed in the 2014 Payment Notice (78 FR 15461), 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 proposed 2015 reinsurance contribution rate and 
2015 uniform reinsurance payment parameters.
    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 
enrolled 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

[[Page 13779]]

``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 cost-sharing 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 Sec.  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. We are finalizing the 2015 reinsurance 
payment parameters as proposed.
    Comment: Some commenters suggested that HHS keep the reinsurance 
payment parameters consistent between 2014 and 2015, and delay 
increasing the attachment point to $70,000 and decreasing the 
coinsurance rate to 50 percent until 2016, or keep the 2014 and 2015 
attachment points as close as possible. One commenter asked HHS to 
increase the contribution rate to account for increased costs during 
2014 and 2015. Other commenters supported lowering the 2015 
contribution rate and uniform reinsurance payment parameters.
    Response: Section 1341(b)(3)(B)(iii) of the Affordable Care Act 
directs HHS to collect $6 billion for reinsurance payments in 2015. 
This is $4 billion less than will be collected in 2014 for reinsurance 
payments. We believe that the lower coinsurance rate and higher 
attachment point we have proposed appropriately accounts for this 
smaller reinsurance payment pool. We also believe that maintaining the 
reinsurance cap for the 2015 benefit year will make it easier for 
issuers to estimate the effects of reinsurance, and reduce interference 
with the traditional commercial reinsurance market. As discussed above, 
to the extent that reinsurance contributions for 2015 exceed 
reinsurance payments requested, our policy of increasing the 
coinsurance rate up to 100 percent will help assure that the excess 
contributions are used to offset claims for high-cost individual market 
enrollees.
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 uniform reinsurance 
payment parameters overestimated the total covered claims costs of 
individuals enrolled in reinsurance-eligible plans in 2014. To account 
for this, we proposed to decrease the 2014 attachment point to $45,000. 
We are finalizing our proposal to decrease the 2014 attachment point to 
$45,000.
    Comment: Several commenters asked that HHS consider alternative 
relief for the transitional policy announced on November 14, 2013 \27\ 
that does not increase the burden on large employers and self-insured 
group health plans.
---------------------------------------------------------------------------

    \27\ Letter to Insurance Commissioners, Center for Consumer 
Information and Insurance Oversight, November 14, 2013. Available 
at: http://www.cms.gov/CCIIO/Resources/Letters/Downloads/commissioner-letter-11-14-2013.PDF.
---------------------------------------------------------------------------

    Response: The lowering of the 2014 attachment point will not result 
in additional contributions being collected from contributing entities. 
As noted in the proposed rule, we believe that our prior estimates of 
the 2014 uniform payment parameters overestimated the total covered 
claims costs of individuals enrolled in reinsurance-eligible plans in 
2014, allowing these additional payments to be made from within the 
amount already being collected.
    Comment: Several commenters supported lowering the 2014 attachment 
point to $45,000. One commenter suggested lowering the attachment point 
to $20,000. Other commenters opposed lowering the attachment point, 
asking that HHS return to the finalized 2014 payment parameters, and 
urging that any excess funds should be rolled over to the subsequent 
benefit year and used to lower the contribution rate for all 
contributing entities. Some commenters who objected to the lowering of 
the attachment point stated that HHS should instead increase the 
reinsurance cap to $500,000 to reimburse issuers for larger claims 
costs.
    Response: As discussed above, the ACAHIM, which estimates market 
enrollment, incorporates the effects of State and Federal policy 
choices and accounts for the behavior of individuals and employers. 
These assumptions and projections, as well as the transitional policy 
announced in November 2013, resulted in an updated estimate of the 2014 
individual and employer-sponsored insurance markets and expenditures, 
and permitted us to update our estimate of the 2014 uniform reinsurance 
payment parameters. We believe that lowering the attachment point to 
$45,000 would allow the reinsurance program to make more payments for 
high-cost enrollees without increasing the contribution rate. We are 
not increasing the reinsurance cap to avoid interfering with 
traditional commercial reinsurance, which typically has attachment 
points in the $250,000 range.
    Comment: One commenter asked that the proposed modifications to the 
reinsurance program for the transitional policy be applied consistently 
in all States.
    Response: These modifications will be applied consistently in all 
States.
f. Reinsurance-Eligible Plans
    In this final rule, we clarify that in accordance with the policy 
established in the 2014 Payment Notice, student health plans are not 
eligible to receive reinsurance payments. Under Sec.  147.145(b)(3), 
student health plans are not subject to the single risk pool 
requirement of section 1312(c) of the Affordable Care Act and Sec.  
156.80. Under Sec.  153.234, a reinsurance-eligible plan's covered 
claims costs for an enrollee incurred prior to the application of the 
following provisions do not count towards either the uniform 
reinsurance payment parameters or the State supplemental reinsurance 
payment parameters: Sec.  147.102 (fair premiums); Sec.  147.104 
(guaranteed availability); Sec.  147.106 (guaranteed renewability); 
Sec.  156.80 (single risk pool); and subpart B of part 156 (essential 
health benefits). However, we note that a student health

[[Page 13780]]

plan would be considered part of a contributing entity's ``commercial 
book of business'' and, to the extent that the plan provides major 
medical coverage, as defined in Sec.  153.20, a contributing entity 
must make reinsurance contributions on behalf of their enrollees, 
absent another exception in Sec.  153.400.
    In response to this proposed rule, we received several comments 
asking that certain plans or coverage be eligible for reinsurance 
payments.
    Comment: Several commenters requested that we permit State high-
risk pools to be eligible for reinsurance payments for their high-risk 
enrollees. One commenter asked that the Federal government extend the 
Federal high-risk pool until all funds are depleted.
    Response: As stated in the 2014 Payment Notice (78 FR 15455), under 
the definition of a reinsurance-eligible plan at Sec.  153.20, State 
high-risk pools are not eligible to receive reinsurance payments for 
their enrollees because high risk pool coverage is not subject to the 
2014 market reforms outlined under Sec.  153.234 (that is, Sec.  
147.102 (fair premiums); Sec.  147.104 (guaranteed availability); Sec.  
147.106 (guaranteed renewability); Sec.  156.80 (single risk pool); and 
subpart B of part 156 (essential health benefits). Therefore, claims 
costs incurred by high risk pools would not be eligible for reinsurance 
payments. Funding for the Federal high risk pool, also known as the 
Pre-Existing Condition Insurance Plan program, is not addressed in this 
rule.
    Comment: One commenter asked that HHS expand the reinsurance 
program to encompass transitional plans covered by the transitional 
policy outlined in the November 14, 2013 guidance,\28\ while another 
commenter asked that HHS clarify that only plans that are subject to 
all of the 2014 market reforms established under the Affordable Care 
Act are eligible for reinsurance payments.
---------------------------------------------------------------------------

    \28\ Letter to Insurance Commissioners, Center for Consumer 
Information and Insurance Oversight, November 14, 2013. Available 
at: http://www.cms.gov/CCIIO/Resources/Letters/Downloads/commissioner-letter-11-14-2013.PDF.
---------------------------------------------------------------------------

    Response: As discussed above, under Sec.  153.234, a reinsurance-
eligible plan's covered claims costs for an enrollee incurred prior to 
the application of Sec. Sec.  147.102, 147.104 (subject to 147.145), 
147.106 (subject to 147.145), 156.80, and subpart B of part 156 do not 
count towards either the uniform reinsurance payment parameters or the 
State supplemental reinsurance payment parameters. Therefore, a 
transitional plan is not eligible for reinsurance payments. For the 
purpose of reinsurance contributions, we note that contributing 
entities are required to make reinsurance contributions for their major 
medical coverage that is considered to be part of a ``commercial book 
of business,'' subject to certain exceptions provided for in our 
regulations. As such, a contributing entity must make reinsurance 
contributions on behalf of its enrollees in transitional plans that 
provide major medical coverage, as defined in Sec.  153.20, unless one 
of the exceptions provided under 45 CFR 153.400 applies to such 
coverage.
g. Deducting Cost-Sharing Reduction Amounts From Reinsurance Payments
    Subpart H of 45 CFR part 153 governs the submission of medical and 
pharmacy claims to an issuer's dedicated distributed data environment. 
Under Sec.  156.410, if an individual is determined eligible to enroll 
in an individual market Exchange QHP and elects to do so, the QHP 
issuer must assign the individual to a standard plan or cost-sharing 
plan variation based on the enrollment and eligibility information 
submitted by the Exchange. Issuers of individual market Exchange QHPs 
will receive cost-sharing reduction payments for enrollees that have 
effectuated coverage in cost-sharing 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 cost-sharing plan variation to permit HHS to 
calculate an issuer's plan paid amounts on behalf of an enrollee. In 
the proposed rule, we explained the methodology HHS proposed to 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.
    As specified in Sec.  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. In the proposed rule, we stated that we believe that the cost-
sharing payment 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'' to the QHP issuer of the reinsurance-
eligible plan because the QHP issuer is already being reimbursed for 
the value of the cost-sharing 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 that provides for the equitable allocation of available funds, 
we proposed 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 proposed that for each enrollee enrolled in a QHP plan 
variation, we would 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 exceed the attachment point (for example, 
$45,000 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. We 
proposed 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 
proposed 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.
    In contrast, we proposed 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 are finalizing these 
provisions as proposed.
    Comment: Several commenters supported our proposed approach to 
account for cost-sharing reduction payments. One commenter asked, in 
the case of a policy with multiple enrollees, that the allocation be 
made in proportion to each family member's share of costs subject to 
cost sharing rather than to total costs.
    Response: We appreciate the reasoning behind the comment, but 
believe that it will be operationally simpler to consider total plan 
paid

[[Page 13781]]

amounts when accounting for cost-sharing reductions.
    Comment: Several commenters recommended that HHS re-evaluate the 
methodology for family policies where each individual has a separate 
annual limitation on cost sharing, suggesting that HHS treat 
individuals with separate annual limitations on cost sharing as if they 
had each enrolled in an individual policy for the purposes of 
accounting for cost-sharing reduction payments in calculating 
reinsurance payments.
    Response: For operational reasons, we believe it will be easier to 
allocate a family annual limitation on cost sharing across enrollees 
rather than make individual calculations.
    Comment: One commenter sought clarification on how HHS's proposal 
to calculate the amount of cost-sharing reductions provided for an 
enrollee in a silver plan variation or a zero cost sharing plan 
variation would apply if an individual moves between plan variations 
during the benefit year.
    Response: Because cost sharing accumulates over the benefit year 
across plan variations of the same standard plan, we will apply the 
adjustment for cost-sharing reductions based on the annual limitation 
on cost sharing applicable to the plan variation in which the enrollee 
was last enrolled during the benefit year.
    Comment: One commenter asked for clarification regarding the 
following footnote set forth in the proposed rule (78 FR 72345, n. 16): 
``We 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.''
    Response: We proposed the methodology described above to avoid 
reimbursing an issuer through reinsurance payments for claims costs for 
which it will be otherwise reimbursed through cost-sharing reduction 
payments. The footnote explains that this methodology does not take 
into account cost-sharing reductions on out-of-network services because 
we believe that issuers have little incentive to provide cost-sharing 
reductions on out-of-network services for silver plan variations, and 
that it will be relatively rare that an enrollee in a zero cost sharing 
plan will incur substantial out-of-pocket costs beyond the standard 
plan's annual limitation on cost sharing. Thus, we stated that we 
believed that the effect of this limitation in our methodology would be 
small.
h. Audits
(i) HHS Audits of State-Operated Reinsurance Programs
    We proposed in Sec.  153.270(a) authority for HHS or its designee 
to conduct a financial and programmatic audit of a State-operated 
reinsurance program to assess compliance with the requirements of 
subparts B and C of 45 CFR part 153. We proposed that a State that 
establishes a reinsurance program be required to 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. We stated that HHS anticipates 
conducting targeted audits of State-operated reinsurance programs based 
on the State summary report provided to HHS for each benefit year 
described in Sec.  153.260(b), the results of the independent external 
audit conducted for each benefit year under Sec.  153.260(c), and 
issuer input, among other factors.
    We proposed in Sec.  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) \29\) 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 would be required to 
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 State would ensure that the 
applicable reinsurance entity implements the plan and provides to HHS 
written documentation of the corrective actions once taken.
---------------------------------------------------------------------------

    \29\ See 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 non-public companies, the AICPA sets audit 
standards. See http://www.aicpa.org/Research/Standards/AuditAttest/Pages/SAS.aspx.
---------------------------------------------------------------------------

(ii) HHS Audits of Contributing Entities
    We proposed in Sec.  153.405(i) that HHS or its designee have the 
authority to audit a contributing entity to assess its compliance with 
the requirements of subpart E of 45 CFR part 153. We stated that we 
anticipated conducting targeted audits of contributing entities based 
on, among other criteria and sources, data provided to HHS through the 
annual enrollment count submitted under Sec.  153.405(b), and any 
previous history of noncompliance with these standards. We proposed 
that if HHS determines as the result of an audit that a contributing 
entity was required to pay additional reinsurance contributions, we 
might require the contributing entity to pay such amounts to the 
Federal government.
(iii) HHS Audits of Issuers of Reinsurance-Eligible Plans
    We proposed in Sec.  153.410(d) authority for HHS or its designee 
to 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. We also proposed 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) \30\) with respect to compliance with any requirement of 
subpart E or H of 45 CFR part 153, the issuer be required to: (i) 
Within 30 calendar days of the issuance of the final audit report, 
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. We proposed that if 
HHS determines as the result of an audit that the issuer of a 
reinsurance-eligible plan has received reinsurance payments to which it 
was not entitled, we might require the issuer to pay such amounts back 
to the Federal government.
---------------------------------------------------------------------------

    \30\ See 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 non-public companies, the AICPA sets audit 
standards. See http://www.aicpa.org/Research/Standards/AuditAttest/Pages/SAS.aspx.
---------------------------------------------------------------------------

    In the proposed rule, we noted that we anticipate conducting 
targeted audits of issuers of reinsurance-eligible plans based on, 
among other criteria and

[[Page 13782]]

sources, the data provided to HHS through the dedicated distributed 
data environment and any previous history of noncompliance with these 
standards. We stated that 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 reinsurance-eligible plan.
    We addressed the general comments received on the proposed audit 
provisions in the preamble discussion of Sec.  153.620(c) above, and 
address comments specific to the transitional reinsurance program audit 
provisions below. We are finalizing these provisions as proposed.
    Comment: One commenter asked that audits of contributing entities 
be delayed until after the first year of the reinsurance program to 
enable issuers and self-insured group health plans to focus on 
compliance. Other commenters stressed the importance of prioritizing 
audits of contributing entities.
    Response: We believe that audits of contributing entities may be 
necessary to ensure that the reinsurance program has sufficient funds 
to effectively stabilize premiums during the initial years of Exchange 
operation, particularly with respect to the 2014 benefit year, for 
which the largest amount of contributions will be collected. We are 
therefore not adopting the commenter's suggestion.
    Comment: One commenter suggested audit processes that would reduce 
the burden on contributing entities. Specifically, the commenter asked 
that audit protocols include sufficient, advance written notice of the 
audit, and that requests for supporting documentation be limited to 
enrollment data maintained by or on behalf of the contributing entity 
and information related to whether the plan provides major medical 
coverage. The commenter also asked that contributing entities be able 
to satisfy requests for information in a reasonable manner and format, 
and that an audited contributing entity be granted appeal rights.
    Response: We agree that any audit of a contributing entity should 
focus on records relating to enrollment in the applicable self-insured 
or insured plan, to confirm that the number of covered lives was 
correctly calculated and that the correct amount of reinsurance 
contributions was paid. Additionally, these audits may be used to 
identify entities that were required to but did not make reinsurance 
contributions. We will consider these comments when developing the 
protocols and procedures of our audits, such as timeframes for 
notification, formats for submitting supporting documentation, and 
appeals of audit findings, as part of future rulemaking and guidance.
i. 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 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. In the proposed rule, in Sec.  
153.400(a)(1), we clarified 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 proposed to add paragraph (vi) to Sec.  
153.400(a)(1), which provided 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 provision was proposed to 
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. It also addressed a situation in 
which two spouses are each covered as dependents by the respective 
group health plans offered by their two independent employers. We are 
finalizing these provisions as proposed.
    Comment: Several commenters supported our proposal that a 
contribution not be required with respect to the same life more than 
once, and our proposal at Sec.  153.400(a)(1)(vi). Other commenters 
objected to our proposals, stating that information regarding whether 
coverage is supplementary or secondary is not available to the employer 
or issuers, and that therefore this proposal would be expensive to 
administer. One commenter asked if guidance would be forthcoming on how 
issuers are to validate this exclusion if the coverage occurs among 
different issuers.
    Response: As noted in the proposed rule, if it is not clear from 
the terms of the health plans which group health plan is supplemental, 
in keeping with Sec.  153.400(a)(3), the group health plan that offers 
the greater portion of inpatient hospitalization benefits is 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 
would defer to the arrangements on primary and secondary liability set 
forth 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 (and is responsible for making 
reinsurance contributions with respect to those covered lives).
    Comment: One commenter suggested an operational process of 
reporting under which plans that provide supplemental and secondary 
coverage to a participant must identify these participants to the 
primary major medical coverage and pay a portion of the reinsurance 
contribution for such participant.
    Response: Under our proposal, if employer-provided group health 
coverage is secondary or supplemental coverage, the group health plan 
offering such supplemental or secondary coverage is not required to 
make partial or full contributions on behalf of participants who are 
also enrolled in a primary major medical plan. We do not wish to 
require an additional information disclosure in connection with this 
exemption.
    Comment: One commenter suggested that we codify an exception 
permitting a contributing entity to automatically exclude coverage for 
any enrollee for which the coverage is secondary under coordination of 
benefit rules.
    Response: Our rule would not extend this exception to coverage 
which is determined to be secondary under coordination of benefit rules 
if the entity that provides the primary coverage is not required to 
make reinsurance contributions. The intent of the rule and accompanying 
exceptions is to avoid double-counting of contributions, but the 
commenter's automatic exclusion (if adopted) could incorrectly result 
in no

[[Page 13783]]

reinsurance contributions being made with respect to a covered life.
    Comment: One commenter asked that HHS clarify that with respect to 
supplemental or secondary coverage, any time a participant's spouse is 
covered as an employee by another group health plan, the participant's 
plan may exclude that spouse from the count of covered lives and could 
assume without written representation that the entity that covers the 
spouse as an employee would be responsible for paying the contribution 
without further verification.
    Response: We decline to make that clarification because our rule 
would not extend the exception if the entity that provides the primary 
coverage is not required to make reinsurance contributions. The 
adoption of the commenter's automatic assumption could incorrectly 
result in no reinsurance contributions being made with respect to a 
covered life. As such, the entity covering the spouse as an employee 
would need to represent that it was responsible for making reinsurance 
contributions on behalf of the covered lives in order for the entity 
covering the spouse as a dependent to avail itself of the exemption.
    Comment: Several commenters asked that the general principle that 
reinsurance contributions are not required to be paid more than once 
with respect to the same covered life be extended to the Patient-
Centered Outcomes Research Institute fee for 2015 and beyond by the 
Treasury Department.
    Response: The U.S. Department of the Treasury is responsible for 
administration of the Patient-Centered Outcomes Research Institute fee, 
and regulation of that fee is outside the scope of this rulemaking.
    Comment: One commenter requested that HHS modify Sec.  153.400 to 
provide that the secondary coverage exemption in Sec.  
153.400(a)(1)(vi) be determined based on the coverage a participant is 
enrolled in at the time of enrollment regardless of whether this 
coverage is terminated during the benefit year.
    Response: A contributing entity must consider an enrollee's status 
throughout the benefit year such that if an enrollee in secondary 
coverage loses his or her primary medical coverage, the secondary 
coverage will have to account for that enrollee using one of the 
counting methods under Sec.  153.405 when calculating its reinsurance 
contributions.
    Comment: Several commenters asked that HHS clarify that certain 
types of coverage, even when provided in combination, are not subject 
to the contribution requirement. Specifically, they asked that all 
dental and vision coverage be exempt from the contribution requirement 
because it is not major medical coverage. The commenters also asked 
that excepted benefits, prescription drug coverage, and other ancillary 
benefits such as hearing aid coverage may be offered by the same plan 
without that combination of coverage becoming subject to the 
reinsurance contribution requirement.
    Response: Any plan not satisfying the definition of major medical 
coverage as set forth in Sec.  153.20 is not required to make 
reinsurance contributions.
    Comment: One commenter asked HHS to permit contributing entities to 
submit reinsurance contributions and comply with reporting requirements 
electronically. The commenter also asked HHS to allow contributing 
entities flexibility in correcting inadvertent errors when making 
reinsurance contributions.
    Response: We will provide further details on how contributing 
entities should submit enrollment counts and reinsurance contributions 
in future guidance. We will work with contributing entities in 
establishing these operational processes.
j. 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, 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.'' That 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.
    We proposed in Sec.  153.400(a)(1)(v) the following exception for 
when a contributing entity must make reinsurance contributions for its 
self-insured 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, 
the contributing entity would not be required to make reinsurance 
contributions for those enrollees. We proposed that a contributing 
entity be permitted to 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 are finalizing this provision as proposed.
    Comment: Several commenters supported our proposal to exempt from 
the reinsurance contribution obligation enrollees who reside in a 
territory that does not operate a reinsurance program. One commenter 
asked that HHS amend the proposal to exempt enrollees in a major 
medical plan that is based or administered in a territory.
    Response: We are finalizing this provision as proposed. It is 
possible that a major medical plan based or administered in a territory 
that does not operate a reinsurance program may have enrollees in the 
50 States and the District of Columbia. As noted in the proposed rule, 
this provision 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. Additionally, we note that a contributing 
entity is not 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, and must do so only if 
it wishes to exclude covered lives from reinsurance contributions under 
Sec.  153.400(a)(1)(v).
k. 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 Sec.  
153.405(e)(3). In the proposed rule, we amended Sec.  153.405(e)(3), by 
changing the references from ``benefit year'' to ``plan year'' 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 (as defined for the purposes of the Form 5500) other than the 
benefit year. Therefore, a self-insured group health plan that chooses 
to use the Form 5500 counting method and offers self-only

[[Page 13784]]

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 self-only 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. We are finalizing this amendment as proposed.
    Comment: Several commenters supported our proposed amendment to the 
Form 5500 counting method. One commenter suggested modifying this 
amendment to make clear that a self-insured group health plan that 
offers both self-only coverage and coverage other than self-only 
coverage would calculate the number of lives covered by adding the 
numbers of total participants covered at the beginning and at the end 
of the most current plan year, as reported on the Form 5500 and then 
dividing by two to avoid double counting enrollees.
    Response: We are finalizing this technical amendment as proposed. 
The Form 5500 counting method does not result in the double counting of 
enrollees. As discussed in the ``2013 Instructions for Form 5500, 
Annual Return/Report of Employee Benefit Plan'' \31\ a ``participant'' 
does not include covered dependents, accounting for the counting method 
used for coverage other than self-only.
---------------------------------------------------------------------------

    \31\ Available at: http://www.dol.gov/ebsa/pdf/2013-5500inst.pdf.
---------------------------------------------------------------------------

4. 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, premiums, provider networks, 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 multi-State plan (MSP) issuers in the future 
(for example, standards related to provider networks) that could create 
situations analogous to the ones we discuss above. In the proposed 
rule, we considered whether a plan that differs from a QHP (as defined 
at Sec.  155.20) based on OPM standards would be considered to be 
``substantially the same'' as a QHP for the purposes of participating 
in the risk corridors program, and stated that we were considering 
amending the definition of a QHP at Sec.  153.500 in response. Because 
OPM has not issued MSP standards that create such analogous situations, 
in this final rule, we are not amending the definition of a plan that 
is substantially the same as a QHP in Sec.  153.500, though we will 
consider doing so in the future.
    Comment: One commenter recommended that any difference in QHPs 
offered off-Exchange that result from a requirement imposed by OPM, 
including differences in provider networks, should not disqualify a QHP 
from participation in the risk corridors program. The commenter also 
requested that HHS allow plans that include an optional rider to be 
included in the definition of ``substantially the same.''
    Response: The first final Program Integrity rule provided that a 
plan offered outside of an Exchange is substantially the same as an 
Exchange QHP, and thus will participate in the risk corridors program, 
if it differs from an Exchange QHP with respect to benefits, premiums, 
cost-sharing structure, and provider networks, provided that such 
differences are tied directly and exclusively to Federal or State 
benefit requirements that apply differently to plans depending on 
whether they are offered through or outside an Exchange. As discussed 
above, we will consider amending this standard if OPM promulgates 
standards that require analogous differences between QHPs offered 
through or outside Exchanges. We are not amending this definition to 
include optional riders to the extent these riders are not a result of 
differing Federal or State requirements with respect to Exchange and 
off-Exchange plans.
b. Compliance With Risk Corridors Standards
    In the proposed rule, we outlined 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 and risk corridors programs will require similar data, 
we proposed to closely align the data submission, data validation, 
audit provisions, and sanctions for the two programs.
    For the 2014 benefit year, we proposed to collect risk corridors 
data through the same form used for MLR data collection, at the same 
time (July 31st of the year following the applicable benefit year). We 
noted 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 the 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 stated that we were 
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 data 
reported on the dedicated distributed data environment). We stated 
that, similar to the MLR process, we anticipate requiring issuers to 
resubmit corrected data after risk corridors data errors are 
identified.
    To ensure the integrity of risk corridors data reporting, we 
proposed in Sec.  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 proposed to conduct the risk 
corridors audits using the existing MLR auditing process set forth at 
Sec.  158.402 to reduce the time and expense (for both HHS and issuers) 
of conducting multiple audits on similar data.
    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 CMPs, but does not extend this remedy 
to a QHP issuer on a State Exchange. In Sec.  153.540(b), we proposed 
that HHS have the authority 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 Sec.  156.805. We 
noted 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

[[Page 13785]]

in corrective action plans).\32\ We received no comments on our 
proposal. Because we are still developing our enforcement and audit 
programs for the risk corridors and MLR programs, we are not finalizing 
our proposed enforcement policy with regard to CMPs at this time. We 
note that noncompliance with risk corridors data submission 
requirements may be subject to enforcement actions under the False 
Claims Act, and that any failure to pay risk corridors charges may be 
subject to our debt collection rules.
---------------------------------------------------------------------------

    \32\ We note that the good faith provision at 45 CFR 156.800(c) 
will not be applicable in this context because risk corridors 
activities, such as data submission and payment, begin in 2015.
---------------------------------------------------------------------------

    In this final rule, we are finalizing our policy with respect to 
risk corridors data submission, data validation, and audits, as 
proposed.
    Comment: Some commenters opposed our proposal to combine MLR and 
risk corridors data submission, data validation, and auditing 
processes. One commenter disagreed with the proposal to use the same 
form for reporting MLR and risk corridors data. The commenter stated 
that MLR and risk corridors calculations and reporting requirements are 
based upon different definitions and requirements, which would rule out 
the use of a single form. For example, the commenter noted, the 
programs use different definitions of group size, and require 
aggregation to different levels--QHP versus legal entity. The commenter 
also opposed the proposal to validate risk corridors data with data 
from the dedicated distributed data environment, because risk corridors 
data are based upon total claims, including capitation amounts, whereas 
the dedicated distributed data will include derived encounter values. 
Another commenter also advised against validating risk corridors data 
with data from the dedicated distributed data environment because of 
concerns that the dedicated distributed data environment would not be 
ready in time or would face short-term operational challenges that 
would prevent it from being a reliable source of claims data.
    Response: We are finalizing our proposal to use data validation 
procedures that are employed by the MLR program to uncover data 
inconsistencies, and to add validation steps that would allow us to 
identify QHP issuers and verify QHP-specific premium information. We do 
not believe that differences in standards and requirements between the 
risk corridors and MLR programs preclude the use of a single form 
because similar data will be collected at the issuer and State level 
for both programs. We also note that we will make some modifications to 
the form to capture any additional data, such as QHP-specific premium, 
that is specific to any one program. We believe that this approach is 
less burdensome for issuers and will prevent the submission of 
duplicative information.
    We are also finalizing our proposal to conduct an internal quality 
check of risk corridors data to ensure that the information submitted 
is consistent with information submitted for other programs. However, 
in response to comment regarding the appropriateness of validating risk 
corridors information against data collected through the dedicated 
distributed environment, we are clarifying that we will only validate 
risk corridors data against other data sources if the data from the 
other data sources is sufficiently reliable and can be appropriately 
compared, including with respect to any data submitted through the 
dedicated distributed data environment for 2014.
    Comment: One commenter was concerned that the proposed data 
collection program is geared toward fee-for-service payment systems and 
would not accommodate the unique challenges faced by organizations that 
operate, at least in part, through capitated or integrated health 
systems.
    Response: We disagree that the data collection program established 
for the MLR program would not accommodate the experience of capitated 
or integrated health systems. The MLR data submission template that 
would be used for the submission of risk corridors data currently 
accommodates data submission from a variety of insurance and provider 
models.
    Comment: We received several comments that supported our proposal 
to combine MLR and risk corridors audits as a way to reduce burden for 
issuers. One commenter additionally suggested that HHS use enrollment 
weighted selection criteria, identify outliers, and employ pooling 
methods similar to those used by the IRS for its auditing strategy. 
Another commenter encouraged HHS to coordinate risk corridors audits 
with those performed by State Departments of Insurance.
    Response: In Sec.  153.540, we are finalizing our proposal to 
conduct post-payment risk corridors audits using the existing MLR 
auditing process set forth at Sec.  158.402. We agree that a combined 
data submission and audit process will reduce burden on issuers. We 
appreciate commenters' suggestions on the risk corridors audit process. 
We intend to work closely with State Departments of Insurance to share 
knowledge and coordinate our audit approach to the extent practicable, 
in order to prevent duplicative audits in States that review 
information related to MLR reporting. We intend to issue detailed 
guidance on the auditing process in the future.
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 Sec.  147.102, we believe that the 
protections of these programs should be limited to plans that are 
subject to the premium rating rules. In the proposed rule, we proposed 
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 proposed to add paragraph 
(f) to Sec.  153.510 to provide that the risk corridors program would 
apply only to QHPs, as defined in Sec.  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:
     Sec.  147.102 (fair health insurance premiums).
     Sec.  147.104 (guaranteed availability of coverage).
     Sec.  147.106 (guaranteed renewability of coverage).
     Sec.  147.150 (essential health benefits).
     Sec.  156.80 (single risk pool) and subpart B of 45 CFR 
part 156 (essential health benefits package).
    We also proposed 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 that would be large 
employers under the Federal definition. We noted that, for purposes of 
the risk corridors program, permitting the use of a State employee 
counting method that is inconsistent with the counting method set forth 
in Federal law 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 final rule. Under these programs, non-
full-time employees must be counted. We also noted 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 non-grandfathered individual or small 
group market within a State, and

[[Page 13786]]

would, therefore, be part of a QHP issuer's risk corridors data 
submission under Sec.  153.530.
    In this final rule, we are finalizing the risk corridors 
participation rules as proposed to exclude plans that are not subject 
to market rules and premium rating rules from participating in the risk 
corridors program. We are also finalizing our proposal that the 
employee counting methodology used for the purposes of determining 
which plans participate in the risk corridors program will be the State 
employee counting method.
    Comment: We received three comments recommending that the 
experience of plans not compliant with the Affordable Care Act, 
including transitional plans, should be excluded from the risk 
corridors calculation, since those plans are not in the same risk pool.
    Response: QHP issuers are required to submit risk corridors data 
for all of their non-grandfathered plans in a market within a State. We 
are clarifying that this data submission requirement excludes the 
experience of plans that are not subject to the Affordable Care Act 
market reform rules, and plans being offered pursuant to the 
transitional policy announced on November 14, 2013.\33\ This is 
consistent with our single risk pool policy, which bases rate setting 
on the predicted EHB claims experience of all of an issuer's non-
grandfathered plans within the individual or small group market (or 
merged markets in states that require merging the risk pools) that are 
subject to the Affordable Care Act's market reform rules, including the 
single risk pool requirement. As described in this section, only QHPs 
(as defined in Sec.  153.500) are subject to risk corridors charges and 
eligible for risk corridors payments, and only if they are plans that 
are required to comply with specified Affordable Care Act market reform 
rules previously discussed.
---------------------------------------------------------------------------

    \33\ Letter to Insurance Commissioners, Center for Consumer 
Information and Insurance Oversight, November 14, 2013. Available 
at: http://www.cms.gov/CCIIO/Resources/Letters/Downloads/commissioner-letter-11-14-2013.PDF.
---------------------------------------------------------------------------

    Comment: Some commenters recommended that HHS expand the types of 
plans that would be subject to the risk corridors program. Some 
commenters suggested that we expand risk corridors to all plans 
compliant with the Affordable Care Act, not just plans that are the 
same or substantially the same as a QHP. One commenter suggested that 
the risk corridors program should apply to an off[hyphen]Exchange plan 
that would otherwise qualify as an Exchange QHP.
    Response: Consistent with our current policy, only plans that are 
QHPs, the same as a QHP, or substantially the same as a QHP (as defined 
at Sec.  153.500) will make or receive risk corridors payments. We 
believe that our existing policy preserves the intent of the risk 
corridors program, which is to share risk and stabilize premiums for 
QHPs, whether offered through or outside the Exchange. We believe that 
our expanded definition of a QHP for purposes of risk corridors serves 
to maintain the program's focus on QHPs while permitting these plans to 
be offered outside the Exchange, with only such minor variations as are 
required by law.
    Comment: We received several comments that the definition of the 
small group market should be consistent between the premium 
stabilization programs, and that the State employee counting method 
should be used for all Affordable Care Act programs.
    Response: As noted earlier in this final rule, we agree that 
consistency in counting methods across Affordable Care Act programs is 
important, and we plan to collaborate with other Federal agencies to 
develop a streamlined counting method in future rulemaking. For 
purposes of the risk corridors program, we interpret section 1342 of 
the Affordable Care Act to permit us to defer to State counting 
methodologies. However, as noted above, we interpret the employer size 
definitions in the Affordable Care Act to include non-full-time 
employees for purposes of determining small group status for purposes 
of risk adjustment. We therefore are finalizing our proposal that the 
employee counting methodology used for the purposes of determining 
which plans participate in the risk corridors program will be the State 
employee counting method.
d. Adjustment for the Transitional Policy
    As previously noted, on November 14, 2013, the Federal government 
announced a transitional policy under which it will not consider 
certain health insurance coverage in the individual or small group 
markets that is renewed for a policy year starting after January 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.\34\ CMS noted in a letter to the insurance 
commissioners of the 50 States and the District of Columbia that while 
the transitional policy would not have been anticipated by issuers in 
setting rates for 2014, the risk corridors program should help 
ameliorate unanticipated changes in premium revenue as a result 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.
---------------------------------------------------------------------------

    \34\ Letter to Insurance Commissioners, Center for Consumer 
Information and Insurance Oversight, November 14, 2013. Available 
at: http://www.cms.gov/CCIIO/Resources/Letters/Downloads/commissioner-letter-11-14-2013.PDF.
---------------------------------------------------------------------------

    In our proposed rule, we considered an adjustment to the risk 
corridors formula for the 2014 benefit year that would help to further 
mitigate any unexpected losses for issuers of plans subject to risk 
corridors attributable to the effects of the transitional policy, and 
noted that we were considering approaches that would limit the impact 
of the policy on the Federal budget. We considered implementing 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. We stated 
that this adjustment could increase a QHP issuer's risk corridors ratio 
and its risk corridors payment amount to help offset losses that might 
occur under the transitional policy as a result of increased claims 
costs not accounted for when setting 2014 premiums. We stated that we 
were considering applying this adjustment only to plans whose allowable 
costs (as defined at Sec.  153.500) are at least 80 percent of their 
after-tax premiums, because issuers under this threshold would 
generally be required to pay out MLR rebates to consumers. We stated 
that because we believed that the Statewide effect on this risk pool 
would increase with an increase in the percentage enrollment in 
transitional plans in the State, we were considering having the State-
specific percentage adjustment to the risk corridors formula also vary 
with the percentage enrollment in these transitional plans in the 
State. To estimate this State-specific effect of the transitional 
policy on average claims costs, we proposed 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 non-transitional plans in the individual and small group markets 
prior to the risk corridors July 31, 2015 data submission.
    In the proposed rule, we stated we were also considering 
calculating the State-specific percentage adjustment by analyzing the 
effects of the transitional

[[Page 13787]]

policy upon a plan with the following specified characteristics: 
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 proposed 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. 
HHS would analyze that data, and publish the State-specific adjustments 
that issuers would use in the risk corridors calculations for the 2014 
benefit year.
    Finally, in the proposed rule, we stated that we were considering 
modifying the MLR formula to ensure that the proposed adjustment to the 
risk corridors 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 are finalizing the risk corridors adjustment policy as proposed. 
Consistent with our proposal, we are adding a definition of 
``adjustment percentage'' to Sec.  153.500, and are amending the 
definitions of risk corridors ``profits'' and ``allowable 
administrative costs'' in Sec.  153.500 to account for the adjustment 
percentage. We are also adding a definition of ``transitional State'' 
to Sec.  153.500. Finally, we are adding paragraph (e) to Sec.  153.530 
to require health insurance issuers in the individual and small group 
markets to submit enrollment data for the risk corridors adjustment. We 
are making a conforming change to Sec.  153.530(d) to clarify that the 
July 31st submission deadline for risk corridors data does not apply to 
the enrollment data specified in Sec.  153.530(e). We project that 
these changes, in combination with the changes to the reinsurance 
program finalized in this rule, will result in net payments that are 
budget neutral in 2014. We intend to implement this program in a budget 
neutral manner, and may make future adjustments, either upward or 
downward to this program (for example, as discussed below, we may 
modify the ceiling on allowable administrative costs) to the extent 
necessary to achieve this goal.
    Comment: Several commenters recommended that HHS implement a risk 
corridors adjustment based on a national calculation instead of State-
level calculations, as we proposed. One commenter noted that the effect 
of the transitional policy on the State risk pool could vary by factors 
that we did not propose to account for, such as whether or not the 
State had a guaranteed issue law prior to 2014, and suggested that a 
national adjustment would help to mitigate the effect of these 
differences. Alternatively, the commenter suggested that HHS could 
provide an adjustment for different categories of States. A few 
commenters suggested that a national adjustment would reduce 
administrative burden on issuers and would be simpler to implement. 
However, several other commenters supported our approach of 
implementing a State-level adjustment, including the proposed approach 
of applying the adjustment based on enrollment in non-compliant plans 
within a State.
    Response: We are finalizing our proposed approach to determine the 
risk corridors adjustment on a State-by-State basis. We believe that a 
State-based approach provides an appropriate means of accounting for 
differences in market composition, enrollment in transitional plans, 
and adoption of the transitional policy between States. Because a 
national approach would still require issuers to submit enrollment 
information to HHS in order to determine an accurate national risk 
corridors adjustment, we do not believe that a State-based approach 
would prove more burdensome for issuers.
    Comment: One commenter recommended that the adjustment be extended 
through all three years of the temporary risk corridors program. 
However, another commenter believed that the adjustment should apply 
for the 2014 benefit year only, since issuers will be able to reflect 
the effect of the transitional policy in their pricing for subsequent 
benefit years.
    Response: We agree with the comment that issuers will be able to 
reflect the effect of the transitional policy in their pricing for 
benefit years following 2014, and thus this specific risk corridors 
adjustment is needed for the 2014 benefit year only. Therefore, we are 
finalizing the risk corridors adjustment policy to apply the adjustment 
to eligible QHP issuers in transitional States for the 2014 benefit 
year only. However, as we discuss below, we are considering further 
changes to the risk corridors program.
    Comment: Several commenters recommended that we apply the risk 
corridors transitional adjustment to all plans compliant with the 
Affordable Care Act, not just QHPs that are subject to the risk 
corridors program. Some commenters requested that any changes to the 
risk corridors formula be applied uniformly to all issuers, including 
issuers of plans that are not compliant with Affordable Care Act 
requirements, rather than limited to issuers offering transitional 
policies. One commenter supported defining ``transitional plans'' to 
include ``early renewal'' plans that have been renewed in late 2013 and 
that will not be required to comply with the Affordable Care Act until 
the end of 2014.
    Response: Because, as described above, the risk corridors program 
is intended to share risk and stabilize premiums for QHPs and 
substantially similar off-Exchange plans that differ only due to legal 
requirements, we decline to expand the participation criteria for the 
risk corridors transitional adjustment. Consistent with our existing 
regulations set forth in subpart F of part 153, any risk corridors 
payment or charge amount, including any adjusted payment or charge 
amount resulting from this transitional policy, will be calculated for 
a QHP issuer in proportion to the premium revenue that the issuer 
receives from its QHPs, as defined in Sec.  153.500. Plans that do not 
comply with the Affordable Care Act market reforms will not participate 
in the risk corridors program, and data from these plans will not be 
included in a QHP issuer's risk corridors calculation, or the 
calculation of its risk corridors adjustment percentage.
    We are also finalizing our proposal that a QHP issuer in a 
transitional State will receive the risk corridors adjustment only if 
its allowable costs are above 80 percent of after-tax premiums, and 
will receive that adjustment irrespective of whether the issuer offers 
transitional policies. Because the transitional policy may affect the 
overall risk pool in a transitional State, we believe that it is 
appropriate to provide the adjustment to a QHP issuer in that State 
even if the issuer does not offer a transitional policy.
    Comment: Some commenters recommended that HHS completely remove the 
administrative costs ceiling for risk corridors. One of these 
commenters agreed with HHS's proposal that the allowable costs must be 
at least 80 percent of after-tax premiums, and another agreed with 
setting the profit floor according to the methodology outlined in the 
proposed rule. Another commenter recommended that the risk corridors 
formula be changed to reflect a standard ceiling of 22 percent for 
allowable administrative costs.
    Response: As we discussed in the proposed rule, the adjustment to 
the risk

[[Page 13788]]

corridors calculation is meant to mitigate the effect of the 
transitional policy on QHP issuers in transitional States, and not in 
all States. However, we understand that issuers in all States are 
experiencing additional administrative costs as a result of 
transitional issues. We are carefully analyzing this proposal, and may 
propose implementing it in future rulemaking. If so, this change would 
apply in all States for the 2015 benefit year. We would also consider 
making corresponding changes to the risk corridors profit floor and to 
the MLR regulations.
    Comment: We received comments on the interaction between the 
proposed risk corridors adjustment and MLR reporting. One commenter 
supported the proposal to modify the MLR formula so that the 
calculation of MLR rebates would not be affected by the transitional 
adjustment to the risk corridors program. One commenter believed that 
there was no need to modify the MLR formula because the formula would 
automatically account for any distortions, while another commenter 
recommended that HHS maintain the current structure of the MLR formula 
in order to prevent issuer confusion. We also received one comment 
suggesting that issuers should be able to account for administrative 
expenses that are related to implementing the risk corridors 
transitional adjustment as part of their MLR calculation for the 
following year.
    Response: We are providing that issuers should exclude the effect 
of this transitional policy risk corridors adjustment from their MLR 
calculations. We are making conforming changes to the MLR reporting 
requirements in Sec. Sec.  158.130(b)(5), 158.140(b)(4)(ii), and 
158.240(c)(2). We note that this policy will not change the existing 
structure of the MLR or risk corridors formulas. Under this policy, 
issuers in the transitional States will use unadjusted risk corridors 
amounts (that is, a risk corridors transfer calculated as if the 
adjustment percentage, as defined in Sec.  153.500, is equal to zero 
percent) in their MLR calculations.
    Comment: One commenter recommended that HHS collect enrollment 
counts by the middle of the year so that issuers would be able to 
estimate their risk corridors transitional adjustment before the end of 
the year, in time for year-end financial reporting. Another commenter 
requested that issuers should be permitted to reduce the impact of the 
transitional policy through mid-year premium rate changes in the small 
group market that would allow issuers to file rates as early as April 
1, 2014.
    Response: We are clarifying that we will collect transitional plan 
enrollment information and publish each State-specific adjustment in 
advance of when issuers would need to prepare their year-end financial 
reports. In response to comments, we are adding Sec.  153.530(e) and 
making a conforming change to Sec.  153.530(d) to specify that, 
although the July 31 deadline will continue to apply to the submission 
of risk corridors data that is necessary to calculate allowable costs 
and the target amount, the July 31 deadline will not apply to the 
collection of enrollment data for the risk corridors adjustment. As 
mentioned above, we intend to collect enrollment information before the 
July 31st deadline for submitting risk corridors data, so that issuers 
will know the risk corridors adjustment amount that applies to them 
before they are required to submit data on allowable costs and the 
target amount for the purposes of the risk corridors calculation. We 
currently anticipate conducting this collection at the beginning of 
2015.
    Comment: One commenter asked HHS to clarify that, for purposes of 
the target amount calculation, Federal income tax cannot be negative 
(that is, the Federal income tax amount would have a floor of zero).
    Response: We clarify that, because the Federal income tax effects 
of losses in one plan can be offset by gains in another plan, the risk 
corridors formula will account for negative Federal income tax, and 
that we will not apply a floor to the Federal income tax amount used in 
the risk corridors formula.
5. 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
    We proposed an iterative discrepancy reporting process that would 
require 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. 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: 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 will also send interim reports to issuers of risk 
adjustment covered plans and reinsurance-eligible plans that do not 
load data to verify this result. Issuers of risk adjustment covered 
plans will receive interim reports that include preliminary risk 
adjustment information based on this data, and issuers of reinsurance-
eligible plans will receive interim reports that include an estimate of 
the issuer's aggregated total claims eligible for reinsurance payments 
based on this data. We proposed in Sec.  153.710(d) that within 30 
calendar days of the date of an interim report, the issuer would be 
required either to 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 Sec.  153.700(a) for the timeframe specified in the 
report, or else to describe to HHS any discrepancy it identifies in the 
interim report. Following the identification of a discrepancy in an 
interim report, HHS would review the evidence submitted by the issuer, 
along with any other relevant data, and determine if the preliminary 
risk adjustment information or estimated payment amount at issue was 
properly calculated using the applicable data.
    We note that for the issuer and HHS to effectively address and 
resolve discrepancies through the proposed interim reporting process, 
once an issuer's dedicated distributed data environment is established, 
the issuer will be required under Sec.  153.700(a), on a quarterly 
basis, to make a complete and current enrollment file accessible to HHS 
through the dedicated distributed data environment, and 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 30th of the year after the benefit year, as provided 
for in Sec.  153.730) adjust these files with the most current 
information to account for changing enrollments or more current 
adjudications of claims in later periods.
    Final dedicated distributed data environment report: We proposed 
that HHS would provide issuers with a final dedicated distributed data 
environment report following the applicable benefit year, after the 
April 30th data submission deadline. The final dedicated distributed 
data environment

[[Page 13789]]

report will 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 proposed in Sec.  153.710(e) 
that the issuer be required, within 15 calendar days of the date 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 Sec.  
153.700(a) for the benefit year specified in the report, or describe to 
HHS any discrepancy it identifies in the final report.
    Notification of payments and charges: Last, as required under Sec.  
153.310(e) and Sec.  153.240(b)(1)(ii), HHS will provide a notification 
to issuers specifying the risk adjustment and reinsurance payments due 
and risk adjustment charges owed for the applicable benefit year by 
June 30th of the year following the applicable benefit year. We 
anticipate providing this notification in the form of a report. 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 will permit HHS and issuers to resolve most 
data and payment discrepancies for risk adjustment and reinsurance 
before the June 30th report is issued, we recognize that some 
discrepancies might remain unresolved. Therefore, we proposed in Sec.  
153.710(f) that if a discrepancy that is first identified in an interim 
or final dedicated distributed data environment report in accordance 
with Sec.  153.710(d)(2) or Sec.  153.710(e)(2) remains unresolved 
after issuance of the June 30th report, an issuer of a risk adjustment 
covered plan or reinsurance-eligible plan is permitted to make a 
request for reconsideration using the process described in Sec.  
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 reinsurance-
eligible plan in a timely fashion, we proposed to assess charges and 
make payments based on the amounts listed in the June 30th report, 
whether or not the issuer had submitted a request for reconsideration 
under Sec.  156.1220(a), and to later correct any charges or payments 
determined to be inaccurate under the administrative appeals process.
(ii) Reporting of Payments and Charges Under Reconsideration
    We noted in the proposed rule that 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 
proposed in Sec.  153.710(g)(1) that, notwithstanding any discrepancy 
report made under Sec.  153.710(d)(2) or (e)(2), or any request for 
reconsideration under Sec.  156.1220(a), unless the dispute has been 
resolved, an issuer be required to report, as applicable, for purposes 
of the risk corridors and MLR programs, 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 30th 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 Sec.  
156.1220(a), we proposed 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, we proposed that if a QHP issuer 
requests reconsideration of risk corridors payments or charges under 
Sec.  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 Sec.  153.510(d).
    Finally, we proposed in Sec.  153.710(g)(2) that an issuer be 
required to report any adjustment made following any discrepancy report 
made under paragraph (d)(2) or (e)(2), or any request for 
reconsideration under Sec.  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 MLR report, in the next following risk corridors and 
MLR report.
    We are finalizing these provisions as proposed.
    Comment: Several commenters supported the interim and final 
dedicated distributed data environment reports and discrepancy process, 
including the requirement to upload data on a quarterly basis. One 
commenter requested that HHS require, not merely allow, issuers to 
notify HHS in a timely fashion of data and calculation discrepancies.
    Response: Under Sec.  153.710(d) and Sec.  153.710(e), an issuer 
will be required to notify HHS of any discrepancies within 30 calendar 
days of the date of an interim dedicated distributed data environment 
report and within 15 calendar days of the date of the final dedicated 
distributed data environment report.
    Comment: One commenter stated that the quarterly reporting of data 
on an issuer's dedicated distributed data environment should not be 
required until HHS has provided issuers with the necessary documents, 
software, and support needed to ensure that the dedicated distributed 
data environment is running properly, with additional time provided for 
issuers to implement the software and test the system.
    Response: We will not require issuers to make data available on the 
dedicated distributed data environment until we have provided them with 
the necessary documents, software, support, and time to establish the 
environment. We will issue future guidance regarding the initiation of 
quarterly data reporting. At that time, we will ask that issuers make a 
complete and current enrollment file accessible to HHS through the 
dedicated distributed data environment on a quarterly basis, while 
making good faith efforts to make accurate and current claims files 
accessible to HHS through that environment. As we stated in the 
proposed rule, an issuer may later (up until April 30th of the year 
after the benefit year, as provided for in Sec.  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.
    Comment: Many commenters asked for details on the timing of the 
interim reports. One commenter recommended

[[Page 13790]]

that HHS require quarterly reporting by the issuer to the dedicated 
distributed data environment one month after the end of each quarter. 
Commenters stressed the importance of receiving interim reports from 
HHS in late 2014 to early 2015 because these reports could be used for 
2016 pricing and financial reporting obligations which occur prior to 
the June 30th notification deadline.
    Response: We will issue future guidance regarding the timing of the 
interim reports.
    Comment: Several commenters supported receiving interim reports 
identifying preliminary risk scores and estimates of the issuer's 
aggregated total claims eligible for reinsurance payments. Many 
commenters asked that HHS include additional information to enable 
calculation of risk adjustment payment transfers, and reinsurance 
payment amounts.
    Specifically, commenters requested that the risk adjustment interim 
reports include: (1) The State average premium; (2) market average risk 
score; (3) preliminary Statewide risk score; (4) the geographic cost 
factors; (5) the two market-wide denominators (weighted adjusted risk 
score and weighted allowed rating factors) needed for the risk 
adjustment transfer formula; (6) enrollment counts by geographic 
region; (7) member-level (de-identified) data contributing to the risk 
score: risk adjusting categories, plan level or plan ID, age, sex, 
enrollment period, rating area and subsidy information, recommending 
that such information be displayed for each month included in the 
interim report; (8) AV; (9) induced demand factor; and (10) average 
rate factor. One commenter stated that since interim risk score 
calculations would not reflect true relative risk, HHS should publish 
statistical reports comparing the issuer with market average 
demographics, proportion of claims with HCCs, most prevalent HCCs, and 
other pertinent data.
    Regarding the interim report for reinsurance, commenters asked that 
the interim reports include: (1) Member level claims amounts by month; 
(2) claim type; and (3) subsidy information necessary to validate the 
cost-sharing deduction.
    Commenters also asked that HHS consult with issuers about the data 
submission requirements to accommodate diverse market practices due to 
provider submission patterns, State-specific regulations and different 
delivery system models.
    Response: We will provide more details on the content of the 
interim reports in future rulemaking or guidance, as appropriate.
    Comment: Several commenters suggested that HHS provide information 
to issuers regarding data completeness or accuracy, data quality and 
ways to improve data submission in time for issuers to evaluate and 
correct such data issues prior to the final data submission deadline.
    Response: As stated in the proposed rule, as part of the process 
for making data 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 along with error codes. To fulfill its 
obligation to make these files available to HHS, an issuer will be 
required to either correct or accept the rejection of this data for the 
submission process to be considered complete. We also intend to provide 
summarized reports of file processing.
    Comment: Some commenters supported the 15-calendar-day deadline to 
respond to the final dedicated distributed data environment report, 
while others asked that HHS provide 30 calendar days to respond to the 
final dedicated distributed data environment report.
    Response: 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 30th of the year 
following the applicable benefit year, as required under Sec.  
153.310(e) and Sec.  153.240(b)(1)(ii).
    Comment: One commenter asked that HHS develop penalties for non-
compliance with the standards for the submission of data for the risk 
adjustment program.
    Response: In Sec.  153.740(a), we established HHS's authority to 
impose CMPs on issuers of risk adjustment covered plans who fail to 
provide HHS with access to the required data in such environment in 
accordance with Sec.  153.700(a) or otherwise fail to comply with the 
requirements of Sec. Sec.  153.700 through 153.730, or fail to adhere 
to the risk adjustment data submission and data storage requirements 
set forth in Sec. Sec.  153.610 through 153.630. Additionally, under 
Sec.  153.740(b), HHS will assess a default risk adjustment charge 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 the required data in such environment in accordance with 
Sec.  153.610(a), Sec.  153.700, Sec.  153.710, or Sec.  153.730 such 
that HHS cannot apply the applicable Federally certified risk 
adjustment methodology to calculate the risk adjustment payment 
transfer amount.
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 Sec.  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 30th of the year 
following the applicable benefit year in accordance with Sec. Sec.  
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 considered 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

[[Page 13791]]

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 default 
risk adjustment charge, and fail to provide adequate incentive for 
prompt establishment of a compliant dedicated distributed data 
environment.
    A second option we considered was 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.
    The third option we considered was to assess a charge equal to a 
fixed percentage of the Statewide average premium, which would be 
calculated as the enrollment-weighted mean of all risk adjustment 
covered plan average premiums 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 are finalizing an approach in which we will assess a PMPM 
default charge equal to the product of the Statewide average premium 
(expressed as a PMPM amount) for a risk pool and the 75th percentile 
plan risk transfer amount expressed as a percentage of the respective 
Statewide average PMPM premiums for the risk pool. The nationwide 
percentile would reflect only plans in States where HHS is operating 
the risk adjustment program and would be calculated based on the 
absolute value of plan risk transfer amounts. The PMPM amount 
determined using the method described here would be multiplied by the 
non-compliant plan's enrollment, as determined using the sources 
finalized in the second final Program Integrity Rule, to establish the 
plan's total default risk adjustment charge.
    Comment: Several commenters stated they supported a default risk 
adjustment charge that would be understood by issuers and that would 
encourage compliance. Some commenters supported using the greatest of 
the three proposed methodologies for calculating the default charge. 
Those commenters suggested that where there are a limited number of 
issuers in a market in a State, an alternate approach to the standard 
deviation-based methodology should be taken, such as one that relies on 
nationwide data. Another commenter suggested that the default charge be 
set at the charge that would be two standard deviations above the mean 
charge in a market for the first instance of noncompliance; and at a 
higher rate, such as the highest PMPM charge among risk adjustment 
plans in the risk pool, for a second instance of noncompliance in 
consecutive benefit years.
    Response: We are finalizing an approach in which the default PMPM 
charge is set at a fixed percentage of the Statewide average premium, 
which would be calculated as the enrollment-weighted mean of all risk 
adjustment covered plan average premiums in the applicable risk pool in 
the applicable market in the State in which the non-reporting plan 
operates. To calculate the fixed percentage, HHS would calculate the 
absolute value of the risk transfer PMPM amount of each plan in a State 
risk pool as a percentage of the Statewide average premium for the 
State risk pool. These percentages would then be used to rank all 
transfers as a percentage of Statewide average premium in the same risk 
pool in all States where HHS operates the risk adjustment program. We 
would select the fixed percentage of Statewide average premium yielded 
at the 75th percentile of this distribution of transfers, then multiply 
this percentage by the Statewide average PMPM premium for the risk pool 
in which the non-reporting plan operates. We will monitor the default 
charges resulting from this methodology and may adjust the percentile 
at which we assess the appropriate fixed percentage to apply the 
default charge in future rulemaking.
c. Clarification of the Good Faith Safe Harbor
    In the second final Program Integrity rule, we finalized Sec.  
153.740(a), which permits HHS to impose CMPs upon issuers of risk 
adjustment covered plans and reinsurance-eligible plans for failure to 
adhere to certain standards relating to their dedicated distributed 
data environments. In the preamble to that rule, we stated that if we 
are able to determine that an issuer of a risk adjustment covered plan 
or reinsurance-eligible plan is making good faith efforts to comply 
with the standards set forth in Sec.  153.740(a), consistent with our 
policy codified at Sec.  156.800(c),\35\ we would not seek to impose 
CMPs for noncompliance with those standards during 2014 (78 FR 65061). 
We further stated: ``However, we note that nothing in this provision 
prohibits HHS from imposing CMPs in 2015 for noncompliance that 
occurred in 2014.'' We seek to clarify that this statement does not 
mean that HHS takes the position that it could impose CMPs for 
noncompliance with respect to 2014 standards, even if the issuer 
attempted in good faith to comply, simply by waiting until 2015.
---------------------------------------------------------------------------

    \35\ 45 CFR 156.800(c) was finalized in the first final Program 
Integrity Final Rule.
---------------------------------------------------------------------------

    We intended to convey that the good faith safe harbor does not 
apply to non-compliance with dedicated distributed data environment 
standards applicable during 2015, even if the non-compliance in 2015 
relates to data for the 2014 benefit year. In 2014, issuers must 
establish dedicated distributed data environments and load data 
according to a quarterly schedule to be provided by HHS. The good faith 
safe harbor would apply, for example, to noncompliance with the 2014 
schedule for establishing a dedicated distributed data environment and 
loading data. However, the data loading schedule applicable to 2014 
risk adjustment and reinsurance data extends into 2015 (the final 
loading deadline is April 30, 2015, which will enable HHS to calculate 
risk adjustment payments and charges and reinsurance payments for the 
2014 benefit year by June 30, 2015), and at this time, the good faith 
safe harbor does not extend to noncompliance with any 2015 obligations, 
even if those 2015 obligations apply with respect to 2014 data. As we 
stated in the preamble to the Program Integrity final rules (78 FR 
54070 and 78 FR 65046), at the appropriate time, we may consider 
extending this good-faith compliance safe harbor.
    We further note that our clarification of this preamble language 
does not preclude application of the good faith safe harbor under Sec.  
156.800(c) to noncompliance actions that occurred in 2013 with respect 
to 2014 standards.

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

1. Election To Operate an Exchange After 2014
    We proposed 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

[[Page 13792]]

effective date of coverage. HHS learned through the process of 
conditionally approving the first generation of State Exchanges that it 
is challenging to make an accurate assessment of a State's progress and 
its ability to complete an Exchange build 10 months prior to open 
enrollment and a year prior to the first date that insurance coverage 
for consumers would become effective. In addition, we believe that this 
amendment will give States more time prior to approval of the Exchange 
Blueprint to prepare for the transition from an FFE or State 
Partnership Exchange model to a State Exchange. We proposed to amend 
Sec.  155.106(a)(2) by moving the deadline for the approval of the 
Exchange Blueprint for those 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 also proposed in the 
preamble to the proposed rule that the Exchange Blueprint application 
would be submitted on June 1st instead of on November 15th. This new 
timeframe will enable HHS to gauge the State's actual technical, 
business and operational progress as more indicative milestones should 
be reached by June 15th. We are finalizing the amendment to Sec.  
155.106(a)(2) as proposed.
    Comment: Several commenters were concerned that moving the date to 
June 15th will compromise the operational efficiency of issuers 
planning to offer QHPs in these new Exchanges. Some commenters stated 
that the June 15th date will give issuers insufficient time to program 
their systems for State-specific processes and suggested that HHS 
require newly-electing Exchanges to use a standard file format if the 
Exchange intends to collect and remit premiums. Other commenters stated 
that the June 15th date provides insufficient time for plan testing of 
State systems to ensure a smooth transition from an FFE model to a 
State Exchange. Other commenters stated that the June 15th date will 
provide the necessary time and flexibility for States transitioning to 
a State Exchange.
    Response: The June 15th date balances the needs of issuers to 
prepare products for the Exchanges with the needs of the States that 
wish to transition to a State Exchange. The QHP certification process 
of newly electing State Exchanges or transitioning Exchanges should not 
be delayed, as State DOIs, in the ordinary course of reviewing plans 
for compliance with State and Federal law, will be conducting their 
reviews of plans irrespective of the Exchange Blueprint deadline. DOI 
decisions will therefore be available to inform certification decisions 
by a State Exchange, and there should be ample time for issuers to 
program their system as required by newly electing State Exchanges and 
as required by those FFE States transitioning to a State Exchange 
model. We encourage States and new State Exchanges to work with issuers 
on State-specific requirements and unique processes.
    Comment: One commenter suggested that HHS monitor whether the 6.5 
month deadline provides adequate time for HHS to assess readiness. In 
addition, the commenter suggested that 15 days between the Blueprint 
application due date of June 1st and the decision of approval or 
conditional approval might not allow for sufficient time for HHS to 
communicate with States. Finally, the commenter asked HHS to clarify 
when a State must have full approval as opposed to conditional 
approval, given the shorter timeframe. One commenter stated that the 
new deadline would not give HHS enough time to conduct critical IT 
testing for the Exchange and the health plans.
    Response: HHS believes that the June 15th date provides adequate 
time to assess the readiness of the Exchange. As stated in the 
preamble, the January 1st date proved difficult for HHS to 
appropriately assess the readiness of State Exchanges. Fifteen days is 
sufficient time for communication between the States and HHS, as HHS 
envisions that States that are applying to become State Exchanges will 
be communicating with HHS well before June 1st and HHS will provide 
appropriate support and technical assistance. Finally, the proposed 
timeframe is sufficient for HHS to approve or conditionally approve the 
new State Exchanges.
2. Ability of States to Permit Agents and Brokers To Assist Qualified 
Individuals, Qualified Employers, or Qualified Employees Enrolling in 
QHPs
    We proposed to add new Sec.  155.220(i) to provide that paragraph 
(c)(3), which addresses enrollment in a QHP through the Exchange via an 
Internet Web site of an agent or broker, would apply to SHOPs for plan 
years beginning on or after January 1, 2015, in addition to the 
individual market Exchanges. Under the 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 
SHOP. We proposed to allow SHOPs, in States that allow this activity 
under State law, to permit enrollment in a QHP through the SHOP by 
using an Internet Web site of an agent or broker under the standards 
outlined in Sec.  155.220(c)(3) if a State SHOP or an FF-SHOP has the 
technical capability to make this possible. CMS does not currently 
anticipate that the FF-SHOPs will make this functionality available in 
2015. We are finalizing this provision as proposed, but note that we 
have added a title to the provision.
    Comment: A broad range of commenters supported permitting 
enrollment in a SHOP QHP through the Exchange via the Internet Web site 
of an agent or broker. While several commenters favored the expanded 
function for agents and brokers, some commenters also recommended that 
HHS require compliance with industry and consumer protections. Several 
commenters recommended that HHS explicitly include consumer protections 
and prohibit agents and brokers who offer Internet Web sites to help 
consumers enroll in coverage through the Exchange from using PII, 
including gender, age, income, or other characteristics, for immediate 
or future marketing purposes; that the Exchange make consumers aware of 
these agents' and brokers' financial incentives; and that the Exchange 
establish a formal system for monitoring agents and brokers who offer 
Internet Web sites to help consumers enroll in Exchange coverage, 
enforcing consumer protections against such agents and brokers, and 
terminating relationships with agents and brokers that violate those 
protections.
    Response: Under Sec.  155.220(c)(3), HHS has established safeguards 
to protect consumers who are using the Internet Web site of an agent or 
broker to complete a QHP selection for coverage offered, or to enroll 
in coverage in the individual market Exchanges. The same safeguards and 
requirements would also apply when consumers use an Internet Web site 
of an agent or broker to complete a QHP selection for coverage offered 
on a SHOP Exchange.
    We note that SHOP agents and brokers must comply with section 
1411(g) of the Affordable Care Act, which provides that PII may only be 
used for purposes of, and to the extent necessary in, ensuring the 
efficient operation of the Exchange. States that are approved to 
operate SHOP Exchanges must also establish privacy and security 
standards governing the use of PII by non-Exchange entities consistent 
with Sec.  155.260, which also prohibits any use or disclosure of PII 
in violation of section 1411(g) of the

[[Page 13793]]

Affordable Care Act.\36\ We further note that FF-SHOP agents and 
brokers must sign an agreement with the Exchange (FF-SHOP Agent Broker 
Agreement) that requires strict adherence to the Exchange's privacy and 
security standards established pursuant to 45 CFR 155.260. SHOP agents' 
and brokers' use and disclosure of PII is limited to the specific 
authorized functions outlined in the FF-SHOP Agent Broker Agreement and 
that Agreement also explicitly prohibits the use of PII for any purpose 
that is not identified as an authorized function. The use of PII for 
marketing purposes is not identified as an authorized function and is 
therefore prohibited.
---------------------------------------------------------------------------

    \36\ 45 CFR 155.105(b)(1) provides that HHS will approve the 
operation of an Exchange established by the State if the State 
Exchange is able to carry out the required functions consistent with 
subparts C, D, E, F, G, H, and K of part 155. For States approved to 
operate only a SHOP Exchange, the Exchange must perform the minimum 
functions described in subpart H and all applicable provisions of 
other subparts referenced therein. 45 CFR 155.705(a) includes a 
reference to subparts C, E, K, and M of part 155. The privacy and 
security requirements for Exchanges are codified in subpart C. As 
such, all Exchanges, including all SHOPs, are subject to the privacy 
and security requirements at 45 CFR 155.260.
---------------------------------------------------------------------------

    Comment: One commenter recommended that HHS require that consumers 
who enroll in Exchange coverage through the Internet Web site of an 
agent or broker complete an eligibility application and the enrollment 
process through the SHOP to assure the SHOP remains the eligibility and 
enrollment system of record. One commenter further recommended that HHS 
require the SHOP to transmit enrollment information to a QHP or QDP 
issuer to ensure an issuer can effectuate enrollment of qualified 
employees. Another commenter recommended that the proposed rule be 
expanded to explicitly require that the Exchange retain responsibility 
for billing and premium aggregation services as required in regulation.
    Response: In accordance with CMS regulations, the SHOP, not an 
agent or broker, will always complete eligibility determinations and 
the SHOP will remain the system of record for eligibility purposes. 
Additionally, in accordance with CMS regulations, the SHOP, not an 
agent or broker, will always be responsible for premium aggregation 
services as set forth in Sec.  155.705(b)(4). Under Sec.  
155.705(b)(4), for plan years beginning on or after January 1, 2015, 
the SHOP must be responsible for all premium aggregation services and 
for routing payments from employers to issuers. Specifically, the SHOP 
must provide each qualified employer with a bill on a monthly basis 
that identifies the employer contribution, the employee contribution, 
and the total amount that is due to issuers from the qualified 
employer; collect from each qualified employer the total amount due; 
make payments to QHP and QDP issuers in the SHOP for all enrollees; and 
maintain books, records, documents, and other evidence of accounting 
procedures and practices of the premium aggregation program for each 
benefit year for at least 10 years.
    Comment: Several commenters recommended that agents and brokers who 
offer Exchange enrollment through an Internet Web site be required to 
list all QHP issuer offerings displayed on the relevant Exchange Web 
site and that the Exchange provide this information to the agent or 
broker. Some commenters specifically recommended that HHS specify that 
agents and brokers using non-Exchange Web sites must refrain from 
disclosing QHP prices and rates prior to the availability of such data 
on the SHOP Web site. Other commenters recommended that HHS contract 
with agents and brokers offering Exchange enrollment through an 
Internet Web site other than the Exchange Web site to prohibit the 
early release of data on QHP prices and data to ensure that QHP rates 
are not shared with competitors prior to the plan data being made 
public.
    Response: As is required at Sec.  155.220(c)(3)(iv) for agents and 
brokers assisting with enrollment in individual market Exchange 
coverage, the Internet Web site of the agent or broker used to complete 
the QHP selection must display all QHP data provided by the Exchange. 
Agents and brokers must also meet all standards for disclosure and 
display of QHP information contained in Sec.  155.205(b)(1) and (c). As 
noted in the proposed Program Integrity Rule (78 FR 37046), we 
recognize that an Exchange may not be able to provide to agents and 
brokers certain data elements necessary to meet the Sec.  155.205(b)(1) 
requirements, such as premium and rate information, depending upon 
confidentiality requirements, the agent or broker appointment with the 
QHP issuer, and State laws regarding agent and broker appointments. We 
therefore provided under Sec.  155.220(c)(3)(i) that if less than all 
QHP data required under Sec.  155.205(b)(1) is displayed on the agent's 
or broker's Internet Web site, the agent or broker must prominently 
display a standardized disclaimer provided by HHS stating that all 
information required under Sec.  155.205(b)(1) for the QHP is available 
on the Exchange Web site and provide a Web link to the Exchange Web 
site. In addition, for States in which HHS is operating an FFM, 
pursuant to Sec.  155.220(c)(3)(vii), a second disclaimer is required 
that would include the following notifications: (1) The Internet Web 
site of the agent or broker is not an FFM Web site, (2) the Internet 
Web site of the agent or broker may not contain all QHP data available 
on the FFM Web site, and (3) the agent or broker is required to comply 
with all applicable Federal laws, including the standards specified in 
paragraph (c)(3) of Sec.  155.220, and the standards established under 
45 CFR 155.260 to protect the privacy and security of PII. The 
disclaimer must also contain a link to HealthCare.gov. The same 
requirements would apply to agents and brokers assisting with 
enrollment in SHOP coverage.
    Comment: One commenter recommended that HHS require that the 
Internet Web site of an agent or broker that is used to complete a QHP 
selection through the Exchange display available QHPs in a manner that 
is as consistent with the Exchange Web site as possible.
    Response: Under Sec.  155.220(c)(3)(i), all QHP data on the 
Internet Web site of an agent or broker that is used to complete a QHP 
selection through the Exchange must be disclosed and displayed 
consistent with the requirements that apply to the Exchange Web site at 
45 CFR 155.205(b)(1) and (c). Section 155.205(b)(1) generally requires 
that standardized comparative information be provided for each 
available QHP and 45 CFR 155.205(c) requires that information be 
displayed in a manner that is accessible to persons with limited 
English proficiency and persons with disabilities. In addition, as 
noted above, if an agent or broker Web site does not display all 
information required under Sec.  155.205(b)(1) for a QHP, it must 
include the standardized disclaimer established under Sec.  
155.220(c)(3)(i). The same requirements would apply to agents and 
brokers assisting with enrollment in SHOP coverage. State laws and 
regulations may establish additional standards for this activity.
3. Privacy and Security of Personally Identifiable Information
    In Sec.  155.260(a), we proposed allowing the Secretary to 
determine that additional uses or disclosures of personally 
identifiable information (PII), which may not be directly connected to 
Exchange ``minimum functions'' as currently described in regulation, 
ensure the efficient operation of the Exchange, subject to privacy and 
security standards that Exchanges must establish. We proposed a process 
for

[[Page 13794]]

Exchanges to seek the Secretary's approval of other requested uses and 
disclosures of eligibility and enrollment PII that would ensure the 
efficient operation of the Exchange; comply with other applicable law 
and policy; and require the consent of the individual subject of the 
PII prior to the requested use or disclosure.
    We also proposed in Sec.  155.260(b) to clarify that the definition 
of a ``non-Exchange entity'' refers to 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 functions 
agreed to with the Exchange. Examples of non-Exchange entities include, 
but are not limited to, Medicaid and CHIP agencies; Certified 
Application Counselors; in-person assisters; agents and brokers, 
including Web-brokers; QHP issuers; and other third parties that 
contract with the Exchange or other downstream entities that contract 
with non-Exchange entities.
    We proposed to maintain the existing requirement for Exchanges to 
enter into a contract or agreement with non-Exchange entities, and we 
specified five required elements to be included in those contracts and 
agreements. We proposed three criteria that would provide a foundation 
and flexibility for Exchanges to set privacy and security standards as 
a condition of contract or agreement with non-Exchange entities while 
also aligning closely with the wide variety of non-Exchange entities, 
responsibilities, functions, operational environments, and technical 
infrastructures. These criteria would provide equivalent or more 
stringent protection than the standards which the Exchange has 
established and implemented for itself while aligning to the functions 
and operating environment of the non-Exchange entity.
    The proposed requirement that standards be relevant to non-Exchange 
entities' duties and activities in relation to the Exchange introduced 
the concept of ``relevant and applicable'' and reflected our intent to 
address the various responsibilities assumed by non-Exchange entities 
and their associated technical infrastructures. We are finalizing the 
provisions as proposed.
    Comment: Commenters generally expressed support for the proposed 
substantive and procedural requirements established in Sec.  
155.260(a)(1)(iii), including a consent requirement, for data uses and 
disclosures not explicitly described in Sec.  155.260(a)(1)(i) or (ii). 
Certain commenters noted that data required to determine eligibility 
and premium subsidies is extremely sensitive, necessitating strong 
privacy and security safeguards. Certain commenters emphasized the need 
to minimize sharing of PII to the minimum necessary to effectuate 
implementation of the Affordable Care Act and ensure the efficient 
operation of the Exchange.
    Response: We concur with the commenters' suggestion that the 
sensitive nature of PII necessitates robust privacy and security 
safeguards, and we reiterate that the Secretary would review 
requestors' proposed privacy and security standards as part of the 
Secretary's proposed review process under Sec.  
155.260(a)(1)(iii)(B)(4). The proposed process establishes the 
requirement for requestors to describe how data will be protected with 
privacy and security standards that are compliant with Sec.  155.260 
and to show that a proposed use or disclosure will ensure the efficient 
operation of the Exchange consistent with section 1411(g)(2)(A) of the 
Affordable Care Act. If a requested use or disclosure does not satisfy 
these requirements, it would not be approved under the proposed 
process. We further recognize the imperative to maintain safeguards for 
eligibility and enrollment PII. Once the Secretary approves a proposed 
use or disclosure of eligibility and enrollment PII, the Exchange would 
be required to limit the use or disclosure of PII to the extent 
necessary to accomplish the proposed function, and the individual would 
need to provide consent before his or her eligibility and enrollment 
PII could be used or disclosed.
    Comment: Some commenters supported our proposal at Sec.  
155.260(b)(3), which would require that non-Exchange entities meet 
privacy and security standards at least as protective as the standards 
the Exchange establishes and implements for itself. The commenters 
further recommended that the same standards apply to downstream 
entities to ensure PII continues to be protected once it reaches the 
downstream entity. One commenter further recommended that Exchanges 
form direct agreements with downstream entities rather than relying on 
non-Exchange entities to ensure their compliance with privacy and 
security standards. The commenter stressed that this is important 
because downstream entities may have different duties or operational 
and technical environments than the non-Exchange entities with which an 
Exchange has an agreement, and these differences may not be properly 
accounted for in the Exchange's agreement with a non-Exchange entity.
    Response: We proposed at Sec.  155.260(b)(2) to maintain the 
existing requirement for Exchanges to enter into a contract or 
agreement with non-Exchange entities and we provided more details 
specifying the required elements of these contracts and agreements. We 
proposed in Sec.  155.260(b)(2)(iv) that such a contract or agreement 
must require any downstream entities that meet the definition 
established in Sec.  155.260(b)(1) to comply with the same privacy and 
security standards with which the non-Exchange entity agrees to comply 
under its contract or agreement with the Exchange. Further, we proposed 
in Sec.  155.260(b)(3)(iii)(A) that the privacy and security standards 
to which non-Exchange entities are bound must consider the operational 
and technical environment in which the non-Exchange entity operates, 
and that these environments be assessed in light of the requirement in 
Sec.  155.260(a)(5) to monitor, periodically assess and update security 
controls and related system risks to ensure continued effectiveness of 
those controls. Downstream entities are also subject to this criterion 
under proposed Sec.  155.260(b)(2)(iv). Our adoption of these 
requirements in the final rule reflects our concurrence that it is 
important that the privacy and security standards continue to apply to 
PII as it moves to additional downstream entities.
    Comment: Several commenters suggested that QHP issuers should not 
be considered non-Exchange entities under the definition proposed in 
Sec.  155.260(b) because issuers' roles differ fundamentally from the 
roles and functions of other entities listed as non-Exchange entities 
in the proposed regulation. Certain commenters specified, as an 
example, that unlike other entities listed as non-Exchange entities, 
QHP issuers do not participate in the eligibility determination process 
because it is conducted entirely through the Exchange.
    Response: Because the proposed definition of non-Exchange entities 
is broad and includes a variety of entities, we recognize that there 
can be considerable variation among non-Exchange entities. Different 
non-Exchange entity functions can result in variation in both the 
amount and type of access to PII and the technical characteristics of 
the non-Exchange entity's environment. We intended to address the lack 
of a regulatory mechanism to take these variations into account, and to 
alleviate potential

[[Page 13795]]

operational burdens for non-Exchange entities. We proposed that any 
individual or entity that gains access to PII submitted to an Exchange 
or accesses PII directly from individuals should be considered a non-
Exchange entity. This approach defines a non-Exchange entity based on 
the entity's access to PII, not based on the roles or functions of the 
entity, and QHP issuers would qualify as non-Exchange entities based on 
this definition. We believe this approach appropriately addresses the 
fact that a QHP issuer's role may differ from that of other non-
Exchange entities.
    Comment: Several commenters suggested that QHP issuers should not 
be subject to the proposed regulatory requirements at Sec.  
155.260(b)(2) because they already are subject to the HIPAA Privacy, 
Security and Breach Notification Rules at 45 CFR Parts 160 and 164, as 
well as applicable State breach notification standards. Certain 
commenters requested that if issuers are classified as non-Exchange 
entities as proposed, we recognize the HIPAA Privacy, Security and 
Breach Notification Rules as sufficient for Exchange privacy and 
security standards under Sec.  155.260(b). Certain commenters further 
explained that, because QHP issuers and their delegated and downstream 
entities already are subject to comprehensive privacy and security 
standards under HIPAA, requiring issuers to implement additional 
privacy and security standards would pose duplicative and potentially 
conflicting requirements and unnecessary administrative burdens. 
Certain commenters suggested that the proposed regulatory requirements 
for non-Exchange entities should not apply to QHP issuers because they 
already are subject to business associate agreement requirements that 
the proposed regulatory requirements would duplicate, imposing 
unnecessary administrative burdens on them.
    Response: In its final form, Sec.  155.260(b)(3)(i)-(iii) will 
allow an Exchange the flexibility to tailor privacy and security 
standards to particular types of non-Exchange entities so long as those 
standards remain strong in compliance with Sec.  155.260. With respect 
to non-Exchange entities that currently are obligated to follow the 
HIPAA Privacy, Security and Breach Notification Rules, pursuant to 
written agreements required by Sec.  155.260(b)(3), Exchanges will have 
the flexibility to deem non-Exchange entities in compliance with the 
specific privacy and security standards that the Exchange establishes 
for its non-Exchange entities by virtue of their compliance with the 
HIPAA Privacy, Security and Breach Notification Rules or similar 
standards. This would be permissible so long as the Exchange determines 
that HIPAA Privacy, Security and Breach Notification Rules or similar 
standards are at least as protective as the standards the Exchange has 
established and implemented for itself in compliance with paragraph 
Sec.  155.260(a)(3), so long as those standards' protections are 
extended to all PII created, collected, disclosed, accessed, 
maintained, stored, or used in connection with FFEs, and so long as the 
Exchange also requires non-Exchange entities to comply with the 
additional limitations on use and disclosure of PII in section 1411(g) 
of the Affordable Care Act. It would be incumbent upon the Exchange to 
evaluate whether such deeming arrangements would satisfy all of the 
criteria established for privacy and security standards under proposed 
Sec.  155.260(b)(3). With respect to FFEs, pursuant to written 
agreements, they also will have the flexibility to deem QHP issuers, 
and agents and brokers who use QHP issuer information technology 
systems, to be in compliance with the specific privacy and security 
standards that the Exchange establishes for its non-Exchange entities 
by virtue of their compliance with the HIPAA Privacy, Security and 
Breach Notification Rules or similar standards, so long as the FFEs 
determine that those standards are at least as protective as the 
standards the FFEs have established and implemented for themselves in 
compliance with paragraph Sec.  155.260(a)(3), so long as those 
standards' protections are extended to all PII created, collected, 
disclosed, accessed, maintained, stored, or used in connection with 
FFEs, and so long as the FFEs also require non-Exchange entities to 
comply with the additional limitations on use and disclosure of PII in 
section 1411(g) of the Affordable Care Act. We intend to issue guidance 
that will address in greater detail the applicability of the HIPAA 
Privacy, Security, and Breach Notification Rules and the additional 
limitations on use and disclosure of PII in section 1411(g) of the 
Affordable Care Act.
    Comment: Certain commenters more specifically requested that QHP 
issuers be allowed to comply with the HIPAA Privacy, Security and 
Breach Notification Rules to satisfy the privacy and security 
requirements of Sec.  155.260(b) because the enrollment and eligibility 
PII that QHP issuers receive from an Exchange does not merit a 
different level of protection than other non-Exchange-based enrollment 
information that QHP issuers typically handle. Certain commenters 
explained that QHP issuers do not participate in the Exchange 
eligibility determination process, and only receive the results of such 
determinations in enrollment files that are substantially similar to 
the enrollment data that health plans and issuers receive or create for 
non-Exchange-based products that are subject to HIPAA Privacy and 
Security Rules and State breach notification standards. One commenter 
also noted that such enrollment files do not contain information from 
Federal agencies such as IRS and Department of Homeland Security.
    Response: Under the final rule, Exchanges will have the flexibility 
to deem non-Exchange entities in compliance with the specific privacy 
and security standards that the Exchange establishes for its non-
Exchange entities by virtue of their compliance with the HIPAA Privacy, 
Security and Breach Notification Rules or similar standards, so long as 
those standards are at least as protective as the standards the 
Exchange has established and implemented for itself in compliance with 
paragraph Sec.  155.260(a)(3), and so long as they incorporate the 
additional limitations on use and disclosure of PII in section 1411(g) 
of the Affordable Care Act. It would be the responsibility of the 
Exchange to evaluate whether such deeming arrangements for privacy and 
security standards for non-Exchange entities would satisfy the criteria 
proposed in Sec.  155.260(b)(3).
    We proposed requirements in Sec.  155.260(b)(3) that 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 proposed three criteria that would have to be met by 
the privacy and security standards to which an Exchange must bind non-
Exchange entities, and we do require that these standards take into 
specific account the environment in which the non-Exchange entity 
operates. The first criterion in Sec.  155.260(b)(3)(i) requires that 
any privacy and security standards must be as protective as the 
standards the Exchange sets for itself, consistent with all the 
principles and requirements listed under Sec.  155.260(a). The second 
criterion requires that any privacy and security standards must also 
comply with requirements for workforce and contractor compliance, 
written policies and procedures, compliance with the

[[Page 13796]]

Code, and consequences of improper use and disclosure of information 
established by Sec.  155.260(c), (d), (f) and (g). The third criterion 
requires that the privacy and security standards to which non-Exchange 
entities are bound take into consideration several factors, including 
the operating and technical environment in which the non-Exchange 
entity operates. These environments and the standards themselves should 
be assessed in light of the requirement established at Sec.  
155.260(a)(5) to monitor, periodically assess, and update security 
controls and related system risks to ensure the continued effectiveness 
of those controls. We would expect that an Exchange's contracts and 
agreements with non-Exchange entities would include privacy and 
security standards based on these criteria, as well as a proposed 
requirement at Sec.  155.260(b)(3)(iii)(B) requiring those standards to 
be relevant and applicable to the non-Exchange entity's duties and 
activities in relation to the Exchange. We believe these rules allow 
sufficient flexibility for Exchanges to tailor privacy and security 
standards to the specific information non-Exchange entities will 
handle, including that information typically handled by QHP issuers.
    Comment: Some commenters expressed concern that under the proposed 
regulatory language, an Exchange could require a QHP issuer to comply 
with CMS's ``Minimum Acceptable Risk Standard for Exchanges (MARS-E) 
Suite of Documents: Guidance on Operational, Technical, Administrative, 
and Physical Safeguards.'' \37\ One commenter further explained that 
because QHP issuers do not conduct eligibility analyses, only receiving 
eligibility results, requiring issuer compliance with the full suite of 
MARS-E requirements would have significant operational impacts and 
increase administrative costs without enhancing data security.
---------------------------------------------------------------------------

    \37\ The MARS-E suite of documents can be found at the following 
address: http://www.cms.gov/cciio/resources/regulations-and-guidance/index.html#MinimumAcceptableRiskStandards.
---------------------------------------------------------------------------

    Response: Under the final rule, where an Exchange determines that a 
non-Exchange entity's compliance with MARS-E requirements are necessary 
to adequately protect PII and comply with Sec.  155.260(b), it may 
indeed require such compliance under a written agreement with a non-
Exchange entity. For example, FFE agreements with agents and brokers 
who will assist consumers with applications for determinations of 
eligibility to enroll in insurance affordability programs, including 
QHPs, and/or to receive advance payments of premium tax credit and/or 
cost-sharing reductions using the FFE Web site, currently require 
compliance with MARS-E requirements. All agents and brokers providing 
such assistance through FFEs must comply with the FFE privacy and 
security standards for non-Exchange entities as a condition of their 
separate agreements with CMS. Agents and brokers who will use a QHP 
issuer's computers and work space controlled by a QHP issuer to perform 
these functions, must ensure those computers and work space are 
compliant with privacy and security provisions of their agreements with 
CMS. We believe that QHP issuers typically have procedures already in 
place to address general computer and work space security.
    Comment: One commenter recommended that we clarify that limitations 
on use and disclosure under section 1411(g) of the Affordable Care Act 
apply only to PII concerning an ``applicant.'' The commenter further 
explained that, once an individual is enrolled in a QHP, PII received 
during the application process should no longer be subject to section 
1411(g), but instead should be subject to HIPAA privacy and security 
standards. The commenter also requested that if an applicant provides 
information to a QHP issuer, governed by section 1411(g) of the 
Affordable Care Act, and the applicant does not enroll in a QHP, the 
issuer should then be able to use and disclose the information 
consistent with HIPAA privacy and security standards after obtaining 
the applicant's consent.
    Response: We clarify that as proposed in Sec.  155.260(b)(1), 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, is considered to 
be a non-Exchange entity. We proposed in Sec.  155.260(b)(2) to 
maintain the existing requirement for Exchanges to enter into a 
contract or agreement with non-Exchange entities. We also state in 
Sec.  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, including obtaining consent consistent 
with the principle provided under Sec.  155.260(a)(iv). Under the Final 
Rule, Exchanges will have the flexibility to deem non-Exchange entities 
in compliance with the specific privacy and security standards that an 
Exchange establishes for its non-Exchange entities by virtue of their 
compliance with the HIPAA Privacy, Security and Breach Notification 
Rules or similar standards, so long as the Exchange determines that 
those standards are at least as protective as the standards the 
Exchange has established and implemented for itself in compliance with 
paragraph Sec.  155.260(a)(3), so long as those standards' protections 
are extended to all PII created, collected, disclosed, accessed, 
maintained, stored, or used in connection with Exchange, and so long as 
the Exchange also requires non-Exchange entities to comply with the 
additional limitations on use and disclosure of PII in section 1411(g) 
of the Affordable Care Act.
    Comment: One commenter expressed concern regarding the proposed 
requirement that non-Exchange entities inform the Exchange of any 
change in administrative, technical or operational environments defined 
as material in the contract. The commenter expressed concern that the 
definition of material changes that would trigger the reporting 
requirement could be overly broad in individual Exchange contracts. The 
commenter recommended that we clarify that the types of changes that 
would have to be reported be significant and have the possibility of 
altering the organization's overall security posture.
    Response: At Sec.  155.260(b)(2), we proposed to maintain the 
existing requirement for Exchanges to enter into a contract or 
agreement with non-Exchange entities, and we proposed five required 
elements of these contracts and agreements. One of those elements, in 
Sec.  155.260(b)(2)(iv), would require the non-Exchange entity to 
inform the Exchange of any change in its administrative, technical or 
operational environment, as defined within the contract, which would 
require an alteration of the privacy and security standards within the 
contract or agreement to ensure those standards remain relevant and 
aligned with current operating environments. The intent of this 
requirement is to provide an opportunity for the Exchange and the non-
Exchange entity to assess and revise the privacy and security standards 
to ensure their continued relevance.
4. Annual Open Enrollment Period for 2015
    In Sec.  155.410, as finalized in the Exchange Establishment Rule, 
we set forth provisions for initial and annual open enrollment periods. 
We proposed amending Sec.  155.410(e) and (f), which pertain to the 
annual open enrollment

[[Page 13797]]

period and effective date for coverage after the annual open enrollment 
period. These amendments apply to non-grandfathered policies offered 
through and outside the Exchange.
    In paragraph (e), we proposed adding a paragraph that would change 
the annual open enrollment period for the 2015 benefit year. We 
proposed that for all Exchanges, annual open enrollment would begin on 
November 15, 2014 and extend through January 15, 2015. This would give 
health insurance issuers an additional month in 2014 before they would 
need to begin accepting plan selections for the upcoming plan year and 
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. 
We also noted that 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. We proposed to 
retain the October 15th to December 7th open enrollment period for 
subsequent benefit years.
    In paragraph (f), we proposed adding a paragraph to address 
coverage effective dates for plan selections made during the annual 
open enrollment period for the 2015 benefit year. We proposed that 
coverage must be effective January 1, 2015, for plan selections 
received by the Exchange on or before December 15, 2014. We proposed 
that coverage must be effective February 1, 2015, for plan selections 
received by the Exchange from December 16, 2014 \38\ through January 
15, 2015. In accordance with Sec.  155.335(j), qualified individuals 
already enrolled in a QHP through the Exchange in 2014 who remain 
eligible for enrollment in a QHP would have their coverage continue 
into 2015, but they would have the ability to change QHPs until January 
15, 2015. We also sought 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. We also proposed January 1st coverage effective 
dates for open enrollment for benefit years beginning on or after 
January 1, 2016.
---------------------------------------------------------------------------

    \38\ We note that the proposed rule contained a typographical 
error that referred to December 16, 2015, instead of the clearly 
intended December 16, 2014. This final rule finalizes the provision 
with the corrected date.
---------------------------------------------------------------------------

    We are finalizing the regulation with an open enrollment end date 
of February 15, 2015 instead of January 15, 2015, for the benefit year 
beginning January 1, 2015, and we are adding coverage effective dates 
for enrollments during the period between January 16-February 15, 2015. 
We are not finalizing in this rule, the open enrollment period or 
effective dates for the benefit years beginning on or after January 1, 
2016. Finally, for consistency within this section, we are changing the 
reference to ``plans'' in subparagraph (f)(1) to ``QHPs.''
    Comment: Many commenters supported the proposed open enrollment 
period dates and corresponding coverage effective dates. Some 
commenters proposed alternate open enrollment period date ranges for 
both the benefit year beginning on January 1, 2015, and for years 
beyond 2015. Other commenters opposed the proposed amendments to the 
rule. Issuers discouraged retroactive effective dates, in response to a 
solicitation for comments regarding retroactive effective dates.
    Response: In response to comments recommending different ranges for 
the annual open enrollment period, we are finalizing this amendment so 
that open enrollment for the benefit year beginning January 1, 2015 
begins November 15, 2014, and ends February 15, 2015. We are also 
adding a provision providing for the standard coverage effective date 
of March 1, 2015 for enrollments taking place between January 16 and 
31, 2015. We believe that the additional time before open enrollment 
will enable the collection of additional rating experience that could 
have a positive benefit on reducing 2015 rates for consumers. We 
further believe that extending the open enrollment period to February 
15, 2015 instead of January 15, 2015 is beneficial for consumers 
because it provides additional time to select a plan. We are not adding 
any requirements for retroactive coverage in connection with this 
annual open enrollment period. Because some commenters proposed 
alternate open enrollment period date ranges for benefit years beyond 
the one year beginning on January 1, 2015, we intend to propose open 
enrollment dates for the 2016 plan year in the 2016 draft Payment 
Notice. Finalizing open enrollment dates for the 2016 plan year in the 
2016 Payment Notice will allow an additional year's experiences to 
inform the finalization of realistic enrollment dates.
    We note that non-grandfathered individual coverage sold on a date 
other than January 1st of the calendar year would still be required to 
have the plan or policy year end on December 31, 2015 to comply with 
the requirement to be offered on a calendar policy year under 45 CFR 
144.103 and 147.104(b)(2). We also note that this amendment to the open 
enrollment period applies to the individual health insurance market, 
both for plans offered through and outside the Exchanges, by virtue of 
the cross-reference at 45 CFR 147.104(b)(1)(ii), through which the 
dates of the individual market Exchange open enrollment period also 
apply to the individual market generally.
5. Functions of a SHOP
    We proposed amending Sec.  155.705(b)(1), which lists the rules 
regarding eligibility and enrollment to which SHOPs must adhere, to 
include mention of 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. We are finalizing 
this amendment with a minor change to replace the list of provisions in 
the current and proposed versions of the rule with a more general 
reference to subpart H. The change from the proposed rule text will 
help HHS keep the provision up to date.
    We also proposed adding a new paragraph Sec.  155.705(b)(3) to 
provide qualified employers with options to offer dental coverage after 
employee choice becomes available in the FF-SHOPs. We proposed that for 
plan years beginning on or after January 1, 2015, a FF-SHOP would have 
two methods by which to offer stand-alone dental plans (SADPs) to its 
employees and 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 also noted in the preamble to the proposed 2015 
Payment Notice that we were considering allowing qualified employers to 
offer all SADPs at a given dental AV level option, if the SADP AV level 
requirements were not eliminated in this rulemaking, and sought 
comments on this approach. Because we are now not finalizing the 
elimination of the SADP AV requirements, we are finalizing the policy 
to reflect this contemplated approach, giving employers the option of 
offering employees either a single qualified dental plan, or all dental 
plans at a single dental actuarial value level.
    We proposed to re-designate Sec.  155.705(b)(4)(ii) as (b)(4)(iii) 
and to add new paragraph (b)(4)(ii) to allow all SHOPs to establish one 
or more standard processes for premium calculation, payment, and 
collection

[[Page 13798]]

after the SHOP makes premium aggregation available. We also proposed 
provisions related to the processes FF-SHOPs would establish for 
premium calculation, payment, and collection under proposed Sec.  
155.705(b)(4)(ii). Consistent with Sec.  155.720(b), which establishes 
that all SHOPs must establish a uniform enrollment timeline and 
process, including a specified list of activities such as establishment 
of effective dates of employee coverage, for all QHP issuers and 
qualified employers to follow, and consistent with Sec.  155.720(d), 
which establishes that all SHOPs must follow the requirements set forth 
at Sec.  155.705(b)(4), we proposed at Sec.  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 anticipate that this payment timeline 
would require employers to make a full initial premium payment at least 
2 days prior to the employer's desired coverage effectuation date, or 
perhaps longer, in order to provide a reasonable window of time for the 
relevant banks to process the payment transaction.
    We solicited comments about whether this 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 consideration that HHS should 
factor into the development of the payment timeline and process. 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. Section 155.735(c) and the Draft 2015 
Letter to Issuers in the Federally-facilitated Marketplaces published 
on February 4, 2014 contain additional information about the payment 
timeline and process for payments subsequent to the initial premium 
payment. Finally, as discussed below in the preamble to Sec.  156.285, 
we also proposed a conforming amendment to Sec.  156.285(c)(7)(iii) to 
establish that an FF-SHOP issuer would be required to effectuate 
coverage unless it has received an enrollment cancellation from the FF-
SHOP. We are finalizing these provisions as proposed.
    At Sec.  155.705(b)(4)(ii)(B), we proposed 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. We proposed that groups will be charged for the portion of the 
month for which the enrollee is enrolled. 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 or days in the month. Issuers will charge 
and the FF-SHOP will collect for only the portion of coverage provided 
for the partial month. We also solicited comments about whether a 
standardized methodology regarding prorating premiums for partial month 
enrollment should be adopted across all individual market Exchanges. We 
are finalizing this provision as proposed, without adopting a 
standardized methodology across all individual market Exchanges.
    We are finalizing in this rule amendments to Sec.  155.705(b)(6) 
that were proposed in the ``Program Integrity Rule'' published in the 
June 19, 2013 Federal Register (78 FR 37032) on pages 37051-37052 and 
37084. These amendments were proposed in conjunction with the issuer 
standards regarding the frequency of indexed rate updates that were 
codified at 45 CFR 156.80, and make explicit that this market-wide 
policy also applies to SHOPs. Because Sec.  156.80 sets a market 
standard for mid-year rate updates of no sooner than quarterly, this 
provision is already in effect small-group-market-wide, including in 
all SHOPs. Specifically, we proposed to amend paragraph (b)(6)(i) to 
provide that SHOPs must require QHP issuers to make changes to rates at 
a uniform time that is no more frequently than quarterly. We also 
proposed at paragraph (b)(6)(ii) to provide issuers participating in 
the FF-SHOPs with the maximum amount of flexibility permitted under 
Sec.  156.80 and the proposed amendment to Sec.  155.705(b)(6)(i), 
standardize the effective dates for rate updates in the FF-SHOPs, and 
provide that FF-SHOP issuers must submit rates to HHS 60 days in 
advance of the effective date. Consistent with technical guidance 
provided to issuers through the Health Insurance Oversight System on 
April 8, 2013, issuers will be able to submit updated quarterly rates 
for the FF-SHOPs no sooner than for the third quarter of 2014, due to 
current system limitations.\39\ Comments related to this provision were 
addressed when the single risk pool provision was finalized on October 
30, 2013 in the Program Integrity final rule. We are finalizing as 
proposed the amendment to Sec.  155.705(b)(6)(i), but are finalizing 
the language proposed at Sec.  155.705(b)(6)(ii) at Sec.  
155.705(b)(6)(i)(A) instead of at (b)(6)(ii), to make clear that we 
never intended for this proposal to supersede the language at current 
Sec.  155.705(b)(6)(ii). We are also making a minor change in the 
language finalized at Sec.  155.705(b)(6)(i)(A) to replace the word FF-
SHOP with the term ``Federally-facilitated SHOP.''
---------------------------------------------------------------------------

    \39\ See Rates Changes for Small Group Market Plans and System 
Processing of Rates (April 8, 2013).
---------------------------------------------------------------------------

    We proposed at Sec.  155.705(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 percentage contribution for 
full-time employees (as defined in Sec.  155.20 and section 4980H(c)(4) 
of the Code) that differs from the percentage contribution the 
qualified employer defines for employees that are not full-time 
employees under that definition, to the extent permitted by applicable 
law. This proposal would also allow an FF-SHOP to permit an employer to 
define different percentage contributions toward premiums for dependent 
coverage for full-time and non-full-time employees. The FF-SHOPs would 
be allowed to define up to four different contribution levels: full-
time employee-only, full-time employee dependent, non-full-time 
employee-only and non-full-time employee dependent. We are finalizing 
the substance of this provision as proposed, but we anticipate that the 
functionality to implement different contribution levels for full-time 
versus non-full-time employees and their dependents will not be 
available in the FF-SHOPs until sometime after January 1, 2015. We will 
provide adequate notice to issuers and employers before this 
functionality becomes available.
    We also proposed a prohibition on composite premiums in the FF-
SHOPs for plan years beginning on or after January 1, 2015, when a 
qualified employer elects to offer employee choice--that is, when the 
qualified employer offers its qualified employees all QHPs within the 
employer's selected level of coverage under Sec.  155.705(b)(3)(iv)(A). 
To accomplish this objective, we proposed amendments to Sec. Sec.  
155.705(b)(11)(ii)(D) and 156.285(a)(4). While we are finalizing the 
proposed amendments to Sec.  156.285(a)(4), as discussed below, we are 
not finalizing the proposed amendments to Sec.  155.705(b)(11)(ii)(D), 
because those amendments would not carry out the intended policy, but 
would

[[Page 13799]]

instead limit employers' ability to establish a fixed contribution to 
employee coverage, which was not an intended outcome of the proposals. 
We clarify that we have always interpreted Sec.  155.705(b)(11)(ii)(D) 
to provide that, in an FF-SHOP, a State or employer may require that 
employer contributions be based on a calculated composite premium, 
which is, in effect, a composite premium calculated for the sole 
purpose of establishing a fixed dollar amount employer contribution to 
employee coverage, and is not a composite premium offered to the group 
plan by the issuer. When employer contributions are based on a 
calculated composite premium, this has the effect of equalizing 
employer contributions for a given plan such that the employer's 
contribution toward each enrollee's premium does not vary by the 
enrollee's age, but is instead a fixed dollar amount. In other words, 
the calculated composite premium described in Sec.  
155.705(b)(11)(ii)(D) is a separate concept from the composite premium 
addressed in Sec.  147.102 and in our proposed amendments to Sec.  
156.285(a)(4). Accordingly, the fact that the FF-SHOPs will permit 
employers to use a calculated composite premium to determine employer 
contributions does not require issuers that are not otherwise required 
to offer composite premium rates to do so. Employers may also opt to 
set their contributions as a percentage of per-member premiums under a 
calculated composite premium approach or under a per-member premium 
approach. For these reasons, no modification to Sec.  
155.705(b)(11)(ii)(D) is necessary to carry out our intended policy on 
composite premiums in the FF-SHOPs. We are addressing comments on the 
proposed policy below, in the preamble section discussion related to 
final Sec.  156.285(a)(4).
    We also asked for comments on whether the calculation of user fees 
for the FF-SHOPs should be calculated based upon composite premiums or 
premiums calculated on per-member buildup. The methodology to calculate 
user fees for the FF-SHOPs will depend on how the group calculates a 
group's monthly premium. If a group uses a composite premium, the user 
fee will be based on this methodology. Similarly, if a group uses a 
per-member buildup approach, the user fee will reflect this 
methodology.
    Comment: We received varying comments on our proposal to allow 
employers the ability to offer employees a choice of all SADPs 
available in an FF-SHOP. Several commenters supported our proposal of 
offering full choice among all of the SADPs available in an FF-SHOP, 
and stated that the proposal would allow employees to choose a dental 
benefit that works best for their family and will lead to an increase 
in choice and competition in the small group market. Commenters 
supportive of the proposal also stated that allowing employers the 
flexibility to select whether to make available a single SADP or to 
make available all SADPs will encourage employer participation in the 
Exchanges. However, some commenters were opposed to allowing employee 
choice of SADPs, specifically requesting that this feature should be 
revisited in future plan years. Commenters opposed to the proposal 
stated that this additional choice will provide an additional layer of 
complexity for both the FF-SHOP Web site and administrative 
functionality. Some commenters said that it will also increase the risk 
of adverse selection, negatively affect competition, and increase 
prices for consumers.
    Response: Allowing an employer flexibility to provide its employees 
and their dependents with a range of stand-alone dental coverage 
options advances our goal of increased choice and competition in FF-
SHOPs. Allowing the option for qualified employers to offer all SADPs 
at a given dental AV level option (high and low) is similar to employee 
choice of QHPs in SHOPs, because under employee choice, an employer 
selects an actuarial value level (or ``metal tier'') of coverage and 
employees may select any QHP within that actuarial value level. 
Accordingly, as discussed in the preamble to the proposed rule, we 
considered whether to give employers the option of offering one SADP or 
all SADPs at one of the actuarial value levels set forth at Sec.  
156.150, but we did not ultimately propose regulation text reflecting 
that approach. Instead, we proposed providing employers with the option 
of offering all SADPs in an FF-SHOP, because another proposed amendment 
in this rulemaking would have done away with the actuarial value levels 
for SADPs set forth at Sec.  156.150. Because that proposed amendment 
to Sec.  156.150 will not be finalized, we can now amend our proposed 
regulation text to implement this alternative option. This modification 
would also address some commenters' concerns about too much risk when 
all SADPs are made available to employees in FF-SHOPs.
    Comment: We received some comments stating that issuers should be 
allowed to price for the employer choice and employee choice for SADPs 
separately; that is, that issuers should be permitted to charge a 
different premium to the employer based on whether the SADP is the only 
one offered or on whether the SADP is one among many plans being 
offered. Commenters stated that not allowing issuers to price 
separately for employer choice and employee choice will adversely 
affect competition and increase prices for consumers.
    Response: 45 CFR 156.255(b) requires that, in order for a plan to 
be certified as a QHP, the plan's issuer ``must charge the same premium 
rate without regard to whether the plan is offered through an Exchange 
. . . .'' This requirement applies to SADP QHPs under Sec.  
155.1065(a)(3). If a SADP QHP is priced differently based on whether it 
is being offered as the only SADP QHP or as one of several SADP QHPs 
under employee choice that would mean that the SADP QHP would have two 
different premium rates when offered through the Exchange. This 
necessarily means that one of these premium rates would be different 
from the premium rate of the same SADP QHP offered outside the 
Exchange, resulting in a different premium rate specifically with 
regard to whether the plan is offered through an Exchange. Therefore, 
the same SADP QHP cannot be offered at two different premium rates 
through the Exchange and continue to meet the certification requirement 
at Sec.  156.255(b). Accordingly, we are not modifying the rule in 
response to this comment.
    Comment: We received some suggestions that HHS require group 
minimum participation rates for SADPs.
    Response: HHS interprets Sec.  155.705(b)(10)(i) and (ii), the 
minimum participation requirement in the FF-SHOPs, to apply only to 
comprehensive medical QHPs offered through the FF-SHOPs. HHS did not 
intend for the FF-SHOP minimum participation requirements to apply to 
stand-alone dental coverage. Many of the adverse risk selection 
concerns that exist for medical plans do not apply to SADPs because 
SADPs, which are typically excepted benefits, are not subject to many 
of the market reforms applicable to other QHPs, and can therefore 
address adverse selection with more flexibility, through different 
premium rating and benefit design methodologies.
    Comment: Some commenters supported our proposal to provide options 
for dental coverage in the FF-SHOPs. However, they believe that an 
additional option should be taken into consideration which includes 
allowing employers to offer all SADPs but at a given AV level.

[[Page 13800]]

    Response: Because we are not removing the AV standards for SADPs as 
was initially proposed in this rulemaking, we are modifying our 
proposal to allow employers the option to offer either a single QDP, or 
all dental plans at a single dental actuarial value level of coverage.
    Comment: Several commenters support allowing a SHOP to establish 
standard processes for premium calculation, premium payment, and 
premium collection. Further, several commenters believe it should be a 
requirement of all SHOP Exchanges both FF-SHOPs and State-based SHOPs. 
Some commenters also stated that the SHOP should involve issuers in the 
development of the process and that HHS should release a proposed 
version that is open for comment before it is finalized. Commenters 
further stated that HHS should build on existing industry models. One 
commenter also suggested ensuring that timelines are feasible such that 
employers and employees are not told that coverage will be effectuated 
on a given date, only to find that processes broke down and coverage 
was not effectuated due to insufficient processing time.
    Response: HHS will provide a premium payment process that is 
efficient and workable and may, in the future, establish through 
rulemaking a standard process for all SHOP Exchanges. We will continue 
to work with issuers and other stakeholders to further refine the 
timeline and process for premium payments.
    Comment: We received several comments on standardizing the pro-
rating methodology in FF-SHOPs. Many commenters recognize the need to 
standardize pro-ration of premiums in an employee choice environment 
when the FF-SHOP is responsible for billing and payment remittance to 
multiple issuers for a single group and several commenters supported 
our proposed methodology of pro-rating premiums. One commenter 
specifically stated that this policy should only be used for initial 
enrollment due to birth or adoption and termination and not applied on 
an ongoing basis. However, some commenters opposed our proposal and 
suggested we adopt current industry practice of using a mid-month 
``wash'' approach where we would charge for the entire month when the 
coverage effective date is before the 15th of the month and do not 
charge for an employee or dependent plan taking effect after the 15th 
of the month.
    Response: FF-SHOPs will be responsible for collecting all premiums 
from participating qualified employers starting in 2015. It is 
impractical for the FF-SHOPs to accommodate the existing variation in 
pro-rated premium methodologies that exist across States and issuers. 
We believe our approach is fair for all issuers as they will receive 
the amount owed them based on the number of days an enrollee is 
covered. We are finalizing the proposed provision with no changes such 
that groups would be charged for the portion of the month for which the 
subscriber is enrolled.
    Comment: One commenter supported the approach to adopt a 
standardized methodology regarding prorating premiums for partial month 
enrollment across all individual market Exchanges and several 
commenters expressed concern or sought clarification about such an 
approach. One commenter believed that setting a standardized 
methodology was unnecessary because individual market Exchanges do not 
perform premium aggregation. Another commenter opposed the approach, 
noting that the commenter believed that it would create gaps in 
coverage, disruption in other standard enrollment and billing processes 
designed to operate on a monthly basis, and not align with the U.S. 
Department of the Treasury regulation concerning the treatment of 
partial month enrollment for the purpose of minimum essential coverage.
    Response: In future rulemaking, we intend to propose that an 
individual market Exchange may establish one or more standard processes 
for premium calculation, and that the FFE will establish one consistent 
with the methodology finalized at Sec.  155.705(b)(4)(ii)(B) of this 
final rule for the FF-SHOPs. By taking this approach, we would 
eliminate issues where consumers who transition to Medicaid are charged 
premiums for days on which they are enrolled in Medicaid, which is 
effective no earlier than the date of application. It would also be 
consistent with proposed 26 CFR 1.36B-3(d)(2) \40\ which specifies that 
when coverage is terminated before the last day of the month, and the 
issuer reduces or refunds a portion of the monthly premium, the premium 
tax credit is adjusted using the same methodology described in this 
final rule for the FF-SHOPs.
---------------------------------------------------------------------------

    \40\ Minimum Value of Eligible Employer-Sponsored Plans and 
Other Rules Regarding the Health Insurance Premium Tax Credit 
Proposed Rule published in the May 3, 2013 Federal Register (78 FR 
25915).
---------------------------------------------------------------------------

    Comment: We received several comments on our proposal to give the 
FF-SHOPs the authority to permit qualified employers to contribute 
differently to the premiums of full-time and part-time employees. Some 
commenters supported our proposal though suggested we let employers 
determine how many hours constitute a full-time employee. Some 
commenters opposed our proposal because it would be too complicated to 
implement. They suggested that the FF-SHOP ask an employer to calculate 
the percentage or dollar amount of contributions instead of defining a 
standard contribution level. Other commenters suggested we delay 
implementing this SHOP feature until after the online portal and 
premium aggregation services are fully functional. One commenter 
specifically recommends HHS work with issuers and the premium 
aggregator to ensure that the FF-SHOP is fully capable of supporting 
this function.
    Response: To ensure we have fully tested this contribution 
methodology, while we are finalizing the proposed provision giving the 
FF-SHOPs the option to permit qualified employers to contribute 
differently in the premiums of full-time and part-time employees, we 
will not be offering employers this option until sometime after January 
1, 2015. We will provide issuers and employers adequate notice before 
this option becomes available. We further note that it would not be 
consistent with the definition of a ``full-time employee'' at 45 CFR 
155.20 for the FF-SHOPs to permit employers to determine how many hours 
constitute a full-time employee.
    Comment: Some commenters expressed their preference that FF-SHOP 
user fees should be based on per-member buildup--even when employers 
offering a single plan are charged composite premiums pursuant to Sec.  
147.102.
    Response: The FFE user fee is calculated by multiplying the user 
fee rate by the premium charged by the issuer for each policy under the 
plan where enrollment is through a FFE. For issuers participating in an 
FF-SHOP, the user fee rate is multiplied by the premium calculated 
under the methodology used to calculate a group's monthly premium. For 
example, if a group is using a composite premium, the user fee will be 
based on the composite premium. If a group uses a per-member buildup 
approach, the user fee will reflect this methodology.
6. Eligibility Determination Process for SHOP
    We proposed to amend paragraph Sec.  155.715(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

[[Page 13801]]

verifications as well as to eligibility determinations. The proposed 
changes would make explicit our interpretation of our current 
regulations, under which a SHOP is prohibited 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. We are finalizing 
this provision as proposed.
    We also proposed amending Sec.  155.715(d) to address when SHOP 
eligibility adjustment periods would be triggered. We proposed 
providing 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 Sec.  155.715(c)(2). The proposal 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 
third-party data sources that a SHOP might utilize to verify 
eligibility under the optional verification process established in 
Sec.  155.715(c)(2). 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. We also 
proposed 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 Sec.  155.715(c)(2).
    We are finalizing the provisions as proposed
    Comment: One commenter asked for clarity on how the inconsistency 
process would work to ensure that eligibility and payment systems are 
in sync. Issuers and aggregators will need to know immediately when an 
inconsistency results in a group no longer being eligible for coverage 
so that they will not continue to provide coverage and so they don't 
continue to collect premiums.
    Response: Enrollment for a group might not begin until any 
discrepancies being reviewed through the eligibility adjustment process 
for the employer are resolved, but if it does, there is no reason why 
the issuer must terminate enrollment for the group if the employer is 
not determined eligible. Under guaranteed availability, the issuer 
generally must make the plan available both inside and outside the 
SHOP. If the employer is determined ineligible, an issuer may generally 
continue to offer coverage to a group, and the SHOP will work with the 
issuer to resolve any concerns related to premium payments that the 
employer had made to the SHOP.
7. Application Standards for SHOP
    We proposed to amend Sec.  155.730 to make explicit our 
interpretation of our current regulations, under which SHOPs are 
prohibited from collecting any information on SHOP applications other 
than what is required to make SHOP eligibility determinations or 
effectuate enrollment through the SHOP. We proposed to re-designate 
paragraph Sec.  155.730(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. We did not receive any comments on this proposal and 
we are finalizing the provisions as proposed.

E. Part 156--Health Insurance Issuer Standards Under the Affordable 
Care Act, Including Standards Related to Exchanges

1. Provisions Related to Cost Sharing
    In the proposed rule, we proposed several provisions and parameters 
for the 2015 benefit year related to cost sharing, including a number 
of provisions relating to indexing of premium growth. For the reasons 
described in the proposed rule and considering the comments received, 
we are generally finalizing these provisions as proposed, with a few 
modifications. However, we note that with respect to our methodology 
for indexing premium growth, we will continue to analyze additional 
methodologies in upcoming years, especially as additional data become 
available, and may modify these provisions if appropriate.
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 
Sec.  156.130(a)), the maximum annual limitation on deductibles for 
plans in the small group market (defined at Sec.  156.130(b)), and the 
assessable payment amounts under section 4980H(a) and (b) of the Code 
(finalized at 26 CFR 54.4980H in the ``Shared Responsibility for 
Employers Regarding Health Coverage,'' published in the February 12, 
2014 Federal Register (79 FR 8544)). Section 156.130(e) of 45 CFR 
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 proposed 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 that is 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 proposed 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 estimated by the CMS Office of 
the Actuary. To calculate the premium adjustment percentage for the 
2015 calendar year, we proposed to use the most recent NHEA projections 
of average per enrollee private health insurance premiums for 2013 and 
2014 ($5,128 and $5,435, respectively).\41\

[[Page 13802]]

Under that methodology, the premium adjustment percentage for 2015 
would be (5,435-5,128)/5,128, or 6.0 percent.
---------------------------------------------------------------------------

    \41\ See http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/ProjectionsMethodology2012.pdf and Table 17 in http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Proj2012.pdf for 
additional information.
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    We also considered several other sources of premium data, and 
sought comment on additional sources of data we should consider, and 
our choice of methodology. Several commenters suggested that, at least 
in the initial years, NHEA projections of per enrollee private health 
insurance premiums may not be the most appropriate source of data for 
calculating premium growth because it is influenced by changes in 
benefit design and market composition. One commenter, who supported the 
use of NHEA data generally, suggested that premium growth from 2013 to 
2014 would be unreliable because those data will reflect issuer 
uncertainty about the costs of covering a previously uninsured 
population, and that true premium growth, reflecting any rebates 
required to be paid after the end of the year, could be lower. Another 
commenter, who supported using different NHEA data, suggested using an 
index tied to projected medical costs.
    In response to these comments, we will calculate the premium 
adjustment percentage using different NHEA data--the NHEA projections 
of per enrollee employer-sponsored insurance (ESI) premiums. This data 
overlaps very significantly with the private health insurance data--
according to the CMS Office of the Actuary, approximately 88 percent of 
enrollees in 2014 will be covered by employer-sponsored insurance. 
However, because it will exclude premiums from the individual market, 
which is likely to be most affected by the significant changes in 
benefit design and market composition in the early years of 
implementation of market reforms and is most likely to be subject to 
risk premium pricing (which, as the commenter noted, may be paid back 
to consumers after the end of the year in the form of rebates), we 
believe it will provide a more appropriate measure of average per 
capita premiums for health insurance coverage for the initial years. 
And because the data are also from the well-known NHEA, we believe it 
continues to meet our selection criteria.
    Using the ESI data and our proposed methodology, the premium 
adjustment percentage for 2015 is the percentage (if any) by which the 
most recent NHEA projection of per enrollee ESI premiums for 2014 
($5,664) exceeds the most recent NHEA projection of per enrollee ESI 
premiums for 2013 ($5,435), or 4.213431463 percent.\42\ We note that as 
updated 2013 NHEA data become available, we may update the 2013 
estimate for purposes of calculating the premium adjustment percentage 
for years after 2015.
---------------------------------------------------------------------------

    \42\ See http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/ProjectionsMethodology2012.pdf and Table 17 in http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Proj2012.pdf for 
additional information.
---------------------------------------------------------------------------

    We further note that after the initial years of implementation of 
market reforms, once the premium trend is more stable, we may propose 
to change our methodology. For example we may consider changing our 
methodology to reflect the broader NHEA per enrollee private health 
insurance premium data. Additionally, as new data on health insurance 
premiums become available through the Exchanges and other sources, we 
intend to review the methodology for calculating the premium adjustment 
percentage. We also intend to establish consistent methodologies for 
indexing Affordable Care Act parameters.
    In summary, we are finalizing the premium adjustment percentage 
methodology as proposed, using NHEA projections of per enrollee ESI 
premiums in place of private health insurance premiums. This premium 
adjustment percentage will be used to increase the maximum annual 
limitation on cost sharing, the maximum annual limitation on 
deductibles for plans in the small group market, and the assessable 
payment amounts under section 4980H(a) and (b) of the Code. In the 
preamble to the proposed rule, when calculating the proposed annual 
limitation on cost sharing for 2015, we rounded to the multiple of $50 
that is higher than the number calculated by the formula. However, we 
have since learned that the convention for similar language in related 
tax policies is to round to the multiple of $50 that is lower than the 
number calculated by the formula. We strive to align policies wherever 
possible. As such, in future rulemaking that will be effective prior to 
the start of the application period for qualified health plans for the 
2015 benefit year, we are considering aligning the rounding rules, and 
rounding to the lower multiple of $50.
    Maximum Annual Limitation on Cost Sharing for Calendar Year 2015. 
Under Sec.  156.130(a)(2), for the 2015 calendar year, cost sharing for 
self-only coverage may not exceed the dollar limit for calendar year 
2014 increased by an amount equal to the product of that amount and the 
premium adjustment percentage for 2015. For other than self-only 
coverage, the limit is twice the dollar limit for self-only coverage. 
Using the premium adjustment percentage of 4.213431463 percent for 2015 
we established above, 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,\43\ the 2015 maximum annual limitation on cost 
sharing would be $6,600 for self-only coverage and $13,200 for other 
than self-only coverage, if we were to interpret Sec.  156.130(d) and 
the statute to round the self-only limitation down to the next lower 
multiple of 50.
---------------------------------------------------------------------------

    \43\ See http://www.irs.gov/pub/irs-drop/rp-13-25.pdf.
---------------------------------------------------------------------------

    Maximum Annual Limitation on Deductibles for Plans in the Small 
Group Market for Calendar Year 2015.
    Under Sec.  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 maximum annual limitation on deductibles 
for calendar year 2014 increased by an amount equal to the product of 
that amount 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. Using the premium adjustment percentage for 2015 of 
4.213431463 percent we established above and the 2014 maximum annual 
limitation on deductibles of $2,000 for self-only coverage, as 
specified in Sec.  156.130(b)(1)(i), the 2015 maximum annual limitation 
on deductibles would be $2,050 for self-only coverage and $4,100 for 
other than self-only coverage, if we were to interpret Sec.  156.130(d) 
and the statute to round the self-only limitation down to the next 
lower multiple of 50. We note that pursuant to 45 CFR 156.130(b)(3), a 
health plan's deductible may exceed the 2015 maximum annual limitation 
on deductibles described above in instances where the plan may not 
reasonably reach the AV of a given level of coverage without exceeding 
the annual deductible limit.
    Comment: We received three comments in support of our proposal to 
use data from the National Health Expenditure Accounts. However, we 
also received several comments expressing concern with the increase in 
the cost-sharing limits resulting from the proposed premium adjustment 
percentage methodology, and the

[[Page 13803]]

potential impact on affordability and consumer access to care. 
Commenters noted that because the maximum annual limitation on cost 
sharing is set based on the premium growth rate for the previous years, 
consumers could see increased premiums in one year and then increased 
out-of-pocket costs in the following year (as well as any additional 
premium increases)--in effect, experiencing impacts twice. Another 
commenter noted that the proposal would result in the divergence of the 
maximum annual limitation on cost sharing from the cost-sharing limit 
set by the IRS for high deductible health plans, which is adjusted 
based on the Consumer Price Index.\44\ Some commenters stated that the 
premium adjustment percentage should not be applied until at least 
2016, after the Federal government has evaluated consumer experience 
under the 2014 parameters. Other commenters argued that the premium 
adjustment percentage should not be affected by the changes in benefit 
design and market composition that occur between 2013 and 2014. 
Instead, the commenters argue that the premium adjustment percentage 
should be based only on the change in the cost of medical services, or 
on the Consumer Price Index.
---------------------------------------------------------------------------

    \44\ See section 223(g) of the Code.
---------------------------------------------------------------------------

    Response: In response to comments, as discussed above, we are 
finalizing our proposed methodology for calculating the premium 
adjustment percentage, using NHEA projections of per enrollee ESI 
premiums in place of private health insurance premiums. We believe that 
NHEA per enrollee ESI premium data will appropriately capture the 
underlying drivers of premium growth, and reflect the average per 
capita premium for the majority of health insurance coverage in the 
United States. In addition, ESI data tends to be more stable and is 
less influenced by one-time changes in benefit design and market 
composition.
    We do not believe it would be appropriate to use the Consumer Price 
Index as the basis for estimating premium growth. The Consumer Price 
Index captures only price changes for a fixed basket of a much broader 
set of goods, and thus does not reflect the drivers of health insurance 
premiums. Specifically, the Consumer Price Index would exclude non-
price factors that influence medical costs, and thus premiums, such as 
changes in the utilization or intensity of medical care. Because of 
this, the Consumer Price Index (both for all items and for medical 
care) has historically increased at a slower rate than premiums. We are 
concerned that consistently constraining the premium adjustment 
percentage and the cost-sharing limits to a lower rate of growth that 
is not reflective of the drivers of health insurance premiums may 
prevent issuers from adequately adjusting plan designs to offset costs, 
which could result in higher premiums. We clarify that the maximum 
annual limitation on cost sharing established at Sec.  156.130(a)(2) 
does not supersede the cost-sharing limit for high deductible health 
plans established by the IRS under Sec.  223(c)(2)(A)(ii) of the Code.
    Comment: One commenter recommended that the premium adjustment 
percentage be rounded to the nearest tenth of a percentage point, 
rather than the proposed ``nearest decimal point.''
    Response: To better align with other tax- and benefit-related 
indexation provisions, we specify that the premium adjustment 
percentage will be rounded to ten significant digits. The percentage 
for calendar year 2015 is 4.213431463 percent.
    Comment: We received two comments reporting wide variation in the 
application across States of the maximum annual limitation on 
deductibles for plans in the small group market. Commenters 
acknowledged the need for flexibility in order to meet actuarial value 
standards, but requested that HHS monitor the application of this 
policy.
    Response: We recognize the need to balance between the required 
deductible limit and the ability of issuers to offer a variety of cost 
sharing approaches within the plan designs available to employers. We 
intend to work with States to assess the need for additional guidance 
in this area, as the States are the primary enforcers of this limit.
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 
established 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 cost-sharing 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 Sec.  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 established 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. 
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 results, which we finalize 
as proposed.
    Reduced Maximum Annual Limitation on Cost Sharing for Benefit Year 
2015. We developed three model silver level QHPs and analyzed the 
impact on their AVs of the reductions described in the Affordable Care 
Act to a maximum annual limitation on cost sharing for self-only 
coverage ($6,600). The model plan designs are based on data collected 
for QHP certification for 2014 to ensure that they 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 
include a PPO with a typical cost-sharing structure ($6,600 annual 
limitation on cost sharing, $1,700 deductible, and 20 percent in-
network 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 ($6,600 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

[[Page 13804]]

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 AV Calculator developed 
by HHS, and observed how 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 household incomes between 100 and 150 
percent of the FPL (2/3 reduction in the maximum annual limitation on 
cost sharing), and 150 and 200 percent of the FPL (2/3 reduction), does 
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), does cause the AVs of two 
of the model QHPs to exceed the specified AV level of 73 percent. As a 
result, we are finalizing our proposal 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, as shown in Table 4.\45\ We are 
further finalizing as proposed a requirement that the maximum annual 
limitation on cost sharing for enrollees with household incomes between 
100 and 200 percent of the FPL be reduced by approximately 2/3, in 
alignment with the statute. As discussed in the proposed rule, these 
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 will reduce the 
administrative burden for issuers related to designing new plans, and 
provide greater continuity for enrollees.
---------------------------------------------------------------------------

    \45\ We note that although the revised interpretation of the 
rounding standard for the maximum annual limitation on cost sharing 
is not yet finalized, we would not expect a different interpretation 
of the rounding standard to result in a significant change in our 
analysis of the reductions in the maximum annual limitation on cost 
sharing. As a result, we are finalizing these reductions in the 
maximum annual limitation on cost sharing for 2015 in this rule.

  Table 4--Reductions in Maximum Annual Limitation on Cost Sharing for
                                  2015
------------------------------------------------------------------------
                                                              Reduced
                                              Reduced     maximum annual
                                          maximum annual   limitation on
                                           limitation on   cost sharing
          Eligibility category             cost sharing   for other than
                                           for self-only     self-only
                                           coverage for    coverage for
                                               2015            2015
------------------------------------------------------------------------
Individuals eligible for cost-sharing             $2,250          $4,500
 reductions under Sec.
 155.305(g)(2)(i) (that is, 100-150
 percent of FPL)........................
Individuals eligible for cost-sharing              2,250           4,500
 reductions under Sec.
 155.305(g)(2)(ii) (that is, 150-200
 percent of FPL)........................
Individuals eligible for cost-sharing              5,200          10,400
 reductions under Sec.
 155.305(g)(2)(iii) (that is, 200-250
 percent of FPL)........................
------------------------------------------------------------------------

    Comment: We received two comments supporting the proposed 
reductions in the maximum annual limitation on cost sharing for 2015, 
with the caveat that HHS should monitor provider payments to ensure 
that cost-sharing reductions do not come at the expense of provider 
reimbursement. Another commenter stated that HHS should reduce the 
maximum annual limitation on cost sharing for enrollees with a 
household income between 200 and 250 percent of the FPL to be more in 
line with the reduction specified in section 1402(c)(1)(A)(ii) of the 
Affordable Care Act.
    Response: As discussed in the proposed rule, selecting a reduction 
for the maximum annual limitation on cost sharing that is less than the 
reduction specified in the statute will 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, to meet the specified AV for the plan variation. 
Therefore, we are finalizing the reductions to the maximum annual 
limitation on cost sharing for 2015 as proposed. We do not address 
policy related to provider payments in this rule.
    Comment: We also received a comment stating that, in addition to 
reducing the maximum annual limitation on cost sharing, HHS should 
require issuers to exempt prescription drugs from any deductibles 
required under a silver plan variation.
    Response: As discussed in the 2014 Payment Notice, we believe the 
current cost-sharing reduction standards strike the appropriate balance 
between protecting consumers and preserving QHP issuer flexibility. As 
a result, we do not intend to propose any additional cost-sharing 
reduction plan design requirements at this time.
c. Design of Cost-Sharing Reduction Plan Variations
    Following our implementation of Exchange operations for 2014, we 
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. As a result, we proposed to remove the 
standards in Sec.  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 proposed that the standard in 
Sec.  156.420(e)--that cost sharing for EHB 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-of-pocket 
spending required of enrollees in silver plan variations for a benefit 
that is not an EHB. Similarly, we proposed in Sec.  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

[[Page 13805]]

required in the QHP with no cost-sharing reductions.
    We are finalizing the provisions as proposed, with one 
modification. To ensure continuity across the plan variations, we 
clarify in Sec.  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 and the corresponding out-of-pocket spending required in the 
silver plan variation of the QHP for individuals eligible for cost-
sharing reductions under Sec.  155.305(g)(2)(i), in the case of a 
silver QHP. This modification responds to commenters' concerns that 
issuers may use this flexibility to selectively attract certain 
enrollees, and is consistent with our general policy that an enrollee 
in a cost-sharing reduction plan variation be provided with plan 
features, including out-of-pocket spending, provider network, and 
benefits, that are at least as good as those offered under the standard 
plan or any other plan variation designed to be less generous.
    We also clarify that in the case of an issuer participating in an 
Exchange that only requires issuers to submit one zero cost sharing 
plan variation with the lowest premium for a set of standard plans, as 
described in the 2014 Payment Notice at 78 FR 15494, the issuer must 
ensure that the out-of-pocket spending requirement for each non-EHB 
benefit of the submitted zero cost sharing plan variation is less than 
or equal to the lowest out-of-pocket spending requirement for the same 
benefit of a silver plan variation for individuals eligible for cost-
sharing reductions under Sec.  155.305(g)(2)(i), if the silver plan is 
included in the set of standard plans.
    Under these provisions, each cost-sharing reduction plan variation 
will continue to provide the most cost savings for which an enrollee is 
eligible; however, QHP issuers will be able to--though are not required 
to--reduce out-of-pocket spending for benefits that are not EHB for 
enrollees in plan variations in order to offer simpler cost-sharing 
designs that are consistent across EHB and benefits that are not EHB. 
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 will not be reimbursed by the Federal 
government because payments for cost-sharing reductions only apply to 
EHB.
    Comment: One commenter strongly supported the proposal, stating 
that it will allow issuers the flexibility to develop plans that best 
meet the needs of the low-income population. Conversely, another 
commenter stated that issuers may use this flexibility to design plans 
that attract healthier beneficiaries and may offset any costs through 
premium increases. Several logistical concerns were also raised by 
commenters about how HHS would ensure that Federal reimbursement is not 
provided for these reductions, and how issuers would report and 
implement these reductions.
    Response: As described in Sec.  156.430(c), issuers may only submit 
information on reductions in cost sharing for EHB, and HHS will not 
provide reimbursement for reductions in out-of-pocket spending for 
benefits other than EHB. In addition, our changes to Sec.  156.420(d) 
and (e) provide additional flexibility only with respect to different 
plan variations, and those provisions do not permit issuers to 
selectively lower cost sharing in a manner that disadvantages low-
income consumers. As a result, we do not believe issuers will have any 
additional opportunity to attract healthy enrollees. Therefore, we are 
finalizing this provision as proposed, with the minor modification 
discussed above. We will provide additional guidance in the future for 
issuers on how to report out-of-pocket spending for benefits that are 
not EHB for purposes of QHP certification.
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 cost-
sharing 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 
cost-sharing reduction amounts.
    To implement this approach, we specified in Sec.  156.430(a) that a 
QHP issuer must provide to the Exchange 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. We further 
specified in the 2014 Payment Notice that QHP issuers did not need to 
submit an estimate of the dollar value of the cost-sharing reductions 
for the 2014 benefit year, except in the case of a limited cost sharing 
plan variation.\46\ Instead, the Exchange sent the data that issuers 
submitted under Sec. Sec.  156.420 and 156.470, including the AV of the 
standard plan and plan variation, and the EHB portion of expected 
allowed claims costs, to HHS for the calculation of the cost-sharing 
reduction advance payment rates. HHS then approved the rates and sent 
them back to the Exchange so that the cost-sharing reduction advance 
payment amounts could be reported as part of the 834 enrollment 
transactions, pursuant to Sec.  156.340(a). HHS then provided advance 
payments to QHP issuers.
---------------------------------------------------------------------------

    \46\ If an issuer sought advance payments for the cost-sharing 
reductions provided under the limited cost sharing plan variation of 
a health plan it offers, we specified in Sec.  156.430(a)(2) that 
the issuer was required to submit an estimate of the dollar value of 
the cost-sharing reductions to be provided.
---------------------------------------------------------------------------

    Based on our experience implementing this process for the 2014 
benefit year, we proposed certain modifications to Sec. Sec.  155.1030, 
156.430, and 156.470. We believe these modifications will simplify the 
process and improve the accuracy of the calculations. Specifically, we 
proposed to remove the requirement detailed in Sec.  156.430(a) that 
issuers develop estimates of the dollar value of the cost-sharing 
reductions to be provided, and instead proposed to modify Sec.  
155.1030(b)(3) to provide that an Exchange be required to use the 
methodology specified in the annual HHS notice of benefit and payment 
parameters to calculate advance payment amounts for cost-sharing 
reductions. We also proposed to modify Sec.  155.1030(b)(4) so that the 
Exchange would no longer be required to submit issuers' advance payment 
estimates to HHS for approval prior to the start of the benefit year. 
The Exchange would simply calculate the advance payment amounts and 
transmit the amounts to HHS via the 834 enrollment transaction, 
pursuant to Sec.  156.340(a). We then proposed in Sec.  156.430(b)(1) 
that HHS provide periodic advance payments to QHP issuers based on the 
amounts transmitted by the Exchange. Lastly, we proposed conforming 
modifications to Sec. Sec.  155.1030(b)(1) and 156.470(a), to remove 
the obligation for QHP issuers to submit, and Exchanges to review, the 
EHB allocation of the expected allowed

[[Page 13806]]

claims costs for the plans, because this data would not be used in the 
proposed 2015 methodology for calculating cost-sharing reduction 
advance payments.
    Methodology for Calculating Advance Payment Amounts for Cost-
Sharing Reductions for 2015. For the 2015 benefit year, we proposed 
that the Exchanges use a methodology for calculating the advance 
payment amounts that would 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 Sec.  156.470(a), and that would not require Exchanges to 
transfer data on advance payment amounts to HHS prior to the start of 
the benefit year. Specifically, we proposed 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, 
based on the individual market MLR of 80 percent;
Factor to Convert to Allowed Claims Costs = the quotient of 1 and 
the AV for the standard plan, not accounting for any de minimis 
variation;
Induced Utilization Factor = one of the following factors, depending 
on the plan variation:

        Table 5--Induced Utilization Factors for Plan Variations
------------------------------------------------------------------------
                                                              Induced
          Cost-sharing reduction plan variation             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 
Sec.  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
------------------------------------------------------------------------
                                                          Plan variation
          Cost-sharing reduction plan variation            AV  (percent)
------------------------------------------------------------------------
73 percent AV silver plan variation.....................              73
87 percent AV silver plan variation.....................              87
94 percent AV silver plan variation.....................              94
Limited cost sharing plan variation of bronze QHP.......              87
Limited cost sharing plan variation of silver QHP.......              87
Limited cost sharing plan variation of gold QHP.........              94
Limited cost sharing plan variation of platinum QHP.....              94
Zero cost sharing plan variation of bronze QHP..........             100
Zero cost sharing plan variation of silver QHP..........             100
Zero cost sharing plan variation of gold QHP............             100
Zero cost sharing plan variation of platinum QHP........             100
------------------------------------------------------------------------

    The proposed induced utilization factors would be consistent with 
the corresponding 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 proposed to update the induced 
utilization factors for all plan variations in future rulemaking as 
more data becomes available, and stated that at that time we would 
consider applying them to the risk adjustment methodology that HHS will 
use when operating risk adjustment on behalf of a State.
    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 the administrative burden on Exchanges because Exchanges would 
not need to develop specific multipliers for each QHP and associated 
plan variations. However, this approach required us to estimate an 
actuarial value for each type of limited cost sharing plan variation. 
We estimated that on average, the AV of the limited cost sharing plan 
variations of bronze

[[Page 13807]]

and silver QHPs would be 87 percent, and the AV of the limited cost 
sharing plan variations of gold and platinum QHPs would 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 believe the proposed methodology will 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 
Sec. Sec.  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. 
We are finalizing the modifications to Sec. Sec.  155.1030, 156.430, 
and 156.470 as proposed, as well as the methodology for calculating 
advance payment amounts for cost-sharing reductions for 2015.
    Comment: We received one comment in support of the proposed changes 
to the process for calculating advance payments, stating that the 
changes would reduce the overall administrative burden and streamline 
reporting requirements for issuers. We also received some comments 
stating that it is too early to make changes to the process, which 
commenters stated would require issuers to alter their systems and 
develop new processes for validating the advance payment amounts. One 
commenter noted that under the proposed process, each Exchange will be 
responsible for calculating the advance payment amounts as opposed to 
one Federal agency, which could create the potential for more errors. 
The commenter was also concerned with the proposal to base the advance 
payment amounts on the premium for the policy, as premium data could be 
inaccurate and subject to a complex reconciliation process. The 
commenters also stated that the issuer should be allowed to validate 
the advance payment amounts before they are finalized.
    Response: We continue to believe that the modifications to the 
advance payment calculation process will reduce the administrative 
burden for all parties because issuers will be required to submit less 
data, and Exchanges will no longer be required to submit data to HHS 
prior to the start of the benefit year for the calculation and approval 
of the advance payment amounts. That approval process will no longer be 
necessary because the advance payments will be simply calculated based 
on the product of the cost-sharing reduction plan variation multiplier 
specified by HHS and the premium for the policy. This modification to 
the calculation should also reduce the administrative burden for 
issuers reviewing the advance payment amounts as part of the 
discrepancy reporting process because the advance payments will be 
based on premiums, which we presume issuers would review in connection 
with the advance payments of the premium tax credit. We also anticipate 
that FFE issuers will be able to review premium information prior to 
the start of the benefit year through the plan preview process. In 
addition, HHS plans to validate that the advance payment amounts 
reported via the 834 enrollment transaction are calculated in 
accordance with the methodology specified by HHS. Thus, we believe that 
this methodology and validation process should ensure the protection of 
Federal funds, while simultaneously limiting the administrative burden 
on QHP issuers and Exchanges.
    Comment: One commenter expressed concern that the proposed 
methodology for calculating advance payments would result in lower 
advance payments amounts that would not cover issuers' costs. Another 
commenter stated that issuers should be able to request a change to the 
advance payment amounts mid-year if the amounts do not align with 
actual cost-sharing reduction amounts provided.
    Response: Although we acknowledge that there are some limitations 
to this methodology (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. In addition, as described at Sec.  156.430(b)(2), HHS may 
adjust the advance payment amount for a particular QHP during the 
benefit year if the QHP issuer provides evidence that the advance 
payments are likely to be substantially different than the cost-sharing 
reduction amounts that the QHP provides.
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 Sec.  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-25 Revised (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. 
Activities performed by the Federal government that do not provide 
issuers participating in an FFE with a special benefit will not be 
covered by this user fee.
    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). We proposed 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.\47\
---------------------------------------------------------------------------

    \47\ OMB 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 State Exchanges.
---------------------------------------------------------------------------

    We are finalizing the 2015 user fee rate as proposed. Because we 
wish to continue to encourage issuers to offer plans through an FFE, we 
sought and have received an exception from OMB to the policy in 
Circular No. A-25R that the 2015 user fee be set to recover full

[[Page 13808]]

costs. We expect to cover full costs in future years.
    Comment: We received several comments stating that both the 2014 
and 2015 user fee rate should be lower because of the technical 
problems associated with FFE operations. Although the FFE performs 
important functions, issuers have had to take a larger role in 
supporting the processing of enrollment files and payments. One 
commenter specifically stated that the FF-SHOP user fee for 2014 should 
be waived due to the operational delays. Another commenter suggested 
that the 2014 user fee should be waived to offset issuers' costs 
resulting from an unbalanced risk pool. For the same reason, the 
commenter also suggested the annual fee imposed on health insurance 
providers, described in section 9010 of the Affordable Care Act, should 
be waived. Some other commenters noted that the 2015 user fee should be 
lower as a result of gains in operational efficiency and the expected 
increase in the number of State Exchanges.
    Response: As discussed above, Circular A-25R specifies that a user 
charge should be assessed against recipients of special benefits 
derived from Federal activities beyond those received by the general 
public. Despite the 2014 technical issues, participating issuers will 
continue to receive special benefits through Federal activities. For 
example, issuers participating in an FF-SHOP will continue to receive 
the special benefits of the certification of their plans as QHPs and 
the ability to sell health insurance coverage to employers determined 
eligible to participate in the SHOP. In addition, we do not expect the 
cost to the Federal government of providing these special benefits to 
change appreciably. As a result, we are not changing the 2014 user fee 
rate. We are also finalizing the 2015 user fee rate at 3.5 percent, as 
proposed, based on the expected number of Federally-facilitated 
Exchanges in 2015 and our projected costs.
    Changes to the risk pool will be addressed through the premium 
stabilization programs. Standards regarding the annual fee imposed on 
health insurance providers were finalized by the IRS on November 29, 
2013 (78 FR 71476), and we direct commenters with questions regarding 
that fee to the IRS. Finally, we agree that over time we expect 
operational efficiencies and increases in the number of State Exchanges 
and will continue to take these factors into account when determining 
the annual FFE user fee rate.
    Comment: We received two comments on the underlying structure of 
the FFE user fee. One commenter recommended that HHS establish broad-
based financing for the FFE, such as an as assessment on all health 
care industry entities. If the existing fee structure is kept, the 
commenter stated that it should only be paid by consumers and small 
employers that purchase coverage through an FFE. The commenter also 
stated that the user fee should not be set as a percent of premium, as 
the cost to run an Exchange is not related to the cost of coverage. In 
contrast, another commenter stated that the user fee should continue to 
be calculated as a percent of premium, which ensures the user fee is 
adjusted based on the size of the issuer's book of business.
    Response: The FFE user fee will continue to be assessed as a 
percent of the monthly premium charged by issuers participating in an 
FFE. In accordance with Circular A-25R, issuers are charged the user 
fee in exchange for receiving special benefits beyond those that accrue 
to the general public. Setting the user fee as a percent of premium 
ensures that the user fee generally aligns with the business generated 
by the issuer as a result of participation in an FFE.
    Comment: One commenter also recommended that HHS publish cost 
estimates for the FFE, disclose how funds will be spent, and develop 
performance metrics for the FFE. The commenter stated that any increase 
in an issuer's aggregate liability for FFE user fees should be capped 
at changes in the Consumer Price Index, and that total user fee 
collections across all issuers should be capped at the level of 
expended costs. The commenter urged that if user fee collections exceed 
FFE costs, issuers should receive a rebate or credit against future 
fees.
    Response: HHS will continue to publish cost estimates through the 
Federal budget process, and performance results from time to time, as 
has been our practice thus far. We will also continue to set the user 
fee based on the expected costs to the Federal government of providing 
the special benefits to issuers; however, for 2015 as noted above, we 
sought and have received an exception to this policy from OMB because 
we wish to continue to encourage issuers to offer plans through an FFE. 
We expect to cover full costs in future years. Because we set the user 
fee to no more than cover Federal costs (and in the case of 2014 and 
2015, at less than our predicted costs), we do not expect user fee 
collections to exceed the Federal cost of operating the FFE.
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 ERISA and the Code, directs non-
grandfathered group health plans and health insurance issuers offering 
non-grandfathered group or individual health insurance coverage to 
provide benefits for certain women's preventive health services without 
cost sharing.\48\ 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.\49\
---------------------------------------------------------------------------

    \48\ The 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.
    \49\ Under 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.
---------------------------------------------------------------------------

    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 self-insured plan, a copy of the self-
certification must be provided to all TPAs with which it or its plan 
has contracted. Upon receipt of the copy of the self-certification, the 
TPA may decide not to enter into, or remain in, a contractual 
relationship with the eligible organization to provide administrative 
services for the plan. A TPA that receives a copy of the self-
certification and that agrees to enter into or remain in a contractual 
relationship with the eligible organization to provide administrative 
services for the plan 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 TPA can provide such payments on its own, or it can arrange 
for an issuer or other entity to provide these payments. In either 
case, the payments are not health insurance policies and the TPA can 
make arrangements with an issuer offering coverage through an FFE to 
obtain reimbursement for its costs

[[Page 13809]]

(including an allowance for administrative costs and margin) through an 
adjustment to the FFE user fee paid by the issuer.
    At Sec.  156.50(d), we established standards related to the 
administration of the user fee adjustment. Specifically, in Sec.  
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 proposed an allowance 
for administrative costs and margin equal to 15 percent of the total 
dollar amount of the payments for contraceptive services defined in 
Sec.  156.50(d)(3)(i).\50\ We proposed this allowance based on our 
analysis described in the proposed rule of the administrative costs 
that we expect each entity involved in the arrangement to incur. We are 
finalizing the allowance for administrative costs and margin at 15 
percent, as proposed.
---------------------------------------------------------------------------

    \50\ We 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.
---------------------------------------------------------------------------

    Comment: We received several comments expressing concern that the 
proposed allowance would not adequately cover administrative costs. One 
commenter emphasized that the allowance should take into account 
startup costs, including systems development, contract negotiations, 
customer service outreach, and provider support. Another commenter 
stated that there will be wide variation in administrative costs 
depending on whether the TPA operates in a State with an FFE, or if the 
beneficiaries live in multiple States. The commenter also noted that 
TPAs may incur care coordination costs related to contraceptive 
services, which should be covered by the allowance. As a result, the 
commenter recommended that HHS permit TPAs to accept either the 15 
percent allowance or request a different amount based on expected 
costs. Another commenter noted that amounts paid for contraceptive 
services may be low compared to fixed administrative costs, 
particularly if the payment is for a low cost generic drug. The 
commenter suggested that HHS provide a greater allowance for 
administrative costs and margin when the volume of contraceptive 
services falls below a set threshold.
    Response: As discussed in the proposed rule, the proposed allowance 
was set to cover the administrative costs and margin for all of the 
entities involved in the relationship. We recognize that administrative 
costs may vary between TPAs depending upon their arrangement with an 
issuer participating in an FFE and the total costs of contraceptive 
services for which they provide payment. However, we believe that the 
proposed allowance should adequately cover expected administrative 
costs for the majority of TPAs and the issuers through which they 
receive the FFE user fee adjustment. We do not intend to allow TPAs to 
submit requests for greater allowances for administrative costs and 
margin, or for different categories of costs, such as startup or 
overhead costs, because it would be difficult to verify these costs and 
sufficiently safeguard Federal funds.
    Comment: One commenter requested clarification that the FFE user 
fee adjustment is intended to cover the full cost of the payments for 
certain contraceptive services, plus an additional 15 percent, for 
administrative costs and margin.
    Response: As described in Sec.  156.50(d)(3), the user fee 
adjustment will be equal in value to the sum of the dollar amount of 
the payments for contraceptive services, plus a 15 percent allowance 
for administrative costs and margin.
    Comment: We received several general comments on the accommodation 
for eligible organizations with a self-insured plan. Commenters noted 
that there is no requirement for issuers participating in an FFE to 
enter into arrangements with TPAs of eligible organizations with self-
insured plans. As a result, commenters requested that HHS identify an 
alternative method to reimburse TPAs.
    Response: In this final rule, we are specifically establishing the 
allowance for administrative costs and margin. As discussed in the 
Preventive Services Rule, we continue to believe the allowance for 
administrative costs and margin should provide an incentive for issuers 
to enter into arrangements with TPAs of eligible organizations with 
self-insured plans.
    Comment: One commenter requested that HHS modify the standards 
related to MLR to align with the accommodations finalized in the 
Preventive Services Rule.
    Response: We do not believe it is necessary to modify the 
regulations, but instead provided guidance on this topic in the 
preamble to the Preventive Services Rule (see 78 FR 39886).\51\ 
Specifically, we noted that under 45 CFR part 158, participating 
issuers may deduct from premiums as licensing and regulatory fees any 
amounts paid out to a third party administrator or incurred by or for 
the issuer in contraceptive claims costs under the accommodations for 
self-insured group health plans of eligible organizations, plus the 
allowance for administrative cost and margin allowed under 45 CFR 
156.50(d)(3)(ii), along with their net FFE user fee paid to HHS. We 
further here clarify that an issuer of group health insurance coverage 
that makes payments for contraceptive services for participants and 
beneficiaries of its insured health plans under the accommodations for 
eligible organizations rules may treat those payments as an adjustment 
to claims costs for purposes of MLR and risk corridors program 
calculations. As discussed in the Preventive Services Rule, this 
adjustment would compensate for any increase in incurred claims 
associated with making payments for contraceptive services.
---------------------------------------------------------------------------

    \51\ That guidance stated that ``. . . for purposes of the 
medical loss ratio and the risk corridors program, participating 
issuers should report the sum of: (1) The net FFE user fee paid to 
HHS; (2) any amounts paid out to a third party administrator or 
incurred by or for the participating issuer in contraceptive claims 
costs under the accommodation for self-insured group health plans of 
eligible organizations provided in these final regulations; and (3) 
the allowance for administrative costs and margin provided under 45 
CFR 156.50(d)(3)(ii), as licensing and regulatory fees referenced in 
45 CFR 158.161(a).''
---------------------------------------------------------------------------

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 issuers 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 Sec.  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.
    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

[[Page 13810]]

can accommodate changes in the marketplace or product design over time 
and due to the changing cost of providing health care services in the 
market. In accordance, we proposed to update certain aspects of the AV 
Calculator on a regular basis, but no more frequently than annually.
    In proposed Sec.  156.140(g), HHS proposed to update the AV 
Calculator as follows. First, we proposed to update for the annual 
limit on cost sharing and related functions based on a projected 
estimate to enable the AV Calculator to comply with Sec.  
156.130(a)(2). Second, we proposed to update the continuance tables to 
reflect more current enrollment data when HHS has determined that the 
enrolled population has materially changed, defined as more than 5 
percent different. Third, we proposed to 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. To identify new industry practices and technical advances, 
we proposed a process to consult annually with the American Academy of 
Actuaries and to take into consideration feedback received through CMS 
Actuarial Value email address at: actuarialvalue@cms.hhs.gov. Fourth, 
we also proposed to 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. To trend 
the AV Calculator, we proposed to use premium data and/or 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 proposed to trend the Calculator based on the updated 
claims data. Lastly, we proposed to 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.
    Along with the parameters for updating the AV Calculator, we also 
proposed to amend Sec.  156.135(a) to clarify that 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).
    Lastly, we solicited comments on the proposed 2015 AV Calculator 
and AV Calculator methodology that would replace the 2014 versions of 
the Calculator and methodology, respectively. For the 2015 AV 
Calculator, HHS proposed to make minor changes to the design and inputs 
into the AV Calculator and did not propose updating the claims data, 
including the trending factor, or the enrollment data, since data were 
not yet available.
    We are finalizing the regulatory provisions as proposed but we are 
not finalizing the 2015 AV Calculator and 2015 AV Calculator 
methodology. Rather, under the regulatory parameters for updating the 
AV Calculator, we are finalizing the 2014 AV Calculator to account for 
the estimated annual limit on cost sharing of $6,850 and will update 
the 2014 AV Calculator methodology accordingly. These materials will 
also include non-substantive amendments to correct and clarify 
language, as well as some clarifying frequently asked questions, that 
do not reflect changes in the functioning of the AV Calculator. Through 
this final rule, the amended 2014 documents are being finalized as the 
2015 AV Calculator and AV Calculator methodology.
    Comment: Several commenters recommended that since the proposed 
version of the 2015 AV Calculator and the parameters to update the AV 
Calculator in the future can impact the AV of plan designs, CMS should 
increase the de minimis range to prevent issuers from having to make 
benefit changes in order to be able to continue offering the same 
plans, including plans for 2015 plans being offered in 2014. Other 
commenters submitted technical comments on the 2015 AV Calculator 
updates, as well as recommended that we not update the AV Calculator 
for 2015 unless other circumstances were met.
    Response: We do not intend to change the de minimis range. The de 
minimis range is intended to allow plans to float within a reasonable 
range and is not intended to freeze plan designs preventing innovation 
in the market.
    Because the AV Calculator is a dynamic tool, it is impossible to 
make changes to the Calculator's algorithms without potentially 
impacting the AV output. However, we limited the changes in the 
proposed 2015 AV Calculator to promote stability of the AV Calculator 
and to help better ensure that issuers did not have to make benefit 
changes in 2015 in order to remain within the de minimis range. For 
instance, we did not update the enrollment or claims data because 
actual data were not available and we did not want to update the AV 
Calculator based on another projection. In fact, the vast majority of 
the updates to the proposed 2015 AV Calculator were the direct result 
of comments that we had received from issuers on improvements in the 
algorithms and adding additional functionality to the AV Calculator 
based actuarially sound principles to allow more issuers to use the AV 
Calculator without adjustment.
    Given the limited changes that were being made in the proposed 2015 
AV Calculator and that we were not updating the AV Calculator based on 
the enrollment and claims data for 2015, we are finalizing the 2014 AV 
Calculator as the 2015 AV Calculator with an updated estimated annual 
limit on cost sharing to help ensure that issuers do not have to make 
benefit changes between year 1 and year 2.
    Since we are not finalizing the proposed 2015 AV Calculator at this 
time, with the exception of the updated estimated annual limit on cost 
sharing, we do not address the technical comments on the proposed 2015 
AV Calculator and methodology, but we will take them under 
consideration if we propose updates to the AV Calculator in the future.
    Comment: Commenters wanted the final version of the 2015 AV 
Calculator to be available early in 2014 and recommended that we ensure 
that issuers have enough time to work with the final version of the AV 
Calculator, proposing various annual deadlines.
    Response: We recognize that issuers need time to work with the 
final version of the Calculator to develop their plan designs for a 
given benefit year. By finalizing the amended 2014 AV Calculator as the 
2015 AV Calculator, our intention is to reduce the burden on issuers 
for 2015 in having to make adjustments to plan designs and do any 
recalculations with changes to the AV Calculator.
    In future years, our intention with finalizing the provisions under 
Sec.  156.135(g) is to allow us the option to release the final AV 
Calculator earlier in the year. However, certain updates to the AV 
Calculator will be dependent on the timeline of availability of the 
necessary data elements. Thus, while we will work to make the AV 
Calculator available as early as possible, we intend to release it no 
later than the end of the first quarter of the preceding the benefit 
year.

[[Page 13811]]

    Comment: Some commenters expressed concern about the frequency and 
potential fluctuations as a result of the updates based on enrollment 
data, especially given the potential for dramatic changes in the 
enrolled population in the initial years. Commenters recommended that 
the enrollment and claims data updates be made as soon as possible or 
at the same time. Others asked for clarification on the types of 
statistics being used for the updates and the exact year that we intend 
to start updating based on enrollment data.
    Response: Our policy is to consider updating the AV Calculator, 
starting with the 2016 AV Calculator, annually based on enrollment data 
when the combined measurement of the effects of shifts in gender or age 
statistics are materially different, which we define as more than 5 
percent. We are finalizing this threshold for updating based on 
enrollment data of more than 5 percent to help ensure that updates 
based on enrollment data are limited. We also recognize the importance 
of balancing changes in the AV Calculator between ensuring that the AV 
Calculator is more accurately reflecting the current market and 
ensuring that any change to the AV Calculator minimizes the disruptions 
to current plan designs.
    Comment: A commenter recommended that we consider updating based on 
utilization by income. Others expressed concern about the cost sharing 
limits in the AV Calculator. Comments included a request for additional 
information on the trending factor update particularly regarding the 
use of premium data, as well as a recommendation to set a higher 
threshold for applying the trend factor.
    Response: AV is the calculation of a plan's cost sharing generosity 
that is applied to a standard population and does not take into account 
utilization by income level. Information on the development of the 
standard population is included in the AV Calculator methodology 
document. Income level is factored into other parts of the market, such 
as the enrollee's eligibility for cost sharing reductions. The cost 
sharing limits in the AV Calculator are reflective of the requirements 
under section 1302(c) of the Affordable Care Act, as implemented in 
regulations codified at Sec.  156.130(a)(2).
    When updating the trending factor in the AV Calculator, we will 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 that could be based on the 
premium rate data and/or the standard population data compared from 
year to year. For premium rate data, these updates will be reflective 
of a combination of utilization and unit price increases. We intend to 
use the premium data to trend the Calculator because it is a reliable 
source of data that is easily accessible and a good indicator of the 
market cost changes from year to year. This premium rate data will be 
modified for proper actuarial adjustments to develop the trend factor, 
including adjustments for the transitional reinsurance program. These 
adjustments will be detailed in the AV Calculator methodology. As we 
discussed in the proposed rule, we will 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.
    Comment: Commenters requested additional guidance on a variety 
topics related to the AV Calculator as well as analysis of AV policy. 
Other commenters expressed concern that updates to the algorithms could 
impact plans' AV. Some commenters requested the opportunity to provide 
input on future updates to the AV Calculator and requested information 
about how these updates would apply to the minimum value calculator and 
any State AV Calculator.
    Response: The standard that we will apply in making algorithm 
adaptations will 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. However, as noted above, because 
the AV Calculator is a dynamic tool, it is impossible to make changes 
to the Calculator's algorithms without potentially impacting the AV 
output.
    Guidance on the operation and functions of the AV Calculator is 
included in both the AV Calculator Methodology and the AV Calculator 
User Guide. As we update the AV Calculator in future plan years, we 
will revise these documents to provide our analysis and clarification 
where possible. In addition to taking into consideration stakeholder 
feedback that is submitted to the CMS Actuarial Value email address at 
actuarialvalue@cms.hhs.gov during the year, we will consult with the 
American Academy of Actuaries as well as the National Association of 
Insurance Commissioners and will intend to release a draft version of 
the AV Calculator through guidance for comment. This guidance will 
include an updated AV Calculator Methodology to explain the changes 
that were made to the AV Calculator. We also intend to provide future 
guidance on the parameters for updating a State AV Calculator. The 
Department of Treasury and the Internal Revenue Service are aware of 
our updates to the AV Calculator and may consider updates to the 
minimum value calculator.
    Comment: We received two comments on potential data sources for 
family plans. Other commenters requested additional clarity on 
incorporating family plans as well as recommending that issuers should 
not be required to include family coverage in their AV calculation.
    Response: We are interested in learning more about the potential 
for States' all payer claims databases systems to account for family 
plan cost sharing, but since many of these systems are still in 
development, we will monitor these systems to consider this option in 
the future. In the meantime, we will continue to maintain the policy 
for accounting for family plans that we provided in the ``2014 Letter 
to Issuers on Federally-facilitated and State Partnership Exchanges.'' 
\52\
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    \52\ 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.
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    We believe that determining AV based on the cost sharing applicable 
to an individual is appropriate for most family plans and that for most 
plans, the amount of the change in AV due to a more exact calculation 
of family cost sharing is likely to be within the de minimis range. 
However, if the issuers finds that this approach will not yield an 
appropriate AV for a specific family plan, then the issuer should use 
an alternative AV calculation method under Sec.  156.135(b) providing 
the appropriate documentation. We will continue to consider potential 
AV calculation modifications in this area.
4. National Annual Limit on Cost Sharing for Stand-Alone Dental Plans 
in an Exchange
    We proposed to impose a specific annual limit on cost sharing for 
the pediatric dental EHB when offered through a stand-alone dental plan 
(SADP) of $300 for one covered child and $400 for two or more covered 
children. The annual limit on cost sharing was proposed to apply for 
SADPs certified by all Exchanges. Further, due to the limited variation 
in cost sharing with a decreased annual limit on cost sharing, we 
proposed

[[Page 13812]]

removing the AV requirement applicable to SADPs offered through the 
Exchanges that had been established previously through rulemaking.
    We are finalizing the annual limit on cost sharing with an increase 
compared to the proposed levels, to apply to SADPs certified by all 
Exchanges nationally. In response to comments that the actuarial value 
would still be a valuable standard for SADPs, we are not finalizing our 
proposal to delete the actuarial value requirement at Sec.  156.150(b).
    Comment: Several commenters voiced concerns about a lowered annual 
limit on cost sharing, primarily related to the anticipated increase in 
premiums and concerns that a reduced annual limit on cost sharing would 
result in plan designs that impose deductibles on more of the 
preventive pediatric dental services. Commenters stated that these 
higher up-front costs would be a deterrent to consumers purchasing 
SADPs for their children if the pediatric dental EHB was not included 
in the QHP. Some commenters suggested that CMS wait to change the limit 
until more information is available on the first year of experience and 
to avoid disruption for consumers in the plan designs for year two, and 
a number suggested that the family to single limit ratio remain 2:1. 
Other commenters supported the approach for its impact on reducing the 
total out-of-pocket costs for a consumer enrolled separately in QHPs 
and SADPs.
    Response: We understand that trade-offs exist between the different 
cost levers in a plan design, such as premiums, deductibles, and annual 
limits on cost sharing. Accordingly, we requested 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. In light of the comments received, we are finalizing the SADP 
annual limits on cost sharing with increases of $50 on the single child 
limit and $300 on the limit for two or more children. The national 
annual limits on cost sharing for the pediatric dental EHB when offered 
as part of a stand-alone dental plan are $350 for one covered child and 
$700 for two or more covered children. We believe that this will 
provide more benefit design flexibility to dental issuers, which will 
reduce the potential impact on premiums and other cost-sharing, while 
also furthering our originally stated goal in the proposed rule of 
reducing the total annual limit on cost sharing for consumers who are 
enrolled in both QHPs and SADPs. The greater increase in the limit for 
two or more children enrollees is to retain the 2:1 ratio of family, as 
suggested by commenters, to be consistent with the ratio for medical 
plans.
    Comment: Regarding the removal of the AV standards, most commenters 
suggested that CMS return to the previous AV standards so that 
consumers would continue to have a means of comparison between the 
relative levels of coverage and out of concern that, without such 
standards, SADPs could transfer more cost sharing to up-front 
deductibles that would result in an AV below 70 percent.
    Response: We believe that the commenters raised valid points 
regarding the value to a consumer of an AV level and, accordingly, we 
will not finalize the deletion of the actuarial value standards for 
SADPs previously established in the EHB Rule. The standard for SADPs is 
that they must meet either the 70 percent or 85 percent AV level. We 
understand that with the reduction in the annual limit on cost sharing, 
the lower of the two limits--70 percent--may be more difficult to meet, 
but in such cases the SADP could instead target the 85 percent level.
    Comment: A small number of commenters supported the approach to 
having the annual limit on cost sharing for the pediatric dental EHB in 
SADPs as a national limit, as opposed to allowing State flexibility.
    Response: We agree with the commenter and are finalizing the rule 
to apply nationally.
5. Additional Standards Specific to SHOP
    We proposed adding paragraph (a)(4)(i) to Sec.  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, regardless of whether 
the QHP being sold through the SHOP is sold in the small group market 
or the large group market. To assure consistency of pricing within the 
SHOP, we proposed to require a QHP offered through the SHOP to comply 
with the rating rules described in Sec.  147.102. 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 are making a minor change from the 
proposed rule to add ``being sold through the SHOP'' to Sec.  
156.285(a)(4)(i).
    We proposed in amendments to Sec.  156.285(a)(4)(ii) to not allow 
for composite premiums in the FF-SHOPs when an employer chooses a level 
of coverage and makes all QHPs within that level available to its 
employees. In the proposed rule preamble, we also indicated that we 
were considering extending the proposed limitation on composite 
premiums to SADPs in the FF-SHOPs, and invited comment on whether such 
a prohibition should be adopted. We acknowledge that this proposal 
would create a limited exception to Sec.  147.102(c)(3) and that it 
would preempt State laws requiring or permitting composite premiums 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. We are finalizing the 
provisions with a change reflecting that, in response to comments 
solicited and received on whether the proposal to limit composite 
premiums in an employee choice environment should be extended to SADPs, 
we have decided to extend that limitation to SADPs when an employer 
opts to offer employees the choice of all SADPs at a dental actuarial 
value level.
    Because the proposed amendments to Sec.  155.705(b)(4) summarized 
above are being finalized as proposed, all SHOPs will be permitted to 
establish standard methods for premium payment under Sec.  
155.705(b)(4), as part of carrying out the premium aggregation 
function, and HHS will 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 proposed adding Sec.  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 for that 
employer from the FF-SHOP. 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 new 
Sec.  155.705(b)(4)(ii)(A) (as finalized in this rule) and the 
termination provisions of Sec.  155.735 would apply. We are finalizing 
this provision as proposed.
    Comment: Several commenters supported our proposal to limit 
composite premiums in FF-SHOPs to employers who choose to offer their

[[Page 13813]]

employees a single QHP. In addition to supporting our proposal, many of 
these commenters stressed that composite premiums should always be 
optional for issuers participating in FF-SHOPs (unless required by 
State law or regulation). A few commenters, however, support composite 
premiums for employee choice and believe it will add to the value-
proposition of FF-SHOPs.
    Response: As we discussed in the preamble to the proposed rule, our 
proposal to make composite premiums in the FF-SHOPs unavailable to 
qualified employers offering employee choice was motivated by our 
concern that the amendments to Sec.  147.102 finalized in this rule 
would adversely affect issuers in an employee choice environment, 
creating an incentive for issuers to avoid participating in the FF-
SHOPs and undermining the Affordable Care Act's goals of increased 
choice and competition in the small group market. That is because, 
under the composite premium provisions of Sec.  147.102(c)(3), if an 
issuer offers composite premiums, the average enrollee premium amount 
established at the time of the initial group enrollment would not 
change until renewal, even if the composition of the group changes in 
the interim. For example, if several older employees joined the group 
or several employees terminated their coverage, the composite premium 
would remain the same until renewal. 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. In light of 
these concerns, we continue to think the prohibition on composite 
premiums in an employee choice environment is warranted, and are 
finalizing this policy as proposed through the amendment to Sec.  
156.285(a)(4), so as to not allow for composite premiums in an employee 
choice environment.
    Comment: We received some comments agreeing with our proposal to 
extend to SADPs in the FF-SHOPs the proposed limitation on composite 
premiums in an FF-SHOP when an employer selects a level of coverage and 
makes all QHPs within that level available to its employees.
    Response: In response to these comments, we are modifying the final 
rule to provide that the limitation on composite premiums in an 
employee choice environment applies to both medical QHPs and SADPs, in 
circumstances where the employer offers employees a choice of all plans 
at a given AV level or dental AV level. As is the case with composite 
premiums for medical QHPs, we believe composite premiums for SADPs 
could potentially adversely affect issuers when the employer offers 
employees all SADPs at a given dental AV level, and could create an 
incentive for SADP issuers to avoid participating in the FF-SHOPs and 
undermine the Affordable Care Act's goals of increased choice and 
competition in the small group market. Therefore, we have finalized 
this provision with additional language establishing that the 
limitation on composite premiums also applies for SADPs when employees 
are given a choice of SADPs at a given dental AV level.
    Comment: We received varying comments on our proposal to require 
issuers in FF-SHOPs to effectuate coverage unless they receive a 
cancellation notice for non-payment of premium. Some commenters 
supported our proposal to require issuers to effectuate coverage if the 
FF-SHOP does not send a cancellation transaction prior to the coverage 
effective date. Some commenters opposed our proposal, stating that 
issuers should not be required to effectuate coverage before receiving 
the initial premium payment from the FF-SHOP. One commenter stated that 
issuers typically have payments in hand prior to coverage effectuation, 
giving issuers time to ensure that member enrollment packets can be 
sent out prior to the enrollment cut-off date. One commenter took a 
similar position, though suggested that issuers be allowed to pend 
claims until the initial payment is received by the FF-SHOP. Another 
commenter stated that the proposed policy could lead to provider 
reluctance to participate in Exchange plans. Finally, one comment 
suggested that a potential solution to this timing issue would be for 
the FF-SHOP to transmit daily payments to issuers.
    Response: This rule does not require issuers to effectuate coverage 
if the FF-SHOP does not receive a premium payment by the deadline 
established for the FF-SHOP. If payment is not received by the FF-SHOP 
prior to that deadline, CMS will issue a cancellation notice, or, in 
the case of payments subsequent to the initial premium payment, a 
termination notice to issuers for non-payment of premium. In addition, 
we anticipate sending issuers weekly premium payments, so the length of 
time between receipt of payment and premium remittance is not expected 
to be more than approximately one week. Therefore, we are not modifying 
our proposal in response to these comments.
6. Meaningful Difference Standard for QHPs in the FFEs
    Section 1311(e)(1)(B) of the Affordable Care Act, codified at Sec.  
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 proposed 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 proposed a standard for what is meant by the term ``meaningfully 
different.''
    In Sec.  156.298(a), we proposed that the FFEs and FF-SHOPs would 
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 SADP market, HHS proposed not to require 
meaningful difference as a condition for certification among SADPs at 
this time. We proposed, in Sec.  156.298(b), that a plan within a 
service area and metal tier (bronze, silver, gold, or platinum, and 
catastrophic coverage) would be 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 seven \53\ key characteristics between the 
plan and other plans to be offered by the same issuer. The key 
characteristics were proposed in paragraphs (b)(1)-(b)(7), and 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-self-only, or child-only coverage offerings. We proposed 
that, at a minimum, a reasonable consumer would have to be able to 
identify two or more of the characteristics proposed at Sec.  
156.298(b) as different in order for the plan to pass the meaningful 
difference test. Therefore, within a service area and level of coverage 
in an Exchange, if two

[[Page 13814]]

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 would be deemed as having met the meaningful 
difference test.
---------------------------------------------------------------------------

    \53\ We acknowledge that the proposed 2015 Payment Notice listed 
seven elements, but referred erroneously to eight elements.
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    Furthermore, to ensure that consumers have an adequate number of 
plan options across all metal levels of coverage, we proposed at Sec.  
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 would not be subject to the meaningful difference 
requirement.
    To provide flexibility for issuers that merge with or acquire 
another issuer that is a separate legal entity, HHS proposed in Sec.  
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 proposed 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.
    We are finalizing the provisions with the following modifications. 
To address concerns with the proposed meaningful difference standard, 
we have modified Sec.  156.298(b) to have the standard set at one 
material difference rather than two, and have removed premiums as one 
of the characteristics among which plans must be different. We are not 
finalizing the text proposed at Sec.  156.298(b)(5) and are therefore 
renumbering the provisions proposed at Sec.  156.298(b)(1)-(7) as Sec.  
156.298(b)(1)-(6). To be consistent with previous HHS language used for 
other guidance and regulation, we have modified Sec.  156.298(b)(6) 
(previously Sec.  156.298(b)(7)) to read ``child-only plan offerings'' 
rather than ``child-only offerings.''
    Comment: Several commenters were supportive of the standard in 
general, but they also recommended modifying the standard from two 
differences to one to be consistent with the guidance CMS released for 
the 2014 coverage year. Furthermore, issuers believed strongly that one 
material difference (that is, plan type of HMO vs. PPO) would have a 
large enough impact for consumers to be able to differentiate plans 
from one another.
    Response: Based on the comments received, we agree that one 
material difference (that is, plan type of HMO vs. PPO) would have a 
large enough impact for consumers to be able to differentiate plans 
from one another, which satisfies our policy goal of ensuring the 
ability to readily differentiate and compare plan choices, leading to 
informed decisions. Accordingly, we are finalizing the standard at 
Sec.  156.298(b) with a modification from two material differences to 
one.
    Comment: Several commenters opposed the inclusion of premiums as a 
material difference among the key characteristics at the proposed Sec.  
156.298(b)(5), to use when determining if the meaningful difference 
standard is met. Specifically, commenters noted that premiums alone are 
not indicators of difference in plan design, but rather a function of 
plan design difference that are already accounted for in the other 
characteristics included in the proposed list.
    Response: We agree based on the strong feedback from commenters 
that premiums alone are not indicators of difference in plan design, 
Therefore, we have revised Sec.  156.298(b) so that premium is no 
longer included as a material difference option. We have renumbered the 
remaining characteristics accordingly.
    Comment: Commenters expressed concern over the vague descriptions 
of the characteristics associated with the proposed standard and 
requested more robust quantitative standards for issuers to follow for 
the 2015 benefit year. For instance, several commenters requested 
further guidance on the cost-sharing characteristic.
    Response: While we understand the reasoning for having more robust 
quantitative standards, we are not adding more robust quantitative 
standards to the characteristics because we believe that the 
characteristics are generally sufficiently detailed for issuers to be 
able to design QHPs that would be meaningfully different under this 
standard.
    Comment: Some commenters expressed concern with the limited plan 
availability exception proposed at Sec.  156.298(c). Commenters stated 
that they believed this exception may lead to cherry-picking of 
particular counties by issuers and anti-competitive practices to 
saturate the market.
    Response: This policy helps to ensure that consumers have adequate 
plan choice in every county within the marketplace. We are finalizing 
this provision of the proposed policy as written.
    Comment: Several commenters agreed with the approach of limiting an 
issuer's participation in the FFEs should there be significantly 
different rate increases for its QHPs and non-QHPs, based on the 
Exchange's authority under sections 1311(e)(1) and (e)(2) of the 
Affordable Care Act. Moreover, commenters thought that it is important 
for HHS to take sufficient action to ensure that a given plan in the 
FFE is in the interest of qualified individuals and qualified 
employees. Conversely, other commenters opposed the proposed policy as 
they noted that numerous components of the Affordable Care Act that 
mitigate adverse selection between QHP and non-QHPs already exist, so 
there is no need for HHS to impose a new protection for the FFEs.
    Response: We appreciate all the feedback and comments regarding o 
the proposed approach. We are not finalizing any new policy related to 
limiting participation in the FFEs on this basis and will take this 
feedback into consideration for future rulemaking.
7. Quality Standards: Establishment of Patient Safety Standards for QHP 
Issuers
    In Sec.  156.1110, we proposed that during phase one, a QHP issuer 
that contracts with hospitals that have more than 50 beds, must verify 
that they are Medicare-certified or have been issued a Medicaid-only 
CMS certification number (CCN), and are subject to Medicare Hospital 
Conditions of Participation (CoPs) requirements found in 42 CFR part 
482 (specifically, standards regarding a quality assessment and 
performance improvement program and a discharge planning process). We 
proposed to direct QHP issuers to maintain documentation, including but 
not limited to the CCN for each hospital, to demonstrate compliance. We 
further proposed 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. Lastly, we proposed that a QHP 
issuer must ensure that each of its QHPs meet these initial patient 
safety standards for plan or policy years beginning on or after January 
1, 2015. Additional patient safety standards for QHP issuers would be 
implemented over time, under the Secretary's authority under section 
1311(h)(2) of the Affordable Care Act. We noted that we anticipate 
establishing phase two implementation which would begin January 1, 2017 
or when we issue further regulations based on a reassessment of the 
Exchange market, whichever is later, to include standards around 
hospitals and Patient Safety Organizations (PSO), health care 
providers, and health care quality improvement mechanisms. We noted 
that implementing all of the requirements described in section

[[Page 13815]]

1311(h) by January 1, 2015, could result in a shortage of qualified 
hospitals and providers available for contracting with QHPs.
    We are finalizing this approach as proposed with one modification. 
We are modifying the documentation standard in Sec.  156.1110(b) to 
remove ``including, but not limited to, the CCN,'' to indicate that 
only the CCN is required to be collected.
    Comment: Many commenters agreed with the proposed provisions that 
we outlined in the proposed rule and supported the use of Medicare 
Hospital CoPs requirements in the initial phase of implementation of 
patient safety standards. Many commenters also expressed support for 
the phase-in approach to implementing the patient safety reporting 
standards for QHP issuers. They stated that the proposed approach was 
reasonable to ensure adequate numbers of hospitals in QHP networks and 
to safeguard patient access to health care services. Commenters agreed 
with HHS's rationale that currently, there is insufficient capacity of 
Patient Safety Organizations (PSOs) and expressed concern that any more 
stringent standards than what was proposed would have negative effects 
on patient access and breadth of networks.
    Response: We are finalizing the regulation as proposed with one 
minor change to the documentation standard, as discussed above. By 
finalizing as proposed, we believe that this 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.
    Comment: Several commenters did not support the delay of the QHP 
issuer requirement of ensuring contracted hospitals have agreements 
with PSOs and disagreed with the proposed length of the phase-in 
period. These commenters disagreed regarding constraints for hospitals 
to enter into agreements with PSOs and for issuers to track such 
information. One commenter stated that Medicare Hospital CoPs 
requirements are not a proper substitute for hospital PSO 
relationships. Other commenters requested that CMS ensure that the 
phase-in lasts no more than one year as patient safety reporting is 
important to inform consumer choice and for health system improvement.
    Response: We believe that the proposed phase-in for standards will 
ensure that QHP issuers and their contracted hospitals demonstrate the 
implementation of patient safety activities while allowing time to 
develop more robust standards. We believe that establishing standards 
requiring hospital agreements with PSOs would be overly burdensome and 
an inefficient use of resources for the majority of hospitals and QHP 
issuers at this time. We believe it is important for hospitals to take 
adequate time to assess their unique patient safety data collection and 
analysis needs and to establish agreements with the appropriate PSOs. 
Further, we believe the proposed approach allows QHP issuers the 
opportunity to monitor patient safety of their network hospitals for 
meaningful compliance with patient safety standards. As the Exchange 
market evolves and as enrollment increases, we believe that patient 
safety reporting standards for QHP issuers should be enhanced. We do 
not intend phase one standards to be a substitute for hospital and PSO 
agreements. We believe that the first phase of implementation and 
aligning with Medicare Hospital CoPs requirements is appropriate at 
this time because the approach allows for effective alignment of 
hospital quality standards, clear standards for issuers and hospitals, 
and sufficient patient access to health care, in time to meet the 
statutory deadline of January 1, 2015.
    Comment: A few commenters expressed concerns that the proposed rule 
fails to acknowledge successes of PSOs and participating providers and 
potentially has a negative impact on the progress in patient safety. 
Some commenters stated that those hospitals participating in PSO 
programs should be differentiated or rewarded using a preferred quality 
provider designation.
    Response: We acknowledge that there are many successful, existing 
patient safety initiatives among health care providers across the 
country, including work by PSOs. In addition, we continue to encourage 
robust QHP provider networks that promote access to quality health care 
services. We believe the standards in the proposed rule support 
existing patient safety initiatives by providing a balanced approach to 
minimize potential duplication of hospital quality standards and ensure 
that individuals have the necessary access to health care. We recognize 
that many hospitals already have established agreements with PSOs but 
we do not believe it is necessary to require such agreements of 
hospitals at this time. We do not intend to restrict hospitals and QHP 
issuers from including such information in their marketing materials if 
they choose to.
    Comment: One commenter supported the proposed approach as 
integrated delivery systems are not able to follow the requirements of 
the Patient Safety Quality Improvement Act (PSQIA) which create 
barriers to the free flow of information between providers and the 
integrated health plan issuer of a QHP. One commenter was concerned 
with regard to the integrated system's ability to participate in PSOs 
and encouraged the development of a reasonable alternative.
    Response: We understand the commenter's concern of the unique 
challenges of an integrated health care delivery system to participate 
in the Federal PSO program established under the PSQIA. As we state in 
the preamble to this final rule, we intend to issue future rulemaking 
regarding the establishment of reasonable exceptions pursuant to the 
Secretary's authority in section 1311(h)(2) of the Affordable Care Act 
and will welcome additional comments at that time.
    Comment: A few commenters were concerned that the proposed 
standards require QHP issuers to contract only with Medicare-certified 
hospitals and would therefore have a negative effect on patient access 
and breadth of networks. Specifically, commenters requested 
clarification that the standards only applied to Medicare-certified 
hospitals and would not restrict contracting with non-Medicare 
hospitals. They also asked for clarity that the standards did not apply 
to hospitals that may be temporarily without CCNs.
    Response: We are clarifying that the standards do not require QHP 
issuers to only contract with Medicare-certified hospitals. As we 
stated in the proposed rule, the standards are designed to not 
significantly limit hospital participation in QHP networks and as 
proposed, would prevent a potential shortage of qualified hospitals and 
providers available for contracting with QHPs. The proposed standards 
in Sec.  156.1110 establishes that a QHP issuer that contracts with a 
hospital with greater than 50 beds must verify that the hospital is 
Medicare-certified or has been issued a Medicaid-only CCN. However, QHP 
issuers are not prevented from contracting with other types of 
hospitals and providers.
    Comment: One commenter cautioned CMS against implementing 
duplicative standards on hospitals and noted the hospital value-based 
purchasing programs and other quality reporting requirements included 
in the Affordable Care Act as potential areas for alignment. A few 
commenters made suggestions as to alignment of hospital standards 
across Medicare, Medicaid, and commercial markets.

[[Page 13816]]

    Response: We believe the proposed standards to align with Medicare 
Hospital CoPs requirements for Quality Assurance and Performance 
Improvement programs and discharge planning in the initial years of 
implementation minimizes duplication and we intend to continue efforts 
to align with existing and effective Federal, State, and private health 
care quality reporting initiatives as well as other quality reporting 
requirements in the Affordable Care Act to minimize duplication. 
Comments regarding programs other than Exchanges and QHP issuers (such 
as hospital value-based purchasing programs) are outside the scope of 
this final rule.
    Comment: One commenter urged CMS to establish standards, or at the 
least a framework, for 1311(g), related to quality improvement strategy 
reporting by QHP issuers, before implementing the second phase of 
section 1311(h) of the Affordable Care Act. The commenter stated that 
it is inappropriate to request issuers to comment on the future phase 
without providing standards for 1311(g) of the Affordable Care Act.
    Response: We understand the commenter's concern of establishing 
standards regarding QHP quality improvement strategies in accordance 
with section 1311(g) of the Affordable Care Act prior to the future 
phase of implementation of patient safety standards. We intend to issue 
rulemaking in the future and will welcome comments to inform 
implementation of 1311(g) at that time. We agree with the commenter 
regarding the importance of harmonization of quality and patient safety 
reporting standards for QHP issuers.
    Comment: One commenter suggested that phase one implementation of 
the standards should require hospitals to undergo an external 
evaluation by expert surveyors similar to the Medicare requirement for 
accredited hospitals.
    Response: We believe that the proposed standards are adequate for 
phase one implementation of patient safety reporting for QHP issuers 
without placing undue burden on issuers or hospitals. We do not intend 
to duplicate standards for hospital survey and certification processes 
already in place and we also do not intend to interfere with hospital 
accreditation processes.
    Comment: Many commenters supported the proposal to apply the 
patient safety reporting requirements to hospitals with more than 50 
beds.
    Response: We are finalizing the statutory distinction of number of 
hospital beds to be greater than 50 beds as proposed.
    Comment: One commenter requested CMS to clarify what it considers 
to be a section 1861(e) hospital, including the types of hospitals. The 
commenter requested confirmation of their understanding that CMS 
intends for this provision to apply only to hospitals that are subject 
to the CoPs standards for Quality Assurance and Performance Improvement 
programs and discharge planning, which is broader than general acute 
care hospitals. Some commenters expressed concern that the proposed 
standards do not apply to hospitals with fewer beds, children's 
hospitals, critical access hospitals, inpatient psychiatric facilities 
or other hospitals that do not participate in Medicare or Medicaid.
    Response: Section 1861(e) of the Social Security Act refers to the 
definition of the term, hospital. We clarify that the hospitals that 
are included in these proposed standards are those that are subject to 
the Medicare Hospital CoPs and that are Medicare-certified or are 
Medicaid-only hospitals that have CCNs. QHP issuers may continue to 
contract with other types of hospitals or providers that are not 
included in this reference; however, the issuer would not have to 
maintain the associated hospital CCNs based on these standards. For 
example, although we do not specifically identify psychiatric hospitals 
that are defined by 1861(f) of the Social Security Act, the proposed 
standards do not prevent QHP issuers from contracting with such 
hospitals. QHP issuers would not be required to collect and maintain 
CCNs for such hospitals in accordance with Sec.  156.1110 but again, 
would be able to continue to contract with such hospitals. We encourage 
all hospitals and health care providers to engage in patient safety 
improvement activities with the goal of reducing harm and achieving 
better patient health outcomes. In the second phase of implementation, 
we will assess the feasibility of applying future patient safety 
reporting standards to other types of hospitals and will solicit 
comment at that time.
    Comment: Several commenters did not support the proposed 
methodology for collecting and documenting a hospital's CCN as it could 
be burdensome to QHP issuers. Several other commenters offered 
suggestions for different methods that HHS could use, including having 
HHS collect the information from a hospital's accrediting entity or 
using publicly available data, such as Medicare's Provider of Services 
file. Another commenter asked that we specify what other documentation 
may be required in addition to a hospital's CCN.
    Response: We acknowledge that there may be other sources for 
collecting a hospital's CCN; however, we believe that the QHP issuer 
should have the responsibility of tracking their contracted hospitals 
adherence to the standards we have proposed. In the final rule, we are 
modifying the documentation standard to direct QHP issuers to maintain 
only the CCNs for each hospital that these standards apply to. We 
maintain the collection and reporting of CCNs but we have removed 
reference to any other documentation.
    Comment: One commenter seeks clarification that QHP issuers meet 
the documentation requirements for Medicare-certified or Medicaid-only 
CCN hospitals simply by providing Exchanges proof of those hospitals' 
certification or CCN, as provided to the QHP by the contracted 
hospital.
    Response: We clarify that the QHP issuer would meet the 
documentation standard by providing the Exchange, upon request by the 
Exchange, the applicable hospitals' CCNs as provided by the contracted 
hospitals. We also clarify that it is the responsibility of the QHP 
issuer to ensure that accurate CCN information is maintained.
    Comment: Several commenters disagreed with the proposed length of 
the phase-in period and requested that HHS ensure that the phase-in 
lasts no more than one year as patient safety reporting is important to 
inform consumer choice and for health system improvement. Another 
commenter requested that the phase-in period be shortened to one year.
    Response: We maintain that the first phase of implementation 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 believe that this provides ample time for Exchange markets 
to develop, QHP provider networks to grow, PSOs to continue expanding, 
continued research regarding more robust patient safety standards for 
QHP issuers and examples of comparable activities to be included as 
reasonable exceptions.
    Comment: Several commenters provided detailed suggestions for 
implementing the future phase of patient safety reporting standards 
including reasonable exceptions to the requirements and a number of 
comments regarding the core aspects of a hospital patient safety 
program, discharge planning program, health care quality improvement 
activities, and how QHPs can effectively track patient safety 
activities. Some commenters requested additional details regarding 
phase two

[[Page 13817]]

to be provided now so that stakeholders may have time to prepare.
    Response: We intend to promulgate future rulemaking outlining a 
proposed approach and will seek additional public comment at that time.
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 provided in Sec.  156.1215(a) that 
each month HHS will 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 will reflect current information related to enrollment for 
past months, including information related to excess payments 
previously made. Finally, amounts owed to or by a QHP issuer will be 
netted across all entities operating under the same taxpayer 
identification number (TIN). This process will permit HHS to calculate 
amounts owed each month, and pay or collect those amounts from issuers 
more efficiently. When netting occurs, HHS will demand amounts due only 
when there is a net balance due to the Federal government.
    Additionally, 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 proposed in Sec.  156.1215(b) 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 Sec.  156.1215(c), we proposed 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, FFE user fees, risk adjustment, reinsurance, 
and risk corridors after netting be the basis for calculating a debt 
owed to the Federal government. We proposed that payments and 
collections under all of these programs occur under an integrated 
monthly payment and collection cycle.
    After considering the comments received, we are finalizing these 
provisions as proposed.
    Comment: We received several comments supporting the proposed 
netting provisions in Sec.  156.1215. However, one commenter asked HHS 
to net in a rolling fashion every month, and wait until the end of the 
calendar year to invoice issuers for any remaining balance.
    Response: We believe that issuers should pay amounts owed on a 
monthly basis. Under our debt collection rules, these amounts owed 
could begin to accrue interest and penalties in subsequent months.
    Comment: In response to our request for comment on payment 
timeframes, some commenters asked HHS to amend Sec.  156.1210 in order 
to give issuers 15 business days, rather than 15 calendar days, to file 
discrepancy reports.
    Response: The 15-calendar-day deadline established in Sec.  
156.1210 is necessary to permit HHS to resolve discrepancies by the 
next month's payment and collection process. Under Sec.  156.1210(b), 
HHS will work with issuers that report discrepancies after 15 calendar 
days as long as the late reporting is not due to misconduct on the part 
of the issuer.
b. Confirmation of HHS Payment and Collections Reports
    Under Sec.  156.1210(a), an issuer must respond to the payment and 
collections report issued by HHS 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 Sec.  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. Any resolution to such 
an identified discrepancy is reflected in a later payment and 
collections report and the invoice generated under that later report 
does not affect the debt established by the invoice generated in 
connection with the earlier report.
    We proposed that if an issuer notifies HHS of a discrepancy under 
Sec.  156.1210(a) or (b), it would trigger an administrative 
discrepancy resolution process. Specifically, under Sec.  156.1220(a), 
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. 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 proposed not to retroactively 
adjust previous months' payment and collections reports and amounts 
previously due. The amount invoiced for a particular month, reflecting 
netted amounts as described above, constitutes an amount owed to the 
Federal government. As more accurate data become available to HHS, the 
Exchange, and the issuer, we proposed that this later information not 
reduce or increase the previous determination of an amount owed. 
Rather, the information is 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 proposed to add paragraph (c) to 
Sec.  156.1210 to provide that discrepancies in payment and collections 
reports identified to HHS under that section 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.
    After considering comments on this approach, we are finalizing 
these provisions as proposed.
    Comment: One commenter supported our proposal not to retroactively 
adjust HIX 820 payment and collections reports and amounts previously 
due. Another commenter asked HHS to amend proposed Sec.  156.1215 to 
specify that HHS will delineate payments and charges by program and by 
issuer, so that issuers can track HHS netting, keep accurate track of 
payments by programs, and avoid penalties and fines for late payments.
    Response: The HHS monthly payment and collections report will 
detail charges, payments, and netting by

[[Page 13818]]

program for each payee group. Each payee group consists of one or more 
issuers with the same TIN and is established and organized by a parent 
health insurer. In addition to this monthly statement, HHS anticipates 
providing issuers with more detailed reports relating to certain 
programs.
    Comment: One commenter asked when HHS will make payments to issuers 
for reinsurance, risk adjustment, and cost-sharing reduction 
reconciliation.
    Response: We will issue guidance on the timing of these payments in 
the future.
c. Administrative Appeals
    In the proposed rule, we proposed an administrative appeals process 
designed to address unresolved discrepancies in 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 assessments of default risk adjustment charges.
    In Sec.  156.1220(a), we proposed that an issuer be permitted to 
file a request for reconsideration of a processing error by HHS,\54\ 
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 cost-sharing 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 cost-sharing 
reductions, or FFE user fee amounts for a benefit year, we proposed 
that a request for reconsideration be required to 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 sought comment on 
this proposal, including on the minimum materiality threshold that 
should be required for an issuer to seek reconsideration.
---------------------------------------------------------------------------

    \54\ A processing error could result from HHS accessing the data 
submitted by the issuer on the dedicated distributed data 
environment in an incomplete or incorrect manner. We note that under 
proposed Sec.  156.1220(a)(4)(i)-(ii), an issuer may not submit new 
data for consideration in an appeal if the data was not submitted 
prior to the applicable data submission deadline, but may submit 
documentary evidence to support a contention that data was timely 
submitted.
---------------------------------------------------------------------------

    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 proposed that a request for reconsideration be filed within 
30 calendar days of receipt of the applicable notification of payments 
and charges from HHS.
    In proposed Sec.  156.1220(a)(3)(i) (Sec.  156.1220(a)(4)(i) in 
this final rule), we proposed that the request for reconsideration 
specify the findings or issues that the issuer challenges, and the 
reasons for the challenge. In proposed Sec.  156.1220(a)(3)(ii) (Sec.  
156.1220(a)(4)(ii) in this final rule), we proposed that a 
reconsideration with respect to a processing error by HHS, HHS's 
incorrect application of the relevant methodology, or HHS's 
mathematical error be permitted to be requested only if, to the extent 
the issue could have been previously identified by the issuer to HHS 
under Sec.  153.710(d)(2) or (e)(2), it was so identified and remains 
unresolved. Similarly, in proposed Sec.  156.1220(a)(3)(iii) (Sec.  
156.1220(a)(4)(iii) in this final rule), we proposed that a 
reconsideration with respect to advance payments of the premium tax 
credit, advance payments of cost-sharing reductions, and FFE user fees 
be permitted to be requested only if, to the extent the issue could 
have been previously identified by the issuer to HHS under Sec.  
156.1210, it was so identified and remains unresolved. We proposed that 
an issuer be permitted to request reconsideration if it previously 
identified an issue under Sec.  156.1210 after the 15-calendar-day 
deadline, but that the issuer's late discovery of the issue was not due 
to misconduct on the part of the issuer.
    In Sec.  156.1220(a)(3)(iv) (Sec.  156.1220(a)(4)(iv) in this final 
rule), we proposed that the issuer be permitted to include in the 
request for reconsideration additional documentary evidence that HHS 
should consider. Such documents could not include data that was to have 
been filed by the applicable data submission deadline, but could 
include evidence of the timely submission of such documents.
    In Sec.  156.1220(a)(4) (Sec.  156.1220(a)(5) in this final rule), 
we proposed 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 
proposed that an issuer would be required to prove its case by a 
preponderance of the evidence with respect to issues of fact.
    In Sec.  156.1220(a)(5) (Sec.  156.1220(a)(6) in this final rule), 
we proposed that a reconsideration decision would be final and binding 
for decisions regarding the advance payments of the premium tax credit, 
advance payments of cost-sharing 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 Sec.  156.1220(b). We proposed in Sec.  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 Sec.  156.1220 would be entitled to an informal 
hearing before a CMS hearing officer. In Sec.  156.1220(b)(1), we 
proposed 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 Sec.  156.1220(b)(2), we proposed that 
the request for an informal hearing be required to include a copy of 
the reconsideration decision and specify the findings or issues in the 
decision that the issuer is challenging and its reasons for the 
challenge. We also proposed that HHS be permitted to submit for review 
by the CMS hearing officer a statement of the reasons supporting the 
reconsideration decision.
    In Sec.  156.1220(b)(3)(i), we proposed that the issuer would 
receive a written notice of the time and place of the informal hearing 
at least 15 calendar days before the scheduled date. In Sec.  
156.1220(b)(3)(ii), we proposed 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. The scope of the CMS hearing officer's review would be limited 
to the statements provided by the issuer and HHS and the

[[Page 13819]]

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 Sec.  156.1220(b)(4), we proposed that, following the informal 
hearing, the CMS hearing officer send the decision and the reasons for 
the decision to the issuer. We proposed that this decision be final and 
binding, but subject to any Administrator's review initiated in 
accordance with proposed Sec.  156.1220(c).
    We proposed in Sec.  156.1220(c)(1) that if the CMS hearing officer 
upholds the reconsideration decision, the issuer be permitted to 
request a review by the Administrator of CMS within 15 calendar days of 
receipt of the CMS hearing officer's decision.\55\ The request for a 
review by the Administrator of CMS would be required to specify the 
findings or issues in the decision that the issuer is challenging, and 
the reasons for the challenge. We proposed that HHS be permitted to 
submit for review by the Administrator of CMS a statement supporting 
the decision of the CMS hearing officer.
---------------------------------------------------------------------------

    \55\ Consistent with the Medicare Advantage risk adjustment data 
validation audit dispute and appeal processes set forth in 42 CFR 
422.311, we intend to propose in future rulemaking that CMS may also 
request review by the Administrator of a CMS hearing officer's 
decision.
---------------------------------------------------------------------------

    In Sec.  156.1220(c)(2), we proposed that the Administrator of CMS 
or a delegate 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 
decision, and determine whether to uphold, reverse, or modify the CMS 
hearing officer's decision. We proposed that the issuer be required to 
prove its case by clear and convincing evidence with respect to issues 
of fact. We proposed that the Administrator's determination be 
considered final and binding.
    In response to comments, we are finalizing these provisions with 
the following modifications: We are extending the deadline to file a 
request for reconsideration to 60 calendar days instead of 30 calendar 
days, and the deadline for filing an informal hearing to 30 calendar 
days instead of 15 calendar days. We are also providing that these 
deadlines will run from the date of issuance of the notification and 
reconsideration decision, rather than the date an issuer receives the 
notification or reconsideration decision. Finally, we are providing 
that an issuer has 15 calendar days to request review by the 
Administrator from the date of the CMS hearing officer decision, rather 
than from the date of receipt of the decision.
    We are also providing for a minimum materiality threshold that an 
issuer must meet in order to request reconsideration for (1) advance 
payments of the premium tax credit, advance payments of cost-sharing 
reductions, or Federally-facilitated Exchange user fees (2) risk 
adjustment payment or charges (3) reinsurance payments (4) risk 
adjustment default charges (5) reconciliation payments or charges for 
cost-sharing reductions and (6) risk corridors payments or charges. 
That threshold is equal to the lesser of 1 percent of the applicable 
payment or charge listed in the prior enumerated categories payable to 
or due from the issuer for a benefit year, or $10,000. For example, an 
issuer that received $75,000 in advance payments of cost-sharing 
reductions would need to seek reconsideration of at least $7,500 in 
those advance payments to meet the minimum materiality threshold, and 
an issuer that received $800,000 in reinsurance payments would need to 
seek reconsideration of at least $10,000 in reinsurance payments.
    Comment: Several comments supported the proposed administrative 
appeals process. Some commenters asked that HHS allow issuers to appeal 
reconsideration decisions regarding advance payments of the premium tax 
credit, cost-sharing reductions, and FFE user fees.
    Response: Issuers can dispute advance payments of the premium tax 
credit, advance payments of cost-sharing reductions, and FFE user fees 
amount on a monthly basis through the discrepancy report process set 
forth in Sec.  153.1210, prior to receiving the final reconsideration 
notice in the summer of the year following the applicable benefit year. 
Furthermore, the methodology for calculating these payments provides 
few factors on which a request for reconsideration may be made. Given 
these considerations, 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 will 
provide issuers ample opportunity to resolve any discrepancies.
    Comment: Several commenters sought extensions in the proposed 
timeframe for filing an appeal. Commenters asked that issuers have 60 
calendar days to file a request for reconsideration, rather than 30 
calendar days. The commenters also asked that issuers have 30 calendar 
days, rather than 15 calendar days to file a request for an informal 
hearing.
    Response: We appreciate the need for additional time to analyze 
final notifications, and are amending Sec.  156.1220(a)(2) to allow 
issuers 60 calendar days to file a request for reconsideration and 
Sec.  156.1220(b)(1) to allow issuers 30 calendar days to request an 
informal hearing before a CMS hearing officer. In order to reduce the 
scope for disputes on when notifications are received, we are also 
amending our proposed policies to clarify that these timeframes will 
begin at the date of issuance of the notification and reconsideration 
decision rather than the date an issuer receives the notification or 
reconsideration decision.
    Comment: Several commenters supported a minimum materiality 
threshold that should be required to seek reconsideration. One 
commenter suggested a minimum threshold of 1 percent of total payments 
made to or charges assessed on the issuer for a benefit year, while 
other commenters supported a materiality threshold equal to the lesser 
of 1 percent of total payments made to or charges assessed on the 
issuer for a benefit year, or $10,000.
    Response: We are amending our proposed rule to set a minimum 
materiality threshold for an issuer to request reconsideration under 
Sec.  156.1220(a)(1) for (1) advance payments of the premium tax 
credit, advance payments of cost-sharing reductions, or FFE user fees; 
(2) risk adjustment payment or charges; (3) reinsurance payments; (4) 
risk adjustment default charges; (5) reconciliation payments or charges 
for cost-sharing reductions; and (6) risk corridors payments or charges 
only if the amount in dispute is equal to or exceeds 1 percent of the 
applicable payment or charge payable to or due from the issuer for the 
benefit year, or $10,000, whichever is less. We are adopting a per-
category calculation rather than an overall calculation because we do 
not believe the threshold should be artificially low if the issuer 
happens to have balancing payments and charges across the various 
programs.
    Comment: Commenters asked that HHS provide detailed guidance on how 
to reflect amounts subject to reconsiderations and appeals in MLR 
filings.
    Response: We are finalizing Sec.  153.710(g), which provides 
details on how amounts subject to administrative appeals process should 
be reported for the purposes of MLR and risk corridors. Issuers must 
report, for the purposes of risk corridors and MLR, the risk adjustment 
or reinsurance payment to

[[Page 13820]]

be made by the Federal government, or the risk adjustment charge 
assessed by the Federal government, as reflected in the June 30th 
report, regardless of the amount in dispute. 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, 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 Sec.  153.510(d). As stated in Sec.  
153.710(g)(2), an issuer must report any adjustment made following any 
discrepancy report made under paragraphs (d)(2) or (e)(2), or any 
request for reconsideration under Sec.  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 MLR report, in the next following risk corridors and 
MLR report.

IV. Provisions of the Final Regulations

    For the most part, this final rule incorporates the provisions of 
the proposed rule. Those provisions of this final rule that differ from 
the proposed rule are as follows:
1. Part 144--Requirements Relating to Health Insurance Coverage
    We are finalizing the amendment to the definition of ``policy 
year'' for student health insurance coverage with a minor revision to 
remove the word ``individual'' from the reference to ``individual 
health insurance coverage.''
2. Part 147--Health Insurance Reform Requirements for the Group and 
Individual Health Insurance Markets
    We are restructuring Sec.  147.102(c)(3) as paragraphs (c)(3)(i) 
through (iii).
    We are amending new Sec.  147.102(c)(3)(ii) to provide that an 
issuer offering composite premiums is subject to the standards of new 
paragraph (c)(3)(iii), and to specify that the requirement that the 
total group premium must equal that the sum of per-member premiums is 
determined at the time of applicable enrollment at the beginning of the 
plan year.
    We are amending new Sec.  147.102(c)(3)(iii) to provide that the 
standards in this paragraph apply in connection with a group health 
plan in the small group market.
    We are amending new Sec.  147.102(c)(3)(iii)(A) to clarify that 
composite premiums are calculated based on applicable enrollment of 
``participants and beneficiaries'' at the beginning of the plan year, 
and deleting references to participants and beneficiaries elsewhere in 
this paragraph.
    We are adding new Sec.  147.102(c)(3)(iii)(B) to establish a two-
tiered composite premium structure for small group market issuers that 
offer composite premiums. States may establish an alternate tiered-
composite methodology with approval from HHS.
    We are adding new Sec.  147.102(c)(3)(iii)(C) to provide that an 
issuer cannot include any rating variation for tobacco use in a 
composite premium but instead must apply any applicable tobacco rating 
factor on a per-member basis, pursuant to applicable State law.
    We are adding new Sec.  147.102(c)(3)(iii)(D) to provide that 
issuers offering composite premiums with respect to a particular 
product offered in the small group market in a State must do so 
uniformly for all group health plans enrolling in that product, giving 
those group health plans the option to pay premiums based on a 
composite premium methodology, to the extent permitted by applicable 
State law and subject to Sec.  156.285(c) of this final rule 
(prohibiting composite premiums in connection with employee choice in 
the FF-SHOPs).
3. Part 153--Standards Related to Reinsurance, Risk Corridors, and Risk 
Adjustment Under the Affordable Care Act
a. Provisions and Parameters for the Permanent Risk Adjustment Program
    We are amending Sec.  153.630(b)(1) to provide that the issuer must 
attest that it has no conflicts of interest with the initial validation 
auditor to its knowledge, following reasonable investigation, and must 
attest that it has obtained an equivalent representation from the 
initial validation auditor.
    We are amending Sec.  153.630(b)(7)(i) to provide that an 
enrollee's risk score must be validated by enrollment and demographic 
data review in a manner to be determined by HHS.
    We are amending Sec.  153.630(b)(7)(iv) to provide that, for the 
initial years of risk adjustment data validation (the 2014 and 2015 
benefit years), the senior reviewer may possess 3 or more years of 
experience.
    We are amending Sec.  153.630(b)(8) to provide that, for the 
initial years of risk adjustment data validation (the 2014 and 2015 
benefit years), the initial validation auditor may meet an inter-rater 
reliability standard of 85 percent for validating review outcomes in 
accordance with the standards established by HHS.
b. Provisions and Parameters for the Transitional Reinsurance Program
    We are amending the definition of ``contributing entity'' in Sec.  
153.20 to mean, for the 2015 and 2016 benefit years, a health insurance 
issuer and 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 TPA in connection with claims processing or adjudication 
(including the management of internal appeals) or plan enrollment for 
services other than for pharmacy benefits or excepted benefits within 
the meaning of section 2791(c) of the PHS Act. Notwithstanding the 
foregoing, a self-insured group health plan that uses an unrelated 
third party to obtain provider network and related claim repricing 
services, or uses an unrelated third party for up to 5 percent of 
claims processing or adjudication or plan enrollment for services other 
than for pharmacy or excepted benefits, will not be deemed to use a 
TPA, based on either the number of transactions processed by the third 
party, or the volume of the claims processing and adjudication and plan 
enrollment services provided by the third party.
    We are amending the definition of ``major medical coverage'' in 
Sec.  153.20 to include any catastrophic plan, or individual or small 
group market coverage subject to actuarial value requirements under 
Sec.  156.140.
    We are not finalizing our proposal to delete and reserve Sec.  
153.235(b).
c. Provisions for the Temporary Risk Corridors Program
    We are adding a definition of ``adjustment percentage'' to Sec.  
153.500, and are amending the definitions of ``profits'' and 
``allowable administrative costs'' in Sec.  153.500 to account for the 
adjusted amount.
    We are adding a definition of ``transitional State'' to Sec.  
153.500.
    We are making a conforming change to Sec.  153.530(d) to clarify 
that the July 31 submission deadline for risk corridors

[[Page 13821]]

data does not apply to the enrollment data specified in Sec.  
153.530(e).
    We are adding paragraph (e) to Sec.  153.530 to require health 
insurance issuers in the individual and small group markets to submit 
enrollment data for the risk corridors adjustment.
    We are not finalizing our proposal in Sec.  153.540 to establish 
our authority to assess CMPs for failure of an issuer to comply with 
applicable risk corridors rules.
4. Part 155--Exchange Establishment Standards and Other Related 
Standards Under the Affordable Care Act
a. Annual Open Enrollment Period for 2015
    For consistency within this section, we are modifying Sec.  
155.410(f)(1) to refer to ``QHPs'' instead of ``plans,'' we are 
amending Sec.  155.410(f)(1)(ii) to correct a typographical error 
referring to December 16, 2015 instead of 2014, we are amending Sec.  
155.410(e)(1) to change the close of the open enrollment period for 
2015 to February 15, 2015, and we are amending Sec.  155.410(f)(1)(iii) 
to provide for the applicable coverage effective dates for enrollments 
between January 16 and 31, 2015. We are not finalizing Sec.  
155.410(e)(2) or Sec.  155.410(f)(2), as proposed.
b. Functions of a Small Business Health Options Program
    We are modifying Sec.  155.705(b)(3)(v)(B), which now allows an 
employer to choose to make available all stand-alone dental plans 
offered through an FF-SHOP at a level of coverage as described in Sec.  
156.150(b)(2).
    We are finalizing amendments to Sec.  155.705(b)(6) that were 
originally proposed in the Program Integrity proposed rule. We are 
finalizing language proposed at Sec.  155.705(b)(6)(ii) at Sec.  
155.705(b)(6)(i)(A) instead of at (b)(6)(ii), to make clear that we 
never intended for this proposal to supersede the language at current 
Sec.  155.705(b)(6)(ii), and are making a minor change to replace the 
word FF-SHOP with the term ``Federally-facilitated SHOP.
    We added a heading to Sec.  155.220(i).
    We are not finalizing the proposed amendment to Sec.  
155.705(b)(11)(ii)(D).
5. Part 156--Health Insurance Issuer Standards Under the Affordable 
Care Act, Including Standards Related to Exchanges
a. Provisions Related to Cost Sharing
    We clarify in Sec.  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 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 corresponding out-of-pocket 
spending required in the silver plan variation of the QHP for 
individuals eligible for cost-sharing reductions under Sec.  
155.305(g)(2)(i), in the case of a silver QHP.
b. National Annual Limit on Cost Sharing for Stand-Alone Dental Plans 
in an Exchange
    We are finalizing the annual limit on cost sharing with an increase 
compared to the proposed levels, to apply to SADPs certified by all 
Exchanges nationally.
    We are not finalizing our proposal to delete the actuarial value 
requirement at Sec.  156.150(b).
c. Additional Standards Specific to SHOP
    We have modified Sec.  156.285(a)(4)(i) to add the words ``being 
sold through the SHOP'' to provide clarity to the regulation text 
finalized at Sec.  156.285(a)(4)(i).
    We have modified Sec.  156.285(a)(4)(ii) to provide that the policy 
expressed in that provision also applies to SADPs in the Federally-
facilitated SHOP, if the employer elects to offer coverage to its 
employees under Sec.  155.705(b)(3)(v)(B) as finalized in this rule.
d. Meaningful Difference Standard for Qualified Health Plans in the 
FFEs
    We have modified Sec.  156.298(b) to have the standard set at one 
material difference rather than two and have removed premiums as one of 
the characteristics among which plans must be different.
    We are not finalizing the text proposed at Sec.  156.298(b)(5) and 
are therefore renumbering the provisions proposed at Sec.  
156.298(b)(1) through (b)(7) as Sec.  156.298(b)(1) through (b)(6) in 
this final rule.
e. Quality Standards: Establishment of Patient Safety Standards for 
QHPs Issuers
    We are modifying the documentation standard in Sec.  156.1110(b) to 
remove the reference to information other than the CCN to indicate that 
only the CCN is required to be collected.
f. Financial Programs
    We are extending the deadline for an issuer to request 
reconsideration from 30 to 60 calendar days in Sec.  156.1220(a)(3).
    We are extending the deadline for an issuer to request an informal 
hearing before a CMS hearing officer from 15 calendar days to 30 
calendar days in Sec.  156.1220(b)(1).
    We are modifying in Sec.  156.1220(a)(3), Sec.  156.1220(b)(1) and 
Sec.  156.1220(c)(1) the date from which certain appeals-related 
deadlines will run so that the deadlines will run from the date of 
issuance of the notification, reconsideration decision, or CMS hearing 
officer decision, rather than the date an issuer receives the 
notification or decision.
    We are establishing a minimum materiality threshold that an issuer 
must meet in order to request reconsideration for (1) advance payments 
of the premium tax credit, advance payments of cost-sharing reductions, 
or Federally-facilitated Exchange user fees (2) risk adjustment payment 
or charges (3) reinsurance payments (4) risk adjustment default charges 
(5) reconciliation payments or charges for cost-sharing reductions and 
(6) risk corridors payments or charges in Sec.  156.1220(a)(2). That 
threshold is equal to the lesser of 1 percent of the applicable payment 
or charge listed in the prior enumerated categories payable to or due 
from the issuer for a benefit year, or $10,000.

IV. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-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 
final 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 7. 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 generally used data from the Bureau of Labor Statistics to 
derive average labor costs (including capital

[[Page 13822]]

costs, overhead, and fringe benefits) for estimating the burden 
associated with the ICRs.

A. ICRs Related to HHS Audits of State-Operated Reinsurance Programs 
(Sec.  153.270)

    Under Sec.  153.270, HHS or its designee may conduct a financial 
and programmatic audit of a State-operated reinsurance program to 
assess compliance with reinsurance program requirements. Under this 
provision, 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 one State 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 will not seek 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 final rule.

B. ICRs Regarding Issuer and Entity Administrative Burden Related to 
Audits for the Premium Stabilization Programs (Sec.  153.405(i); Sec.  
153.540(a); Sec.  153.410(d); Sec.  153.620(c))

    This final rule provides HHS or its designee with 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 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.
    These provisions will require a third-party disclosure requirement 
of issuers of risk adjustment covered plans and issuers of reinsurance-
eligible plans to prepare and compile the financial and programmatic 
information necessary to comply with the audit. In the proposed rule, 
we estimated that it would take a total of approximately 60 hours of 
preparation time for each onsite review and an additional 30 hours of 
onsite time for each issuer, at an hourly labor cost of $53.75 and a 
total cost of approximately $4,838 for each issuer. Because we have not 
finalized our audit protocols, it is difficult to accurately estimate 
an audit rate. However, we believe that it is 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 estimated an aggregate burden of 10,800 hours 
and $580,500 for issuers as a result of this requirement.
    For contributing entities, we estimated that the disclosure burden 
would be substantially less because the audit would be simpler. We 
estimated 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 an hourly rate of $53.75) at a 
cost of approximately $1,209 for each contributing entity. We estimated 
that approximately 1 percent of contributing entities would be audited, 
representing 226 contributing entities. Therefore, we estimated an 
aggregate burden of 5,085 hours, or $273,319, as a result of this 
requirement.
    Comment: One commenter stated that HHS's burden estimates were 
unreasonable. In particular, the commenter believed that the initial 
meeting by issuers of risk adjustment covered plans and reinsurance-
eligible plans with auditors would involve more personnel and labor 
hours.
    Response: In response to this comment, we are revising our estimate 
for the onsite review portion of the audit to reflect the labor costs 
associated with additional personnel who would generally be expected to 
be involved in meetings and reviews. The new burden estimate includes 2 
hours to schedule the onsite activities with the compliance reviewer 
(at an hourly labor cost of $53.75), 32 hours for an introductory 
meeting involving 8 managers, 12 hours for three managers to tour with 
reviewers onsite, 15 hours of interview time with three managers, 8 
hours to walk through processes with the reviewer, and 16 hours for 
concluding meetings, resulting in a total of 85 hours of onsite time 
for each issuer. Therefore, we estimate it will take 60 hours of 
preparation time and an additional 85 hours of onsite time for each 
issuer. We now estimate it will require a total of 145 hours at a cost 
of approximately $7,794 for each issuer to make information available 
to HHS for an onsite review. For approximately 120 issuers, 
representing roughly 5 percent of issuers of risk adjustment covered 
plans or reinsurance-eligible plans that might be audited in a year, we 
now estimate an aggregate burden of 17,400 hours and $935,280 for 
issuers as a result of this requirement.
    For contributing entities, we now estimate the burden to be 
approximately 37 hours at a cost of approximately $1,989 for each 
contributing entity, or about one quarter of that of an issuer of a 
risk adjustment covered plan or a reinsurance-eligible plan. We 
estimate that approximately 1 percent of contributing entities will be 
audited, representing 226 contributing entities. Therefore, we now 
estimate an aggregate burden of 8,362 hours, or $449,514 for 
contributing entities 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.

C. ICRs Regarding Potential Adjustments for Transitional Plans (Sec.  
153.500-Sec.  153.540)

    We will make adjustments to the premium stabilization programs to 
help mitigate any unexpected losses for QHP issuers with plans that are 
affected by the transitional policy described in the preamble of this 
rule. To effectuate potential adjustments, we must estimate the State-
specific effect on average claims costs. We thus will 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 non-transitional plans in the individual and small group 
markets. This submission will occur in 2015 prior to the risk corridors 
July 31, 2015 data submission deadline. HHS will analyze that 
enrollment data, and publish the State-specific 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 estimate that there will be approximately 2,400 issuers in the 
individual and small group markets in the 2014 benefit year, and that 
it will take an insurance analyst approximately 30 minutes (at an 
hourly labor cost of $38.49) to estimate enrollment in

[[Page 13823]]

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 early 2015, and because we 
expect to issue additional clarifying guidance on this policy, we will 
seek OMB approval and solicit public comment on this data collection 
requirement at a future date.

D. ICRs Regarding Risk Corridors Data Validation (Sec.  153.530 and 
Sec.  153.540)

    For the 2014 benefit year, we will collect risk corridors data 
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 at Sec.  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 and risk corridors programs 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 
labor cost of $38.49) and 30 minutes for a senior manager (at an hourly 
labor cost 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. In the proposed ICR, we estimated that 1,200 QHP 
issuers would submit risk corridors data for the 2014 benefit year in 
the 2015 risk corridors and MLR reporting cycle. We are revising that 
estimate to reflect our most recent estimate of the number of QHP 
issuers that have registered in our Health Insurance Oversight System 
(HIOS) for the 2014 benefit year, and now estimate that approximately 
475 QHP issuers will submit data. Therefore, we now estimate an 
aggregate burden of 712.5 hours (at a total cost of approximately 
$36,573) for QHP 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.

E. ICRs Regarding Data Validation Requirements When HHS Operates Risk 
Adjustment (Sec.  153.630)

    Pursuant to Sec.  153.630(b)(1) of this final rule, 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 requires the 
issuer to 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 labor cost 
of $38.49) and a senior manager (at an hourly labor cost of $77) each 
approximately 15 minutes to prepare and send an electronic report to 
HHS. Therefore, for 2,400 risk adjustment covered issuers in the 
individual and small group markets, the aggregate burden associated 
with this requirement is 1,200 hours, at an approximate cost of 
$69,300.
    In Sec.  153.630(b)(8), we require the initial validation auditor 
to 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 require that the initial 
validation auditor achieve a minimum consistency measure of 95 percent 
for demographic, enrollment, and health status review outcomes (85 
percent for 2014 and 2015). We believe establishing standards for 
inter-rater 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 
labor cost of $38.49) and a senior manager (at an hourly labor cost 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 (Sec.  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 final rule, we clarify this 
timeframe, requiring that an issuer must make good faith efforts to 
make complete, current enrollment and claims files accessible through 
its 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 in this rule we clarify that issuers must make this 
data available to HHS on a quarterly basis, the information collection 
and 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 (Sec.  153.700(d) and (e))

    Under Sec.  153.710(d) of this final rule, we require that within 
30 calendar days of the date of an interim dedicated distributed data 
environment report from HHS, an issuer of a reinsurance-

[[Page 13824]]

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 reflects the data to which the issuer 
has provided access to HHS through its dedicated distributed data 
environment in accordance with Sec.  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, in Sec.  153.710(e), we require 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 Sec.  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 labor 
cost 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 (Sec.  155.260(a))

    In Sec.  155.260(a), we state that an Exchange, at its option, may 
submit to the Secretary a request for approval of a proposed use or 
disclosure of eligibility and enrollment PII. The Exchange submitting 
such a request would describe the nature of the proposed use or 
disclosure and how it would ensure the efficient operation of the 
Exchange consistent with section 1411(g)(2)(A) of the Affordable Care 
Act, and describe the efficiency. The requesting Exchange also would 
describe how the information to be used or disclosed would be protected 
in compliance with the privacy and security standards established by 
the Exchange and describe those protections. While this reporting 
requirement is subject to the PRA, we believe the associated burden is 
exempt under 5 CFR 1320.3(h)(1). This reporting is not intended as a 
substitute for a collection of information of, or to monitor, 
compliance with regulatory standards. Therefore, we are not seeking 
approval from OMB for these information collection requirements.

I. ICRs Regarding Advance Payments of Cost-Sharing Reductions 
(Sec. Sec.  155.1030, 156.430, 156.470)

    Based on our experience implementing the process for calculating 
advance payments of cost-sharing reductions for the 2014 benefit year, 
we are modifying Sec. Sec.  155.1030, 156.430, and 156.470. However, 
because our previous methodology used data collected through vehicles 
that are used for other purposes, we expect these changes to only 
marginally reduce the reporting burden for issuers and Exchanges. 
Therefore, we will not be revising the burden estimates in the 
corresponding PRA packages at this time.

J. ICRs Regarding Quality Standards: Establishment of Patient Safety 
Standards for QHP Issuers (Sec.  156.1110)

    In Sec.  156.1110, we describe the information collection, 
recordkeeping, and disclosure requirements that a QHP issuer must meet 
to demonstrate compliance with the patient safety standards finalized 
in this rule. The burden estimate associated with these standards 
includes the time and effort required for QHPs to maintain and submit 
hospital CMS Certification Numbers to the Exchange, upon request, that 
demonstrates that each of its contracted hospitals with greater than 50 
beds meets the patient safety standards required in Sec.  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 Sec.  156.1110.

K. ICRs Regarding Administrative Appeals (Sec.  156.1220)

    In Sec.  156.1220, we establish 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 Sec.  
153.740(b).
    In Sec.  156.1220(a) as finalized in this rule, 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 an 
FFE user fee 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 purposes of this burden estimate we estimate that it will 
take an insurance operations analyst 1 hour (at an hourly labor cost 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 cost-sharing 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. 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 Sec.  156.1220(b) of this final rule, 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 
Sec.  156.1220, is entitled to an informal hearing before a CMS hearing 
officer, if a request is made in writing within 30 calendar days of the 
date of 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

[[Page 13825]]

U.S.C. 3502(3)(A)(i), we will not seek PRA approval for this 
information collection requirement.

                                                                 Table 7--Annual Reporting, Recordkeeping and Disclosure Burden
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                    Burden per                     Hourly labor     Total labor   Total capital/
                      Regulation section(s)                          Number of       Responses       response      Total annual       cost of         cost of       maintenance   Total cost ($)
                                                                    respondents                       (hours)     burden (hours)   reporting ($)   reporting ($)     costs ($)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Sec.   153.405..................................................             226             226           37.00           8,362           53.75         449,514               0         449,514
Sec.   153.410; Sec.   153.620..................................             120             120          145.00          17,400           53.75         935,280               0         935,280
Sec.   153.500-Sec.   153.540...................................           2,400           2,400            0.50           1,200           38.49          46,200                          46,200
Sec.   153.540..................................................             475             475            1.50           712.5           51.33          36,573               0          36,573
Sec.   153.630(b)(1)............................................           2,400           2,400            0.50           1,200           57.75          69,300               0          69,300
Sec.   153.630(b)(8)............................................           2,400           2,400            0.50           1,200           57.75          69,300               0          69,300
(Sec.   153.700(d) and (e)).....................................           2,400           2,400            8.00          19,200           38.49         739,008               0         739,008
Sec.   156.1220.................................................              24              24            1.00              24           38.49             924               0             924
                                                                 -------------------------------------------------------------------------------------------------------------------------------
    Total.......................................................       \a\ 3,245  ..............  ..............  ..............  ..............       2,346,099               0       2,346,099
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ ICRs associated with Sec.   153.500, Sec.   153.630(b)(1), Sec.   153.630(b)(8) and Sec.   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 final 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-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing.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.

VI. Regulatory Impact Analysis

A. Statement of Need

    This final rule provides 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 the 2014 
Payment Notice provided detail on the implementation of these programs, 
including the specific parameters applicable to these programs. This 
final rule provides additional standards with respect to composite 
premiums, privacy and security of personally identifiable information, 
the open enrollment period for 2015, the AV Calculator, the annual 
limitation on cost sharing for stand-alone dental plans, the meaningful 
difference standard for QHPs offered through an FFE, patient safety 
standards for issuers of QHPs, 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 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 one year).
    OMB has determined that this 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 one year. 
Accordingly, we have prepared an RIA that presents the costs and 
benefits of this final rule.
    Although it is difficult to discuss the wide-ranging effects of 
these provisions in isolation, the overarching goal of the premium 
stabilization programs and Exchange-related provisions and policies of 
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 final rule are integral 
to the goal of expanding access to affordable 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 moderate-income 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 final rule related 
to cost sharing and FFE user fees, as well as new oversight provisions 
for the premium stabilization programs. We also discuss the impact of 
the

[[Page 13826]]

transitional policy discussed earlier on the risk corridors and 
reinsurance programs, and the impact on reinsurance contributions of 
the change in the definition of contributing entities.
    Comment: Several commenters stated that the proposed regulatory 
impact statement lacked an adequate economic analysis. In particular, 
the commenters criticized listing only $2 million in annual costs and 
$14 million in transfer payments for a rule determined by OMB to 
involve costs of $100 million or more annually. One commenter said HHS 
should have included its internal analysis of the effect of regulation 
on enrollment and premium in this impact statement, and the omission of 
this analysis appeared to be a willful attempt to withhold information 
from the public. The commenter asked HHS to spell out how the rule 
affects premium costs, employer costs, and taxpayer subsidies.
    Response: We previously estimated the annualized impact on issuers, 
contributing entities, and States of transfers and other programs in 
the Premium Stabilization Rule and in the 2014 Payment Notice. 
Therefore, to avoid double-counting, Table 8 contains only incremental 
changes incurred as a result of provisions in this rule. The results of 
HHS's internal analyses were used to set reinsurance rates discussed in 
the 2014 Payment Notice, and again in this rule, where we estimate 
that, in 2015, reinsurance payments from the Federal government to 
individual market issuers will result in premium decreases in the 
individual market of between 5 and 6 percent relative to expected 
premiums without reinsurance. As detailed below, for this analysis, we 
continue to believe that the best available estimates of the impact of 
the Affordable Care Act on the Federal budget, enrollment in health 
insurance programs, and revenue collection are by the Congressional 
Budget Office. The CBO's most recent updates are available at http://www.cbo.gov/sites/default/files/cbofiles/attachments/43900-2014-02-ACAtables.pdf.
    In our proposed rule, we noted that we were preparing an RIA 
because, while we were uncertain of the exact magnitude of the effect 
of the proposed adjustments to the risk corridors and reinsurance 
programs as a result of the transitional policy, we believed that the 
impact of the proposed adjustments and the impact of the other 
provisions in the proposed rule would reach the level of economic 
significance defined by OMB. In this final rule, we are finalizing our 
adjustment to the risk corridors program as proposed, and are lowering 
the reinsurance attachment point. Although it is difficult to estimate 
the exact impact of these policies, we describe our preliminary 
analysis of their monetary effect on health insurance issuers and the 
Federal government below.
    Comment: A commenter criticized the regulatory analysis for failing 
to analyze and directly address the impact of the proposed rule's 
provision to exclude certain self-administered, self-insured group 
health plans from payment of reinsurance contributions, and requested 
that HHS disclose the number of participants and types of plans 
excluded and the per participant charge. Another commenter estimated 
the change would affect 14 million covered lives and increase the per 
capita contribution from remaining entities by $3.
    Response: It is difficult to estimate the number of self-insured, 
self-administered group health plans that might be excluded from 
reinsurance contributions as a result of the provision in this rule. 
While we solicited information on the number of such organizations, we 
did not receive comments with quantitative detail. Therefore, we have 
not changed our proposed estimate.

C. Impact Estimates of the Payment Notice Provisions and Accounting 
Table

    In accordance with OMB Circular A-4, Table 8 depicts an accounting 
statement summarizing HHS's assessment of the benefits, costs, and 
transfers associated with this regulatory action.
    This final 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 final 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 final 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 provisions in this rule, and include administrative costs estimated 
in the Collection of Information section. We note that the 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 the 2015 reinsurance contribution rate is lower than 
the 2014 reinsurance contribution rate, total reinsurance 
administrative expenses will increase from 2014 to 2015.

[[Page 13827]]

                                            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           Year dollar       Discount rate     Period covered
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($/year).....  2.35 million..........            2014  7 percent...........       2014-2017
                                    2.35 million..........            2014  3 percent...........       2014-2017
----------------------------------------------------------------------------------------------------------------
Quantitative:
* Costs incurred by issuers and contributing entities to comply with provisions in this rule.
* Costs incurred by States for complying with audits of State-operated reinsurance programs.
----------------------------------------------------------------------------------------------------------------
Transfers:
----------------------------------------------------------------------------------------------------------------
                                           Estimate           Year dollar       Discount rate     Period covered
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($/year).....  -17.25 million........            2014  7 percent...........       2014-2017
                                    -16.76 million........            2014  3 percent...........       2014-2017
----------------------------------------------------------------------------------------------------------------
* 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 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 
February 2014 baseline projections estimated that 25 million enrollees 
will enroll in Exchange coverage by 2018, including approximately 20 
million Exchange enrollees who will be receiving premium tax credits or 
cost-sharing reductions.\56\ CBO forecasts that 92 percent of non-
elderly Americans will receive coverage by 2017. 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 for 
fiscal years 2014 through 2017, with the additional, societal effects 
of this final rule discussed in this RIA. We do not expect the 
provisions of this final rule to significantly alter CBO's estimates of 
the budget impact of the risk adjustment and reinsurance programs. CBO 
updated scoring for the Premium Stabilization programs and found all 
three programs will reduce the deficit by $8 billion over the budget 
window. For risk corridors, CBO now estimates the Federal government 
will pay $8 billion to issuers from FYs 2015-2017, but that collections 
for this program will total $16 billion, for a net yield of $8 billion 
to the Federal government. 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 final rule 
(Table 8).
---------------------------------------------------------------------------

    \56\ ``Updated Estimates for the Insurance Coverage Provisions 
of the Affordable Care Act,'' Congressional Budget Office, February 
2014.
---------------------------------------------------------------------------

    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 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.

[[Page 13828]]

Table 9--Estimated Federal Government Outlays and Receipts for the Risk Adjustment and Reinsurance Programs From
                                                  FY 2013-2017
                                            [In billions of dollars]
----------------------------------------------------------------------------------------------------------------
              Year                     2014            2015            2016            2017          2013-2017
----------------------------------------------------------------------------------------------------------------
Risk Adjustment, Reinsurance,                  0              20              19              23              62
 and Risk Corridors Program
 Payments.......................
Risk Adjustment, Reinsurance,                  0              21              21              27              69
 and Risk Corridors Program
 Collections....................
----------------------------------------------------------------------------------------------------------------
Source: Congressional Budget Office. 2014. Appendix B: Updated Estimates of the Insurance Coverage Provisions of
  the Affordable Care Act. February 4, 2014.

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 (45 CFR part 153) 
and in 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 risk adjustment user fee will be $0.96 per 
enrollee per year for HHS to operate the risk adjustment program on 
behalf of States for 2015.
    In Sec.  153.620(c) of this final rule, we establish 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 final rule 
will be covered through the risk adjustment user fee, and that there 
will be no impact for the Federal government as a result of the audit 
provisions. The 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 requirement for issuers in the Collection of 
Information section of this final rule.
    Although this final rule will result in some additional 
administrative burden for issuers of risk adjustment covered plans as a 
result of the 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 rule substantially alter the previous estimates. We describe these 
administrative costs in the Collection of Information Requirements 
section of this 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 (45 CFR part 153) and 
established the 2014 uniform reinsurance payment parameters and 
national contribution rate. In this final rule, we set forth the 2015 
uniform reinsurance payment parameters and contribution rate, and 
certain 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 in each of the three years of the 
reinsurance program under the uniform per capita contribution rate.
    For the 2015 benefit year, 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 provided in Sec.  153.270(a) of this final rule 
that HHS or its designee may conduct a financial and programmatic audit 
of a State-operated 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

[[Page 13829]]

the reinsurance audit activities in this final 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 audit 
provision. Because this 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 requirement does impose a cost 
on States operating reinsurance. However, 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 Sec.  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 labor cost 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, if necessary, the corrective 
actions taken. We also estimate a senior manager (at an hourly labor 
cost 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 State-operated reinsurance 
program as a result of this audit requirement. For the one State that 
will operate reinsurance for the 2014 benefit year, we estimate a 
burden of approximately $7,476 as a result of this requirement. 
Although we have estimated the cost of a potential audit in this RIA, 
we note that we may not audit State-operated reinsurance programs.
    In Sec.  153.405(i) and Sec.  153.410(d), we establish 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 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.
    In this final rule, we are finalizing with modifications the 
definition of a contributing entity for the purpose of reinsurance 
contributions. Specifically, we exempt self-insured, self-administered 
plans that do not use a TPA to perform claims processing, claims 
adjudication, and enrollment functions from the requirement to make 
reinsurance contributions for the 2015 and 2016 benefit years. As 
stated earlier in this regulatory impact analysis, it is difficult to 
estimate the number of self-insured, self-administered group health 
plans that might be affected by this modification. We did not receive 
quantitative estimates in comments, although as previously stated, we 
expect that few entities will qualify for this exemption. Therefore, we 
have not changed our proposed 2015 reinsurance contribution rate.
Risk Corridors
    The Affordable Care Act created a temporary risk corridors program 
for the years 2014, 2015, and 2016 that applies to QHPs, as defined in 
Sec.  153.500. The risk corridors program is a mechanism for sharing 
risk for allowable costs between the Federal government and QHP 
issuers. The Affordable Care Act established 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. HHS intends to implement this program in a budget neutral 
manner.
    As mentioned elsewhere in this rule, for the 2014 benefit year, we 
are making an adjustment to the risk corridors formula that would help 
mitigate potential QHP issuers' unexpected losses that are attributable 
to the effects of the transitional policy. We also estimate that this 
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 final rule. Because of the difficulty 
associated with predicting State enforcement of the 2014 market rules 
and estimating the enrollment in transitional plans and in QHPs, it is 
difficult to estimate the precise magnitude of this impact on aggregate 
risk corridors payments and charges at this time.
    Our initial modeling suggests that this adjustment for the 
transitional policy could increase the total risk corridors payment 
amount made by the Federal government and decrease risk corridors 
receipts, resulting in an increase in payments. However, we estimate 
that even with this change, the risk corridors program is likely to be 
budget neutral or, will result in net revenue to the Federal 
government. The magnitude of this effect seems likely to be 
substantially smaller than the magnitude of the effect of the 
transitional policy itself (because risk corridors applies only to the 
extent of an issuer's QHP business), and the magnitude of the effect of 
the reduction of the reinsurance attachment point and potential 
increased coinsurance payout. Because reinsurance receipts are a 
parameter in the risk corridors calculation, the increase in 
reinsurance payments that would result from lowering the attachment 
point and potentially increasing the coinsurance rate would exert 
downward pressure on an issuer's risk corridors ratio. Consequently, 
while the transitional risk corridors adjustment will result in higher 
risk corridors payments than would occur if no transitional adjustment 
were in place, we believe that the risk corridors program as a whole 
will be budget neutral or, will result in net revenue to the Federal 
government in FY 2015 for the 2014 benefit year. We note that even with 
an estimated increase in outlays, CBO still projects the Premium 
Stabilization programs to reduce the deficit by approximately $8 
billion over the budget window. HHS intends to implement this program 
in a budget neutral manner.
    To ensure the integrity of risk corridors data reporting, we 
establish HHS authority in Sec.  153.540(a) of this final rule 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 rule, we 
believe that the cost for issuers that would result from this audit 
requirement is already accounted for as part of the MLR audit process.

[[Page 13830]]

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.\57\
---------------------------------------------------------------------------

    \57\ Brook, 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 support the administration of the cost-sharing reduction 
program, we are finalizing reductions in the maximum annual limitation 
on cost sharing for silver plan variations for 2015 and minor 
modifications to the standards relating to the design of cost-sharing 
reduction plan variations. We are also finalizing certain modifications 
to the methodology for calculating advance payments for cost-sharing 
reductions. However, 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 rule as finalized 
will have an impact on the program established by and described in the 
2014 Payment Notice.
    In this final rule, we also establish the methodology for 
calculating the premium adjustment percentage, and finalize 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 
Sec.  156.130(a)); the annual limitation on deductibles for plans in 
the small group (defined at Sec.  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 2015 premium adjustment percentage is well 
within the parameters used in the modeling of the Affordable Care Act, 
and do not expect that it will alter CBO's February 2014 baseline 
estimates of the budget impact.
Annual Open Enrollment Period
    We revised Sec.  155.410(e) and (f) to amend the dates for the 
annual open enrollment period and related coverage effective dates. 
These amendments would benefit issuers at no additional cost, as 
Exchanges will delay their QHP certification dates by at least one 
month, giving issuers additional time. Because open enrollment dates 
will be moved forward, Exchanges will still have the same amount of 
time for the QHP certification process, and we do not anticipate that 
this comes 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 were established in the EHB Rule and 
are in accordance with the provisions in this final 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.
User Fees
    To support the operation of FFEs, we require in Sec.  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 are establishing 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.\58\ This RIA addresses the additional costs and benefits of the 
modifications in this final rule to the SHOP sections of the Exchange 
Establishment Rule.
---------------------------------------------------------------------------

    \58\ Available at: http://cciio.cms.gov/resources/files/Files2/03162012/hie3r-ria-032012.pdf.
---------------------------------------------------------------------------

    In this rule, we revise Sec.  155.705(b)(1), which lists the rules 
regarding eligibility and enrollment to which the SHOPs must adhere, to 
include 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. In Sec.  
155.705(b)(3), we establish that an employer in the FF-SHOPs has the 
option to offer its employees either a single SADP or a choice of all 
SADPs available at a single SADP actuarial value level for plan years 
beginning on or after January 1, 2015.
    We are also amending Sec.  155.705(b)(4) to allow SHOPs performing 
premium aggregation to establish a standard method for premium 
calculation, payment, and collection. We are establishing that in the 
FF-SHOPs, after premium aggregation becomes available in plan years 
beginning on or after January 1, 2015, employers will 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 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 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.
    In this rule, we are finalizing amendments to Sec.  155.705(b)(6) 
that were originally proposed in the Program Integrity proposed rule 
published in the June 19, 2013 Federal Register (78 FR 37032) to 
establish that SHOPs must require all issuers to make any changes to 
rates at a uniform time that is no more frequently than quarterly, as 
is the case small-group-market-wide. The finalized amendments would 
also provide that issuers participating in the FF-SHOPs with the 
maximum amount of flexibility permitted under the

[[Page 13831]]

market-wide rules and the amendment to Sec.  155.705(b)(6)(i), 
standardize the effective dates for rate updates in the FF-SHOPs, and 
provide that FF-SHOP issuers must submit rates to HHS 60 days in 
advance of the effective date. Consistent with technical guidance 
provided to issuers through the Health Insurance Oversight System on 
April 8, 2013, issuers will be able to submit updated quarterly rates 
for the FF-SHOPs no sooner than for the third quarter of 2014, due to 
current system limitations. This provision is being finalized at Sec.  
156.705(b)(6)(i) and (i)(A), leaving current Sec.  155.705(b)(6)(ii) in 
place, as we did not intend to replace it.
    We also are amending Sec.  155.705(b)(11) to provide additional 
flexibility with respect 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 are in the 
best interest of the business and its employees. We believe that this 
additional flexibility will 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 allows 
different contribution levels based on full-time or non-full-time 
status may encourage some employers to offer coverage to non-full-time 
employees. While we are finalizing this provision as proposed, we note 
that this option is not expected to become available in the FF-SHOPs 
until sometime after January 1, 2015.
    In this rule, we amend Sec.  155.715 to provide 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 Sec.  
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 Sec.  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 
Sec.  155.715(d) provides. We also 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 changes as finalized in this rule will 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 Sec.  155.730 we provide that SHOPs are not permitted to collect 
information from applicants, employers, or employees that 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 Sec.  155.220, we establish that for plan years beginning on or 
after January 1, 2015 SHOPs, in States that permit this activity under 
State law, may permit enrollment in a SHOP QHP through the Internet Web 
site of an agent or broker under the standards set forth in Sec.  
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. While we are finalizing this provision as 
proposed, we do not expect that FF-SHOPs will offer this option in 
2015. For clarity, we are making the technical change to add a title to 
Sec.  155.220(i) to say, ``Use of agents' and brokers' Internet Web 
sites for SHOP.''
    In Sec.  156.285 of this rule as finalized, we establish 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 establish that a qualified employer in the SHOP 
that becomes a large employer, regardless of whether the QHP being sold 
through the SHOP is sold in the small group market or the large group 
market, will continue to be rated as a small employer and that issuers 
cannot offer composite premiums in the FF-SHOPs when employee choice 
becomes available and an employer offers employees a level of coverage 
rather than a single plan. Furthermore, we establish that when employee 
choice is offered in the FF-SHOPs, composite premiums will not be 
allowed when the employer elects to offer its employees all plans in an 
actuarial value (or metal tier) selected by the employer, and we extend 
this limitation to SADP issuers when employers offer employees a choice 
of all SADPs at a dental AV level.
    We do not expect the policies as finalized in this rule and related 
to the SHOP to create any new significant costs for small businesses, 
employees, or the FF-SHOPs.
Patient Safety
    The patient safety requirements established in this final rule will 
be implemented in phases, to ensure that QHP issuers contract with 
hospitals that meet adequate safety and quality standards. The final 
rule requires QHP issuers to collect and maintain CCNs for each of its 
contracted hospitals that are certified for more than 50 beds. It also 
requires that this documentation, if requested by the Exchange, be 
submitted in a form and manner specified by the Exchange. QHP issuers 
already have established procedures and relationships to contract with 
hospitals including obtaining hospital identification information. 
Therefore, HHS believes that there will not be a significant additional 
cost for a QHP issuer to collect and maintain CCNs. QHP issuers will 
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 final rule.

D. Regulatory Alternatives Considered

    We considered a number of alternatives to our 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 rule as proposed 
discussed and sought comment on a number of alternative approaches to 
the detailed methodology made final in this rule. For example, we 
suggested a number of options for confidence intervals and whether to 
use tests of statistical significance in determining plan average risk 
score adjustments. We also suggested an expedited second validation 
audit

[[Page 13832]]

approach to permit more time for inter-auditor discussions and appeals. 
We 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 riskiness of those 
plans, potentially leading to higher premiums for those plans.
    In Sec.  153.270, we establish in this rule 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.
    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 different uniform reinsurance 
payment parameters, but believe those alternative uniform reinsurance 
payment parameters would have unduly 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 Sec.  153.710 and Sec.  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 these are discussed in detail above.
    We considered requiring QHP issuers to only contract with hospitals 
that have agreements with one of the 79 listed PSOs; however, as we 
stated in preamble, this could result in a shortage of qualified 
hospitals and providers available for contracting with QHPs. We also 
considered establishing exceptions for hospitals and QHP issuers to 
these requirements. However, we believe that the phase in approach for 
implementing these requirements effectively balances the priorities for 
making quality health care accessible and safe in the Exchanges.

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 final 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-for-profit organization that is not dominant in its field, or 
(3) a small government jurisdiction with a population of less than 
50,000. States and individuals are not included in the definition of 
``small entity.'' HHS uses 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 final rule, we provide 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 companies 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.
     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 final rule, we establish requirements for employers that 
choose to participate in a SHOP Exchange. Coverage through the SHOPs is 
limited by statute to small employers, which the statute defines as 
employers who employed on average at least one but not more than 100 
employees in a given plan year. For plan years beginning before January 
1, 2016, the statute also provides that states may elect to define a 
small employer as having at least one but not more than 50 employees, 
on average, in a given plan year. For this reason, we expect that many 
employers who would be affected by the rule would meet the SBA standard 
for small entities. We do not believe that the provisions in this final 
rule 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 policy will provide greater choice 
for both employees and employers. We believe the processes that we have 
established constitute the minimum 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 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

[[Page 13833]]

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 final rule that includes any 
Federal mandate that may result in expenditures in any one year by a 
State, local, or Tribal governments, in the aggregate, or by the 
private sector, of $100 million in 1995 dollars, updated annually for 
inflation. In 2014, that threshold is approximately $141 million. 
Although we have not been able to quantify the user fees that will be 
associated with this final 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 final 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 Exchange-related 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, 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 final rule does 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 final 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 final 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 final rule is subject to the Congressional Review Act 
provisions of the Small Business Regulatory Enforcement Fairness Act of 
1996 (5 U.S.C. 801 et seq.), which specifies that before a rule can 
take effect, the Federal agency promulgating the rule shall submit to 
each House of the Congress and to the Comptroller General a report 
containing a copy of the rule along with other specified information, 
and has been transmitted to Congress and the Comptroller General for 
review.

List of Subjects

45 CFR Part 144

    Health care, Health insurance, Reporting and recordkeeping 
requirements.

45 CFR Part 147

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

45 CFR Part 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.

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, Cost-sharing reductions, Grant programs-
health, Grants administration, Health care, Health insurance, Health 
maintenance organization (HMO), Health records, Hospitals, American 
Indian/Alaska Natives, Individuals with disabilities, Loan programs-
health, Organization and functions (Government agencies), Medicaid, 
Payment and collections reports, Public assistance programs, Reporting 
and recordkeeping requirements, State and local governments, Sunshine 
Act, Technical assistance, Women, and Youth.

45 CFR Part 158

    Administrative practice and procedure, Claims, Health care, Health 
insurance, Health plans, penalties, Reporting and recordkeeping 
requirements, Premium revenues, Medical loss ratio, Rebating.

    For the reasons set forth in the preamble, the Department of Health 
and Human Services amends 45 CFR parts 144, 147, 153, 155, 156, and 158 
as set forth below:

PART 144--REQUIREMENTS RELATING TO HEALTH INSURANCE COVERAGE

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

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

0
2. Section 144.103 is amended by revising the first sentence in 
paragraph

[[Page 13834]]

(1) of the definition of ``Policy year'' to read as follows:

Sec.  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 health insurance coverage. * * *
* * * * *

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

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

    Authority:  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.

0
4. Section 147.102 is amended by revising paragraph (c)(3) to read as 
follows:

Sec.  147.102  Fair health insurance premiums.

* * * * *
    (c) * * *
    (3) Application to small group market--(i) In the case of the small 
group market, the total premium charged to a group health plan is 
determined by summing the premiums of covered participants and 
beneficiaries in accordance with paragraph (c)(1) or (2) of this 
section, as applicable.
    (ii) Subject to paragraph (c)(3)(iii) of this section, nothing in 
this section prevents a state from requiring issuers to offer to a 
group health plan, or an issuer from voluntarily offering to a group 
health plan, premiums that are based on average enrollee premium 
amounts, provided that the total group premium established at the time 
of applicable enrollment at the beginning of the plan year is the same 
total amount derived in accordance with paragraph (c)(1) or (2) of this 
section, as applicable.
    (iii) Effective for plan years beginning on or after January 1, 
2015, an issuer that, in connection with a group health plan in the 
small group market, offers premiums that are based on average enrollee 
premium amounts under paragraph (c)(3)(ii) of this section must--
    (A) Ensure an average enrollee premium amount calculated based on 
applicable enrollment of participants and beneficiaries at the 
beginning of the plan year does not vary during the plan year.
    (B) Unless a state establishes and CMS approves an alternate rating 
methodology, calculate an average enrollee premium amount for covered 
individuals age 21 and older, and calculate an average enrollee premium 
amount for covered individuals under age 21. The premium for a given 
family composition is determined by summing the average enrollee 
premium amount applicable to each family member covered under the plan, 
taking into account no more than three covered children under age 21.
    (C) Pursuant to applicable state law, ensure that the average 
enrollee premium amount calculated for any individual covered under the 
plan does not include any rating variation for tobacco use permitted 
under paragraph (a)(1)(iv) of this section. The rating variation for 
tobacco use permitted under paragraph (a)(1)(iv) of this section is 
determined based on the premium rate that would be applied on a per-
member basis with respect to an individual who uses tobacco and then 
included in the premium charged for that individual.
    (D) To the extent permitted by applicable state law and, in the 
case of coverage offered through a Federally-facilitated SHOP, as 
permitted by Sec.  156.285(a)(4) of this subchapter, apply this 
paragraph (c)(3)(iii) uniformly among group health plans enrolling in 
that product, giving those group health plans the option to pay 
premiums based on average enrollee premium amounts.
* * * * *

0
5. Section 147.145 is amended by revising paragraph (b)(1)(ii) to read 
as follows:

Sec.  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 Sec.  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

0
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.

0
7. Section 153.20 is amended by revising the definition of 
``contributing entity'' and adding in alphabetical order a definition 
of ``major medical coverage'' to read as follows:

Sec.  153.20  Definitions.

* * * * *
    Contributing entity means--
    (1) A health insurance issuer; or
    (2) For the 2014 benefit year, 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), 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 internal appeals) or plan 
enrollment for services other than for pharmacy benefits or excepted 
benefits within the meaning of section 2791(c) of the PHS Act. 
Notwithstanding the foregoing, a self-insured group health plan that 
uses an unrelated third party to obtain provider network and related 
claim repricing services, or uses an unrelated third party for up to 5 
percent of claims processing or adjudication or plan enrollment, will 
not be deemed to use a third party administrator, based on either the 
number of transactions processed by the third party, or the volume of 
the claims processing and adjudication and plan enrollment services 
provided by the third party. 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, a catastrophic plan, an individual or a small 
group market plan subject to the actuarial value requirements under 
Sec.  156.140 of this subchapter, or health coverage for a broad range 
of services and treatments provided in various settings that

[[Page 13835]]

provides minimum value as defined in Sec.  156.145 of this subchapter.
* * * * *

0
8. Section 153.230 is amended by revising paragraph (d) to read as 
follows:

Sec.  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 benefit 
year by any adjustment required under this paragraph (d).

0
9. Section 153.270 is added to subpart C to read as follows:

Sec.  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.

0
10. Section 153.400 is amended by revising paragraph (a)(1) 
introductory text and adding paragraphs (a)(1)(v) and (vi) to read as 
follows:

Sec.  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.
* * * * *

0
11. Section 153.405 is amended by revising paragraphs (c) and (e)(3) 
and adding paragraph (i) to read as follows:

Sec.  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 self-only 
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.

0
12. Section 153.410 is amended by adding paragraph (d) to read as 
follows:

Sec.  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 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 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.

0
13. Section 153.500 is amended by revising the definitions of 
``allowable administrative costs'' and ``profits'' and adding in 
alphabetical order definitions for ``adjustment percentage'' and 
``transitional State'' to read as follows:

Sec.  153.500  Definitions.

* * * * *
    Adjustment percentage means, with respect to a QHP:
    (1) For benefit year 2014, for a QHP offered by a health insurance 
issuer with allowable costs of at least 80 percent of after-tax premium 
in a transitional State, the percentage specified by HHS for such QHPs 
in the transitional State; and otherwise
    (2) Zero percent.
* * * * *
    Allowable administrative costs mean, with respect to a QHP, the sum 
of administrative costs of the QHP, other than taxes and regulatory 
fees, plus profits earned by the QHP, which sum is limited to the sum 
of 20 percent and

[[Page 13836]]

the adjustment percentage of after-tax premiums earned with respect to 
the QHP (including any premium tax credit under any governmental 
program), plus taxes and regulatory fees.
* * * * *
    Profits mean, with respect to a QHP, the greater of:
    (1) The sum of three percent and the adjustment percentage of 
after-tax premiums earned; and
    (2) Premiums earned of the QHP minus the sum of allowable costs and 
administrative costs of the QHP.
* * * * *
    Transitional State means a State that does not enforce compliance 
with Sec. Sec.  147.102, 147.104, 147.106, 147.150, 156.80, or subpart 
B of part 156 of this subchapter for individual market and small group 
health plans that renew for a policy year starting between January 1, 
2014, and October 1, 2014, in accordance with the transitional policy 
outlined in the CMS letter dated November 14, 2013.

0
14. Section 153.510 is amended by adding paragraph (f) to read as 
follows:

Sec.  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: Sec. Sec.  147.102, 147.104, 
147.106, 147.150, 156.80, and subpart B of part 156 of this subchapter.

0
15. Section 153.530 is amended by revising paragraph (d) and adding 
paragraph (e) to read as follows:

Sec.  153.530  Risk corridors data requirements.

* * * * *
    (d) Timeframes. For each benefit year, a QHP issuer must submit all 
information required under paragraphs (a) through (c) of this section 
by July 31 of the year following the benefit year.
    (e) Requirement to submit enrollment data for risk corridors 
adjustment. A health insurance issuer in the individual or small group 
market of a transitional State must submit, in a manner and timeframe 
specified by HHS, the following:
    (1) A count of its total enrollment in the individual market and 
small group market; and
    (2) A count of its total enrollment in individual market and small 
group market policies that meet the criteria for transitional policies 
outlined in the CMS letter dated November 14, 2013.

0
16. Section 153.540 is added to subpart F to read as follows:

Sec.  153.540  Compliance with risk corridors standards.

    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 Sec.  158.402(a) through 
(e) of this subchapter.

0
17. Section 153.620 is amended by adding paragraph (c) to read as 
follows:

Sec.  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 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.

0
18. Section 153.630 is amended by revising paragraph (b)(1) and adding 
paragraphs (b)(5) through (10) to read as follows:

Sec.  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), to its knowledge, following 
reasonable investigation, and must attest that it has obtained an 
equivalent representation from the initial validation auditor, 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 validation 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 
in a manner to be determined by HHS.
    (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. However, 
for validation of risk adjustment data for the 2014 and 2015 benefit 
years, a senior reviewer may possess 3 or more years of experience.
    (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

[[Page 13837]]

least 95 percent for his or her review outcomes. However, for 
validation of risk adjustment data for the 2014 and 2015 benefit years, 
the initial validation auditor may meet an inter-rater reliability 
standard of 85 percent for 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 Sec.  
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.
* * * * *

0
19. Section 153.710 is amended by adding paragraphs (d), (e), (f), and 
(g) to read as follows:

Sec.  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 Sec.  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 Sec.  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 Sec.  153.310(e) or 
Sec.  153.240(b)(1)(ii), respectively, an issuer of a risk adjustment 
covered plan or reinsurance-eligible plan may make a request for 
reconsideration regarding such discrepancy under the process set forth 
in Sec.  156.1220(a) of this subchapter.
    (g) Risk corridors and MLR reporting. (1) Notwithstanding any 
discrepancy report made under paragraph (d)(2) or (e)(2) of this 
section, or any request for reconsideration under Sec.  156.1220(a) of 
this subchapter 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 MLR 
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 Sec.  153.310(e);
    (ii) The reinsurance payment to be made by HHS in the notification 
provided under Sec.  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 in the notification 
provided under Sec.  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 Sec.  156.1220(a) of 
this subchapter 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

0
20. Authority citation for part 155 continues to read as follows:

    Authority:  Title I of the Affordable Care Act, sections 1301, 
1302, 1303, 1304, 1311, 1312, 1313, 1321, 1322, 1331, 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).

0
21. Section 155.106 is amended by revising paragraph (a)(2) to read as 
follows:

Sec.  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
* * * * *

0
22. Section 155.220 is amended by adding paragraph (i) to read as 
follows:

Sec.  155.220  Ability of States to permit agents and brokers to assist 
qualified individuals, qualified employers, or qualified employees 
enrolling in QHPs.

* * * * *
    (i) Use of agents' and brokers' Internet Web sites for SHOP. 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.

0
23. Section 155.260 is amended by revising paragraphs (a)(1) and (2) 
and (b) to read as follows:

Sec.  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 Sec.  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 Sec.  
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

[[Page 13838]]

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 (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 (ii) of this section, 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 non-Exchange 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 non-Exchange 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 non-Exchange 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 non-Exchange entity to bind any 
downstream entities to the same privacy and security standards and 
obligations 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 (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.
* * * * *
0
24. Section 155.410 is amended by revising paragraphs (e) and (f) to 
read as follows:

Sec.  155.410  Initial and annual open enrollment periods.

* * * * *
    (e) Annual open enrollment period. For the benefit year beginning 
on January 1, 2015, the annual open enrollment period begins on 
November 15, 2014, and extends through February 15, 2015.
    (f) Effective date for coverage after the annual open enrollment 
period. For the benefit year beginning on January 1, 2015, the Exchange 
must ensure coverage is effective -
    (1) January 1, 2015, for QHP selections received by the Exchange on 
or before December 15, 2014.
    (2) February 1, 2015, for QHP selections received by the Exchange 
from December 16, 2014 through January 15, 2015.
    (3) March 1, 2015, for QHP selections received by the Exchange from 
January 16, 2015 through February 15, 2015.
* * * * *
0
25. Section 155.705 is amended by:
0
a. Revising paragraph (b)(1);
0
b. Adding paragraph (b)(3)(v);
0
c. Redesignating paragraph (b)(4)(ii) as (b)(4)(iii);
0
d. Adding new paragraph (b)(4)(ii);
0
e. Revising paragraph (b)(6)(i); and
0
f. Revising paragraph (b)(11)(ii)(C).
    The additions and revisions read as follows:

Sec.  155.705  Functions of a SHOP.

* * * * *
    (b) * * *
    (1) Enrollment and eligibility functions. The SHOP must adhere to 
the requirements outlined in Subpart H.
* * * * *
    (3) * * *
    (v) For plan years beginning on or after January 1, 2015, a 
Federally-facilitated SHOP will provide a qualified employer a choice 
of two methods to make 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.

[[Page 13839]]

    (B) The employer may choose to make available all stand-alone 
dental plans offered through a Federally-facilitated SHOP at a level of 
coverage as described in Sec.  156.150(b)(2) of this subchapter.
    (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.
* * * * *
    (6) * * *
    (i) Require all QHP issuers to make any change to rates at a 
uniform time that is no more frequently than quarterly.
    (A) In a Federally-facilitated SHOP, rates may be updated quarterly 
with effective dates of January 1, April 1, July 1, or October 1 of 
each calendar year, beginning with rates effective no sooner than July 
1, 2014. The updated rates must be submitted to HHS at least 60 days in 
advance of the effective date of the rates.
    (B) [Reserved]
* * * * *
    (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, a 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.
* * * * *

0
26. Section 155.715 is amended by revising paragraphs (c)(4), (d)(1) 
introductory text, and (d)(2) introductory text to read as follows:

Sec.  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 Sec.  
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 Sec.  
155.715(c)(2), the SHOP must-
* * * * *

0
27. Section 155.730 is amended by revising paragraph (g) to read as 
follows:

Sec.  155.730  Application standards for SHOP.

    (g) Additional safeguards. (1) The SHOP may not provide to the 
employer any information collected on the employee application with 
respect to spouses or dependents other than the name, address, and 
birth date of the spouse or dependent.
    (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.
0
28. Section 155.1030 is amended by revising paragraphs (b)(1), (3), and 
(4) to read as follows:

Sec.  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 Sec.  156.470 of this subchapter, to ensure that the 
allocation meets the standards set forth in Sec.  156.470(c) and (d) of 
this subchapter.
* * * * *
    (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 Sec.  156.340(a) of 
this subchapter.
    (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

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

    Authority:  Title I of the Affordable Care Act, sections 1301-
1304, 1311-1312, 1321-1322, 1324, 1334, 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).

0
30. Section 156.135 is amended by revising paragraph (a) and adding 
paragraph (g) to read as follows:

Sec.  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 Sec.  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

[[Page 13840]]

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.

0
31. Section 156.150 is amended by revising paragraph (a) to read as 
follows:

Sec.  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 Sec.  155.1065 of this 
subchapter in any Exchange, cost sharing may not exceed $350 for one 
covered child and $700 for two or more covered children.
* * * * *

0
32. Section 156.285 is amended by adding paragraph (a)(4) and revising 
paragraph (c)(7) to read as follows:

Sec.  156.285  Additional standards specific to SHOP.

    (a) * * *
    (4)(i) Adhere to the premium rating standards described in Sec.  
147.102 of this subchapter regardless of whether the QHP being sold 
through the SHOP 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 premium amounts 
under Sec.  147.102(c)(3) of this subchapter, if the employer elects to 
offer coverage to its employees under Sec.  155.705(b)(3)(iv)(A) of 
this subchapter. This paragraph (a)(4)(ii) also applies to stand-alone 
dental plans in a Federally-facilitated SHOP, if the employer elects to 
offer coverage to its employees under Sec.  155.705(b)(3)(v)(B) of this 
subchapter.
* * * * *
    (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 Sec.  
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.
* * * * *

0
33. Section 156.298 is added to subpart C to read as follows:

Sec.  156.298  Meaningful difference standard for Qualified Health 
Plans in the Federally-facilitated 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 Federally-facilitated 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 one 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) Health Savings Account eligibility; or
    (6) Self-only, non-self-only, or child-only plan 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 or 
merged issuer without those plans meeting the meaningful difference 
standard set forth in paragraph (b) of this section.

0
34. Section 156.420 is amended by revising paragraphs (c), (d), and (e) 
to read as follows:

Sec.  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 Sec.  
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 corresponding out-of-pocket 
spending required in the silver plan variation of the QHP for 
individuals eligible for cost-sharing reductions under Sec.  
155.305(g)(2)(i) of this subchapter, in the case of a silver QHP. The 
out-of-pocket 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 cost-sharing 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 Sec.  156.140(b)).
    (e) Decreasing cost sharing and out-of-pocket spending in higher AV 
silver plan variations. The cost sharing or out-of-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-of-pocket spending required in the standard silver plan or any 
other silver plan variation thereof with a lower AV.
* * * * *

0
35. Section 156.430 is amended by removing and reserving paragraph (a) 
and by revising paragraph (b)(1) to read as follows:

Sec.  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 Sec.  
155.1030(b)(3) of this subchapter.
* * * * *
0
36. Section 156.470 is amended by revising paragraph (a) to read as 
follows:

[[Page 13841]]

Sec.  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 Sec.  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.
* * * * *

0
37. Section 156.1110 is added to Subpart L to read as follows:

Sec.  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 Conditions 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 the CCN, from each of 
its contracted hospitals with greater than 50 beds, to demonstrate that 
those hospitals meet patient safety standards required in paragraph (a) 
of this section.
    (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 Sec.  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.

0
38. Section 156.1210 is amended by adding paragraph (c) to read as 
follows:

Sec.  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.

0
39. Section 156.1215 is added to Subpart M to read as follows:

Sec.  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 Federally-facilitated 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, reinsurance, and risk corridors, after HHS nets amounts 
owed by the Federal government under these programs, is a determination 
of a debt.

0
40. Section 156.1220 is added to subpart M to read as follows:

Sec.  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) Materiality threshold. Notwithstanding paragraph (a)(1) of this 
section, an issuer may file a request for reconsideration under this 
section only if the amount in dispute under paragraph (a)(1)(i) through 
(vi) of this section, as applicable, is equal to or exceeds 1 percent 
of the applicable payment or charge listed in that subparagraph payable 
to or due from the issuer for the benefit year, or $10,000, whichever 
is less.
    (3) 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 Federally-facilitated Exchange 
user fee charges, within 60 calendar days after the date of the 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 60 calendar days of the 
date of the notification provided by HHS under Sec.  153.310(e) of this 
subchapter;
    (iii) For a reinsurance payment, within 60 calendar days of the 
date of the notification provided by HHS under Sec.  153.240(b)(1)(ii) 
of this subchapter;
    (iv) For a default risk adjustment charge, within 60 calendar days 
of the date of the notification of the default risk adjustment charge;
    (v) For reconciliation of cost-sharing reductions, within 60 
calendar days of the date of the notification provided by HHS of the 
cost-sharing reduction reconciliation payment or charge; and

[[Page 13842]]

    (vi) For a risk corridors payment or charge, within 60 calendar 
days of the date of the notification provided by HHS under Sec.  
153.510(d) of this subchapter.
    (4) 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)(1) 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 Sec.  
153.710(d)(2) or (e)(2) of this subchapter, it was so identified and 
remains unresolved.
    (iii) Notwithstanding paragraph (a)(1) 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 
Sec.  156.1210, it was so identified and remains unresolved. An issuer 
may request reconsideration if it previously identified an issue under 
Sec.  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.
    (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.
    (5) 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.
    (6) 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 30 calendar 
days of the date of 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 the date 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.
    (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.

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

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

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

0
42. Section 158.130 is amended by revising paragraph (b)(5) to read as 
follows:

Sec.  158.130  Premium revenue.

* * * * *
    (b) * * *
    (5) Account for the net payments or receipts related to the risk 
adjustment, risk corridors (using an adjustment percentage, as 
described in Sec.  153.500 of this subchapter, equal to zero percent), 
and reinsurance programs under sections 1341, 1342, and 1343 of the 
Patient Protection and Affordable Care Act, 42 U.S.C. 18061, 18062, 
18063.
* * * * *

0
43. Section 158.140 is amended by revising paragraph (b)(4)(ii) to read 
as follows:

Sec.  158.140  Reimbursement for clinical services provided to 
enrollees.

* * * * *
    (b) * * *
    (4) * * *
    (ii) Receipts related to the transitional reinsurance program and 
net payments or receipts related to the risk adjustment and risk 
corridors programs (calculated using an adjustment percentage, as 
described in Sec.  153.500 of this subchapter, equal to zero percent) 
under sections 1341, 1342, and 1343 of the Patient Protection and 
Affordable Care Act, 42 U.S.C. 18061, 18062, 18063.
* * * * *

0
44. Section 158.240 is amended by revising paragraph (c)(2) to read as 
follows:

Sec.  158.240  Rebating premium if the applicable medical loss ratio 
standard is not met.

* * * * *
    (c) * * *

[[Page 13843]]

    (2) For example, an issuer must rebate a pro rata portion of 
premium revenue if it does not meet an 80 percent MLR for the 
individual market in a State that has not set a higher MLR. If an 
issuer has a 75 percent MLR for the coverage it offers in the 
individual market in a State that has not set a higher MLR, the issuer 
must rebate 5 percent of the premium paid by or on behalf of the 
enrollee for the MLR reporting year after subtracting a pro rata 
portion of taxes and fees and accounting for payments or receipts 
related to the reinsurance, risk adjustment and risk corridors programs 
(calculated using an adjustment percentage, as described in Sec.  
153.500 of this subchapter, equal to zero percent). If the issuer's 
total earned premium for the MLR reporting year in the individual 
market in the State is $200,000, the issuer received transitional 
reinsurance payments of $2,500, and made net payments related to risk 
adjustment and risk corridors of $20,000 (calculated using an 
adjustment percentage, as described in Sec.  153.500 of this 
subchapter, equal to zero percent), the issuer's gross earned premium 
in the individual market in the State would be $200,000 plus $2,500 
minus $20,000, for a total of $182,500. If the issuer's Federal and 
State taxes and licensing and regulatory fees, including reinsurance 
contributions, that may be excluded from premium revenue as described 
in Sec. Sec.  158.161(a), 158.162(a)(1) and 158.162(b)(1), allocated to 
the individual market in the State are $15,000, and the net payments 
related to risk adjustment and risk corridors, reduced by reinsurance 
receipts, that must be accounted for in premium revenue as described in 
Sec. Sec.  158.130(b)(5), 158.221, and 158.240, are $17,500 ($20,000 
reduced by $2,500), then the issuer would subtract $15,000 and add 
$17,500 to gross premium revenue of $182,500, for a base of $185,000 in 
premium. The issuer would owe rebates of 5 percent of $185,000, or 
$9,250 in the individual market in the State. In this example, if an 
enrollee of the issuer in the individual market in the State paid 
$2,000 in premiums for the MLR reporting year, or 1/100 of the issuer's 
total premium in that State market, then the enrollee would be entitled 
to 1/100 of the total rebates owed by the issuer, or $92.50.
* * * * *

    Dated: February 26, 2014.
Marilyn Tavenner,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: February 27, 2014.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2014-05052 Filed 3-5-14; 4:15 pm]
BILLING CODE 4120-01-P
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