Federal Register / Vol. 79, No. 205 / Thursday, October 23, 2014 / Proposed Rules 63363 

standards in its regulatory activities 

unless to do so would be inconsistent 

with applicable law or otherwise 

impractical. Voluntary consensus 

standards are technical standards (e.g., 

materials specifications, test methods, 

sampling procedures, and business 

practices) that are developed or adopted 

by voluntary consensus standards 

bodies. NTTAA directs EPA to provide 

Congress, through OMB, explanations 

when the Agency decides not to use 

available and applicable voluntary 

consensus standards. 

The EPA believes that this proposed 

action is not subject to requirements of 

Section 12(d) of NTTAA because 

application of those requirements would 

be inconsistent with the Clean Air Act. 

IV.J. Executive Order 12898: Federal 

Actions To Address Environmental 

Justice in Minority Populations and 

Low-Income Population 

Executive Order 12898 (59 FR 7629 

(Feb. 16, 1994)) establishes federal 

executive policy on environmental 

justice. Its main provision directs 

federal agencies, to the greatest extent 

practicable and permitted by law, to 

make environmental justice part of their 

mission by identifying and addressing, 

as appropriate, disproportionately high 

and adverse human health or 

environmental effects of their programs, 

policies, and activities on minority 

populations and low-income 

populations in the United States. 

EPA lacks the discretionary authority 

to address environmental justice in this 

proposed rulemaking. 

List of Subjects in 40 CFR Part 52 

Approval and promulgation of 

implementation plans, Environmental 

protection, Air pollution control, 

Incorporation by reference, 

Intergovernmental relations, Lead, 

Nitrogen dioxide, Ozone, Particulate 

matter, Pb, Reporting and recordkeeping 

requirements, and Sulfur dioxide. 

Authority: 42 U.S.C. 7401 et seq. 

Dated: September 30, 2014. 

Jared Blumenfeld, 

Regional Administrator, U.S. EPA, Region IX. 

[FR Doc. 2014–25278 Filed 10–22–14; 8:45 am] 

BILLING CODE 6560–50–P 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 600 

[CMS–2391–PN] 

RIN 0938–ZB18 

Basic Health Program; Federal 

Funding Methodology for Program 

Year 2016 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed methodology. 

SUMMARY: This document provides the 

methodology and data sources necessary 

to determine federal payment amounts 

made in program year 2016 to states that 

elect to establish a Basic Health Program 

under the Affordable Care Act to offer 

health benefits coverage to low-income 

individuals otherwise eligible to 

purchase coverage through Affordable 

Insurance Exchanges. 

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. on November 24, 2014. 

ADDRESSES: In commenting, refer to file 

code CMS–2391–PN. Because of staff 

and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (please choose only one of the 

ways listed): 

1. Electronically. You may submit 

electronic comments on this regulation 

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

the ‘‘Submit a comment’’ instructions. 

2. By regular mail. You may mail 

written comments to the following 

address ONLY: 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Attention: CMS–2391– 

PN, P.O. Box 8016, Baltimore, MD 

21244–8016. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments to the 

following address ONLY: 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Attention: CMS–2391– 

PN, Mail Stop C4–26–05, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

4. By hand or courier. Alternatively, 

you may deliver (by hand or courier) 

your written ONLY to the following 

addresses: 

a. For delivery in Washington, DC— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Room 445–G, Hubert 

H. Humphrey Building, 200 

Independence Avenue SW., 

Washington, DC 20201. 

(Because access to the interior of the 

Hubert H. Humphrey Building is not 

readily available to persons without 

Federal government identification, 

commenters are encouraged to leave 

their comments in the CMS drop slots 

located in the main lobby of the 

building. A stamp-in clock is available 

for persons wishing to retain a proof of 

filing by stamping in and retaining an 

extra copy of the comments being filed.) 

b. For delivery in Baltimore, MD— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

If you intend to deliver your 

comments to the Baltimore address, call 

telephone number (410) 786–7195 in 

advance to schedule your arrival with 

one of our staff members. 

Comments erroneously mailed to the 

addresses indicated as appropriate for 

hand or courier delivery may be delayed 

and received after the comment period. 

Submission of comments on 

paperwork requirements. You may 

submit comments on this document’s 

paperwork requirements by following 

the instructions at the end of the 

‘‘Collection of Information 

Requirements’’ section in this 

document. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: 

Christopher Truffer, (410) 786–1264; 

Stephanie Kaminsky, (410) 786–4653. 

SUPPLEMENTARY INFORMATION: 

Inspection of Public Comments: All 

comments received before the close of 

the comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

been received: http://

www.regulations.gov. Follow the search 

instructions on that Web site to view 

public comments. 

Comments received timely will also 

be available for public inspection as 

they are received, generally beginning 

approximately 3 weeks after publication 

of a document, at the headquarters of 

the Centers for Medicare & Medicaid 

Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday 

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63364 Federal Register / Vol. 79, No. 205 / Thursday, October 23, 2014 / Proposed Rules 

through Friday of each week from 8:30 

a.m. to 4 p.m. To schedule an 

appointment to view public comments, 

phone 1–800–743–3951. 

Table of Contents 

I. Background 

II. Provisions of the Proposed Methodology 

A. Overview of the Funding Methodology 

and Calculation of the Federal Payment 

Amount 

B. Federal BHP Payment Rate Cells 

C. Sources and State Data Considerations 

D. Discussion of Specific Variables Used in 

Payment Equations 

E. Adjustments for American Indians and 

Alaska Natives 

F. State Option to Use 2015 QHP Premiums 

for BHP Payments 

G. State Option to Include Retrospective 

State-Specific Health Risk Adjustment in 

Certified Methodology 

H. Example Application of the BHP 

Funding Methodology 

III. Collection of Information 

IV. Response to Comments 

V. Regulatory Impact Statement 

A. Overall Impact 

B. Unfunded Mandates Reform Act 

C. Regulatory Flexibility Act 

D. Federalism 

I. Background 

The Patient Protection and Affordable 

Care Act (Pub. L. 111–148, enacted on 

March 23, 2010), together with the 

Health Care and Education 

Reconciliation Act of 2010 (Pub. L. 111– 

152, enacted on March 30, 2010) 

(collectively referred as the Affordable 

Care Act) provides for the establishment 

of Affordable Insurance Exchanges 

(Exchanges, also called the Health 

Insurance Marketplace) that provide 

access to affordable health insurance 

coverage offered by qualified health 

plans (QHPs) for most individuals who 

are not eligible for health coverage 

under other federally supported health 

benefits programs or through affordable 

employer-sponsored insurance 

coverage, and who have incomes above 

100 percent but no more than 400 

percent of the federal poverty line (FPL), 

or whose income is below that level but 

are lawfully present non-citizens 

ineligible for Medicaid because of 

immigration status. Individuals enrolled 

through Exchanges in coverage offered 

by QHPs may qualify for the federal 

premium tax credit (PTC) or federallyfunded cost-sharing reductions (CSRs) 

based on their household income, to 

make coverage affordable. 

In the states that elect to operate a 

Basic Health Program (BHP), BHP will 

make affordable health benefits coverage 

available for individuals under age 65 

with household incomes between 133 

percent and 200 percent of the FPL who 

are not otherwise eligible for Medicaid, 

the Children’s Health Insurance 

Program (CHIP), or affordable employersponsored coverage. (For those states 

that have expanded Medicaid coverage 

under section 1902(a)(10)(A)(i)(VIII) of 

the Act, the lower income threshold for 

BHP eligibility is effectively 138 percent 

due to the application of a required 5 

percent income disregard in 

determining the upper limits of 

Medicaid income eligibility (section 

1902(e)(14)(I) of the Social Security 

Act).) Federal funding will be available 

for BHP based on the amount of PTC 

and CSRs that BHP enrollees would 

have received had they been enrolled in 

QHPs through Exchanges. 

In the March 12, 2014 Federal 

Register (79 FR 14112), we published a 

final rule entitled the ‘‘Basic Health 

Program: State Administration of Basic 

Health Programs; Eligibility and 

Enrollment in Standard Health Plans; 

Essential Health Benefits in Standard 

Health Plans; Performance Standards for 

Basic Health Programs; Premium and 

Cost Sharing for Basic Health Programs; 

Federal Funding Process; Trust Fund 

and Financial Integrity’’ (hereinafter 

referred to as the BHP final rule) 

implementing section 1331 of the 

Affordable Care Act), which directs the 

establishment of BHP. The BHP final 

rule establishes the standards for state 

and federal administration of BHP, 

including provisions regarding 

eligibility and enrollment, benefits, costsharing requirements and oversight 

activities. While the BHP final rule 

codifies the overall statutory 

requirements and basic procedural 

framework for the funding methodology, 

it does not contain the specific 

information necessary to determine 

federal payments. We anticipated that 

the methodology would be based on 

data and assumptions that would reflect 

ongoing operations and experience of 

BHP programs as well as the operation 

of the Exchanges. For this reason, the 

BHP final rule indicated that the 

development and publication of the 

funding methodology, including any 

data sources, would be addressed in a 

separate annual BHP Payment Notice. 

In the BHP final rule, we specified 

that the BHP Payment Notice process 

would include the annual publication of 

both a proposed and final BHP Payment 

Notice. The proposed BHP Payment 

Notice would be published in the 

Federal Register each October, and 

would describe the proposed 

methodology for the upcoming BHP 

program year, including how the 

Secretary considered the factors 

specified in section 1331(d)(3) of the 

Affordable Care Act, along with the 

proposed data sources used to 

determine the federal BHP payment 

rates. The final BHP Payment Notice 

would be published in the Federal 

Register in February, and would include 

the final BHP funding methodology, as 

well as the federal BHP payment rates 

for the next BHP program year. For 

example, payment rates published in 

February 2015 would apply to BHP 

program year 2016, beginning in January 

2016. As discussed in section II.C of this 

proposed methodology, state data 

needed to calculate the federal BHP 

payment rates for the final BHP 

Payment Notice must be submitted to 

CMS. 

As described in the BHP final rule, 

once the final methodology has been 

published, we will only make 

modifications to the BHP funding 

methodology on a prospective basis 

with limited exceptions. The BHP final 

rule provided that retrospective 

adjustments to the state’s BHP payment 

amount may occur to the extent that the 

prevailing BHP funding methodology 

for a given program year permits 

adjustments to a state’s federal BHP 

payment amount due to insufficient 

data for prospective determination of 

the relevant factors specified in the 

payment notice. Additional adjustments 

could be made to the payment rates to 

correct errors in applying the 

methodology (such as mathematical 

errors). 

Under section 1331(d)(3)(ii) of the 

Affordable Care Act, the funding 

methodology and payment rates are 

expressed as an amount per BHP 

enrollee for each month of enrollment. 

These payment rates may vary based on 

categories or classes of enrollees. Actual 

payment to a state would depend on the 

actual enrollment in coverage through 

the state BHP. A state that is approved 

to implement BHP must provide data 

showing quarterly enrollment in the 

various federal BHP payment rate cells. 

The data submission requirements 

associated with this will be published 

subsequent to the proposed 

methodology. 

In the March 12, 2014 Federal 

Register (79 FR 13887), we published 

the final payment methodology entitled 

‘‘Basic Health Program; Federal Funding 

Methodology for Program Year 2015’’ 

(hereinafter referred to as the 2015 

payment methodology) that sets forth 

the methodology that will be used to 

calculate the federal BHP payments for 

the 2015 program year. 

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Federal Register / Vol. 79, No. 205 / Thursday, October 23, 2014 / Proposed Rules 63365 

II. Provisions of the Proposed 

Methodology 

A. Overview of the Funding 

Methodology and Calculation of the 

Payment Amount 

Section 1331(d)(3) of the Affordable 

Care Act directs the Secretary to 

consider several factors when 

determining the federal BHP payment 

amount, which, as specified in the 

statute, must equal 95 percent of the 

value of the PTC and CSRs that BHP 

enrollees would have been provided 

had they enrolled in a QHP through an 

Exchange. Thus, the proposed BHP 

funding methodology is designed to 

calculate the PTC and CSRs as 

consistently as possible and in general 

alignment with the methodology used 

by Exchanges to calculate the advance 

payments of the PTC and CSRs, and by 

the Internal Revenue Service (IRS) to 

calculate final PTCs. In general, we 

propose to rely on values for factors in 

the payment methodology specified in 

statute or other regulations as available, 

and we propose to develop values for 

other factors not otherwise specified in 

statute, or previously calculated in other 

regulations, to simulate the values of the 

PTC and CSRs that BHP enrollees would 

have received if they had enrolled in 

QHPs offered through an Exchange. In 

accordance with section 

1331(d)(3)(A)(iii) of the Affordable Care 

Act, the final funding methodology 

must be certified by the Chief Actuary 

of CMS, in consultation with the Office 

of Tax Analysis of the Department of the 

Treasury, as having met the 

requirements of section 1331(d)(3)(A)(ii) 

of the Affordable Care Act. 

Section 1331(d)(3)(A)(ii) of the 

Affordable Care Act specifies that the 

payment determination ‘‘shall take into 

account all relevant factors necessary to 

determine the value of the premium tax 

credits and cost-sharing reductions that 

would have been provided to eligible 

individuals . . . including the age and 

income of the enrollee, whether the 

enrollment is for self-only or family 

coverage, geographic differences in 

average spending for health care across 

rating areas, the health status of the 

enrollee for purposes of determining 

risk adjustment payments and 

reinsurance payments that would have 

been made if the enrollee had enrolled 

in a qualified health plan through an 

Exchange, and whether any 

reconciliation of the credit or costsharing reductions would have occurred 

if the enrollee had been so enrolled.’’ 

The proposed payment methodology 

takes each of these factors into account. 

We propose a methodology that is the 

same as the 2015 payment methodology, 

with updated values but no changes in 

methods. 

We propose that the total federal BHP 

payment amount would be based on 

multiple ‘‘rate cells’’ in each state. Each 

‘‘rate cell’’ would represent a unique 

combination of age range, geographic 

area, coverage category (for example, 

self-only or two-adult coverage through 

BHP), household size, and income range 

as a percentage of FPL. Thus, there 

would be distinct rate cells for 

individuals in each coverage category 

within a particular age range who reside 

in a specific geographic area and are in 

households of the same size and income 

range. We note that we would develop 

BHP payment rates that would be 

consistent with those states’ rules on age 

rating. Thus, in the case of a state that 

does not use age as a rating factor on the 

Exchange, the BHP payment rates would 

not vary by age. 

The proposed rate for each rate cell 

would be calculated in two parts. The 

first part (as described in Equation (1) 

below) would equal 95 percent of the 

estimated PTC that would have been 

paid if a BHP enrollee in that rate cell 

had instead enrolled in a QHP in the 

Exchange. The second part (as described 

in Equation (2) below) would equal 95 

percent of the estimated CSR payment 

that would have been made if a BHP 

enrollee in that rate cell had instead 

enrolled in a QHP in the Exchange. 

These 2 parts would be added together 

and the total rate for that rate cell would 

be equal to the sum of the PTC and CSR 

rates. 

We propose that Equation (1) below 

would be used to calculate the 

estimated PTC for individuals in each 

rate cell and Equation (2) below would 

be used to calculate the estimated CSR 

payments for individuals in each rate 

cell. By applying the equations 

separately to rate cells based on age, 

income and other factors, we would 

effectively take those factors into 

account in the calculation. In addition, 

the equations would reflect the 

estimated experience of individuals in 

each rate cell if enrolled in coverage 

through the Exchange, taking into 

account additional relevant variables. 

Each of the variables in the equations is 

defined below, and further detail is 

provided later in this section of the 

payment notice. 

In addition, we describe how we 

propose to calculate the adjusted 

reference premium (described later in 

this section of the payment notice) that 

is used in Equations (1) and (2). This is 

defined below in Equation (3a) and 

Equation (3b). 

1. Equation 1: Estimated PTC by Rate 

Cell 

We propose that the estimated PTC, 

on a per enrollee basis, would be 

calculated for each rate cell for each 

state based on age range, geographic 

area, coverage category, household size, 

and income range. The PTC portion of 

the rate would be calculated in a 

manner consistent with the 

methodology used to calculate the PTC 

for persons enrolled in a QHP, with 3 

adjustments. First, the PTC portion of 

the rate for each rate cell would 

represent the mean, or average, expected 

PTC that all persons in the rate cell 

would receive, rather than being 

calculated for each individual enrollee. 

Second, the reference premium used to 

calculate the PTC (described in more 

detail later in the section) would be 

adjusted for BHP population health 

status, and in the case of a state that 

elects to use 2015 premiums for the 

basis of the BHP federal payment, for 

the projected change in the premium 

from the 2015 to 2016, to which the 

rates announced in the final payment 

methodology would apply. These 

adjustments are described in Equation 

(3a) and Equation (3b) below. Third, the 

PTC would be adjusted prospectively to 

reflect the mean, or average, net 

expected impact of income 

reconciliation on the combination of all 

persons enrolled in BHP; this 

adjustment, as described in section 

II.D.5. of this proposed methodology, 

would account for the impact on the 

PTC that would have occurred had such 

reconciliation been performed. Finally, 

the rate is multiplied by 95 percent, 

consistent with section 1331(d)(3)(A)(i) 

of the Affordable Care Act. We note that 

in the situation where the average 

income contribution of an enrollee 

would exceed the adjusted reference 

premium, we would calculate the PTC 

to be equal to 0 and would not allow the 

value of the PTC to be negative. 

We propose using Equation (1) to 

calculate the PTC rate, consistent with 

the methodology described above: 


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63366 Federal Register / Vol. 79, No. 205 / Thursday, October 23, 2014 / Proposed Rules 

PTCa,g,c,h,i = Premium tax credit portion of 

BHP payment rate 

a = Age range 

g = Geographic area 

c = Coverage status (self-only or applicable 

category of family coverage) obtained 

through BHP 

h = Household size 

i = Income range (as percentage of FPL) 

ARPa,g,c = Adjusted reference premium 

Ih,i,j = Income (in dollars per month) at each 

1 percentage-point increment of FPL 

j = jth percentage-point increment FPL 

n = Number of income increments used to 

calculate the mean PTC 

PTCFh,i,j = Premium Tax Credit Formula 

percentage 

IRF = Income reconciliation factor 

2. Equation 2: Estimated CSR Payment 

by Rate Cell 

We propose that the CSR portion of 

the rate would be calculated for each 

rate cell for each state based on age 

range, geographic area, coverage 

category, household size, and income 

range defined as a percentage of FPL. 

The CSR portion of the rate would be 

calculated in a manner consistent with 

the methodology used to calculate the 

CSR advance payments for persons 

enrolled in a QHP, as described in the 

final rule we published in the Federal 

Register on March 11, 2014 entitled 

‘‘HHS Notice of Benefit and Payment 

Parameters for 2015’’ final rule (79 FR 

13744), with 3 principal adjustments. 

(We further propose a separate 

calculation that includes different 

adjustments for American Indian/Alaska 

Native BHP enrollees, as described in 

section II.D.1 of this proposed 

methodology.) For the first adjustment, 

the CSR rate, like the PTC rate, would 

represent the mean expected CSR 

subsidy that would be paid on behalf of 

all persons in the rate cell, rather than 

being calculated for each individual 

enrollee. Second, this calculation would 

be based on the adjusted reference 

premium, as described in section II.A.3. 

of this proposed methodology. Third, 

this equation uses an adjusted reference 

premium that reflects premiums 

charged to non-tobacco users, rather 

than the actual premium that is charged 

to tobacco users to calculate CSR 

advance payments for tobacco users 

enrolled in a QHP. Accordingly, we 

propose that the equation include a 

tobacco rating adjustment factor that 

would account for BHP enrollees’ 

estimated tobacco-related health costs 

that are outside the premium charged to 

non-tobacco-users. Finally, the rate 

would be multiplied by 95 percent, as 

provided in section 1331(d)(3)(A)(i) of 

the Affordable Care Act. 

We propose using Equation (2) to 

calculate the CSR rate, consistent with 

the methodology described above: 

CSRa,g,c,h,i = Cost-sharing reduction subsidy 

portion of BHP payment rate 

a = Age range 

g = Geographic area 

c = Coverage status (self-only or applicable 

category of family coverage) obtained 

through BHP 

h = Household size 

i = Income range (as percentage of FPL) 

ARPa,g,c = Adjusted reference premium 

TRAF = Tobacco rating adjustment factor 

FRAC = Factor removing administrative costs 

AV = Actuarial value of plan (as percentage 

of allowed benefits covered by the 

applicable QHP without a cost-sharing 

reduction subsidy) 

IUFh,i = Induced utilization factor 

DAVh,i = Change in actuarial value (as 

percentage of allowed benefits) 

3. Equation 3a and Equation 3b: 

Adjusted Reference Premium Variable 

(Used in Equations 1 and 2) 

As part of these calculations for both 

the PTC and CSR components, we 

propose to calculate the value of the 

adjusted reference premium as 

described below. Consistent with the 

approach last year, we are proposing to 

allow states to choose between using the 

actual 2016 QHP premiums or the 2015 

QHP premiums multiplied by the 

premium trend factor (as described in 

section II.F). Therefore, we are 

proposing how we would calculate the 

adjusted reference premium under each 

option. 

In the case of a state that elected to 

use the reference premium based on the 

2016 premiums, we propose to calculate 

the value of the adjusted reference 

premium as specified in Equation (3a). 

The adjusted reference premium would 

be equal to the reference premium, 

which would be based on the second 

lowest cost silver plan premium in 

2016, multiplied by the BHP population 

health factor (described in section II.D 

of this proposed methodology), which 

would reflect the projected impact that 

enrolling BHP-eligible individuals in 

QHPs on an Exchange would have had 

on the average QHP premium. 

ARPa,g,c = Adjusted reference premium 

a = Age range 

g = Geographic area 

c = Coverage status (self-only or applicable 

category of family coverage) obtained 

through BHP 

RPa,g,c = Reference premium 

PHF = Population health factor 

In the case of a state that elected to 

use the reference premium based on the 

2015 premiums (as described in section 

II.F of this proposed methodology), we 

propose to calculate the value of the 

adjusted reference premium as specified 

in Equation (3b). The adjusted reference 

premium would be equal to the 

reference premium, which would be 

based on the second lowest cost silver 

plan premium in 2015, multiplied by 

the BHP population health factor 

(described in section II.D of this 

proposed methodology), which would 

reflect the projected impact that 

enrolling BHP-eligible individuals in 

QHPs on an Exchange would have had 

on the average QHP premium, and by 

the premium trend factor, which would 

reflect the projected change in the 

premium level between 2015 and 2016 

(including the estimated impact of 

changes resulting from the transitional 

reinsurance program established in 

section 1341 of the Affordable Care Act). 


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Federal Register / Vol. 79, No. 205 / Thursday, October 23, 2014 / Proposed Rules 63367 

1This curve is used to implement the Affordable 

Care Act’s 3:1 limit on age-rating in states that do 

not create an alternative rate structure to comply 

with that limit. The curve applies to all individual 

market plans, both within and outside the 

Exchange. The age bands capture the principal 

allowed age-based variations in premiums as 

permitted by this curve. More information can be 

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

Files/Downloads/market-reforms-guidance-2-25- 

2013.pdf. Both children and adults under age 21 are 

charged the same premium. For adults age 21–64, 

the age bands in this methodology divide the total 

age-based premium variation into the three most 

equally-sized ranges (defining size by the ratio 

between the highest and lowest premiums within 

the band) that are consistent with the age-bands 

used for risk-adjustment purposes in the HHSDeveloped Risk Adjustment Model. For such age 

bands, see Table 5, ‘‘Age-Sex Variables,’’ in HHSDeveloped Risk Adjustment Model Algorithm 

Software, June 2, 2014, http://www.cms.gov/CCIIO/ 

Resources/Regulations-and-Guidance/Downloads/

ra-tables-03-27-2014.xlsx. 

2For example, a cell within a particular state 

might refer to ‘‘County Group 1,’’ ‘‘County Group 

2,’’ etc., and a table for the state would list all the 

counties included in each such group. These 

geographic areas are consistent with the geographic 

areas established under the 2014 Market Reform 

Rules. They also reflect the service area 

requirements applicable to qualified health plans, 

as described in 45 CFR 155.1055, except that 

service areas smaller than counties are addressed as 

explained below. 

3The three lowest income ranges would be 

limited to lawfully present immigrants who are 

ineligible for Medicaid because of immigration 

status. 

ARPa,g,c = Adjusted reference premium 

a = Age range 

g = Geographic area 

c = Coverage status (self-only or applicable 

category of family coverage) obtained 

through BHP 

RPa,g,c = Reference premium 

PHF = Population health factor 

PTF = Premium trend factor 

4. Equation 4: Determination of Total 

Monthly Payment for BHP Enrollees in 

Each Rate Cell 

In general, the rate for each rate cell 

would be multiplied by the number of 

BHP enrollees in that cell (that is, the 

number of enrollees that meet the 

criteria for each rate cell) to calculate 

the total monthly BHP payment. This 

calculation is shown in Equation 4 

below. 

PMT = Total monthly BHP payment 

PTCa,g,c,h,i = Premium tax credit portion of 

BHP payment rate 

CSRa,g,c,h,i = Cost-sharing reduction subsidy 

portion of BHP payment rate 

Ea,g,c,h,i = Number of BHP enrollees 

a = Age range 

g = Geographic area 

c = Coverage status (self-only or applicable 

category of family coverage) obtained 

through BHP 

h = Household size 

i = Income range (as percentage of FPL) 

B. Federal BHP Payment Rate Cells 

We propose that a state implementing 

BHP provide us an estimate of the 

number of BHP enrollees it projects will 

enroll in the upcoming BHP program 

year, by applicable rate cell, prior to the 

first quarter of program operations. 

Upon our approval of such estimates as 

reasonable, they would be used to 

calculate the prospective payment for 

the first and subsequent quarters of 

program operation until the state has 

provided us actual enrollment data. 

These data would be required to 

calculate the final BHP payment 

amount, and make any necessary 

reconciliation adjustments to the prior 

quarters’ prospective payment amounts 

due to differences between projected 

and actual enrollment. Subsequent, 

quarterly deposits to the state’s trust 

fund would be based on the most recent 

actual enrollment data submitted to us. 

Procedures will ensure that federal 

payments to a state reflect actual BHP 

enrollment during a year, within each 

applicable category, and prospectively 

determined federal payment rates for 

each category of BHP enrollment, with 

such categories defined in terms of age 

range, geographic area, coverage status, 

household size, and income range, as 

explained above. 

We propose requiring the use of 

certain rate cells as part of the proposed 

methodology. For each state, we 

propose using rate cells that separate the 

BHP population into separate cells 

based on the five factors described 

below. 

Factor 1—Age: We propose separating 

enrollees into rate cells by age, using the 

following age ranges that capture the 

widest variations in premiums under 

HHS’s Default Age Curve: 1

• Ages 0–20. 

• Ages 21–34. 

• Ages 35–44. 

• Ages 45–54. 

• Ages 55–64. 

Factor 2—Geographic area: For each 

state, we propose separating enrollees 

into rate cells by geographic areas 

within which a single reference 

premium is charged by QHPs offered 

through the state’s Exchange. Multiple, 

non-contiguous geographic areas would 

be incorporated within a single cell, so 

long as those areas share a common 

reference premium.2

Factor 3—Coverage status: We 

propose separating enrollees into rate 

cells by coverage status, reflecting 

whether an individual is enrolled in 

self-only coverage or persons are 

enrolled in family coverage through 

BHP, as provided in section 

1331(d)(3)(A)(ii) of the Affordable Care 

Act. Among recipients of family 

coverage through BHP, separate rate 

cells, as explained below, would apply 

based on whether such coverage 

involves two adults alone or whether it 

involves children. 

Factor 4—Household size: We 

propose separating enrollees into rate 

cells by household size that states use 

to determine BHP enrollees’ income as 

a percentage of the FPL under proposed 

42 CFR 600.320. We are proposing to 

require separate rate cells for several 

specific household sizes. For each 

additional member above the largest 

specified size, we propose to publish 

instructions for how we would develop 

additional rate cells and calculate an 

appropriate payment rate based on data 

for the rate cell with the closest 

specified household size. We propose to 

publish separate rate cells for household 

sizes of 1, 2, 3, 4, and 5, as unpublished 

analyses of American Community 

Survey data conducted by the Urban 

Institute, which take into account 

unaccepted offers of employersponsored insurance as well as income, 

Medicaid and CHIP eligibility, 

citizenship and immigration status, and 

current health coverage status, find that 

less than 1 percent of all BHP-eligible 

persons live in households of size 5 or 

greater. 

Factor 5—Income: For households of 

each applicable size, we propose 

creating separate rate cells by income 

range, as a percentage of FPL. The PTC 

that a person would receive if enrolled 

in a QHP varies by income, both in level 

and as a ratio to the FPL, and the CSR 

varies by income as a percentage of FPL. 

Thus, we propose that separate rate cells 

would be used to calculate federal BHP 

payment rates to reflect different bands 

of income measured as a percentage of 

FPL. We propose using the following 

income ranges, measured as a ratio to 

the FPL: 

• 0 to 50 percent of the FPL. 

• 51 to 100 percent of the FPL. 

• 101 to 138 percent of the FPL.3


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• 139 to 150 percent of the FPL. 

• 151 to 175 percent of the FPL. 

• 176 to 200 percent of the FPL. 

These rate cells would only be used 

to calculate the federal BHP payment 

amount. A state implementing BHP 

would not be required to use these rate 

cells or any of the factors in these rate 

cells as part of the state payment to the 

standard health plans participating in 

BHP or to help define BHP enrollees’ 

covered benefits, premium costs, or outof-pocket cost-sharing levels. 

We propose using averages to define 

federal payment rates, both for income 

ranges and age ranges, rather than 

varying such rates to correspond to each 

individual BHP enrollee’s age and 

income level. We believe that the 

proposed approach will increase the 

administrative feasibility of making 

federal BHP payments and reduce the 

likelihood of inadvertently erroneous 

payments resulting from highly complex 

methodologies. We believe that this 

approach should not significantly 

change federal payment amounts, since 

within applicable ranges, the BHPeligible population is distributed 

relatively evenly. 

C. Sources and State Data 

Considerations 

To the extent possible, we intend to 

use data submitted to the federal 

government by QHP issuers seeking to 

offer coverage through an Exchange to 

perform the calculations that determine 

federal BHP payment cell rates. 

States operating a State Based 

Exchange in the individual market, 

however, must provide certain data, 

including premiums for second lowest 

cost silver plans, by geographic area, in 

order for CMS to calculate the federal 

BHP payment rates in those states. We 

propose that a State Based Exchange 

interested in obtaining the applicable 

federal BHP payment rates for its state 

must submit such data accurately, 

completely, and as specified by CMS, by 

no later than October 15, 2015, in order 

for CMS to calculate the applicable rates 

for 2016. If additional state data (that is, 

in addition to the second lowest cost 

silver plan premium data) are needed to 

determine the federal BHP payment 

rate, such data must be submitted in a 

timely manner, and in a format 

specified by CMS to support the 

development and timely release of 

annual BHP payment notices. The 

specifications for data collection to 

support the development of BHP 

payment rates for 2016 were published 

in CMS guidance and are available at 

http://www.medicaid.gov/FederalPolicy-Guidance/Federal-PolicyGuidance.html. 

If a state operating a State Based 

Exchange provides the necessary data 

accurately, completely, and as specified 

by CMS, but after the date specified 

above, we anticipate publishing federal 

payment rates for such a state in a 

subsequent Payment Notice. As noted in 

the BHP final rule, a state may elect to 

implement its BHP after a program year 

has begun. In such an instance, we 

propose that the state, if operating a 

State Based Exchange, submit its data 

no later than 30 days after the Blueprint 

submission for CMS to calculate the 

applicable federal payment rates. We 

further propose that the BHP Blueprint 

itself must be submitted for Secretarial 

certification with an effective date of no 

sooner than 120 days after submission 

of the BHP Blueprint. In addition, the 

state must ensure that its Blueprint 

includes a detailed description of how 

the state will coordinate with other 

insurance affordability programs to 

transition and transfer BHP-eligible 

individuals out of their existing QHP 

coverage, consistent with the 

requirements set forth in 42 CFR 

600.330 and 600.425. We believe that 

this 120-day period is necessary to 

establish the requisite administrative 

structures and ensure that all statutory 

and regulatory requirements are 

satisfied. 

D. Discussion of Specific Variables Used 

in Payment Equations 

1. Reference Premium (RP) 

To calculate the estimated PTC that 

would be paid if individuals enrolled in 

QHPs through the Exchange, we must 

calculate a reference premium (RP) 

because the PTC is based, in part, on the 

premiums for the applicable second 

lowest cost silver plan as explained in 

section II.C.4 of this proposed 

methodology, regarding the Premium 

Tax Credit Formula (PTCF). 

Accordingly, for the purposes of 

calculating the BHP payment rates, the 

reference premium, in accordance with 

26 U.S.C. 36B(b)(3)(C), is defined as the 

adjusted monthly premium for an 

applicable second lowest cost silver 

plan. The applicable second lowest cost 

silver plan is defined in 26 U.S.C. 

36B(b)(3)(B) as the second lowest cost 

silver plan of the individual market in 

the rating area in which the taxpayer 

resides, which is offered through the 

same Exchange. We propose to use the 

adjusted monthly premium for an 

applicable second lowest cost silver 

plan in 2016 as the reference premium 

(except in the case of a state that elects 

to use the 2015 premium as the basis for 

the federal BHP payment, as described 

in section II.F of this proposed 

methodology). 

The reference premium would be the 

premium applicable to non-tobacco 

users. This is consistent with the 

provision in 26 U.S.C. 36B(b)(3)(C) that 

bases the PTC on premiums that are 

adjusted for age alone, without regard to 

tobacco use, even for states that allow 

insurers to vary premiums based on 

tobacco use pursuant to 42 U.S.C. 

300gg(a)(1)(A)(iv). 

Consistent with the policy set forth in 

26 CFR 1.36B–3(f)(6) to calculate the 

PTC for those enrolled in a QHP through 

an Exchange, we propose not to update 

the payment methodology, and 

subsequently the federal BHP payment 

rates, in the event that the second 

lowest cost silver plan used as the 

reference premium, or the lowest cost 

silver plan, changes (that is, terminates 

or closes enrollment during the year). 

The applicable second lowest cost 

silver plan premium will be included in 

the BHP payment methodology by age 

range, geographic area, and self-only or 

applicable category of family coverage 

obtained through BHP. 

American Indians and Alaska Natives 

in households with incomes below 300 

percent of the FPL are eligible for a full 

cost sharing subsidy regardless of the 

plan they select (as described in 

sections 1402(d) and 2901(a) of the 

Affordable Care Act). We assume that 

American Indians and Alaska Natives 

would be more likely to enroll in bronze 

plans as a result; thus, for American 

Indian/Alaska Native BHP enrollees, we 

propose to use the lowest cost bronze 

plan as the basis for the reference 

premium for the purposes of calculating 

the CSR portion of the federal BHP 

payment as described further in section 

II.E of this proposed methodology. 

We would note that the choice of the 

second lowest cost silver plan for 

calculating BHP payments would rely 

on several simplifying assumptions in 

its selection. For the purposes of 

determining the second lowest cost 

silver plan for calculating PTC for a 

person enrolled in a QHP through an 

Exchange, the applicable plan may 

differ for various reasons. For example, 

a different second lowest cost silver 

plan may apply to a family consisting of 

two adults, their child, and their niece 

than to a family with 2 adults and their 

children, because 1 or more QHPs in the 

family’s geographic area might not offer 

family coverage that includes the niece. 

We believe that it would not be possible 

to replicate such variations for 

calculating the BHP payment and 

believe that in aggregate they would not 

result in a significant difference in the 

payment. Thus, we propose to use the 

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4CMCS. ‘‘State Medicaid and CHIP Income 

Eligibility Standards Effective January 1, 2014.’’ 

second lowest cost silver plan available 

to any enrollee for a given age, 

geographic area, and coverage category. 

This choice of reference premium 

relies on 2 assumptions about 

enrollment in the Exchanges. First, we 

assume that all persons enrolled in BHP 

would have elected to enroll in a silver 

level plan if they had instead enrolled 

in a QHP through the Exchanges. It is 

possible that some persons would have 

chosen not to enroll at all or would have 

chosen to enroll in a different metallevel plan (in particular, a bronze level 

plan with a premium that is less than 

the PTC for which the person was 

eligible). We do not believe it is 

appropriate to adjust the payment for an 

assumption that some BHP enrollees 

would not have enrolled in QHPs for 

purposes of calculating the BHP 

payment rates, since Affordable Care 

Act section 1331(d)(3)(A)(ii) requires the 

calculation of such rates as ‘‘if the 

enrollee had enrolled in a qualified 

health plan through an Exchange.’’ 

Second, we assume that, among all 

available silver plans, all persons 

enrolled in BHP would have selected 

the second-lowest cost plan. Both this 

and the prior assumption allow an 

administratively feasible determination 

of federal payment levels. They also 

have some implications for the CSR 

portion of the rate. If persons were to 

enroll in a bronze level plan through the 

Exchange, they would not be eligible for 

CSRs, unless they were an eligible 

American Indian or Alaska Native; thus, 

assuming that all persons enroll in a 

silver level plan, rather than a plan with 

a different metal level, would increase 

the BHP payment. Assuming that all 

persons enroll in the second lowest cost 

silver plan for the purposes of 

calculating the CSR portion of the rate 

may result in a different level of CSR 

payments than would have been paid if 

the persons were enrolled in different 

silver level plans on the Exchanges 

(with either lower or higher premiums). 

We believe it would not be reasonable 

at this point to estimate how BHP 

enrollees would have enrolled in 

different silver level QHPs, and thus 

propose to use the second lowest cost 

silver plan as the basis for the reference 

premium and calculating the CSR 

portion of the rate. For American 

Indian/Alaska Native BHP enrollees, we 

propose to use the lowest cost bronze 

plan as the basis for the reference 

premium as described further in section 

II.E. of this proposed methodology. 

The applicable age bracket will be one 

dimension of each rate cell. We propose 

to assume a uniform distribution of ages 

and estimate the average premium 

amount within each rate cell. We 

believe that assuming a uniform 

distribution of ages within these ranges 

is a reasonable approach and would 

produce a reliable determination of the 

PTC and CSR components. We also 

believe this approach would avoid 

potential inaccuracies that could 

otherwise occur in relatively small 

payment cells if age distribution were 

measured by the number of persons 

eligible or enrolled. 

We propose to use geographic areas 

based on the rating areas used in the 

Exchanges. We propose to define each 

geographic area so that the reference 

premium is the same throughout the 

geographic area. When the reference 

premium varies within a rating area, we 

propose defining geographic areas as 

aggregations of counties with the same 

reference premium. Although plans are 

allowed to serve geographic areas 

smaller than counties after obtaining our 

approval, we propose that no geographic 

area, for purposes of defining BHP 

payment rate cells, will be smaller than 

a county. We do not believe that this 

assumption will have a significant 

impact on federal payment levels and it 

would likely simplify both the 

calculation of BHP payment rates and 

the operation of BHP. 

Finally, in terms of the coverage 

category, we propose that federal 

payment rates only recognize self-only 

and two-adult coverage, with exceptions 

that account for children who are 

potentially eligible for BHP. First, in 

states that set the upper income 

threshold for children’s Medicaid and 

CHIP eligibility below 200 percent of 

FPL (based on modified adjusted gross 

income), children in households with 

incomes between that threshold and 200 

percent of FPL would be potentially 

eligible for BHP. Currently, the only 

states in this category are Arizona, 

Idaho, and North Dakota.4 Second, BHP 

would include lawfully present 

immigrant children with incomes at or 

below 200 percent of FPL in states that 

have not exercised the option under the 

sections 1903(v)(4)(A)(ii) and 

2107(e)(1)(E) of the Social Security Act 

(the Act) to qualify all otherwise 

eligible, lawfully present immigrant 

children for Medicaid and CHIP. States 

that fall within these exceptions would 

be identified based on their Medicaid 

and CHIP State Plans, and the rate cells 

would include appropriate categories of 

BHP family coverage for children. For 

example, Idaho’s Medicaid and CHIP 

eligibility is limited to families with 

MAGI at or below 185 percent FPL. If 

Idaho implemented BHP, Idaho children 

with incomes between 185 and 200 

percent could qualify. In other states, 

BHP eligibility will generally be 

restricted to adults, since children who 

are citizens or lawfully present 

immigrants and who live in households 

with incomes at or below 200 percent of 

FPL will qualify for Medicaid or CHIP 

and thus be ineligible for BHP under 

section 1331(e)(1)(C) of the Affordable 

Care Act, which limits BHP to 

individuals who are ineligible for 

minimum essential coverage (as defined 

in section 5000A(f) of the Internal 

Revenue Code of 1986). 

2. Population Health Factor (PHF) 

We propose that the population 

health factor be included in the 

methodology to account for the 

potential differences in the average 

health status between BHP enrollees 

and persons enrolled in the 

marketplace. To the extent that BHP 

enrollees would have been enrolled in 

the marketplace in the absence of BHP 

in a state, the inclusion of those BHP 

enrollees in the marketplace may affect 

the average health status of the overall 

population and the expected QHP 

premiums. 

We currently do not believe that there 

is evidence that the BHP population 

would have better or poorer health 

status than the marketplace population. 

At this time, there is a lack of 

experience available in the marketplace 

that limits the ability to analyze the 

health differences between these groups 

of enrollees. In addition, differences in 

population health may vary across 

states. Thus, at this time, we believe that 

it is not feasible to develop a 

methodology to make a prospective 

adjustment to the population health 

factor that is reliably accurate. 

Given these analytic challenges and 

the limited data about Exchange 

coverage and the characteristics of BHPeligible consumers that will be available 

by the time we establish federal 

payment rates for 2016, we believe that 

the most appropriate adjustment for 

2016 would be 1.00. In the 2015 

payment methodology, we included an 

option for states to include a 

retrospective population health status 

adjustment. Similarly, we propose for 

the 2016 payment methodology to 

provide states with the same option, as 

described further in section II.G of this 

proposed methodology, to include a 

retrospective population health status 

adjustment in the certified 

methodology, which is subject to CMS 

review and approval. Regardless of 

whether a state elects to include a 

retrospective population health status 

adjustment, we anticipate that, in future 

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63370 Federal Register / Vol. 79, No. 205 / Thursday, October 23, 2014 / Proposed Rules 

5See 45 CFR 153.400(a)(2)(iv) (BHP standard 

health plans are not required to submit reinsurance 

contributions), 153.20 (definition of ‘‘Reinsuranceeligible plan’’ as not including ‘‘health insurance 

coverage not required to submit reinsurance 

contributions’’), 153.230(a) (reinsurance payments 

under the national reinsurance parameters are 

available only for ‘‘Reinsurance-eligible plans’’). 

6These income ranges and this analysis of 

income apply to the calculation of the PTC. Many 

fewer income ranges and a much simpler analysis 

apply in determining the value of CSRs, as specified 

below. 

7See Table IV A1 from the 2013 reports in 

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

ReportsTrustFunds/Downloads/TR2014.pdf. 

years, when additional data become 

available about Exchange coverage and 

the characteristics of BHP enrollees, we 

may estimate this factor differently. 

While the statute requires 

consideration of risk adjustment 

payments and reinsurance payments 

insofar as they would have affected the 

PTC and CSRs that would have been 

provided to BHP-eligible individuals 

had they enrolled in QHPs, we are not 

proposing to require that a BHP 

program’s standard health plans receive 

such payments. As explained in the 

BHP final rule, BHP standard health 

plans are not included in the risk 

adjustment program operated by HHS 

on behalf of states. Further, standard 

health plans do not qualify for payments 

from the transitional reinsurance 

program established under section 1341 

of the Affordable Care Act.5 To the 

extent that a state operating a BHP 

determines that, because of the 

distinctive risk profile of BHP-eligible 

consumers, BHP standard health plans 

should be included in mechanisms that 

share risk with other plans in the state’s 

individual market, the state would need 

to use other methods for achieving this 

goal. 

3. Income (I) 

Household income is a significant 

determinant of the amount of the PTC 

and CSRs that are provided for persons 

enrolled in a QHP through the 

Exchange. Accordingly, the proposed 

BHP payment methodology incorporates 

income into the calculations of the 

payment rates through the use of 

income-based rate cells. We propose 

defining income in accordance with the 

definition of modified adjusted gross 

income in 26 U.S.C. 36B(d)(2)(B) and 

consistent with the definition in 45 CFR 

155.300. Income would be measured 

relative to the FPL, which is updated 

periodically in the Federal Register by 

the Secretary under the authority of 42 

U.S.C. 9902(2), based on annual changes 

in the consumer price index for all 

urban consumers (CPI–U). In our 

proposed methodology, household size 

and income as a percentage of FPL 

would be used as factors in developing 

the rate cells. We propose using the 

following income ranges measured as a 

percentage of FPL: 6

• 0–50 percent. 

• 51–100 percent. 

• 101–138 percent. 

• 139–150 percent. 

• 151–175 percent. 

• 176–200 percent. 

We further propose to assume a 

uniform income distribution for each 

federal BHP payment cell. We believe 

that assuming a uniform income 

distribution for the income ranges 

proposed would be reasonably accurate 

for the purposes of calculating the PTC 

and CSR components of the BHP 

payment and would avoid potential 

errors that could result if other sources 

of data were used to estimate the 

specific income distribution of persons 

who are eligible for or enrolled in BHP 

within rate cells that may be relatively 

small. Thus, when calculating the mean, 

or average, PTC for a rate cell, we 

propose to calculate the value of the 

PTC at each one percentage point 

interval of the income range for each 

federal BHP payment cell and then 

calculate the average of the PTC across 

all intervals. This calculation would 

rely on the PTC formula described 

below in section II.4 of this proposed 

methodology. 

As the PTC for persons enrolled in 

QHPs would be calculated based on 

their income during the open 

enrollment period, and that income 

would be measured against the FPL at 

that time, we propose to adjust the FPL 

by multiplying the FPL by a projected 

increase in the CPI–U between the time 

that the BHP payment rates are 

published and the QHP open enrollment 

period, if the FPL is expected to be 

updated during that time. We propose 

that the projected increase in the CPI– 

U would be based on the intermediate 

inflation forecasts from the most recent 

OASDI and Medicare Trustees Reports.7

4. Premium Tax Credit Formula (PTCF) 

In Equation 1 described in section 

II.A.1 of this proposed methodology, we 

propose to use the formula described in 

26 U.S.C. 36B(b) to calculate the 

estimated PTC that would be paid on 

behalf of a person enrolled in a QHP on 

an Exchange as part of the BHP payment 

methodology. This formula is used to 

determine the contribution amount (the 

amount of premium that an individual 

or household theoretically would be 

required to pay for coverage in a QHP 

on an Exchange), which is based on (A) 

the household income; (B) the 

household income as a percentage of 

FPL for the family size; and (C) the 

schedule specified in 26 U.S.C. 

36B(b)(3)(A) and shown below. The 

difference between the contribution 

amount and the adjusted monthly 

premium for the applicable second 

lowest cost silver plan is the estimated 

amount of the PTC that would be 

provided for the enrollee. 

The PTC amount provided for a 

person enrolled in a QHP through an 

Exchange is calculated in accordance 

with the methodology described in 26 

U.S.C. 36B(b)(2). The amount is equal to 

the lesser of the premium for the plan 

in which the person or household 

enrolls, or the adjusted premium for the 

applicable second lowest cost silver 

plan minus the contribution amount. 

The applicable percentage is defined 

in 26 U.S.C. 36B(b)(3)(A) and 26 CFR 

1.36B–3(g) as the percentage that 

applies to a taxpayer’s household 

income that is within an income tier 

specified in the table, increasing on a 

sliding scale in a linear manner from an 

initial premium percentage to a final 

premium percentage specified in the 

table (see Table 1): 

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Federal Register / Vol. 79, No. 205 / Thursday, October 23, 2014 / Proposed Rules 63371 

TABLE 1—HOUSEHOLD INCOME

[Expressed as a percent of poverty line] 

In the case of household income (expressed as a percent of poverty line) within the following income tier: 

The initial 

premium 

percentage is— 

(percent) 

The final 

premium 

percentage is— 

(percent) 

Up to 133% ...................................................................................................................................................... 2.01 2.01 

133% but less than 150% ............................................................................................................................... 3.02 4.02 

150% but less than 200% ............................................................................................................................... 4.02 6.34 

200% but less than 250% ............................................................................................................................... 6.34 8.10 

250% but less than 300% ............................................................................................................................... 8.10 9.56 

300% but not more than 400% ....................................................................................................................... 9.56 9.56 

These are the applicable percentages 

for CY 2015. The applicable percentages 

will be updated in future years in 

accordance with 26 U.S.C. 

36B(b)(3)(A)(ii). 

5. Income Reconciliation Factor (IRF) 

For persons enrolled in a QHP 

through an Exchange who receive an 

advance payment of the premium tax 

credit (APTC), there will be an annual 

reconciliation following the end of the 

year to compare the advance payments 

to the correct amount of PTC based on 

household circumstances shown on the 

federal income tax return. Any 

difference between the latter amounts 

and the advance payments made during 

the year would either be paid to the 

taxpayer (if too little APTC was paid) or 

charged to the taxpayer as additional tax 

(if too much APTC was made, subject to 

any limitations in statute or regulation), 

as provided in 26 U.S.C. 36B(f). 

Section 1331(e)(2) of the Affordable 

Care Act specifies that an individual 

enrolled in BHP may not be treated as 

a qualified individual under section 

1312 eligible for enrollment in a QHP 

offered through an Exchange. Therefore, 

BHP enrollees are not eligible to receive 

APTC to assist with purchasing 

coverage in the Exchange. Because they 

do not receive APTC assistance, BHP 

enrollees are not subject to the same 

income reconciliation as Exchange 

consumers. Nonetheless, there may still 

be differences between a BHP enrollee’s 

household income reported at the 

beginning of the year and the actual 

income over the year. These may 

include small changes (reflecting 

changes in hourly wage rates, hours 

worked per week, and other fluctuations 

in income during the year) and large 

changes (reflecting significant changes 

in employment status, hourly wage 

rates, or substantial fluctuations in 

income). There may also be changes in 

household composition. Thus, we 

believe that using unadjusted income as 

reported prior to the BHP program year 

may result in calculations of estimated 

PTC that are inconsistent with the 

actual incomes of BHP enrollees during 

the year. Even if the BHP program 

adjusts household income 

determinations and corresponding 

claims of federal payment amounts 

based on household reports during the 

year or data from third-party sources, 

such adjustments may not fully capture 

the effects of tax reconciliation that BHP 

enrollees would have experienced had 

they been enrolled in a QHP through an 

Exchange and received APTC 

assistance. 

Therefore, we propose including in 

Equation 1 an income adjustment factor 

that would account for the difference 

between calculating estimated PTC 

using: (a) Income relative to FPL as 

determined at initial application and 

potentially revised mid-year, under 

proposed 600.320, for purposes of 

determining BHP eligibility and 

claiming federal BHP payments; and (b) 

actual income relative to FPL received 

during the plan year, as it would be 

reflected on individual federal income 

tax returns. This adjustment would seek 

prospectively to capture the average 

effect of income reconciliation 

aggregated across the BHP population 

had those BHP enrollees been subject to 

tax reconciliation after receiving APTC 

assistance for coverage provided 

through QHPs. For 2016, we propose 

estimating reconciliation effects based 

on tax data for 2 years, reflecting income 

and tax unit composition changes over 

time among BHP-eligible individuals. 

The Office of Tax Analysis in the U.S. 

Department of Treasury (OTA) 

maintains a model that combines 

detailed tax and other data, including 

Exchange enrollment and PTC claimed, 

to project Exchange premiums, 

enrollment, and tax credits. For each 

enrollee, this model compares the APTC 

based on household income and family 

size estimated at the point of enrollment 

with the PTC based on household 

income and family size reported at the 

end of the tax year. The former reflects 

the determination using enrollee 

information furnished by the applicant 

and tax data furnished by the IRS. The 

latter would reflect the PTC eligibility 

based on information on the tax return, 

which would have been determined if 

the individual had not enrolled in BHP. 

We propose that the ratio of the 

reconciled PTC to the initial estimation 

of PTC would be used as the income 

reconciliation factor in Equation (1) for 

estimating the PTC portion of the BHP 

payment rate. 

For 2015, OTA estimated that the 

income reconciliation factor for states 

that have implemented the Medicaid 

eligibility expansion to cover adults up 

to 133 percent of the FPL will be 94.52 

percent, and for states that have not 

implemented the Medicaid eligibility 

expansion and do not cover adults up to 

133 percent of the FPL will be 95.32 

percent. In the 2015 payment 

methodology, the IRF was set equal to 

the average of these two factors (94.92 

percent). We propose updating this 

analysis and the IRF for 2016. 

6. Tobacco Rating Adjustment Factor 

(TRAF) 

As described above, the reference 

premium is estimated, for purposes of 

determining both the PTC and related 

federal BHP payments, based on 

premiums charged for non-tobacco 

users, including in states that allow 

premium variations based on tobacco 

use, as provided in 42 U.S.C. 300gg 

(a)(1)(A)(iv). In contrast, as described in 

45 CFR 156.430, the CSR advance 

payments are based on the total 

premium for a policy, including any 

adjustment for tobacco use. 

Accordingly, we propose to incorporate 

a tobacco rating adjustment factor into 

Equation 2 that reflects the average 

percentage increase in health care costs 

that results from tobacco use among the 

BHP-eligible population and that would 

not be reflected in the premium charged 

to non-users. This factor will also take 

into account the estimated proportion of 

tobacco users among BHP-eligible 

consumers. 

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8Centers for Disease Control and Prevention, 

Tobacco Control State Highlights 2012: http:// 

www.cdc.gov/tobacco/data_statistics/state_data/ 

state_highlights/2012/index.htm. 

To estimate the average effect of 

tobacco use on health care costs (not 

reflected in the premium charged to 

non-users), we propose to calculate the 

ratio between premiums that silver level 

QHPs charge for tobacco users to the 

premiums they charge for non-tobacco 

users at selected ages. To calculate 

estimated proportions of tobacco users, 

we propose to use data from the Centers 

for Disease Control and Prevention to 

estimate tobacco utilization rates by 

state and relevant population 

characteristic.8 For each state, we 

propose to calculate the tobacco usage 

rate based on the percentage of persons 

by age who use cigarettes and the 

percentage of persons by age that use 

smokeless tobacco, and calculate the 

utilization rate by adding the two rates 

together. The data is available for 3 age 

intervals: 18–24; 25–44; and 45–64. For 

the BHP payment rate cell for persons 

ages 21–34, we would calculate the 

factor as (4/14 * the utilization rate of 

18–24 year olds) plus (10/14 * the 

utilization rate of 25–44 year olds), 

which would be the weighted average of 

tobacco usage for persons 21–34 

assuming a uniform distribution of ages; 

for all other age ranges used for the rate 

cells, we would use the age range in the 

CDC data in which the BHP payment 

rate cell age range is contained. 

We propose to provide tobacco rating 

factors that may vary by age and by 

geographic area within each state. To 

the extent that the second lowest cost 

silver plans have a different ratio of 

tobacco user rates to non-tobacco user 

rates in different geographic areas, the 

tobacco rating adjustment factor may 

differ across geographic areas within a 

state. In addition, to the extent that the 

second lowest cost silver plan has a 

different ratio of tobacco user rates to 

non-tobacco user rates by age, or that 

there is a different prevalence of tobacco 

use by age, the tobacco rating 

adjustment factor may differ by age. 

7. Factor for Removing Administrative 

Costs (FRAC) 

The Factor for Removing 

Administrative Costs represents the 

average proportion of the total premium 

that covers allowed health benefits, and 

we propose including this factor in our 

calculation of estimated CSRs in 

Equation 2. The product of the reference 

premium and the Factor for Removing 

Administrative Costs would 

approximate the estimated amount of 

Essential Health Benefit (EHB) claims 

that would be expected to be paid by the 

plan. This step is needed because the 

premium also covers such costs as taxes, 

fees, and QHP administrative expenses. 

We are proposing to set this factor equal 

to 0.80, which is the same percentage 

for the factor to remove administrative 

costs for calculating CSR advance 

payments for established in the 2015 

HHS Notice of Benefit and Payment 

Parameters. 

8. Actuarial Value (AV) 

The actuarial value is defined as the 

percentage paid by a health plan of the 

total allowed costs of benefits, as 

defined under 45 CFR 156.20. (For 

example, if the average health care costs 

for enrollees in a health insurance plan 

were $1,000 and that plan has an 

actuarial value of 70 percent, the plan 

would be expected to pay on average 

$700 ($1,000 × 0.70) for health care 

costs per enrollee, on average.) By 

dividing such estimated costs by the 

actuarial value in the proposed 

methodology, we would calculate the 

estimated amount of total EHB-allowed 

claims, including both the portion of 

such claims paid by the plan and the 

portion paid by the consumer for innetwork care. (To continue with that 

same example, we would divide the 

plan’s expected $700 payment of the 

person’s EHB-allowed claims by the 

plan’s 70 percent actuarial value to 

ascertain that the total amount of EHBallowed claims, including amounts paid 

by the consumer, is $1,000.) 

For the purposes of calculating the 

CSR rate in Equation 2, we propose to 

use the standard actuarial value of the 

silver level plans in the individual 

market, which is equal to 70 percent. 

9. Induced Utilization Factor (IUF) 

The induced utilization factor is 

proposed as a factor in calculating 

estimated CSRs in Equation 2 to account 

for the increase in health care service 

utilization associated with a reduction 

in the level of cost sharing a QHP 

enrollee would have to pay, based on 

the cost-sharing reduction subsidies 

provided to enrollees. 

The 2015 HHS Notice of Benefit and 

Payment Parameters provided induced 

utilization factors for the purposes of 

calculating cost-sharing reduction 

advance payments for 2015. In that rule, 

the induced utilization factors for silver 

plan variations ranged from 1.00 to 1.12, 

depending on income. Using those 

utilization factors, the induced 

utilization factor for all persons who 

would qualify for BHP based on their 

household income as a percentage of 

FPL is 1.12; this would include persons 

with household income between 100 

percent and 200 percent of FPL, 

lawfully present non-citizens below 100 

percent of FPL who are ineligible for 

Medicaid because of immigration status, 

and persons with household income 

under 300 percent of FPL, not subject to 

any cost-sharing. Thus, consistent with 

last year, we propose to set the induced 

utilization factor equal to 1.12 for the 

BHP payment methodology. 

We note that for CSRs for QHPs, there 

will be a final reconciliation at the end 

of the year and the actual level of 

induced utilization could differ from the 

factor proposed in the rule. Our 

proposed methodology for BHP funding 

would not include any reconciliation for 

utilization and thus may understate or 

overstate the impact of the effect of the 

subsidies on health care utilization. 

10. Change in Actuarial Value (DAV) 

The increase in actuarial value would 

account for the impact of the costsharing reduction subsidies on the 

relative amount of EHB claims that 

would be covered for or paid by eligible 

persons, and we propose including it as 

a factor in calculating estimated CSRs in 

Equation 2. 

The actuarial values of QHPs for 

persons eligible for cost-sharing 

reduction subsidies are defined in 45 

CFR 156.420(a), and eligibility for such 

subsidies is defined in 45 CFR 

155.305(g)(2)(i) through (iii). For QHP 

enrollees with household incomes 

between 100 percent and 150 percent of 

FPL, and those below 100 percent of 

FPL who are ineligible for Medicaid 

because of their immigration status, 

CSRs increase the actuarial value of a 

QHP silver plan from 70 percent to 94 

percent. For QHP enrollees with 

household incomes between 150 

percent and 200 percent of FPL, CSRs 

increase the actuarial value of a QHP 

silver plan from 70 percent to 87 

percent. 

We propose to apply this factor by 

subtracting the standard AV from the 

higher AV allowed by the applicable 

cost-sharing reduction. For BHP 

enrollees with household incomes at or 

below 150 percent of FPL, this factor 

would be 0.24 (94 percent minus 70 

percent); for BHP enrollees with 

household incomes more than 150 

percent but not more than 200 percent 

of FPL, this factor would be 0.17 (87 

percent minus 70 percent). 

E. Adjustments for American Indians 

and Alaska Natives 

There are several exceptions made for 

American Indians and Alaska Natives 

enrolled in QHPs through an Exchange 

to calculate the PTC and CSRs. Thus, we 

propose adjustments to the payment 

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methodology described above to be 

consistent with the Exchange rules. 

We propose the following 

adjustments: 

1. We propose that the adjusted 

reference premium for use in the CSR 

portion of the rate would use the lowest 

cost bronze plan instead of the second 

lowest cost silver plan, with the same 

adjustment for the population health 

factor (and in the case of a state that 

elects to use the 2015 premiums as the 

basis of the federal BHP payment, the 

same adjustment for the premium trend 

factor). American Indians and Alaska 

Natives are eligible for CSRs with any 

metal level plan, and thus we believe 

that eligible persons would be more 

likely to select a bronze level plan 

instead of a silver level plan. (It is 

important to note that this would not 

change the PTC, as that is the maximum 

possible PTC payment, which is always 

based on the applicable second lowest 

cost silver plan.) 

2. We propose that the actuarial value 

for use in the CSR portion of the rate 

would be 0.60 instead of 0.70, which is 

consistent with the actuarial value of a 

bronze level plan. 

3. We propose that the induced 

utilization factor for use in the CSR 

portion of the rate would be 1.15, which 

is consistent with the 2015 HHS Notice 

of Benefit and Payment Parameters 

induced utilization factor for calculating 

advance CSR payments for persons 

enrolled in bronze level plans and 

eligible for CSRs up to 100 percent of 

actuarial value. 

4. We propose that the change in the 

actuarial value for use in the CSR 

portion of the rate would be 0.40. This 

reflects the increase from 60 percent 

actuarial value of the bronze plan to 100 

percent actuarial value, as American 

Indians and Alaska Natives are eligible 

to receive CSRs up to 100 percent of 

actuarial value. 

F. State Option To Use 2015 QHP 

Premiums for BHP Payments 

In the interest of allowing states 

greater certainty in the total BHP federal 

payments for 2016, we propose 

providing states the option to have their 

final 2016 federal BHP payment rates 

calculated using the projected 2016 

adjusted reference premium (that is, 

using 2015 premium data multiplied by 

the premium trend factor defined 

below), as described in Equation (3b). 

For a state that would elect to use the 

2015 premium as the basis for the 2016 

BHP federal payment, we propose 

requiring that the state inform us no 

later than May 15, 2015. 

For Equation (3b), we propose to 

define the premium trend factor as 

follows: 

Premium Trend Factor (PTF): In 

Equation (3b), we propose to calculate 

an adjusted reference premium (ARP) 

based on the application of certain 

relevant variables to the reference 

premium (RP), including a premium 

trend factor (PTF). In the case of a state 

that would elect to use the 2015 

premiums as the basis for determining 

the BHP payment, it would be 

appropriate to apply a factor that would 

account for the change in health care 

costs between the year of the premium 

data and the BHP plan year. We are 

proposing to define this as the premium 

trend factor in the BHP payment 

methodology. This factor would 

approximate the change in health care 

costs per enrollee, which would 

include, but not be limited to, changes 

in the price of health care services and 

changes in the utilization of health care 

services. This would provide an 

estimate of the adjusted monthly 

premium for the applicable second 

lowest cost silver plan that would be 

more accurate and reflective of health 

care costs in the BHP program year, 

which would be the year following 

issuance of the final federal payment 

notice. In addition, we believe that it 

would be appropriate to adjust the trend 

factor for the estimated impact of 

changes to the transitional reinsurance 

program on the average QHP premium. 

For the trend factor we propose to use 

the annual growth rate in private health 

insurance expenditures per enrollee 

from the National Health Expenditure 

projections, developed by the Office of 

the Actuary in CMS (citation, http:// 

www.cms.gov/Research-Statistics-Dataand-Systems/Statistics-Trends-andReports/NationalHealthExpendData/ 

Downloads/Proj2012.pdf). 

We propose to also include an 

adjustment for changes in the 

transitional reinsurance program. We 

propose that this adjustment would be 

developed from analysis by CMS’ Center 

for Consumer Information and 

Insurance Oversight (CCIIO). 

States may want to consider that the 

increase in premiums for QHPs from 

2015 to 2016 may differ from the 

premium trend factor developed for the 

BHP funding methodology for several 

reasons. In particular, states may want 

to consider that the second lowest cost 

silver plan for 2015 may not be the same 

as the second lowest cost silver plan in 

2016. This may lead to the premium 

trend factor being greater than or less 

than the actual change in the premium 

of the second lowest cost silver plan in 

2015 compared to the premium of the 

second lowest cost silver plan in 2016. 

G. State Option To Include 

Retrospective State-Specific Health Risk 

Adjustment in Certified Methodology 

To determine whether the potential 

difference in health status between BHP 

enrollees and consumers in the 

Exchange would affect the PTC, CSRs, 

risk adjustment and reinsurance 

payments that would have otherwise 

been made had BHP enrollees been 

enrolled in coverage on the Exchange, 

we propose to provide states 

implementing the BHP the option to 

propose and to implement, as part of the 

certified methodology, a retrospective 

adjustment to the federal BHP payments 

to reflect the actual value that would be 

assigned to the population health factor 

(or risk adjustment) based on data 

accumulated during program year 2016 

for each rate cell. 

We acknowledge that there is 

uncertainty with respect to this factor 

due to the lack of experience of QHPs 

on the Exchange and other payments 

related to the Exchange, which is why, 

absent a state election, we propose to 

use a value for the population health 

factor to determine a prospective 

payment rate which assumes no 

difference in the health status of BHP 

enrollees and QHP enrollees. There is 

considerable uncertainty regarding 

whether the BHP enrollees will pose a 

greater risk or a lesser risk compared to 

the QHP enrollees, how to best measure 

such risk, and the potential effect such 

risk would have had on PTC, CSRs, risk 

adjustment and reinsurance payments 

that would have otherwise been made 

had BHP enrollees been enrolled in 

coverage on the Exchange. To the 

extent, however, that a state would 

develop an approved protocol to collect 

data and effectively measure the relative 

risk and the effect on federal payments, 

we propose to permit a retrospective 

adjustment that would measure the 

actual difference in risk between the 

two populations to be incorporated into 

the certified BHP payment methodology 

and used to adjust payments in the 

previous year. 

For a state electing the option to 

implement a retrospective population 

health status adjustment, we propose 

requiring the state to submit a proposed 

protocol to CMS, which would be 

subject to approval by CMS and would 

be required to be certified by the Chief 

Actuary of CMS, in consultation with 

the Office of Tax Analysis, as part of the 

BHP payment methodology. CMS 

described the protocol for the 

population health status adjustment in 

guidance in Considerations for Health 

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63374 Federal Register / Vol. 79, No. 205 / Thursday, October 23, 2014 / Proposed Rules 

Risk Adjustment in the Basic Health 

Program in Program Year 2015 (http:// 

www.medicaid.gov/Basic-HealthProgram/Downloads/Risk-Adjustmentand-BHP-White-Paper.pdf). We propose 

requiring a state to submit its proposed 

protocol by August 1, 2015 for CMS 

approval. This submission would also 

include descriptions of how the state 

would collect the necessary data to 

determine the adjustment, including 

any contracting contingences that may 

be in place with participating standard 

health plan issuers. We would provide 

technical assistance to states as they 

develop their protocols. In order to 

implement the population health status, 

we propose that CMS must approve the 

state’s protocol no later than December 

31, 2015. Finally, we propose that the 

state be required to complete the 

population health status adjustment at 

the end of 2016 based on the approved 

protocol. After the end of the 2016 

program year, and once data is made 

available, we propose that CMS would 

review the state’s findings, consistent 

with the approved protocol, and make 

any necessary adjustments to the state’s 

federal BHP payment amount. If we 

determine that the federal BHP 

payments were less than they would 

have been using the final adjustment 

factor, we would apply the difference to 

the state’s quarterly BHP trust fund 

deposit. If we determine that the federal 

BHP payments were more than they 

would have been using the final 

reconciled factor, we would subtract the 

difference from the next quarterly BHP 

payment to the state. 

H. Example Application of the BHP 

Funding Methodology 

In the 2015 proposed payment 

methodology, we included an example 

of how the BHP funding methodology 

would be applied (Proposed Basic 

Health Program 2015 Funding 

Methodology, (78 FR 77399), published 

in the Federal Register on December 23, 

2013). For those interested in this 

example, we would refer to the 2015 

proposed payment methodology and 

note the following changes since that 

time. 

In the final BHP payment 

methodology, we provided the option 

for states to elect to use the 2015 

premiums to calculate the BHP payment 

rates instead of the 2014 premiums 

multiplied by the premium trend factor. 

The example in the previous proposed 

payment methodology used the 2014 

premiums multiplied by the premium 

trend factor only. 

In addition, we provided the option 

for the state to develop a risk adjustment 

protocol to revise the population health 

factor in the final payment 

methodology. The example in the 

previous proposed payment 

methodology did not assume any 

adjustment to the population health 

factor. 

Furthermore, we modified the age 

ranges used to develop the rate cells 

after the proposed payment 

methodology was published. The age 

range for persons ages 21–44 was 

divided into age ranges of 21–34 and 

35–44. 

Lastly, as we noted in the responses 

to comments in the final payment 

methodology, there was an error in the 

example in the previous proposed 

payment methodology. The maximum 

percentage of income that a household 

would be required to pay for QHP 

premiums for households with incomes 

between 133 percent and 150 percent of 

the federal poverty level (FPL) was 

incorrect in the example; the correct 

percentages range from 3.00 to 4.00 

percent, not from 2.00 to 3.00 percent as 

shown in Table 2. 

III. Collection of Information 

Requirements [If Applicable] 

This proposed methodology is 

unchanged from the 2015 final 

methodology that published on March 

12, 2014 (79 FR 13887). The 2016 

proposed methodology would not 

impose any new or revised reporting, 

recordkeeping, or third-party disclosure 

requirements and, therefore, does not 

require additional OMB review under 

the authority of the Paperwork 

Reduction Act of 1995 (44 U.S.C. 3501 

et seq.). The methodology’s information 

collection requirements and burden 

estimates are approved by OMB under 

control number 0938–1218 (CMS– 

10510). 

Consistent with the Basic Health 

Program’s proposed and final rules 

(78 FR 59122 and 79 FR 14112, 

respectively) we continue to estimate 

less than 10 annual respondents for 

completing the Blueprint. Consequently, 

the Blueprint is exempt from formal 

OMB review and approval under 5 CFR 

1320.3(c). 

Finally, this action would not impose 

any additional reporting, recordkeeping, 

or third-party disclosure requirements 

on qualified health plans or on states 

operating State Based Exchanges. 

IV. Response to Comments 

Because of the large number of public 

comments we normally receive on 

Federal Register documents, we are not 

able to acknowledge or respond to them 

individually. We will consider all 

comments we receive by the date and 

time specified in the DATES section of 

this preamble, and, when we proceed 

with a subsequent document, we will 

respond to the comments in the 

preamble to that document. 

V. Regulatory Impact Statement 

A. 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 1102(b) of the Act, section 

202 of the Unfunded Mandates Reform 

Act of 1995 (Pub. L. 104–4, March 22, 

1995) (UMRA), 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). Section 3(f) of Executive Order 

12866 defines a ‘‘significant regulatory 

action’’ as an action that is likely to 

result in a rule: (1) Having an annual 

effect on the economy of $100 million 

or more in any 1 year, or adversely and 

materially affecting a sector of the 

economy, productivity, competition, 

jobs, the environment, public health or 

safety, or state, local or tribal 

governments or communities (also 

referred to as ‘‘economically 

significant’’); (2) creating a serious 

inconsistency or otherwise interfering 

with an action taken or planned by 

another agency; (3) materially altering 

the budgetary impacts of entitlement 

grants, user fees, or loan programs or the 

rights and obligations of recipients 

thereof; or (4) raising novel legal or 

policy issues arising out of legal 

mandates, the President’s priorities, or 

the principles set forth in the Executive 

Order. 

A regulatory impact analysis (RIA) 

must be prepared for major rules with 

economically significant effects ($100 

million or more in any 1 year). As noted 

in the BHP final rule, BHP provides 

states the flexibility to establish an 

alternative coverage program for lowincome individuals who would 

otherwise be eligible to purchase 

coverage through the Exchange. We are 

uncertain as to whether the effects of the 

final rulemaking, and subsequently, this 

methodology, will be ‘‘economically 

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significant’’ as measured by the $100 

million threshold, and hence not a 

major rule under the Congressional 

Review Act. The impact may depend on 

several factors, including the number of 

and which particular states choose to 

implement or continue BHP in 2016, the 

level of QHP premiums in 2015 and 

2016, the number of enrollees in BHP, 

and the other coverage options for 

persons who would be eligible for BHP. 

In particular, while we generally expect 

that many enrollees would have 

otherwise been enrolled in a QHP 

through the Exchange, some persons 

may have been eligible for Medicaid 

under a waiver or a state health 

coverage program. For those who would 

have enrolled in a QHP and thus would 

have received PTCs or CSRs, the federal 

expenditures for BHP would be 

expected to be more than offset by a 

reduction in federal expenditures for 

PTCs and CSRs. For those who would 

have been enrolled in Medicaid, there 

would likely be a smaller offset in 

federal expenditures (to account for the 

federal share of Medicaid expenditures), 

and for those who would have been 

covered in non-federal programs or 

would have been uninsured, there likely 

would be an increase in federal 

expenditures. In accordance with the 

provisions of Executive Order 12866, 

this methodology was reviewed by the 

Office of Management and Budget. 

1. Need for the Methodology 

Section 1331 of the Affordable Care 

Act (codified at 42 U.S.C. 18051) 

requires the Secretary to establish a 

BHP, and section (d)(1) specifically 

provides that if the Secretary finds that 

a state ‘‘meets the requirements of the 

program established under section (a) 

[of section 1331 of the Affordable Care 

Act], the Secretary shall transfer to the 

State’’ federal BHP payments described 

in section (d)(3). This proposed 

methodology provides for the funding 

methodology to determine the federal 

BHP payment amounts required to 

implement these provisions in program 

year 2016. 

2. Alternative Approaches 

Many of the factors proposed in this 

methodology are specified in statute; 

therefore, we are limited in the 

alternative approaches we could 

consider. One area in which we had a 

choice was in selecting the data sources 

used to determine the factors included 

in the proposed methodology. Except 

for state-specific reference premiums 

and enrollment data, we propose using 

national rather than state-specific data. 

This is due to the lack of currently 

available state-specific data needed to 

develop the majority of the factors 

included in the proposed methodology. 

We believe the national data will 

produce sufficiently accurate 

determinations of payment rates. In 

addition, we believe that this approach 

will be less burdensome on states. To 

reference premiums and enrollment 

data, we propose using state-specific 

data rather than national data as we 

believe state-specific data will produce 

more accurate determinations than 

national averages. 

In addition, we considered whether or 

not to provide states the option to 

develop a protocol for a retrospective 

adjustment to the population health 

factor in 2016 as we did in the 2015 

payment methodology. We believe that 

providing this option again in 2016 is 

appropriate and likely to improve the 

accuracy of the final payments. 

We also considered whether or not to 

require the use of 2015 or 2016 QHP 

premiums to develop the 2016 federal 

BHP payment rates. We believe that the 

payment rates can still be developed 

accurately using either the 2015 or 2016 

QHP premiums and that it is 

appropriate to provide the states the 

option, given the interests and specific 

considerations each state may have in 

operating the BHP. 

3. Transfers 

The provisions of this methodology 

are designed to determine the amount of 

funds that will be transferred to states 

offering coverage through a BHP rather 

than to individuals eligible for premium 

and cost-sharing reductions for coverage 

purchased on the Exchange. We are 

uncertain what the total federal BHP 

payment amounts to states will be as 

these amounts will vary from state to 

state due to the varying nature of state 

composition. For example, total federal 

BHP payment amounts may be greater 

in more populous states simply by 

virtue of the fact that they have a larger 

BHP-eligible population and total 

payment amounts are based on actual 

enrollment. Alternatively, total federal 

BHP payment amounts may be lower in 

states with a younger BHP-eligible 

population as the reference premium 

used to calculate the federal BHP 

payment will be lower relative to older 

BHP enrollees. While state composition 

will cause total federal BHP payment 

amounts to vary from state to state, we 

believe that the proposed methodology 

accounts for these variations to ensure 

accurate BHP payment transfers are 

made to each state. 

B. Unfunded Mandates Reform Act 

Section 202 of the UMRA requires 

that agencies assess anticipated costs 

and benefits before issuing any rule 

whose mandates require spending in 

any 1 year of $100 million in 1995 

dollars, updated annually for inflation, 

by state, local, or tribal governments, in 

the aggregate, or by the private sector. In 

2014, that threshold is approximately 

$141 million. States have the option, but 

are not required, to establish a BHP. 

Further, the proposed methodology 

would establish federal payment rates 

without requiring states to provide the 

Secretary with any data not already 

required by other provisions of the 

Affordable Care Act or its implementing 

regulations. Thus, this proposed 

payment notice does not mandate 

expenditures by state governments, 

local governments, or tribal 

governments. 

C. Regulatory Flexibility Act 

The Regulatory Flexibility Act (5 

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

agencies to prepare an initial regulatory 

flexibility analysis to describe the 

impact of the proposed rule on small 

entities, unless the head of the agency 

can certify that the rule will not have a 

significant economic impact on a 

substantial number of small entities. 

The Act generally defines a ‘‘small 

entity’’ as (1) a proprietary firm meeting 

the size standards of the Small Business 

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

in its field; or (3) a small government 

jurisdiction with a population of less 

than 50,000. Individuals and states are 

not included in the definition of a small 

entity. Few of the entities that meet the 

definition of a small entity as that term 

is used in the RFA would be impacted 

directly by this proposed methodology. 

Because this proposed methodology is 

focused on the proposed funding 

methodology that will be used to 

determine federal BHP payment rates, it 

does not contain provisions that would 

have a significant direct impact on 

hospitals, and other health care 

providers that are designated as small 

entities under the RFA. We cannot 

determine whether this proposed 

methodology would have a significant 

economic impact on a substantial 

number of small entities, and we request 

public comment on this issue. 

Section 1102(b) of the Act requires us 

to prepare a regulatory impact analysis 

if a proposed methodology may have a 

significant economic impact on the 

operations of a substantial number of 

small rural hospitals. For purposes of 

section 1102(b) of the Act, we define a 

small rural hospital as a hospital that is 

located outside of a metropolitan 

statistical area and has fewer than 100 

beds. As indicated in the preceding 

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discussion, there may be indirect 

positive effects from reductions in 

uncompensated care. Again, we cannot 

determine whether this proposed 

methodology would have a significant 

economic impact on a substantial 

number of small rural hospitals, and we 

request public comment on this issue. 

D. Federalism 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed rule (and subsequent final 

rule) that imposes substantial direct 

effects on states, preempts state law, or 

otherwise has federalism implications. 

The BHP is entirely optional for states, 

and if implemented in a state, provides 

access to a pool of funding that would 

not otherwise be available to the state. 

Dated: September 19, 2014. 

Marilyn Tavenner, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: October 19, 2014. 

Sylvia Burwell, 

Secretary, Department of Health and Human 

Services. 

[FR Doc. 2014–25257 Filed 10–21–14; 4:15 pm] 

BILLING CODE 4120–01–P 

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