Vol. 79 Tuesday, 

No. 47 March 11, 2014 

Part II 

Department of Health and Human Services 

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

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

Payment Parameters for 2015; Final Rule 

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13744 Federal Register / Vol. 79, No. 47 / Tuesday, March 11, 2014 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

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

and 158 

[CMS–9954–F] 

RIN 0938–AR89 

Patient Protection and Affordable Care 

Act; HHS Notice of Benefit and 

Payment Parameters for 2015 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final rule. 

SUMMARY: This final rule sets forth 

payment parameters and oversight 

provisions related to the risk 

adjustment, reinsurance, and risk 

corridors programs; cost sharing 

parameters and cost-sharing reductions; 

and user fees for Federally-facilitated 

Exchanges. It also provides additional 

standards with respect to composite 

premiums, privacy and security of 

personally identifiable information, the 

annual open enrollment period for 2015, 

the actuarial value calculator, the 

annual limitation in cost sharing for 

stand-alone dental plans, the 

meaningful difference standard for 

qualified health plans offered through a 

Federally-facilitated Exchange, patient 

safety standards for issuers of qualified 

health plans, and the Small Business 

Health Options Program. 

DATES: These regulations are effective 

on May 12, 2014. 

FOR FURTHER INFORMATION CONTACT: 

For general information: Sharon Arnold, 

(301) 492–4286; Laurie McWright, 

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

4305. 

For matters related to student health 

insurance coverage and composite 

premiums: Jacob Ackerman, (301) 

492–4179. 

For matters related to the risk 

adjustment program: Kelly Horney, 

(410) 786–0558. 

For general matters related to the 

reinsurance program: Adrianne 

Glasgow, (410) 786–0686. 

For matters related to reinsurance 

contributions: Adam Shaw, (410) 

786–1019. 

For matters related to risk corridors: 

Jaya Ghildiyal, (301) 492–5149. 

For matters related to medical loss ratio: 

Christina Pavlus, (301) 492–4172. 

For matters related to cost-sharing 

reductions and netting of payments 

and charges: Pat Meisol, (410) 786– 

1917. 

For matters related to the premium 

adjustment percentage: Johanna 

Lauer, (301) 492–4397. 

For matters related to Federallyfacilitated Exchange user fees: 

Michael Cohen, (301) 492–4277. 

For matters related to the annual 

limitation on cost sharing for standalone dental plans, privacy and 

security of personally identifiable 

information, the annual open 

enrollment period for 2015, and the 

meaningful difference standard: 

Leigha Basini, (301) 492–4380. 

For matters related to the Small 

Business Health Options Program: 

Christelle Jang, (410) 786–8438. 

For matters related to the actuarial value 

calculator: Allison Yadsko, (410) 786– 

1740. 

For matters related to patient safety 

standards for issuers of qualified 

health plans: Nidhi Singh Shah, (301) 

492–5110. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Executive Summary 

II. Background 

A. Legislative and Regulatory Overview 

B. Stakeholder Consultation and Input 

C. Intended Future Rulemaking 

III. Provisions of the Final Regulations and 

Analysis and Responses to Public 

Comments 

A. Part 144—Requirements Relating to 

Health Insurance Coverage 

B. Part 147—Health Insurance Reform 

Requirements for the Group and 

Individual Health Insurance Markets 

1. Composite Premiums 

2. Student Health Insurance Coverage 

C. Part 153—Standards Related to 

Reinsurance, Risk Corridors, and Risk 

Adjustment Under the Affordable Care 

Act 

1. Provisions for the State Notice of Benefit 

and Payment Parameters 

2. Provisions and Parameters for the 

Permanent Risk Adjustment Program 

a. Risk Adjustment User Fees 

b. HHS Risk Adjustment Methodology 

Considerations 

c. Small Group Determination for Risk 

Adjustment 

d. Risk Adjustment Data Validation 

e. HHS Audits of Issuers of Risk 

Adjustment Covered Plans 

f. State-Submitted Alternate Risk 

Adjustment Methodology 

3. Provisions and Parameters for the 

Transitional Reinsurance Program 

a. Major Medical Coverage 

b. Self-Administered, Self-Insured Plans 

c. Uniform Reinsurance Contribution Rate 

d. Uniform Reinsurance Payment 

Parameters for 2015 

e. Adjustment Options 

f. Reinsurance-Eligible Plans 

g. Deducting Cost-Sharing Reduction 

Amounts From Reinsurance Payments 

h. Audits 

i. Same Covered Life 

j. Reinsurance Contributions and Enrollees 

Residing in the Territories 

k. Form 5500 Counting Method 

4. Provisions for the Temporary Risk 

Corridors Program 

a. Definitions 

b. Compliance With Risk Corridors 

Standards 

c. Participation in the Risk Corridors 

Program 

d. Adjustment for the Transitional Policy 

5. Distributed Data Collection for the HHSOperated Risk Adjustment and 

Reinsurance Programs 

a. Discrepancy Resolution Process 

b. Default Risk Adjustment Charge 

c. Clarification of the Good Faith Safe 

Harbor 

D. Part 155—Exchange Establishment 

Standards and Other Related Standards 

Under the Affordable Care Act 

1. Election to Operate an Exchange After 

2014 

2. Ability of States To Permit Agents and 

Brokers To Assist Qualified Individuals, 

Qualified Employers, or Qualified 

Employees Enrolling in QHPs 

3. Privacy and Security of Personally 

Identifiable Information 

4. Annual Open Enrollment Period for 

2015 

5. Functions of a SHOP 

6. Eligibility Determination Process for 

SHOP 

7. Application Standards for SHOP 

E. Part 156—Health Insurance Issuer 

Standards Under the Affordable Care 

Act, Including Standards Related to 

Exchanges 

1. Provisions Related to Cost Sharing 

a. Premium Adjustment Percentage 

b. Reduced Maximum Annual Limitation 

on Cost Sharing 

c. Design of Cost-Sharing Reduction Plan 

Variations 

d. Advance Payments of Cost-Sharing 

Reductions 

2. Provisions on FFE User Fees 

a. FFE User Fee for the 2015 Benefit Year 

b. Adjustment of FFE User Fee 

3. AV Calculation for Determining Level of 

Coverage 

4. National Annual Limit on Cost Sharing 

for Stand-Alone Dental Plans in an 

Exchange 

5. Additional Standards Specific to SHOP 

6. Meaningful Difference Standard for 

QHPs in the FFEs 

7. Quality Standards: Establishment of 

Patient Safety Standards for QHP Issuers 

8. Financial Programs 

a. Netting of Payments and Charges 

b. Confirmation of HHS Payment and 

Collections Reports 

c. Administrative Appeals 

IV. Collection of Information Requirements 

V. Response to Comments 

VI. Regulatory Impact Analysis 

A. Statement of Need 

B. Overall Impact 

C. Impact Estimates of the Payment Notice 

Provisions 

D. Regulatory Flexibility Act 

E. Unfunded Mandates 

F. Federalism 

G. Congressional Review Act 

VII. Provisions of Final Regulation 

VIII. Regulations Text 

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Federal Register / Vol. 79, No. 47 / Tuesday, March 11, 2014 / Rules and Regulations 13745 

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

Exchanges, also called State-based Exchanges, and 

Federally-facilitated Exchanges (FFEs). In this rule, 

we use the terms ‘‘State Exchange’’ or ‘‘FFE’’ when 

we are referring to a particular type of Exchange. 

When we refer to ‘‘FFEs,’’ we are also referring to 

State Partnership Exchanges, which are a form of 

FFE. 

2Available at: https://www.regtap.info/uploads/

library/ACA_HHS_OperatedRADVWhitePaper_

062213_5CR_062213.pdf. 

Acronyms 

Affordable Care Act The collective term for 

the Patient Protection and Affordable Care 

Act (Pub. L. 111–148) and the Health Care 

and Education Reconciliation Act of 2010 

(Pub. L. 111–152) 

AV Actuarial Value 

CFR Code of Federal Regulations 

CMS Centers for Medicare & Medicaid 

Services 

EHB Essential Health Benefits 

ERISA Employee Retirement Income 

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

FFE Federally-facilitated Exchange 

FF–SHOP Federally-facilitated Small 

Business Health Options Program 

FPL Federal poverty level 

HCC Hierarchical condition category 

HHS United States Department of Health 

and Human Services 

HIPAA Health Insurance Portability and 

Accountability Act of 1996 (Pub. L. 104– 

191) 

IRS Internal Revenue Service 

MLR Medical Loss Ratio 

OMB Office of Management and Budget 

OPM United States Office of Personnel 

Management 

PHS Act Public Health Service Act 

PII Personally identifiable information 

PSO Patient Safety Organization 

PRA Paperwork Reduction Act of 1995 

PSES Patient safety evaluation system 

QHP Qualified health plan 

SADP Stand-alone Dental Plan 

SHOP Small Business Health Options 

Program 

The Code Internal Revenue Code of 1986 

TPA Third party administrator 

I. Executive Summary 

Qualified individuals and qualified 

employers are now able to purchase 

private health insurance coverage 

through competitive marketplaces 

called Affordable Insurance Exchanges, 

or ‘‘Exchanges’’ (also called Health 

Insurance Marketplaces, or 

‘‘Marketplaces’’).1 Individuals who 

enroll in qualified health plans (QHPs) 

through individual market Exchanges 

may be eligible to receive premium tax 

credits to make health insurance more 

affordable and reductions in costsharing payments to reduce out-ofpocket expenses for health care services. 

In 2014, HHS began operationalizing the 

premium stabilization programs 

established by the Affordable Care Act. 

These programs—the risk adjustment, 

reinsurance, and risk corridors 

programs—are intended to mitigate the 

potential impact of adverse selection 

and stabilize the price of health 

insurance in the individual and small 

group markets. We believe that these 

programs, together with other reforms of 

the Affordable Care Act, will make highquality health insurance affordable and 

accessible to millions of Americans. 

HHS has previously outlined the 

major provisions and parameters related 

to the advance payments of the 

premium tax credit, cost-sharing 

reductions, and premium stabilization 

programs. This rule finalizes additional 

provisions related to the 

implementation of these programs, 

including certain oversight provisions 

for the premium stabilization programs, 

as well as key payment parameters for 

the 2015 benefit year. 

The HHS Notice of Benefit and 

Payment Parameters for 2014 final rule 

(78 FR 15410) (2014 Payment Notice) 

finalized the risk adjustment 

methodology that HHS will use when it 

operates risk adjustment on behalf of a 

State. This final rule establishes updates 

to the risk adjustment methodology for 

2014 to account for certain private 

market Medicaid expansion alternative 

plans. It also establishes the counting 

methods for determining small group 

size for participation in the risk 

adjustment and risk corridors programs. 

Using the methodology set forth in the 

2014 Payment Notice, we establish a 

2015 uniform reinsurance contribution 

rate of $44 annually per capita, and the 

2015 uniform reinsurance payment 

parameters—a $70,000 attachment 

point, a $250,000 reinsurance cap, and 

a 50 percent coinsurance rate. We are 

also finalizing our proposal to decrease 

the attachment point for 2014 from 

$60,000 to $45,000. Additionally, in 

order to maximize the financial effect of 

the transitional reinsurance program, we 

provide that if reinsurance contributions 

collected for a benefit year exceed total 

requests for reinsurance payments for 

the benefit year, we will increase the 

coinsurance rate on our reinsurance 

payments for that benefit year up to 100 

percent, rolling over any remaining 

funds for use as reinsurance payments 

for the subsequent benefit year. 

We also finalize several provisions 

related to cost sharing. First, we 

establish a methodology, with certain 

modifications described below, for 

estimating average per capita premium 

and for calculating the premium 

adjustment percentage for 2015, which 

is used to set the rate of increase for 

several parameters detailed in the 

Affordable Care Act, including the 

maximum annual limitation on cost 

sharing and the maximum annual 

limitation on deductibles for health 

plans in the small group market for 

2015. We are establishing the reduced 

maximum annual limitations on cost 

sharing for the 2015 benefit year for 

cost-sharing reduction plan variations. 

We are relaxing the requirement that a 

QHP and its plan variations have the 

same out-of-pocket spending for nonEHBs. We are finalizing our proposal to 

modify the methodology for calculating 

advance payments for cost-sharing 

reductions for the 2015 benefit year. We 

are also finalizing parameters for 

updating the AV Calculator. 

For 2015, we are finalizing the FFE 

user fee rate of 3.5 percent of premium. 

Additionally, with respect to the FFE 

user fee adjustment set forth under the 

Coverage of Certain Preventive Services 

Under the Affordable Care Act final 

rule, published in the July 2, 2013 

Federal Register (78 FR 39870) 

(Preventive Services Rule), we are 

finalizing an allowance for 

administrative costs and margin 

associated with the payment for 

contraceptive services. We are also 

finalizing proposed modifications to the 

risk corridors program for the 2014 

benefit year. 

The success of the premium 

stabilization programs depends on a 

robust oversight program. This final rule 

expands on the provisions of the 

Premium Stabilization Rule (77 FR 

17220), the 2014 Payment Notice (78 FR 

15410), and the first and second final 

Program Integrity Rules (78 FR 54070 

and 78 FR 65046). We are finalizing 

HHS’s authority to audit State-operated 

reinsurance programs, contributing 

entities, and issuers of risk adjustment 

covered plans and reinsurance eligibleplans. We also finalize participation 

standards for the risk corridors program, 

and outline a process for validating risk 

corridors data submissions and 

enforcing compliance with the 

provisions of the risk corridors program. 

We also finalize several aspects of our 

methodology for the HHS-operated risk 

adjustment data validation process. On 

June 22, 2013, we issued ‘‘The 

Affordable Care Act HHS-operated Risk 

Adjustment Data Validation Process 

White Paper’’ 2 and on June 25, 2013, we 

held a public meeting to discuss how to 

best ensure the accuracy and 

consistency of the data we will use 

when operating the risk adjustment 

program on behalf of a State. In this 

final rule, we establish certain standards 

for risk adjustment data validation, 

including a sampling methodology for 

the initial validation audit and detailed 

audit standards. These standards will be 

used and evaluated for 2 years before 

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13746 Federal Register / Vol. 79, No. 47 / Tuesday, March 11, 2014 / Rules and Regulations 

3 If a State elects this option, the rating rules in 

section 2701 of the PHS Act and its implementing 

regulations will apply to all coverage offered in 

such State’s large group market (except for selfinsured group health plans) pursuant to section 

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

they are used as a basis for payment 

adjustments. 

This rule also includes a reduction in 

the time period for which a State 

electing to operate an Exchange after 

2014 must have in effect an approved, 

or conditionally approved, Exchange 

Blueprint and operational readiness 

assessment from at least 12 months to 

6.5 months prior to the Exchange’s first 

effective date of coverage. We also 

finalize certain provisions related to the 

privacy and security of personally 

identifiable information (PII) in the 

Exchange, the Exchange annual open 

enrollment period for 2015, the annual 

limitation on cost sharing for standalone dental plans, the meaningful 

difference standards for QHPs offered 

through an FFE, the SHOP, patient 

safety standards for QHP issuers, and 

composite premiums in the small group 

market. 

II. Background 

A. Legislative and Regulatory Overview 

The Patient Protection and Affordable 

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

on March 23, 2010. The Health Care and 

Education Reconciliation Act of 2010 

(Pub. L. 111–152), which amended and 

revised several provisions of the Patient 

Protection and Affordable Care Act, was 

enacted on March 30, 2010. In this rule, 

we refer to the two statutes collectively 

as the ‘‘Affordable Care Act.’’ 

Section 1201 of the Affordable Care 

Act added section 2701 of the Public 

Health Service Act (PHS Act) regarding 

fair health insurance premiums. Section 

2701(a)(1) limits the variation in 

premium rates charged by a health 

insurance issuer for non-grandfathered 

health insurance coverage (including 

QHPs) in the individual or small group 

market to four factors: Family size; 

rating area; age; and tobacco use. 

Section 2701(a)(4) of the PHS Act 

requires that any family premium using 

age or tobacco rating may only apply 

those rates to the portion of the 

premium that is attributable to each 

family member. 

Section 1302 of the Affordable Care 

Act directs the Secretary of Health and 

Human Services (referred to throughout 

this rule as the Secretary) to define 

essential health benefits (EHBs) and 

provides for cost-sharing limits and 

actuarial value (AV) requirements. 

Section 1302(d) of the Affordable Care 

Act describes the various levels of 

coverage based on AV. Consistent with 

section 1302(d)(2)(A) of the Affordable 

Care Act, AV is calculated based on the 

provision of EHB to a standard 

population. Section 1302(d)(3) of the 

Affordable Care Act directs the 

Secretary to develop guidelines that 

allow for de minimis variation in AV 

calculations. 

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

Affordable Care Act directs that the 

SHOP assist qualified small employers 

in facilitating the enrollment of their 

employees in QHPs offered in the small 

group market. Under section 

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

beginning in 2017, States will have the 

option to allow issuers to offer QHPs in 

the large group market through the 

SHOP.3

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

Affordable Care Act states that the 

Secretary is to set annual open 

enrollment periods for Exchanges for 

calendar years after the initial 

enrollment period. 

Section 1311(h)(1) of the Affordable 

Care Act specifies that a QHP may 

contract with health care providers and 

hospitals with more than 50 beds only 

if they meet certain patient safety 

standards. For hospitals with more than 

50 beds, this includes the use of a 

patient safety evaluation system and a 

comprehensive hospital discharge 

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

Affordable Care Act also provides the 

Secretary flexibility to establish 

reasonable exceptions to these patient 

safety requirements, and section 

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

allows the Secretary flexibility to issue 

regulations to modify the number of 

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

of the Affordable Care Act. 

Sections 1313 and 1321 of the 

Affordable Care Act provide the 

Secretary with the authority to oversee 

the financial integrity of State 

Exchanges, their compliance with HHS 

standards, and the efficient and nondiscriminatory administration of State 

Exchange activities. Section 1321(a) of 

the Affordable Care Act provides 

general authority for the Secretary to 

establish standards and regulations to 

implement the statutory requirements 

related to Exchanges, QHPs, and other 

components of Title I of the Affordable 

Care Act. 

When operating an FFE under section 

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

HHS has the authority under sections 

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

Affordable Care Act to collect and spend 

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

permits a Federal agency to establish a 

charge for a service provided by the 

agency. Office of Management and 

Budget (OMB) Circular A–25 Revised 

establishes Federal policy regarding 

user fees and specifies that a user charge 

will be assessed against each 

identifiable recipient for special benefits 

derived from Federal activities beyond 

those received by the general public. 

Section 1341 of the Affordable Care 

Act requires the establishment of a 

transitional reinsurance program in each 

State to help pay the cost of treating 

high-cost enrollees in the individual 

market from 2014 through 2016. Section 

1342 of the Affordable Care Act directs 

the Secretary to establish a temporary 

risk corridors program that provides for 

the sharing in gains or losses resulting 

from inaccurate rate setting from 2014 

through 2016 between the Federal 

government and certain participating 

health plans. Section 1343 of the 

Affordable Care Act establishes a 

permanent risk adjustment program that 

is intended to provide increased 

payments to health insurance issuers 

that attract higher-risk populations, 

such as those with chronic conditions, 

and thereby reduce incentives for 

issuers to avoid higher-risk enrollees. 

Sections 1402 and 1412 of the 

Affordable Care Act establish a program 

for reducing cost sharing for qualified 

individuals with lower household 

income and Indians. 

Section 1411(g) of the Affordable Care 

Act requires that any person who 

receives information specified in section 

1411(b) from an applicant or 

information specified in section 1411(c), 

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

use the information only for the purpose 

of and to the extent necessary to ensure 

the efficient operation of the Exchange, 

and may not disclose the information to 

any other person except as provided in 

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

the Code additionally provides that 

return information disclosed under 

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

used only for the purpose of and to the 

extent necessary in establishing 

eligibility for participation in the 

Exchange, verifying the appropriate 

amount of any premium tax credit or 

cost-sharing reduction, or determining 

eligibility for participation in a health 

insurance affordability program as 

described in that section. 

Section 1560(c) of the Affordable Care 

Act provides that nothing in title I of the 

Affordable Care Act (or an amendment 

made by Title I of the Affordable Care 

Act) shall be construed to prohibit an 

institution of higher education (as such 

term is defined for purposes of the 

Higher Education Act of 1965) from 

offering a student health insurance plan, 

to the extent that such requirement is 

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Federal Register / Vol. 79, No. 47 / Tuesday, March 11, 2014 / Rules and Regulations 13747 

otherwise permitted under applicable 

Federal, State or local law. 

1. Premium Stabilization Programs 

In the July 15, 2011 Federal Register 

(76 FR 41930), we published a proposed 

rule outlining the premium stabilization 

programs. We implemented the 

premium stabilization programs in a 

final rule, published in the March 23, 

2012 Federal Register (77 FR 17220) 

(Premium Stabilization Rule). In the 

December 7, 2012 Federal Register (77 

FR 73118) (proposed 2014 Payment 

Notice), we published a proposed rule 

outlining the benefit and payment 

parameters for the 2014 benefit year to 

expand the provisions related to the 

premium stabilization programs and set 

forth payment parameters in those 

programs. We published the final rule in 

the March 11, 2013 Federal Register (78 

FR 153410) (2014 Payment Notice). 

As discussed above, we published a 

white paper on risk adjustment data 

validation on June 22, 2013, and hosted 

a public meeting on June 25, 2013, to 

discuss the white paper. 

2. Program Integrity 

In the June 19, 2013 Federal Register 

(78 FR 37032), we published a proposed 

rule that proposed certain program 

integrity standards related to Exchanges 

and the premium stabilization programs 

(proposed Program Integrity Rule). The 

provisions of that proposed rule were 

finalized in two rules, the ‘‘first final 

Program Integrity Rule’’ published in 

the August 30, 2013 Federal Register 

(78 FR 54070) and the ‘‘second final 

Program Integrity Rule’’ published in 

the October 30, 2013 Federal Register 

(78 FR 65046). 

3. Exchanges, Essential Health Benefits, 

Actuarial Value 

A proposed rule relating to EHBs and 

AV was published in the November 26, 

2012 Federal Register (77 FR 70644). 

We finalized standards related to the 

premium adjustment percentage and AV 

in the Standards Related to Essential 

Health Benefits, Actuarial Value, and 

Accreditation Final Rule, published in 

the February 25, 2013 Federal Register 

(78 FR 12834) (EHB Rule). We 

established standards for the 

administration and payment of costsharing reductions and the SHOP in the 

2014 Payment Notice and in the 

Amendments to the HHS Notice of 

Benefit and Payment Parameters for 

2014 interim final rule, published in the 

March 11, 2013 Federal Register (78 FR 

15541). The provisions established in 

the interim final rule were finalized in 

the second final Program Integrity Rule. 

We established standards related to 

Exchange user fees in the 2014 Payment 

Notice. We also established an 

adjustment to the FFE user fee in the 

Preventive Services Rule. 

A Request for Comment relating to 

Exchanges was published in the August 

3, 2010 Federal Register (75 FR 45584). 

An Initial Guidance to States on 

Exchanges was issued on November 18, 

2010. A proposed rule was published in 

the July 15, 2011 Federal Register (76 

FR 41866) to implement components of 

the Exchange. A proposed rule 

regarding Exchange functions in the 

individual market, eligibility 

determinations, and Exchange standards 

for employers was published in the 

August 17, 2011 Federal Register (76 FR 

51202). A final rule implementing 

components of the Exchanges and 

setting forth standards for eligibility for 

Exchanges was published in the March 

27, 2012 Federal Register (77 FR 18310) 

(Exchange Establishment Rule). 

4. Market Rules 

We published a proposed rule relating 

to the 2014 market reforms in the 

November 26, 2012 Federal Register (77 

FR 70584), and a final rule 

implementing these provisions in the 

February 27, 2013 Federal Register (78 

FR 13406) (Market Reform Rule). 

5. Medical Loss Ratio 

We published a request for comment 

on PHS Act section 2718 in the April 

14, 2010 Federal Register (75 FR 

19297), and published an interim final 

rule with a 60-day comment period 

relating to the medical loss ratio (MLR) 

program on December 1, 2010 (75 FR 

74864). A final rule with a 30-day 

comment period was published in the 

December 7, 2011 Federal Register (76 

FR 76574). 

B. Stakeholder Consultation and Input 

In addition to seeking advice from the 

public on risk adjustment data 

validation, HHS has consulted with 

stakeholders on policies related to the 

operation of Exchanges, including the 

SHOP and the premium stabilization 

programs. HHS has held a number of 

listening sessions with consumers, 

providers, employers, health plans, the 

actuarial community, and State 

representatives to gather public input. 

HHS consulted with stakeholders 

through regular meetings with the 

National Association of Insurance 

Commissioners, regular contact with 

States through the Exchange 

Establishment grant and Exchange 

Blueprint approval processes, and 

meetings with Tribal leaders and 

representatives, health insurance 

issuers, trade groups, consumer 

advocates, employers, and other 

interested parties. We considered all of 

the public input as we developed the 

policies in this final rule. 

C. Intended Future Rulemaking 

Some of the public input suggested 

changes for 2015 that require additional 

rulemaking. In the interest of 

transparency, we describe here the 

potential policies that we intend to 

include in such future rulemaking for 

public comment. 

Eligibility & Enrollment: We intend to 

propose in future rulemaking a limited 

number of revisions to our rules on 

eligibility, enrollment, and eligibility 

appeals. For example, we intend to 

propose that an appeals entity be 

required to dismiss an appeal if the 

employer or employee withdraws the 

request in writing or by telephone. In 

future rulemaking, we also intend to 

propose that an Exchange may establish 

one or more standard processes for 

prorating premiums for partial month 

enrollment, and that the FFE will 

establish one consistent with the 

methodology finalized in this rule for 

the FF–SHOPs. 

Index of Premium Growth and Income 

Growth: To implement section 

5000A(e)(1)(D) of the Code, we intend to 

propose a methodology for determining 

the excess of the rate of premium 

growth over the rate of income growth 

for years after 2014. We are also 

considering modifying our rounding 

rules to always round certain costsharing parameters down to the next 

lower multiple of $50. 

Plan Management: In future 

rulemaking, we intend to propose 

technical amendments to standards for 

issuing civil money penalties against 

QHP issuers and for decertifying QHPs, 

as currently set forth in 45 CFR 156.805 

and 156.810. 

Plan Changes: We intend to outline in 

future guidance the distinction between 

when a plan is being modified and 

when it is being terminated for purposes 

of plan renewal. For example, if an 

issuer makes changes to a plan that 

cause it to be in a different metal level, 

it would in fact be considered to be a 

new plan. We also intend to propose 

that issuers utilize standard notices in a 

format designated by the Secretary 

when discontinuing a product. 

HIPAA Opt-Out for Self-Funded, NonFederal Governmental Plans: Prior to 

enactment of the Affordable Care Act, 

sponsors of self-funded, non-Federal 

governmental plans were permitted to 

elect to exempt those plans from certain 

provisions of title XXVII of the PHS Act. 

We intend to propose amendments to 

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13748 Federal Register / Vol. 79, No. 47 / Tuesday, March 11, 2014 / Rules and Regulations 

4Amendments to the HIPAA opt-out provision 

(formerly section 2721(b)(2) of the Public Health 

Service Act) made by the Affordable Care Act 

(September 21, 2010). Available at: http://

www.cms.gov/CCIIO/Resources/Files/Downloads/

opt_out_memo.pdf. 

5FAQs about Affordable Care Act 

Implementation (Part XVIII) and Mental Health 

Parity Implementation, Q11 (January 9, 2014). 

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

Fact-Sheets-and-FAQs/aca_implementation_

faqs18.html and http://www.dol.gov/ebsa/faqs/faqaca18.html. 

6See CCIIO Sub-Regulatory Guidance: Process for 

Obtaining Recognition as Minimum Essential 

Coverage (October 31, 2013). Available at: http://

www.cms.gov/CCIIO/Resources/Regulations-andGuidance/Downloads/mec-guidance-10-31- 

2013.pdf. 

7See CCIIO Sub-Regulatory Guidance: Process for 

Obtaining Recognition as Minimum Essential 

Coverage (October 31, 2013). Available at: http://

www.cms.gov/CCIIO/Resources/Regulations-andGuidance/Downloads/mec-guidance-10-31- 

2013.pdf. 

the non-Federal governmental plan 

regulations (45 CFR 146.180) to reflect 

the amendments made by the Affordable 

Care Act to these provisions, consistent 

with previously released guidance.4

Fixed Indemnity Insurance in the 

Individual Market: As indicated in 

previously released guidance, we intend 

to propose to amend the criteria for 

fixed indemnity insurance to be treated 

as an excepted benefit in the individual 

health insurance market.5

Minimum Essential Coverage: On 

October 31, 2013, we published 

guidance indicating that certain types of 

foreign group coverage are recognized as 

minimum essential coverage.6 We 

intend to propose amendments to in 

future rulemaking that would codify the 

treatment of foreign group coverage as 

described in the October 31, 2013 

guidance. We also intend to clarify that 

entities other than plan sponsors (for 

example, issuers) can apply for their 

coverage to be recognized as minimum 

essential coverage, pursuant to the 

process outlined in 45 CFR 156.604 and 

guidance thereunder.7

Navigator, Non-Navigator Assistance 

Personnel, and Certified Application 

Counselor Program Standards: We also 

intend to specify in future rulemaking 

certain types of State laws applicable to 

Navigators, non-Navigator assistance 

personnel, and certified application 

counselors that HHS would consider to 

prevent the application of the 

provisions of title I of the Affordable 

Care Act. We intend to propose through 

future rulemaking to update the 

standards applicable to Navigators and 

non-Navigator assistance personnel. In 

addition, we intend to propose 

standards specific to certified 

application counselors and certified 

application counselor designated 

organizations that would prohibit them 

from receiving consideration, directly or 

indirectly, from health insurance issuers 

or stop loss insurance issuers in 

connection with the enrollment of 

consumers in QHPs or non-QHPs, and 

that would require certified application 

counselors to be recertified on at least 

an annual basis. We further intend to 

propose that, in specific circumstances, 

certified application counselor 

designated organizations may serve 

targeted populations without violating 

the broad non-discrimination 

requirement related to Exchange 

functions. 

Civil Money Penalties for Consumer 

Assistance Entities: In future 

rulemaking, we intend to propose that 

HHS may impose civil money penalties 

against Navigators, non-Navigator 

assistance personnel, certified 

application counselor designated 

organizations, and certified application 

counselors in Federally-facilitated and 

State Partnership Exchanges, if these 

entities or individuals violate Federal 

requirements. 

Quality: In future rulemaking, we 

intend to propose quality reporting 

requirements for Exchanges and QHP 

issuers, including standards related to 

the implementation of the quality rating 

system (QRS), enrollee satisfaction 

survey (ESS), and a monitoring and 

appeals process for survey vendors. We 

intend to propose a beta testing period 

of the QRS and ESS in 2015 to provide 

early feedback to Exchanges and QHP 

issuers and begin public reporting of 

quality rating information in 2016. 

Risk Corridors: In response to our 

proposed adjustments to the risk 

corridors program to account for the 

transitional policy, we received 

comments urging us to raise the ceiling 

on allowable administrative costs for 

QHP issuers in all States. We are 

carefully analyzing it to consider 

proposing for the 2015 benefit year, 

considering its policy and budgetary 

implications, and would consider 

making corresponding changes to the 

risk corridors profit floor and to the 

MLR regulations at that time. We would 

implement this policy up to the point of 

budget neutrality, and may make 

downward adjustments to parameters if 

necessary. 

SHOP: In future rulemaking, we 

intend to propose amendments to align 

the dates for the annual election periods 

for qualified employers in all SHOPs 

with the start of open enrollment in the 

corresponding individual market 

Exchange for the 2015 benefit year. We 

also plan to propose to remove the 

required minimum lengths of both the 

employer election period and the 

employee open enrollment period to 

provide additional flexibility to SHOPs 

and qualified employers, which would 

permit SHOPs to complete the entire 

election and enrollment processes in 

fewer than 45 days. 

We are considering proposing through 

future rulemaking specific 

circumstances under which States could 

recommend that a SHOP modify the 

employee choice provision in 2015 if 

doing so would preserve and promote 

affordable insurance for employees and 

small businesses. 

Medical Loss Ratio: We intend to 

propose several amendments to the 

MLR regulations (45 CFR Part 158). We 

intend to propose standardized 

methodologies to take into account the 

special circumstances of issuers 

associated with the initial open 

enrollment and other changes to the 

market in 2014, including incurred costs 

due to technical problems during the 

launch of the State and Federal 

Exchanges. We also intend to propose 

amendments that would improve the 

consistency of MLR and rebate 

calculations in States that require the 

individual and small group markets to 

be merged. In addition, we intend to 

propose an extension to the period 

during which issuers may include ICD– 

10 conversion costs in the MLR 

numerator and a clarification to the 

rules for distribution of de minimis 

rebates. 

III. Provisions of the Final Regulations 

and Analysis and Responses to Public 

Comments 

A proposed rule, titled ‘‘Patient 

Protection and Affordable Care Act: 

HHS Notice of Benefit and Payment 

Parameters for 2015’’ was published in 

the December 2, 2013 Federal Register 

(78 FR 72322) with a comment period 

ending on December 26, 2013. In total, 

we received 129 comments from various 

stakeholders, including States, health 

insurance issuers, consumer groups, 

labor entities, industry groups, provider 

groups, patient safety groups, national 

interest groups, and other stakeholders. 

The comments ranged from general 

support or opposition to the proposed 

provisions to very specific questions or 

comments regarding proposed changes. 

We received a number of comments and 

suggestions that were outside the scope 

of the proposed rule and therefore will 

not be addressed in this final rule. 

Another proposed rule, entitled 

‘‘Patient Protection and Affordable Care 

Act; Program Integrity: Exchange, 

SHOP, and Eligibility Appeals’’ (78 FR 

37032), was published in the Federal 

Register on June 19, 2013 with a 

comment period ending on July 19, 

2013. We received a total of 99 

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8Other provisions of that proposed rule were 

finalized in two rules, the ‘‘first final Program 

Integrity Rule’’ published in the August 30, 2013 

Federal Register (78 FR 54070) and the ‘‘second 

final Program Integrity Rule’’ published in the 

October 30, 2013 Federal Register (78 FR 65046). 

9Section 2701(a)(5) of the PHS Act provides that 

if a State exercises the option of offering large group 

market QHPs in the SHOP, the rating rules in 

section 2701 that apply to the small group market 

will also apply to all coverage offered in that State’s 

large group market, except for self-insured group 

health plans. 

10The term ‘‘composite rating’’ has historically 

referred to an issuer rating practice that used the 

rating characteristics of a group as a whole—average 

employee health risk, average employee age, group 

size, and industrial code, among others—to 

determine an average rate per employee and 

corresponding average rates for different coverage 

tiers (for example, employee only, employee plus 

spouse, employee plus one or more children, and 

family coverage). This rating practice is no longer 

permitted under section 2701 of the PHS Act. 

11Under 45 CFR 147.102(c)(2), States that do not 

permit rating for age or tobacco use may require 

health insurance issuers in the individual and small 

group markets to use uniform family tiers and 

corresponding multipliers established by the State. 

In States that elect this approach, a small group 

market issuer may offer composite premiums in 

connection with a group health plan, as long as the 

total group premium equals the amount that is 

derived from family-tier rating. For ease of 

reference, we do not discuss this alternative each 

time we refer to a total group premium equaling the 

sum of per-member premiums. However, we note 

that references in this preamble to the total group 

premium equaling the sum of per-member 

premiums also include references to the total group 

premium equaling the sum of family-tier premiums 

in States with community rating that have 

established uniform family tiers. 

comments from various stakeholders, 

including States, health insurance 

issuers, consumer groups, agents and 

brokers, provider groups, Members of 

Congress, individuals, Tribal 

organizations, and other stakeholders. In 

this final rule, we are only finalizing 

from that proposed rule provisions 

related to standards for the SHOP to 

require all QHP issuers to make any 

change to rates at a uniform time.8 In 

this final rule, we are finalizing 

language proposed at § 155.705(b)(6)(ii) 

at § 155.705(b)(6)(i)(A) instead of at 

(b)(6)(ii), to make clear that we never 

intended for this proposal to supersede 

the language at current 

§ 155.705(b)(6)(ii), and are making a 

minor change to replace the word FF– 

SHOP with the term ‘‘Federallyfacilitated SHOP.’’ 

In this final rule, we provide a 

summary of each proposed provision, a 

summary of the public comments 

received and our responses to them, and 

the provisions we are finalizing. We 

note that nothing in these regulations 

limits the authority of the Office of the 

Inspector General (OIG) as set forth by 

the Inspector General Act of 1978 or 

other applicable law. 

Comment: We received a number of 

comments requesting that the comment 

period be extended to 60 days. 

Response: While we are sympathetic 

to these concerns, we received 

numerous detailed, substantive 

submissions on the contents of the rule. 

Additionally, the timeline for 

publication of this final rule 

accommodates issuer deadlines 

applicable for the 2015 benefit year. 

A. Part 144—Requirements Relating to 

Health Insurance Coverage 

In 45 CFR 144.103, we proposed to 

amend the definition of ‘‘policy year’’ 

for student health insurance coverage to 

mean generally the 12-month period 

that is designated as the policy year in 

the policy documents of the student 

health insurance coverage (rather than a 

calendar year). This amendment takes 

into account that student health 

insurance coverage is traditionally 

offered on an academic year basis with 

a policy year other than the calendar 

year. It is also consistent with our 

proposal in § 147.145 to exempt student 

health insurance coverage, a type of 

individual coverage, from certain 

calendar year requirements that apply to 

individual health insurance coverage. 

We received comments supporting 

this proposal. We are finalizing the 

amendment to the definition of ‘‘policy 

year’’ with the following minor 

modification. We remove the word 

‘‘individual’’ from the reference to 

‘‘individual health insurance coverage’’ 

so that the terminology is appropriate 

for both grandfathered individual 

market and student health insurance 

coverage. Accordingly, the definition of 

‘‘policy year’’ with respect to 

grandfathered individual health 

insurance coverage and student health 

insurance coverage generally now reads 

as ‘‘the 12-month period that is 

designated as the policy year in the 

policy documents of the health 

insurance coverage.’’ 

B. Part 147—Health Insurance Reform 

Requirements for the Group and 

Individual Health Insurance Markets 

1. Composite Premiums 

Section 2701(a)(1) of the PHS Act 

restricts the variation in premium rating 

for a particular plan or coverage to four 

factors: family size, geography, age, and 

tobacco use (within limits). Section 

2701(a)(4) of the PHS Act further 

requires that any rating variation for age 

and tobacco use must be applied based 

on the portion of the premium 

attributable to each family member 

covered under a group health plan or 

health insurance coverage. These rules 

generally apply to health insurance 

issuers offering non-grandfathered 

individual market and small group 

market coverage, both through and 

outside an Exchange, for plan or policy 

years beginning on or after January 1, 

2014.9

Consistent with the rating rules of 

section 2701 of the PHS Act, we 

established in 45 CFR 147.102(c) of the 

Market Reform Rule that the total 

premium charged by an issuer to a 

group health plan (in the small group 

market) or family (in the individual 

market) is generally determined by 

summing the premiums of each 

individual enrolled in the plan or 

coverage based on their age and tobacco 

use. This rating practice is known as 

per-member rating (also referred to as 

‘‘list billing’’). 

In the small group market, section 

2701 of the PHS Act regulates the 

premium ‘‘rate’’ that may be charged by 

an issuer for a group health plan based 

on the age and tobacco use of each 

enrollee; however the statute does not 

preclude the possibility that the group 

could be charged an amount for 

enrollees based on the average premium 

per member of the group, rather than 

their own specific per-member amount. 

We codified this interpretation in 

§ 147.102(c)(3) of the Market Reform 

rule, which provides that nothing 

prevents an issuer in the small group 

market from dividing the total group 

premium by the total number of 

enrollees covered under the plan to 

develop an average premium amount 

per enrollee. The preamble to the 

proposed rule referred to this practice as 

‘‘composite rating.’’ However, to avoid 

unintended confusion with the 

traditional industry use of that term, we 

use only the terms ‘‘composite 

premiums’’ or ‘‘average enrollee 

premium amounts’’ when referring to 

average per-enrollee premium amounts 

in this final rule.10 An issuer may offer 

composite premiums in connection with 

a small group health plan as long as the 

total group premium calculated at the 

time of applicable enrollment at the 

beginning of the plan year equals the 

amount that is derived from per-member 

rating.11

In the proposed rule, we proposed to 

amend § 147.102(c)(3) to specify that if 

an issuer offers a composite premium in 

connection with a group health plan in 

the small group market, the composite 

premium that was calculated based on 

applicable enrollment at the beginning 

of the plan year cannot vary during the 

plan year. For example, if a new hire 

enrolls in the plan in the middle of the 

plan year, the issuer would not adjust 

the average enrollee premium amount 

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12This separate pricing decision is governed by 

section 2705(b) of the PHS Act, as amended by the 

Affordable Care Act and incorporated into ERISA 

and the Code (providing that a group health plan, 

and a health insurance issuer offering group or 

individual health insurance coverage, generally 

may not require any individual (as a condition of 

enrollment or continued enrollment under the plan 

or coverage) to pay a premium or contribution 

which is greater than the premium or contribution 

for a similarly situated individual enrolled in the 

plan or coverage based on any health factor of the 

individual or a dependent of the individual). 

for the group based on the addition of 

the new enrollee. Rather, the amount 

that would be charged to the group for 

the new hire would be the same average 

enrollee premium amount that was 

established at the beginning of the plan 

year, and that amount would be added 

to the total group premium. The issuer 

would recalculate the average enrollee 

premium amount for the group only 

upon renewal. 

We proposed this policy to ensure 

that composite premiums for small 

group coverage—and thus employer 

contributions to coverage—could 

remain stable during the plan year even 

if the composition of the group changes 

(for example, due to employees adding 

or dropping coverage). Additionally, we 

indicated that we were considering 

establishing a ‘‘tiered-composite’’ 

premium structure under which a 

separate composite premium could be 

calculated for different tiers or 

categories of enrollees covered under a 

group health plan (such as employees, 

adult dependents, and child 

dependents). We described several 

possible alternatives for implementing 

tiered-composite premiums and sought 

comment on whether and how to 

establish such approach. 

We are finalizing our composite 

premium proposals with the addition of 

a tiered-composite premium structure 

based on one of the alternatives 

discussed in the preamble to the 

proposed rule. Specifically, we provide 

that a composite premium charged to a 

small group health plan must be based 

on enrollment of ‘‘participants and 

beneficiaries’’ at the beginning of the 

plan year, and may not vary until 

renewal. We also provide that any rating 

for tobacco use cannot be included in 

the composite premium for all enrollees 

but instead must be applied on a permember basis. Finally, we specify that 

an issuer offering composite premiums 

with respect to a particular product 

offered in the small group market in a 

State must do so uniformly for all group 

health plans enrolling in that product, 

giving those group health plans the 

option to pay premiums based on a 

composite premium methodology (to 

the extent permitted by applicable State 

law and except as provided in 

§ 156.285(a)(4) of this final rule when 

employee choice is offered in the FF– 

SHOPs). 

Comment: In response to the 

composite premium proposals, we 

received a few comments that suggested 

some concern and confusion that permember rating would no longer be 

required. 

Response: We have not changed the 

basic per-member rating requirement 

under section 2701 of the PHS Act, or 

the policy that in the small group 

market, an issuer may convert a group’s 

per-member premiums into average 

enrollee premium amounts as long as 

the total premium owed by the plan to 

the issuer is the same total produced by 

per-member rating. The proposed rule 

and this final rule simply provide 

clarity about when the per-member 

rating requirement is satisfied. 

Specifically, we recognize that, where 

an issuer offers a composite premium in 

connection with a group health plan, 

requiring strict adherence to a permember buildup at all times throughout 

the plan year may impose undue 

administrative burden on issuers and 

create premium instability for 

employers and employees. Given that 

the statute can reasonably be read to 

support either interpretation, we are 

finalizing amendments to 

§ 147.102(c)(3) which make clear that 

the requirement that the sum of 

composite premiums must equal the 

sum of per-member premiums is 

determined at the time of applicable 

enrollment at the beginning of the plan 

year. 

Comment: Some commenters urged 

HHS to make compositing premiums 

mandatory for all small group market 

issuers. Other commenters emphasized 

that the decision to offer composite 

premiums should continue to be 

voluntary at the option of the issuer (or 

as required by applicable State law). 

One commenter noted that issuers 

historically have offered composite rates 

to some group health plans but not 

others (for example, groups with more 

than ten employees) and requested 

clarification of whether this practice 

could continue. 

Response: This final rule neither 

requires nor prohibits the compositing 

of premiums in connection with a small 

group health plan (except with respect 

to employee choice in the FF–SHOPs as 

discussed below). This decision is 

within the discretion of the issuer 

unless applicable State law requires 

composite premiums. However, in 

response to comments, we are clarifying 

that if an issuer elects to offer composite 

premiums with respect to a particular 

product offered in the small group 

market in a State, the issuer cannot do 

so for only certain group health plans; 

the issuer must make the option to 

composite premiums uniformly 

available to all group health plans 

enrolling in that product, to the extent 

permitted by applicable State law and 

subject to § 156.285(a)(4) of this final 

rule (prohibiting QHP issuers from 

offering composite premiums when 

employers offer employee choice in the 

FF–SHOPs). Plan sponsors selecting a 

product that offers composite premiums 

may then decide whether to pay 

premiums based on a per-member or 

composite premium methodology. This 

does not affect what portion of the 

group premium will be paid by the 

employer or the employee.12

Comment: One commenter stated that 

requiring issuers to accept a premium 

based on a group’s composite premium 

at the beginning of the plan year as the 

standard rate for the entire plan year 

could affect the premium charged to the 

group health plan. 

Response: Depending on whether a 

new enrollee added to the plan mid-year 

is above or below the average age of the 

group, the composite premium might be 

higher or lower than the per-member 

premium that would otherwise be 

charged for that individual. 

Consequently, the total group premium 

would at that point no longer precisely 

equal the sum of the per-member 

premiums for each enrollee until the 

next renewal. Although this policy may 

thus create some variation from the 

result that would be produced by 

calculating premiums based on a strict 

per-member approach, we do not 

believe it will result in any material 

under-rating or over-rating in the market 

generally, because rates on average 

should balance out over the issuer’s 

single risk pool for the small group 

market. Additionally, as described 

above, we believe this method of 

calculating premiums is still based on a 

per-member rating methodology that is 

consistent with the statute. However, we 

will monitor the effects of this policy on 

the small group market and assess 

whether future changes may be 

necessary. 

Comment: In response to the request 

for comment regarding a uniform tieredcomposite premium structure, we 

received comments that both supported 

and opposed the tiered-composite 

approach under consideration. 

Commenters who opposed the suggested 

alternatives for implementing tieredcomposite premiums emphasized the 

differences between the suggested 

alternatives and current standard 

industry practice, which commonly 

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13For illustration, we assumed per-member 

premiums for family members of different ages 

enrolled in employer-group coverage and assumed 

various average ages for the group. For each average 

age, we calculated the total composite family 

premium that would be charged under a pure 

composite and two-tiered composite approach. The 

difference in the total composite premium for the 

family between the pure composite and two-tiered 

composite approach ranged from 35 to 55 percent, 

depending on the average age of the group. 

14 26 CFR 54.9802–1(f); 29 CFR 2590.702(f); and 

45 CFR 146.121(f). 

15 78 FR at 72328, footnote 6. 

establishes four or five coverage tiers 

and corresponding premiums that do 

not vary based on the number of 

children covered. Some commenters 

opposed the use of composite premiums 

altogether, suggested alternative tieredcomposite approaches using coverage 

tiers and corresponding multipliers, or 

advocated for a ‘‘pure’’ composite that 

averages the per-member rates of all 

enrollees in a plan, including the rates 

of both adults and children. 

Commenters who supported a tieredcomposite methodology generally 

thought it would ensure that premiums 

for family coverage appropriately reflect 

the lower rates of children. 

Response: We agree with commenters 

who suggested a tiered-composite 

premium approach would benefit 

families with children enrolled in plans 

using composite premiums. Based on 

our analysis, without a tiered approach, 

the composite premium charged for a 

family consisting of two adults (both age 

24) and three children (all under age 21) 

would be about 35 to 55 percent higher 

than the composite premium charged 

for the same family under a tiered 

approach, depending on the average age 

of the group.13 Accordingly, this rule 

establishes a tiered-composite 

methodology based on one of the 

alternatives discussed in the preamble 

to the proposed rule. 

The rule creates a two-tiered 

composite premium structure for small 

group market issuers that offer 

composite premiums, effective for plan 

years beginning on or after January 1, 

2015. Under this approach, an issuer 

offering composite premiums will 

calculate a composite premium (or 

average enrollee premium amount) for 

each individual age 21 and older and a 

composite premium for each individual 

under age 21 covered under the plan. 

We note that an individual’s status as an 

employee or adult dependent is not 

relevant for this purpose. To determine 

the total premium charged by the issuer 

for a given family composition, the 

issuer sums the average enrollee 

premium amount for each covered 

family member age 21 and older and the 

average enrollee premium amount for 

each covered family member under age 

21, as applicable, taking into account no 

more than three covered children under 

age 21 and applying any applicable 

tobacco rating factor on a per-member 

basis (as discussed below). 

For example, suppose the composite 

premium for a group health plan is $200 

for each covered individual age 21 and 

older and $100 for each covered 

individual under age 21. Also suppose 

that none of the enrollees uses tobacco. 

In this example, the premium charged 

for a single employee (over age 21) 

would be $200; the premium charged 

for an employee and spouse (both over 

age 21) would be $400 ($200 + $200); 

and the premium charged for a family 

consisting of an employee and spouse 

(both over age 21) and four children (all 

under age 21) would be $700 ($200 + 

$200 + $100 + $100 + $100 + $0). An 

example of how a tobacco rating factor 

would be applied is provided below. 

We discussed in the proposed rule 

that, under the approach we were 

considering, States could establish 

different tiered-composite premium 

standards with approval from HHS. We 

are finalizing this flexibility for States in 

this final rule. Thus, the tieredcomposite premium methodology 

established in this rule will apply in the 

small group market in a State, both for 

coverage offered through a SHOP 

(subject to the amendments in 

§ 156.285(a)(4) of this final rule that 

limit the availability of composite 

premiums in the FF–SHOPs when 

employee choice is offered) and for 

coverage outside of a SHOP, unless a 

State establishes and HHS approves an 

alternate tiered-composite methodology 

for the State. 

Section 147.103 of the Market Reform 

Rule directs States to report certain 

information to HHS about State-specific 

rating requirements, including Statespecific standards or requirements 

concerning average enrollee premium 

amounts. We interpret § 147.103(a)(5) to 

include a requirement that States report 

any State-proposed tiered-composite 

premium methodology that relates to 

average enrollee premium amounts. 

Accordingly, States seeking to adopt 

tiered-composite premium standards 

that differ from the Federal standards 

will submit information about such 

standards to HHS in accordance with 

the State reporting provisions set forth 

in § 147.103 and as further described in 

guidance. HHS will review a State’s 

composite premium standards to ensure 

(1) the State standards are at least as 

consumer protective as the Federal 

standards; and (2) the State 

methodology produces a total group 

premium that equals the amount that is 

derived through per-member rating 

established at the time of applicable 

enrollment at the beginning of the plan 

year. 

We believe these composite premium 

standards will guarantee minimum 

consumer protections in every State to 

assure that children are charged only 

child premium rates, while promoting 

administrative simplicity for issuers and 

employers and providing flexibility for 

States to establish alternative 

approaches for their health insurance 

market. 

Comment: Tobacco rating is subject to 

the non-discrimination and wellness 

provisions under section 2705 of the 

PHS Act (providing that an issuer in the 

group market may vary the premium 

rate based on legal use of tobacco only 

in connection with a wellness program 

meeting the standards of section 2705(j) 

of the PHS Act and its implementing 

regulations).14 The preamble to the 

proposed rule indicates that this is true 

regardless of whether a tobacco rating 

factor is applied on a per-member or 

composite basis.15 One commenter 

suggested that including any surcharge 

for tobacco use in a composite premium 

was inconsistent with the rationale of 

ensuring that tobacco rating is applied 

only to portion of the premium 

attributable to each individual covered 

under the plan or coverage. 

Response: To ensure that non-tobacco 

users do not have to pay any portion of 

a premium that is attributable to tobacco 

users enrolled in the plan, and to 

promote consistency with the wellness 

program requirements, this rule 

excludes any rating for tobacco use (as 

defined in § 147.102(a)(1)(iv)) from any 

enrollee’s composite premium. If an 

issuer offering composite premiums 

wishes to rate for tobacco use, 

consistent with applicable Federal and 

State law, the issuer must calculate the 

tobacco rating factor based on the 

applicable enrollee’s per-member 

premium, not the composite premium 

for all enrollees. The resulting tobacco 

rating factor is added to the composite 

premium for the enrollee who uses 

tobacco to create a premium specific to 

each tobacco user. For example, assume 

that the rate of a non-tobacco user is 

$100 and the issuer does not rate based 

on age. The issuer imposes a 1.5:1 

tobacco rating factor for individuals age 

45 and older who use tobacco (that is, 

a $50 tobacco surcharge) and a 1.3:1 

tobacco rating factor for individuals 

under age 45 who use tobacco (that is, 

a $30 tobacco surcharge). Further, 

assume that the composite premium for 

a group health plan is $100 for each 

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covered individual age 21 and older. In 

this example, the premium charged for 

a single employee (over age 45) who 

uses tobacco would be $150 ($100 + 

$50), and the premium charged for a 

single employee (under age 45) who 

uses tobacco would be $130 ($100 + 

$30), subject to the non-discrimination 

and wellness provisions under section 

2705 of the PHS Act. 

Comment: Some commenters 

questioned how a composite premium 

would be established for adult and child 

dependents under a two-tiered or threetiered composite approach if none were 

enrolled at the time of initial enrollment 

(or re-enrollment). 

Response: This rule establishes a twotiered rather than a three-tiered 

composite premium structure in 

response to these comments. The 

composite premium calculated at the 

beginning of the plan year for covered 

adults applies for all covered 

individuals age 21 and older regardless 

of whether they are an employee or 

adult dependent or when they enroll 

during the plan year. The composite 

premium calculated for covered 

individuals under age 21 is simply the 

per-member child age rate, which is a 

single rate for children ages 0 through 

20 pursuant to § 147.102(d) and (e), 

regardless of the total number of 

children covered under the plan (taking 

into account no more than three covered 

children under age 21 with respect to a 

given family). For these reasons, and 

because a tobacco rating factor may be 

applied only on per-member basis, a 

composite premium will apply for both 

adult and child dependents who enroll 

after the start of the plan year (subject 

to the applicability of the tobacco rating 

factor). 

Comment: Commenters suggested 

modifying the regulation text to clarify 

that a composite premium is calculated 

based on applicable employee ‘‘and 

dependent’’ enrollment at the beginning 

of the plan year. 

Response: Because composite 

premiums will be generated for 

employees and dependents, as well as 

other types of group health plan 

enrollees (for example, retirees), we now 

refer to ‘‘participants’’ and 

‘‘beneficiaries’’ in the regulation text for 

consistency with the terms generally 

used under the Employee Retirement 

Income Security Act of 1974 (ERISA). 

Comment: The proposed rule 

provided that the new composite 

premium provisions would become 

applicable for plan years beginning on 

or after January 1, 2015. Some 

commenters noted that small group 

policies are issued on a rolling basis 

throughout the year and recommended 

the requirements become effective prior 

to 2015. 

Response: We recognize that issuers 

have developed the expertise and 

resources to comply with the permember rating methodology generally 

required under the law and regulations 

and that some issuers might need time 

to adjust their systems to offer 

composite premiums in accordance 

with this rule. Therefore, the rule will 

take effect as a requirement for plan 

years beginning on or after January 1, 

2015. However, as noted in the 

preamble to the proposed rule, we 

encourage issuers to voluntarily adopt 

the final rule’s composite premium 

standards for plan years beginning in 

2014. 

2. Student Health Insurance Coverage 

Student health insurance coverage is 

traditionally offered on an academic 

year basis with a policy year other than 

a calendar year. Accordingly, we 

proposed in § 147.145 to exempt student 

health insurance from certain calendar 

year requirements that would otherwise 

apply to student health insurance 

coverage as a type of individual health 

insurance coverage. We proposed to 

exempt student health insurance 

coverage from the requirement to 

establish open enrollment periods and 

coverage effective dates based on a 

calendar policy year, and clarified that 

student health insurance coverage is not 

required to be offered as a calendar year 

plan. 

We received comments supporting 

this proposal and are finalizing these 

provisions as proposed. 

C. Part 153—Standards Related to 

Reinsurance, Risk Corridors, and Risk 

Adjustment Under the Affordable Care 

Act 

1. Provisions for the State Notice of 

Benefit and Payment Parameters 

Section 1341 of the Affordable Care 

Act provides that States may elect to 

operate the transitional reinsurance 

program. Based on HHS’s 

communications with States, as of 

January 31, 2014, Connecticut is the 

only State that elected to operate a 

transitional reinsurance program. We 

indicated in the 2014 Payment Notice 

that Maryland had elected to operate 

reinsurance for 2014; however since the 

publication of the 2014 Payment Notice, 

Maryland has indicated that it wishes to 

defer the operation of the transitional 

reinsurance program to HHS. Because, 

at this time, taking on the operation of 

the reinsurance program on behalf of 

Maryland would not raise operational 

concerns, we are confirming that HHS 

will operate reinsurance on Maryland’s 

behalf. 

Section 153.100(c) provides that a 

State that operates or establishes a risk 

adjustment or reinsurance program, and 

is required to publish a State notice of 

benefit and payment parameters under 

§ 153.100(a) or (b), must publish an 

annual State notice of benefit and 

payment parameters by March 1st of the 

calendar year prior to the benefit year 

for which the notice applies. However, 

because the 2014 Payment Notice was 

published after March 1, 2013, the 2014 

Payment Notice extended this deadline 

to the 30th day following publication of 

that final rule. Similarly, we are 

extending the deadline for publication 

of a 2015 State notice of benefit and 

payment parameters until the 30th day 

following publication of this final rule. 

Consistent with this policy, we intend 

to propose in future rulemaking that for 

future benefit years, the publication 

deadline for the State notice of benefit 

and payment parameters be the later of 

March 1st of the calendar year prior to 

the applicable benefit year, or the 30th 

day following publication of the final 

HHS notice of benefit and payment 

parameters for the calendar year. 

2. Provisions and Parameters for the 

Permanent Risk Adjustment Program 

The risk adjustment program is a 

permanent program created by section 

1343 of the Affordable Care Act that 

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

and small group markets, inside and 

outside the Exchanges. A State that is 

approved or conditionally approved by 

the Secretary to operate an Exchange 

may establish a risk adjustment 

program, or have HHS do so on its 

behalf. 

In the proposed rule, we proposed a 

risk adjustment user fee to support HHS 

operation of the risk adjustment 

program in 2015. We also considered 

two adjustments to our risk adjustment 

methodology: One concerning 

adjustments for Medicaid alternative 

plans and the other concerning 

adjustments relating to the geographic 

rating areas. We also proposed a default 

counting method for determining 

whether a plan is a small group plan for 

purposes of risk adjustment when a 

State’s counting method does not 

account for non-full-time employees. 

We proposed standards for risk 

adjustment data validation, including a 

sampling methodology, audit standards, 

internal consistency standards, a 

methodology to adjust risk scores, and 

actions upon noncompliance. We 

proposed that HHS have the authority to 

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16The HHS-Developed Risk Adjustment Model 

Algorithm Software is available at: http://

www.cms.gov/CCIIO/Programs-and-Initiatives/

Premium-Stabilization-Programs/index.html under 

‘‘Regulations & Guidance’’ (posted under 

‘‘Guidance’’ on May 7, 2013). 

17Letter to Insurance Commissioners, Center for 

Consumer Information and Insurance Oversight, 

November 14, 2013. Available at: http://

www.cms.gov/CCIIO/Resources/Letters/Downloads/

commissioner-letter-11-14-2013.PDF. 

conduct audits of issuers of risk 

adjustment covered plans. 

a. Risk Adjustment User Fees 

If a State is not approved to operate, 

or chooses to forgo operating, its own 

risk adjustment program, HHS will 

operate a risk adjustment program on 

the State’s behalf. As described in the 

2014 Payment Notice, HHS’s operation 

of risk adjustment on behalf of States is 

funded through a risk adjustment user 

fee. Section 153.610(f)(2) provides that 

an issuer of a risk adjustment covered 

plan must remit a user fee to HHS for 

each month equal to the product of its 

monthly enrollment in the plan and the 

per-enrollee-per-month risk adjustment 

user fee specified in the annual HHS 

notice of benefit and payment 

parameters for the applicable benefit 

year. 

OMB Circular No. A–25R establishes 

Federal policy regarding user fees, and 

specifies that a user charge will be 

assessed against each identifiable 

recipient for special benefits derived 

from Federal activities beyond those 

received by the general public. The risk 

adjustment program will provide special 

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

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

risk adjustment covered plan because it 

will mitigate the financial instability 

associated with risk selection as other 

market reforms go into effect. The risk 

adjustment program also will contribute 

to consumer confidence in the health 

insurance industry by helping to 

stabilize premiums across the 

individual and small group health 

insurance markets. 

For the 2015 benefit year, we 

proposed to use the same methodology 

that we used in the 2014 Payment 

Notice to estimate our administrative 

expenses to operate the risk adjustment 

program. That proposed methodology 

was based upon our contract costs in 

operating risk adjustment on behalf of 

States. The contract costs we considered 

cover development of the model and 

methodology, collections, payments, 

account management, data collection, 

data validation, program integrity and 

audit functions, operational and fraud 

analytics, stakeholder training, and 

operational support. We proposed not to 

set the user fee to cover costs associated 

with Federal personnel. We proposed to 

calculate the user fee by dividing HHS’s 

projected total costs for administering 

the risk adjustment programs on behalf 

of States by the expected number of 

enrollees in risk adjustment covered 

plans in HHS-operated risk adjustment 

programs for the benefit year (other than 

plans not subject to market reforms and 

student health plans, which are not 

subject to payments and charges under 

the risk adjustment methodology HHS 

uses when it operates risk adjustment 

on behalf of a State). 

We estimated that the total cost for 

HHS to operate the risk adjustment 

program on behalf of States for 2015 

would be approximately $27.3 million, 

and that the per capita risk adjustment 

user fee would be no more than $1.00 

per enrollee per year. We are finalizing 

the proposed methodology for benefit 

year 2015, and are finalizing a per capita 

risk adjustment user fee of $0.96 per 

enrollee per year, which we will apply 

as a per-enrollee-per-month risk 

adjustment user fee of $0.08. 

We received no comments on the risk 

adjustment user fee, and are therefore 

finalizing this proposal as proposed. 

b. HHS Risk Adjustment Methodology 

Considerations 

In the 2014 Payment Notice, we 

finalized the methodology that HHS will 

use when operating a risk adjustment 

program on behalf of a State in 2014. We 

proposed to use the same methodology 

in 2015, but proposed to amend the 

methodology by applying an adjustment 

for individuals enrolled in premium 

assistance Medicaid alternative plans. 

We proposed to apply the amended 

methodology beginning in 2014. We 

also sought comment on potential 

adjustments to the geographic cost 

factor to account for rating areas with 

low populations in the HHS risk 

adjustment methodology for future 

years. 

We received a number of general 

comments regarding the HHS risk 

adjustment methodology. 

Comment: Commenters requested that 

HHS provide additional guidance on the 

ICD–10 transition for risk adjustment, 

including the ICD–10 mappings, as soon 

as possible. 

Response: We will publish updated 

ICD–9 instructions and software and 

then a combined set of ICD–9 and ICD– 

10 instructions and software on our Web 

site, as we did for the original ICD–9 

software and instructions.16 Because 

ICD–10 codes will be accepted for risk 

adjustment beginning October 1, 2014, 

we intend to publish these documents 

shortly. 

Comment: One commenter requested 

that the risk adjustment model be 

calibrated for 2015 using the most 

current data possible. Other commenters 

suggested that HHS incorporate 

pharmacy utilization in the risk 

adjustment model. One commenter 

suggested that HHS include transitional 

plans’ data in the risk adjustment 

model, but exclude them from payments 

and charges. 

Response: We believe it is important 

to maintain model stability in 

implementing the risk adjustment 

methodology in the initial years of risk 

adjustment, and therefore do not intend 

to recalibrate the model in the initial 

years. Similarly, we do not intend to 

significantly change the model by 

including pharmacy utilization, though 

we continue to consider whether and 

how to include prescription drug data in 

future models. Finally, as we described 

in the 2014 Payment Notice (78 FR 

15418), under our current methodology, 

plans not subject to the market reform 

rules are not subject to risk adjustment 

charges and do not receive risk 

adjustment payments. Because under 

the transitional policy, the Federal 

government will not consider certain 

health insurance coverage in the 

individual or small group market 

renewed after January 1, 2014, under 

certain conditions, to be out of 

compliance with specified 2014 market 

rules, and requested that States adopt a 

similar non-enforcement policy, 

transitional plans are able to set 

premiums and provide coverage as if 

they were not subject to market reform 

rules.17 For this reason, transitional 

plans are not subject to risk adjustment 

payments and charges under our 

methodology at this time. 

Comment: One commenter sought 

clarification on the risk scoring process. 

The commenter sought clarification on 

whether an enrollee’s risk score is 

calculated monthly and aggregated to 

reflect changes in the receipt of costsharing reductions. The commenter also 

sought clarification on whether 

diagnoses carry through to the new plan 

if a qualifying event results in a special 

enrollment period and an enrollee 

changes plans, but stays with the same 

issuer. One commenter questioned 

whether an issuer would receive credit 

for the diagnoses on risk adjustment 

eligible claims paid by the issuer during 

a grace period if the issuer later 

processes a retroactive termination 

because the individual does not pay the 

premium. 

Response: For each enrollee, HHS will 

use all risk adjustment eligible claims or 

encounters submitted from across all of 

the issuer’s risk adjustment covered 

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13754 Federal Register / Vol. 79, No. 47 / Tuesday, March 11, 2014 / Rules and Regulations 

plans to calculate a risk score. The 

diagnoses would be associated with 

each of the issuer’s plans in which the 

individual enrolls. This means that if 

the enrollee changes plans within the 

same issuer, then the claims data from 

all of the issuer’s plans will be utilized 

to calculate the member’s plan-specific 

risk scores for each of these plans. We 

note that in accordance with our 

methodology, the risk score value could 

change based on cost-sharing reductions 

received or plan AV. However, to align 

with our distributed data collection 

approach, which collects data by issuer, 

we will not link enrollee data across 

different issuers, even if the issuers are 

affiliated with the same insurance 

company. Diagnoses from risk 

adjustment eligible claims will only be 

accepted with dates of service that occur 

during active enrollment periods. 

Therefore, claims associated with 

months during a grace period will be 

counted toward risk adjustment, so long 

as the months are not later subject to a 

retroactive termination. 

We are finalizing the use of the 2014 

Federal risk adjustment methodology 

when HHS operates a risk adjustment 

program on behalf of a State, for 2015, 

with the modification for the treatment 

of Medicaid alternative plans discussed 

below, effective for 2014 risk 

adjustment. 

(i) Incorporation of Premium Assistance 

Medicaid Alternative Plans in the HHS 

Risk Adjustment Methodology 

Section 1343(c) of the Affordable Care 

Act provides that risk adjustment 

applies to non-grandfathered health 

insurance coverage offered in the 

individual and small group markets. In 

some States, expansion of Medicaid 

benefits under section 2001(a) of the 

Affordable Care Act may take the form 

of enrolling newly Medicaid-eligible 

enrollees into individual market plans. 

For example, these enrollees could be 

placed into silver plan variations— 

either the 94 percent silver plan 

variation or the zero cost sharing plan 

variation—with a portion of the 

premiums and cost sharing paid for by 

Medicaid on their behalf. Because 

individuals in these types of Medicaid 

alternative plans receive significant 

cost-sharing assistance, they may utilize 

medical services at a higher rate. To 

address this induced utilization in the 

context of cost-sharing reduction plan 

variations in the HHS risk adjustment 

methodology, our methodology 

increases the risk score for individuals 

in plan variations by a certain factor. We 

proposed to use the same factor that we 

use to adjust for induced utilization for 

individuals enrolled in cost-sharing 

plan variations to adjust for induced 

utilization for individuals enrolled in 

the corresponding Medicaid alternative 

plan variations, and to implement these 

adjustments in 2014. Table 1 shows the 

cost-sharing adjustments for both 94 

percent silver plan variation enrollees 

and zero cost-sharing plan variation 

enrollees for silver QHPs as finalized in 

the 2014 Payment Notice. 

TABLE 1—COST-SHARING REDUCTION ADJUSTMENTS

Plan variation Induced utilization 

factor 

94 Percent Plan Variation .............................................................................................................................................................. 1.12 

Zero Cost-Sharing Plan Variation of Silver QHP .......................................................................................................................... 1.12 

We are finalizing the application of 

the cost-sharing reduction adjustments 

to corresponding Medicaid alternative 

expansion plans as proposed. We plan 

to evaluate these adjustments in the 

future, after data from the initial years 

of risk adjustment is available. 

Comment: Commenters agreed with 

our approach for accounting for 

Medicaid alternative plans under risk 

adjustment, with one commenter 

recommending that we monitor 

utilization patterns and consider 

evaluating States’ Medicaid alternative 

plans separately in 2015 and beyond. 

Response: We intend to examine the 

utilization patterns of current Medicaid 

alternative plans and the benefit 

structure of future Medicaid alternative 

plans, and may make appropriate 

adjustments in the future. 

(ii) Adjustment to the Geographic Cost 

Factor 

As finalized in the 2014 Payment 

Notice, the geographic cost factor is an 

adjustment in the payment transfer 

formula to account for plan costs, such 

as input prices, that vary by geography 

and are likely to affect plan premiums. 

For the metal-level risk pool, it is 

calculated based on the observed 

average silver plan premium in a 

geographic area relative to the Statewide 

average silver plan premium. It is 

separately calculated for catastrophic 

plans in a geographic area relative to the 

Statewide catastrophic pool. However, 

as we noted in the proposed rule, 

several States have defined a large 

number of rating areas, potentially 

leading to rating areas with low 

populations. Less populous rating areas 

raise concerns about the accuracy and 

stability of the calculation of the 

geographic cost factor, because in less 

populous rating areas, the geographic 

cost factor might be calculated based on 

a small number of plans. Inaccurate or 

unstable geographic cost factors could 

distort premiums and the stability of the 

risk adjustment model. 

We sought comment in the proposed 

rule on how to best adjust the 

geographic cost factors or geographic 

rating areas in future years to address 

these potential premium distortions. We 

also sought comment on how this 

adjustment should be implemented for 

a separately risk adjusted pool of 

catastrophic plans. We stated that we 

did not intend to make this adjustment 

for 2014. 

Based on comments received, we will 

continue to implement the geographic 

cost factor for each rating area 

established by the State under 

§ 147.102(b) and calculated based on the 

observed average silver plan premium 

for the metal-level risk pool, as finalized 

in the 2014 Payment Notice (78 FR 

15433). 

Comment: Commenters did not 

support making additional adjustments 

to the geographic cost factor. 

Commenters stated that the time and 

resources needed to calculate and 

implement such an adjustment would 

be considerable, and that any such 

adjustment would be unlikely to have a 

material impact on final risk adjustment 

results. 

Response: We will not adjust the 

geographic cost factors or geographic 

rating areas, but will monitor 2014 risk 

adjustment data for any potential 

premium distortions. 

c. Small Group Determination for Risk 

Adjustment 

For a plan to be subject to risk 

adjustment, according to section 1343(c) 

of the Affordable Care Act and the 

definition of a ‘‘risk adjustment covered 

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

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Federal Register / Vol. 79, No. 47 / Tuesday, March 11, 2014 / Rules and Regulations 13755 

18We note that the IRS has published a final 

regulation that contains further details that would 

apply to this calculation (§ 54.4980H–2(c) (79 FR 

8544). 

19 ‘‘Affordable Care Act HHS-Operated Risk 

Adjustment Data Validation Process White Paper.’’ 

22 June 2013. https://www.regtap.info/uploads/

library/ACA_HHS_OperatedRADVWhitePaper_

062213_5CR_062213.pdf. 

in the ‘‘individual or small group 

market.’’ The definition of small group 

market in § 153.20 references the 

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

Affordable Care Act. 

Section 1304(a)(3) of the Affordable 

Care Act, in defining ‘‘small group 

market,’’ references the definition of a 

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

of the Affordable Care Act. That 

definition provides that an employer 

with an average of at least 1 but not 

more than 100 employees on business 

days during the preceding calendar year 

and who employs at least 1 employee on 

the first day of the plan year will be 

considered a ‘‘small employer.’’ 

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

Affordable Care Act provides that, for 

plan years beginning before January 1, 

2016, a State may elect to define ‘‘small 

employer’’ to mean an employer with at 

least 1 but not more than 50 employees. 

In the 2014 Payment Notice, we stated 

that we believe that the Affordable Care 

Act requires the use of a counting 

method that accounts for non-full-time 

employees, and that the full-time 

equivalent method described in section 

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

reasonable method to apply (78 FR 

15503). We stated that we believe that 

the risk adjustment program must also 

use a counting method that takes 

employees that are not full-time into 

account when determining whether a 

group health plan must participate in 

that program. 

However, we also recognize that, 

because risk adjustment is intended to 

stabilize premiums by mitigating pricing 

uncertainty associated with the rating 

rules, it is important that the program be 

available to plans that are subject to the 

rating rules, to the extent permissible 

under the Affordable Care Act. We 

recognize that a number of States, which 

have primary enforcement jurisdiction 

over the market rules, may use counting 

methods that do not take non-full-time 

employees into account. 

Thus, we are finalizing our proposal, 

with one modification—we are changing 

the cross-reference to the Code so that 

it references section 4980H(c)(2). In 

determining which group health plans 

participate as small group plans in the 

risk adjustment program, we will apply 

the applicable State counting method, 

unless the State counting method does 

not take into account employees that are 

non-full-time. In that circumstance, we 

will apply the counting method 

described in section 4980H(c)(2) of the 

Code and any implementing 

regulations.18 We believe that this 

approach defers to State counting 

methods and aligns with State 

enforcement of rating rules, within the 

bounds of what is legally permissible 

under the Affordable Care Act. 

Comment: One commenter supported 

our proposed counting method when a 

State counting method does not account 

for non-full-time employees. Some 

commenters urged us to maintain 

consistency with other counting 

methods, noting the administrative 

burden of having inconsistent counting 

methods across different Affordable 

Care Act programs. One commenter 

suggesting that we codify the average 

number of employees during the 

preceding calendar year as the single 

counting method across Affordable Care 

Act programs. Some commenters 

recommended deferring to the State 

counting method in the transitional 

years while collaborating with other 

Federal agencies to issue a uniform 

counting method in future rulemaking. 

One commenter recommended that if a 

group is required to be rated as a small 

group based on rating rules or SHOP 

requirements and is part of the single 

risk pool pricing, it should be included 

in the small group risk adjustment pool. 

Response: We agree that risk 

adjustment should apply to plans 

subject to the market reform rating rules, 

to the extent permissible under the 

Affordable Care Act. We also agree with 

commenters that consistency in 

counting methods across Affordable 

Care Act programs is important, and we 

plan to collaborate with other Federal 

agencies to streamline counting 

methods in future rulemaking. To better 

address commenters’ requests for 

consistency across Affordable Care Act 

programs, we have changed the Code 

reference from section 4980H(c)(2)(E) to 

4980H(c)(2). This broader crossreference will incorporate the limit in 

section 4980H(c)(2)(B) on how certain 

seasonal employees are counted, and 

will be consistent with the counting 

method used by the SHOP, as finalized 

in the 2014 Payment Notice (78 FR 

15503). Prior to streamlining counting 

methods, because we interpret the 

employer size definitions in the 

Affordable Care Act to include non-fulltime employees for purposes of 

determining small group status for 

purposes of risk adjustment, in States 

that do not account for non-full-time 

employees, we believe that requiring the 

large group counting method described 

in section 4980H(c)(2) of the Code 

(which accounts for non-full-time 

employees) is an appropriate standard 

because it is used by other Affordable 

Care Act programs and will reduce 

administrative burden for issuers. 

d. Risk Adjustment Data Validation 

The 2014 Payment Notice established 

a risk adjustment data validation 

program that HHS will use when 

operating risk adjustment on behalf of a 

State. In the 2014 Payment Notice (78 

FR 15436), we specified a framework for 

this program that includes six stages: (1) 

Sample selection; (2) initial validation 

audit; (3) second validation audit; (4) 

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

payment adjustments. 

To develop the details of the program, 

we sought the input of issuers, 

consumer advocates, providers, and 

other stakeholders. We issued the 

‘‘Affordable Care Act HHS-Operated 

Risk Adjustment Data Validation 

Process White Paper’’ on June 22, 2013 

(the ‘‘white paper’’).19 That white paper 

discussed and sought comments on a 

number of potential considerations for 

the development of the risk adjustment 

data validation methodology. We 

received submissions from 53 

commenters, including issuers, issuer 

trade groups, advocacy groups, and 

consultants. As we noted in the white 

paper, our overall goals are to promote 

consistency and a level playing field by 

establishing uniform audit 

requirements, and to protect private 

information by limiting data transfers 

during the data validation process. 

In the proposed rule, we proposed 

provisions for the risk adjustment data 

validation process and methodology 

that reflect our analysis of the white 

paper comments and our discussions 

with stakeholders. We again note that a 

State operating a risk adjustment 

program is not required to adopt these 

standards. 

We received some general comments 

about our proposed risk adjustment data 

validation methodology and process. 

Comment: We received comments 

supporting the risk adjustment data 

validation methodology and process, 

noting that data validation is critical to 

issuer confidence and to encouraging 

the enrollment of individuals with 

significant health needs. Another 

commenter suggested that we model the 

HHS risk adjustment data validation 

program after the Medicare Advantage 

risk adjustment data validation program 

to the extent possible. 

Response: We agree that a robust risk 

adjustment data validation program is 

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critical to ensuring that we effectively 

promote issuer confidence and the goals 

of the risk adjustment program. We note 

that many aspects of the HHS risk 

adjustment data validation program 

were modeled after the Medicare 

Advantage risk adjustment data 

validation program. For example, we 

have adopted a sampling strategy 

modeled on the one used in the 

Medicare Advantage risk adjustment 

program. Additionally, we have elected 

to adopt the medical record as the 

authoritative source to verify diagnoses, 

and have required that certified 

reviewers perform medical record 

reviews, as discussed below. Both of 

those program features are modeled on 

the Medicare Advantage risk adjustment 

data validation process. However, 

because our risk adjustment 

methodology uses a more 

comprehensive set of data elements, our 

data collection approach is more robust, 

and our data validation approach is 

broader. 

(i) Sample Selection 

The first stage in the HHS-operated 

risk adjustment data validation process 

is the selection of a sample of an issuer’s 

enrollees whose risk adjustment data 

will be validated. In the final 2014 

Payment Notice, we stated that HHS 

would choose a sample size of enrollees 

such that the estimated risk score errors 

would be statistically sound and the 

enrollee-level risk score distributions 

would reflect enrollee characteristics for 

each issuer. We stated that in 

determining the appropriate sample size 

for data validation, we recognized the 

importance of striking a balance 

between ensuring statistical soundness 

of the sample, and minimizing the 

operational burden on issuers, 

providers, and HHS. Additionally, we 

stated that we would ensure that the 

sample would cover critical 

subpopulations of enrollees for each risk 

adjustment covered plan, such as 

enrollees with and without hierarchical 

condition categories (HCCs). To develop 

a proposed sample size for the first year 

of the HHS risk adjustment data 

validation program, in the proposed rule 

we proposed to use the methodology 

outlined in the white paper. We stated 

in the proposed rule that our goal in 

determining the enrollee sample size for 

the initial 2 years of risk adjustment 

data validation is to use a sample large 

enough to inform us in a statistically 

valid manner of the dynamics of the risk 

adjustment data validation process in 

operation, and to permit statistically 

valid estimation of risk score accuracy. 

As we established in the 2014 Payment 

Notice, in order to permit HHS to 

observe and optimize the risk 

adjustment data validation process, no 

payment adjustments will be made 

based on the risk adjustment data 

validation process for the initial 2 years 

of HHS-operated risk adjustment. 

In the proposed rule, we proposed 

selecting the initial validation audit 

sample for a given benefit year by 

dividing the relevant population into a 

number of ‘‘strata,’’ representing 

different demographic and risk score 

bands. For the initial 2 years of the risk 

adjustment data validation program, we 

proposed an initial validation audit 

sample of 200 enrollees from each 

issuer. We stated in the proposed 2014 

Payment Notice and the proposed rule 

that the overall sample will reflect a 

disproportionate selection of enrollees 

with HCCs. In the proposed rule, we 

discussed in detail our sampling 

methodology, including our proposal to 

group enrollees to account for age 

characteristics and health status. Some 

commenters on the white paper 

suggested that we also consider 

sampling based on plan types and other 

characteristics. We will consider other 

sampling strategies in the future, but 

believe that we do not yet have enough 

experience with the risk adjustment 

process to determine the most 

appropriate sampling groups at this 

time. Therefore, we are finalizing a 

simple age and risk score stratification 

for the initial 2 years of the program. 

Following the division of the relevant 

population into strata, we will use the 

following formulas to calculate a 

proposed sample size for the initial 

validation audit each year. In general, 

the formula for the overall sample size 

for an issuer (n) is: 

Where: 

H is the number of strata; 

Nh is the population size of the hth stratum; 

Y is the average risk score of the population, 

adjusted based upon the estimated risk 

score error; 

Sh represents the standard deviation of risk 

score error for the hth stratum; 

Prec represents the desired precision level 

(for example, 10 percent, meaning a 10 

percent margin of error in the estimated 

risk score); and 

z-value is the z-value associated with the 

desired confidence level (for example, 

1.96 for a two-sided 95 percent 

confidence level). 

We are finalizing a sample size of 200 

enrollees from each issuer for the initial 

2 years of the program. The formula 

above will use real data from the HHSoperated risk adjustment program after 

this initial 2-year period to calculate a 

more precise, issuer-specific sample size 

for each issuer. 

The formula for calculating the 

sample size for each stratum (nh) is: 

Where: 

Nh is the population size of the hth stratum; 

n is the overall sample size; and 

Sh represents the standard deviation of risk 

score error for the hth stratum. 

As we described in the proposed rule, 

for the 2014 benefit year, the parameters 

listed above were developed using data 

from two principal sources: Medicare 

Advantage risk adjustment data 

validation net error rates and variances; 

and expenditures data from the Truven 

Health Analytics 2010 MarketScan®

Commercial Claims and Encounters 

database (MarketScan®). We chose to 

use Medicare Advantage error rates 

because Medicare Advantage utilizes an 

HCC-based methodology similar to the 

one used for HHS risk adjustment, and 

because it uses a similar risk adjustment 

data validation process to determine 

payment error rates. 

We also chose to use the MarketScan®

expenditure database because of the 

comprehensiveness of the database, 

which was the primary source for 

calibration for the HHS risk adjustment 

models. The database contains enrolleespecific claims utilization, 

expenditures, and enrollment across 

inpatient, outpatient, and prescription 

drug services from a selection of large 

employers and health plans. The 

database includes de-identified data 

from approximately 100 payers, and 

contains more than 500 million claims 

from insured employees, spouses, and 

dependents. 

We used enrollee predicted 

expenditure results from our risk 

adjustment model calibration, which 

was based on the MarketScan® data, to 

stratify the population (by age group for 

enrollees with HCCs, and within a 

single group for enrollees with no 

HCCs), then calculated risk scores for 

the predicted expenditures to relate 

them to the average expenditures. To 

estimate a sample size for each issuer, 

an average issuer size was estimated 

based on the total expected insured 

population and the total expected 

number of issuers. The average issuer 


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20Critical value for the two-sided 95 percent 

confidence level. 

population containing enrollees with 

and without HCCs was assumed to be 

split 20 percent with HCCs and 80 

percent without HCCs, consistent with 

the MarketScan® data. 

We will group each issuer’s enrollee 

population into 10 strata based on age 

group, risk level, and presence of HCCs, 

as follows: 

• Strata 1–3 will include low, 

medium, and high risk adults with the 

presence of at least one HCC. 

• Strata 4–6 will include low, 

medium, and high risk children with 

the presence of at least one HCC. 

• Strata 7–9 will include low, 

medium, and high risk infants with the 

presence of at least one HCC. 

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

further stratified by age or risk level, 

because we assume this stratum has a 

uniformly low error rate. 

We calculated a predicted risk score 

for each individual in each stratum by 

dividing the predicted expenditures for 

that individual by the average predicted 

expenditures for the entire population. 

Using these individual predicted risk 

scores, we calculated the overall average 

risk score for all individuals in each 

risk-based stratum. This calculation was 

performed nine times for the HCC 

population—once for each of the three 

risk-based strata within each of the three 

age groups. We set the minimum risk 

score for enrollees without HCCs in the 

tenth stratum. 

This method of stratification is similar 

to that used in the Medicare Advantage 

risk adjustment data validation program, 

which divides enrollees into three 

strata, representing low, medium, and 

high risk expenditures. Error rates and 

variances are calculated for each of 

these strata. In the initial year, before 

error rate and standard deviation data 

for the population subject to the HHSoperated risk adjustment program are 

available, we will use the Medicare 

Advantage error rates and variances to 

calculate sample sizes. After the initial 

year, we will evaluate whether 

sufficient HHS-operated risk adjustment 

error rate and standard deviation data 

are available to calculate sample sizes. 

We will use the lowest error rate 

across all HCC strata as the error rate for 

the stratum of enrollees without HCCs, 

and we will use the variance associated 

with that error rate to calculate the 

standard deviation of the error for the 

stratum of enrollees without HCCs. If 

error rates and variances are smaller 

than assumed for this stratum, the 

resulting sampling precision may 

increase. 

Because the Medicare Advantage error 

rates and variances are not calculated 

for different age bands, and therefore are 

available only for three risk-score 

differentiated subgroups, we will use 

the same risk score error rates and 

standard deviation for the age bands for 

a risk category. Thus, we will use the 

same risk score error rate and standard 

deviation assumptions for the adult, 

child, and infant strata associated with 

each risk score band. We do not 

anticipate the expected risk score error 

rate and variance to be uniform for all 

age groups; however, in the absence of 

data, we are making this simplifying 

assumption. In general, we believe the 

Medicare Advantage error rates and 

variances likely overstate the 

corresponding error rates and 

assumptions for the HHS risk adjusted 

population, and therefore, the estimated 

precision of our error estimates may be 

understated. 

The formulas identified above require 

data on error rates and standard 

deviations for the strata, and also a 

target confidence interval and sampling 

precision level (or margin of error). For 

the initial year, as we proposed in the 

proposed rule, we are finalizing a 10 

percent relative sampling precision at a 

two-sided 95 percent confidence level. 

That is, we wish to obtain a sample size 

such that 1.96 20 multiplied by the 

standard error, divided by the estimated 

adjusted risk score, equals 10 percent or 

less. After actual data are collected from 

the initial year, we will test and 

evaluate the data for use in determining 

the sample size in future years. 

Once the overall sample size is 

calculated, the enrollee count will be 

distributed among the population based 

on the second formula above for 

calculating the sample size of each 

stratum. Because strata with enrollees 

with HCCs have a higher standard 

deviation of risk score error, the overall 

sample will be disproportionately 

allocated to enrollees with HCCs (Strata 

1–9), helping to ensure adequate 

coverage of the higher risk portion of the 

enrollee population. 

When data becomes available from 

the program’s first year, we expect to 

examine our sampling assumptions 

using actual enrollee data. We anticipate 

that in the initial 2 years of the risk 

adjustment data validation program, the 

stratification design will remain 

consistent with the design outlined 

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

and allocation of the sample to each 

stratum may be refined based on average 

issuer enrollee risk score distributions. 

For example, in future years, we are 

considering using larger sample sizes for 

larger issuers or issuers with higher 

variability in their enrollee risk scores, 

and smaller sample sizes for smaller 

issuers or issuers with lower variability 

in their enrollee risk scores. The 

sampling design may also consist of a 

minimum and maximum sample size 

per stratum for each average issuer 

(large, medium, small) to follow when 

selecting the sample. 

We are finalizing our sampling 

approach as proposed for the initial 2 

years of risk adjustment data validation. 

Comment: Several commenters 

supported reducing the sample size 

from 300 to 200 enrollees for the initial 

years of data validation. Commenters 

supported using sampling experience 

from the initial years to improve the 

sampling methodology and target issuerspecific sample sizes in 2016. Other 

commenters requested that HHS 

increase the sample size for larger 

issuers and decrease the sample size for 

smaller issuers. One commenter 

requested that we use a nationwide 

sample to assess error rates for multiState carriers, while another commenter 

requested that we combine the risk 

pools to minimize issuer burden for 

sample selection. Some commenters did 

not support the smaller sample size, 

noting that questionable enrollment data 

in the initial years may result in 

erroneous risk scores. One commenter 

recommended that HHS use a 

statistically sound method to ensure 

that there is a proportionate 

representation of plan metal levels in 

each issuer sample. 

Response: We will use our sampling 

experience in the initial years of data 

validation to evaluate how and if we can 

appropriately establish issuer-specific 

sample sizes, and whether our sample 

size is adequate. We believe that 

lowering the sample size from 300 to 

200 will yield a statistically valid 

sample, while minimizing the burden 

on all issuers. We also clarify that the 

enrollee sample totals 200 enrollees per 

issuer across all risk pools, and not per 

plan. Our sampling methodology does 

not separate risk pools within an issuer. 

Comment: Commenters generally 

supported our proposed strata. One 

commenter suggested that fewer than 

ten strata are necessary, while another 

commenter suggested that because our 

risk adjustment model is calibrated for 

a standard population, it has 

significantly lower predictive power 

when applied to a pediatric-only 

population. 

Response: We believe that the ten 

strata are appropriate for the initial 

years of data validation, in order to 

ensure that the sample targets enrollees 

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with HCCs of varying ages and health 

statuses. We intend to use real data as 

it becomes available to improve our 

precision in error rate and variance 

estimation by age and health status. 

(ii) Initial Validation Audit 

The second stage of the HHS-operated 

risk adjustment data validation process 

is the initial validation audit. In this 

section, we discuss standards and 

guidelines regarding the qualifications 

of the initial validation auditor, 

including conflict of interest standards, 

standards for the initial validation audit, 

rater consistency and reliability, and 

confirmation of risk adjustment errors. 

As discussed in the white paper and the 

proposed rule, we considered existing 

best practices and standards for 

independent auditors, such as those of 

Medicare Quality Improvement 

Organizations and the National 

Committee for Quality Assurance, when 

establishing our standards for initial 

validation auditors. 

(1) Initial Validation Auditor 

The 2014 Payment Notice established 

certain standards for the initial 

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

and (b)(3), we directed the issuer to 

ensure that the initial validation auditor 

is reasonably capable of performing an 

initial validation audit, and is 

reasonably free of conflicts of interest, 

such that it is able to conduct the initial 

validation audit in an impartial manner 

with its impartiality not reasonably 

open to question. 

In the white paper, we elaborated on 

potential options for ensuring that an 

initial validation auditor meets these 

criteria, including standardized auditor 

certification processes and 

promulgation of best practices. Many 

commenters sought additional 

information and guidance regarding 

initial validation auditor selection and 

requested that HHS define conflicts of 

interest between an issuer and the 

initial validation auditor. In the 

proposed rule, we proposed the 

following criteria for assessing conflicts 

of interest between the issuer and the 

initial validation auditor: 

• Neither the issuer nor any member 

of its management team (or any member 

of the immediate family of such a 

member) may have any material 

financial or ownership interest in the 

initial validation auditor, such that the 

financial success of the initial validation 

auditor could be seen as materially 

affecting the financial success of the 

issuer or management team member (or 

immediate family member) and the 

impartiality of the initial validation 

audit process could reasonably be called 

into question, or such that the issuer or 

management team member (or 

immediate family member) could be 

reasonably seen as having the ability to 

influence the decision-making of the 

initial validation auditor; 

• Neither the initial validation 

auditor nor any member of its 

management team or data validation 

audit team (or any member of the 

immediate family of such a member) 

may have any material financial or 

ownership interest in the issuer, such 

that the financial success of the issuer 

could be reasonably seen as materially 

affecting the financial success of the 

initial validation auditor or management 

team or audit team member (or 

immediate family member) and the 

impartiality of the initial validation 

audit process could reasonably be called 

into question, or such that the initial 

validation auditor or management or 

audit team member (or immediate 

family member) could be seen as having 

the ability to influence the decisionmaking of the issuer; 

• Owners, directors and officers of 

the issuer may not be owners, directors 

or officers of the initial validation 

auditor, and vice versa; 

• Members of the data validation 

audit team of the initial validation 

auditor may not be married to, in a 

domestic partnership with, or otherwise 

be in the same immediate family as an 

owner, director, officer, or employee of 

the issuer; and 

• The initial validation auditor may 

not have had a role in establishing any 

relevant internal controls of the issuer 

related to the risk adjustment data 

validation process when HHS is 

operating risk adjustment on behalf of a 

State, or serve in any capacity as an 

advisor to the issuer regarding the initial 

validation audit. 

In addition, we stated in the proposed 

rule that we were considering 

establishing standards under which 

issuers must verify that no key 

individuals involved in supervising or 

performing the initial validation audit 

have been excluded from working with 

either the Medicare or Medicaid 

program, are on the OIG exclusion list 

or, to its knowledge, are under 

investigation with respect to any HHS 

programs. 

We noted in the proposed rule that we 

intend to review the initial validation 

auditor’s qualifications and relationship 

to the issuer to verify that the initial 

validation auditor is qualified to 

perform the audit, and that the issuer 

and initial validation auditor are free of 

actual or apparent conflicts of interest, 

including those stated above. We noted 

that HHS could gather information 

through external reporting to support 

that review. Although we remain 

confident that most issuers will exercise 

diligence in selecting an initial 

validation auditor that will be able to 

comply with HHS audit standards, we 

intend to monitor the performance of 

initial validation auditors to determine 

whether certification or additional 

safeguards are necessary. 

In the proposed rule, we proposed to 

amend § 153.630(b)(1) to specify that the 

issuer of a risk adjustment covered plan 

must provide HHS with the identity of 

the initial validation auditor, and must 

attest to the absence of conflicts of 

interest between the initial validation 

auditor (or the members of its audit 

team, owners, directors, officers, or 

employees) and the issuer (or its 

owners, directors, officers, or 

employees). We stated that we 

considered any individual with a 

significant ownership stake in an entity 

such that the individual could 

reasonably be seen to have the ability to 

influence the decision making of the 

entity to be an ‘‘owner,’’ and considered 

any individual that serves on the 

governing board of an entity to be a 

‘‘director’’ of the entity. We stated that 

we were contemplating beginning the 

initial validation process at the end of 

the first quarter of the year following the 

benefit year, with the issuer’s 

submission of the initial validation 

auditor’s identity. We stated that we 

expected to identify the enrollee sample 

for the initial validation audit in the 

summer of the year following the benefit 

year, and that we were contemplating 

requiring delivery of the initial 

validation audit findings to HHS in the 

fourth quarter of that year. We included 

a proposed schedule of the risk 

adjustment data validation process. 

Once the audit sample is selected by 

HHS, we stated that we expect issuers 

to ensure that the initial validation audit 

is conducted in the following manner: 

• The issuer would provide the initial 

validation auditor with source 

enrollment and source medical record 

documentation to validate issuersubmitted risk adjustment data for each 

sampled enrollee; 

• The issuer and initial validation 

auditor would determine a timeline and 

information-transfer methodology that 

satisfies the data security and privacy 

requirements at § 153.630(f)(2), and 

enables the initial validation auditor to 

meet HHS established timelines; 

• The initial validation auditor would 

validate the status of each enrollee in 

the sample in accordance with the 

standards established by HHS; and 

• The initial validation auditor would 

provide HHS with the final results from 

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the initial validation audit and all 

requested information for the second 

validation audit. 

We noted in the proposed rule that we 

did not propose amending 

§ 153.630(f)(2), and that the issuer 

would be required to ensure that its 

initial validation auditor comply with 

the security standards described at 

§§ 164.308, 164.310, and 164.312 in 

connection with the initial validation 

audit. 

We are finalizing these standards as 

proposed, with certain modifications in 

response to comments to 

§ 153.630(b)(1). Where we had proposed 

requiring an attestation from the issuer 

as to the absence of conflicts of interest 

with the initial validation auditor on the 

part of the issuer, we are modifying the 

conflict of interest attestation 

requirement in § 153.630(b)(1) so that 

the issuer must attest to the absence of 

conflicts of interest with the initial 

validation auditor to its knowledge, 

following reasonable investigation. 

Similarly, where we had proposed 

requiring an attestation from the issuer 

as to the absence of conflicts of interest 

on the part of the initial validation 

auditor, we are modifying the attestation 

requirement so that the issuer may attest 

that it has obtained a representation 

from the initial validation auditor that 

to its knowledge, following reasonable 

investigation, there are no conflicts of 

interest. We are also including a 

standard under which an issuer must 

verify that no key individual involved 

in supervising or performing the initial 

validation audit appears on the Office of 

the Inspector General List of Excluded 

Individuals and Entities or, to the 

issuer’s knowledge, are under 

investigation with respect to any HHS 

program. 

Comment: One commenter 

recommended that HHS provide a precertified list of auditors to make it easier 

for issuers to select an independent 

entity to perform the initial data 

validation audit. Another commenter 

suggested that HHS maintain adequate 

staff to monitor the performance of 

issuers and their auditors. Commenters 

suggested that the initial validation 

auditor, rather than the issuer, certify 

that the entity meets the conflict of 

interest standards, since the issuer may 

be unaware of all potential conflicts. 

The commenters suggested that the 

initial validation auditor attest to an 

absence of conflict to both HHS and the 

issuer, and that the issuer attest to the 

absence of conflicts only on the issuer’s 

side. Several commenters recommended 

that HHS require attestation of an 

absence of conflict of interest only from 

senior management teams of the issuer 

and the auditor, and permit members of 

the initial validation audit team to 

simply disclose any potential conflicts 

for issuer evaluation, rather than 

categorically excluding an initial 

validation auditor. One commenter 

requested that HHS prohibit vendors 

that provide risk adjustment services 

from serving as initial validation 

auditors. 

Response: We believe that members of 

the initial validation audit team should 

be subject to the same conflict-ofinterest requirements as owners and 

directors. However, we agree with the 

commenters that the issuer may not be 

able to provide the full attestation 

proposed, and are finalizing a change in 

our policy in § 153.630(b)(1) so that the 

issuer is required to attest to the absence 

of conflicts of interest between the 

initial validation auditor (or the 

members of the audit team, owners, 

directors, officers, or employees) and 

the issuer (or its owners, directors, 

officers, or employees), to its knowledge 

following reasonable investigation, and 

must attest that it has obtained an 

equivalent representation from the 

initial validation auditor. 

We do not intend to pre-certify 

auditors at this time. However, as stated 

elsewhere in the preamble to this rule, 

we intend to monitor the performance of 

initial validation auditors to determine 

whether additional certification or 

safeguards are necessary. 

Comment: Several commenters 

suggested that HHS require the initial 

validation auditor to provide issuers, as 

well as HHS, with the results of the 

initial validation audit. 

Response: Nothing in our rules 

prevents the issuer from requiring that 

the initial validation auditor provide it 

with the results of the initial validation 

audit. 

(2) Standards for the Initial Validation 

Audit 

In the proposed rule, we proposed 

that an initial validation audit review of 

enrollee health status be conducted by 

medical coders certified after 

examination by a nationally recognized 

accrediting agency for medical coding, 

such as the American Health 

Information Management Association 

(AHIMA) or the American Academy of 

Professional Coders (AAPC). We are 

finalizing this provision as proposed. 

Comment: Several commenters 

supported requiring nationally 

accredited medical coders to review an 

enrollee’s health status during an initial 

validation audit. One commenter 

recommended that the Practice 

Management Institute be considered a 

nationally recognized accrediting 

agency for medical coding. Another 

commenter suggested that reviewers 

receive certification in the specialty area 

in which they work and by the 

appropriate specialized accrediting 

agency. Another commenter supported 

coding education and clinical training 

for medical coders, but suggested that 

HHS should consider other standards, if 

available, to enhance consistency among 

auditors. 

Response: We will not recognize 

certification by the Practice 

Management Institute as certification by 

a nationally recognized accrediting 

agency because we do not believe this 

organization is nationally recognized for 

the rigor of its coding training and 

accreditation practices. By contrast, 

AHIMA and AAPC certification is 

intended for a broad group of health 

providers, issuers, and associated 

industry groups. At this time, while our 

risk adjustment data validation 

standards are relatively new, we will 

not require specialty certification, but 

we will consider additional standards in 

the future. 

(3) Validation of Enrollees’ Risk Scores 

An enrollee’s risk score is derived 

from demographic and health status 

factors, which requires the use of 

enrollee identifiable information. Thus, 

in the proposed rule we proposed to add 

paragraph (b)(6) to § 153.630, to require 

an issuer to provide the initial 

validation auditor and the second 

validation auditor with all relevant 

information on each sampled enrollee, 

including source enrollment 

documentation, claims and encounter 

data, and medical record documentation 

from providers of services to enrollees 

in the applicable sample without 

unreasonable delay and in a manner 

that reasonably assures confidentiality 

and security of data in transmission. We 

noted that existing privacy and security 

standards, such as standards under 

HIPAA and those detailed at 

§ 153.630(f)(2), will apply. This 

information would be used to validate 

the enrollment, demographic, and 

health status data of each enrollee. Only 

source documentation for encounters 

with dates of services within the 

applicable benefit year would be 

considered relevant. This would require 

issuers to collect the appropriate 

enrollment and claims information from 

their own systems, as well as from all 

relevant providers (particularly with 

respect to medical record 

documentation). We noted that only a 

very small percentage of an issuer’s 

records containing personally 

identifiable information (PII) would be 

made available to auditors as part of the 

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13760 Federal Register / Vol. 79, No. 47 / Tuesday, March 11, 2014 / Rules and Regulations 

21 Issuers and State Exchanges use the ASC X12 

Standards for Electronic Data Interchange Technical 

Report Type 3—Benefit Enrollment and 

Maintenance (834), August 2006, ASC X12N/

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

form’’ to transmit and update enrollment and 

eligibility to HHS as often as daily but at least 

monthly. In Federal operations, HHS and the issuer 

exchange and update data via this same form. 

22See ‘‘HHS-Operated Data Collection Policy 

FAQ’’ for a discussion of chart review as an 

acceptable source of supplemental diagnosis codes. 

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

library/HHS_OperatedDataCollectionPolicyFAQs_

062613. Additional detail will be provided in future 

guidance. 

risk adjustment data validation process, 

and that similar transmissions are 

required today for data validation for 

the Medicare Advantage program. We 

also proposed to add paragraph (b)(7) to 

§ 153.630, to describe the standards for 

validating an enrollee’s risk score. 

Under paragraph (b)(7)(i), we proposed 

that the initial validation auditor would 

validate information by reviewing plan 

source enrollment documentation, such 

as the 834 transaction,21 which is the 

HIPAA-standard form used for plan 

benefit enrollment and maintenance 

transactions. These enrollment 

transactions reflect the data the issuer 

captured for an enrollee’s age, name, 

sex, plan of enrollment, and enrollment 

periods in the plan. We noted that 

certain identifying information from 

these enrollment transactions would be 

used to ensure that the appropriate 

medical documentation has been 

provided. We are finalizing these 

standards as proposed, with the 

modification to § 153.630(b)(7)(i) that an 

enrollee’s risk score must be validated 

through enrollment and demographic 

data in a manner to be determined by 

HHS. We have made this change 

because we are exploring an approach 

under which we would use an 

automated data validation process for 

the enrollment and demographic data. 

We believe that such an approach could 

lessen the burden of the data validation 

process on issuers. We will provide 

further guidance on this topic in the 

future. We stated in the proposed rule 

that the sample audit pool would 

consist of enrollees with and without 

risk adjustment eligible diagnoses 

within eligible dates of service. For each 

enrollee in the sample with risk 

adjustment HCCs, the initial validation 

auditor would validate diagnoses 

through a review of the relevant risk 

adjustment eligible medical records. We 

stated we would consider medical 

record documentation generated with 

respect to dates of service that occurred 

during the benefit year at issue to be 

relevant for these purposes. For 

enrollees without risk adjustment HCCs 

for whom the issuer has submitted a risk 

adjustment eligible claim or encounter, 

we would require the initial validation 

auditor to review all medical record 

documentation for those risk adjustment 

eligible claims or encounters, as 

provided by the issuer, to determine if 

HCC diagnoses should be assigned for 

risk score calculation, provided that the 

documentation meets the requirements 

for the risk adjustment data validation 

audits. Documents used to validate all 

components of the risk score would be 

required to reflect dates of service 

during the applicable benefit year. In 

the initial years of the data validation 

program, we plan to accept certain 

supplemental documentation, such as 

health assessments, to support the risk 

adjustment diagnosis. We expect to 

provide additional details on acceptable 

supplemental documentation in future 

guidance.22

Therefore, we proposed in 

§ 153.630(b)(7)(ii) to require that the 

validation of enrollee health status (that 

is, the medical diagnoses) occur through 

medical record review, that the 

validation of medical records include a 

check that the records originate from the 

provider of the medical services, that 

they align with the dates of service for 

the medical diagnosis, and that they 

reflect permitted providers and services. 

For purposes of § 153.630, ‘‘medical 

record documentation’’ would mean: 

‘‘clinical documentation of hospital 

inpatient or outpatient treatment or 

professional medical treatment from 

which enrollee health status is 

documented and related to accepted risk 

adjustment services that occurred 

during a specified period of time.’’ 

Medical record documentation would 

be required to be generated in the course 

of a face-to-face or telehealth visit 

documented and authenticated by a 

permitted provider. We expect to 

provide additional guidance on 

telehealth services in future guidance. 

In § 153.630(b)(7)(iii), we proposed 

that medical record review and 

abstraction be performed in accordance 

with industry standards for coding and 

reporting. Current industry standards 

are set forth in the International 

Classification of Diseases, Ninth 

Revision, Clinical Modification (ICD–9), 

or the International Statistical 

Classification of Diseases and Related 

Health Problems, Tenth Revision, 4th 

Edition (ICD–10) guidelines for coding 

and reporting. 

We are finalizing these standards as 

proposed, with the modification to 

§ 153.630(b)(7)(i) discussed above. 

Comment: One commenter requested 

that HHS specify documents other than 

the ‘‘834’’ plan benefit and enrollment 

form that could be used to validate 

demographic data and enrollment 

information for risk adjustment 

validation when a plan is not part of a 

State Exchange. One commenter 

recommended that HHS adjust its audit 

standards to rely on medical conditions 

as described and substantiated in 

medical claims forms rather than 

medical records. Several commenters 

supported our proposal that medical 

records generated in the course of 

telehealth encounters be deemed 

acceptable for risk adjustment data 

validation, and asked HHS for 

additional guidance. However, another 

commenter stated that limiting medical 

record documentation to face-to-face 

encounters and telehealth visits would 

be too restrictive, because of the 

difficulty in obtaining medical records 

from providers from prior insurance 

plans. 

Response: HHS will provide further 

guidance on appropriate sources of plan 

enrollment data. We believe that the 

original medical record provides the 

most complete information on which to 

assess whether a claim is eligible for 

risk adjustment. With respect to the 

challenge of obtaining prior medical 

documentation when an enrollee 

changes issuers, we note that the data 

validation documentation request 

process for each issuer will be specific 

to periods during which the issuer 

reported plan enrollment for the 

sampled enrollees. 

Comment: One commenter stated that 

the proposed process does not provide 

adequate recourse for issuers to identify 

and correct legitimate errors in the 

provider’s medical records. One 

commenter asked that HHS allow initial 

validation auditors to use analytic tools 

to help providers locate overlooked risk 

adjustment eligible claims. 

Response: As part of medical record 

review, HHS expects that the initial 

validation auditor will provide the 

issuer with adequate time to submit 

accurate medical records from 

providers. HHS expects that any 

amendments to medical records will be 

made in the normal course of business 

and according to practice protocols. 

Although we defer to auditors to 

determine the appropriate tools for their 

analyses, we encourage issuers to be 

proactive in identifying risk adjustment 

eligible claims during the data 

collection period and, at the same time, 

to correct for claims identified during 

data collection that should not be 

included. 

Comment: Another commenter 

expressed concern that medical 

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providers may bear the financial burden 

of data validation audits. 

Response: We appreciate that issuers 

may require more extensive access to 

provider medical documentation, and 

expect issuers and providers to 

negotiate suitable arrangements, as they 

do today under similar data validation 

processes. 

(4) Confirmation of Risk Adjustment 

Errors 

In the proposed rule, we noted that 

the data validation audit processes may 

identify various discrepancies, many of 

which will have no impact on an 

enrollee’s risk score. For example, if a 

medical diagnosis underlying an 

enrollee’s HCC was present on a claim 

but was not supported by medical 

record documentation, but the same 

HCC was supported by the medical 

record for a different diagnosis, no risk 

adjustment error would be assessed for 

the enrollee’s HCC. However, if none of 

the medical record documentation 

supports a particular HCC diagnosis for 

an enrollee, we proposed that a risk 

adjustment error be assessed. 

We stated that we consider a risk 

adjustment error to occur when a 

discrepancy uncovered in the data 

validation audit process results in a 

change to the enrollee’s risk score. A 

risk adjustment error could result from 

incorrect demographic data, an 

unsupported HCC diagnosis, or a new 

HCC diagnosis identified during the 

medical record review. An unsupported 

HCC diagnosis could be the result of 

missing medical record documentation, 

medical record documentation that does 

not reflect the diagnosis, or invalid 

medical record documentation (such as 

an unauthenticated record or a record 

that does not meet risk adjustment data 

collection standards for the applicable 

benefit year). 

We proposed in § 153.630(b)(7)(iv) 

that a senior reviewer be required to 

confirm any finding of a risk adjustment 

error. We proposed to define a senior 

reviewer as a medical coder certified by 

a nationally recognized accrediting 

agency who possesses at least 5 years of 

experience in medical coding. 

Comment: Commenters supported 

requiring senior reviewers to confirm an 

enrollee risk adjustment error during the 

initial data validation audit. However, 

one commenter suggested increasing the 

experience required for a senior 

reviewer from 5 years to 7 years; a 

different commenter recommended that 

HHS require only 2 years of experience 

for the senior reviewer. The commenter 

said it may be difficult to find enough 

experienced coders. The commenter 

suggested permitting junior coders with 

2 years of experience to act as senior 

reviewers for the first 2 years of 

auditing, after which they could obtain 

certification in their subject area. 

Response: As we discussed in the 

proposed rule, we believe that once risk 

adjustment data validation is 

established, 5 years should be the 

minimum experience necessary for a 

senior coder, and that all coders should 

be certified. We believe that, in the long 

term, this standard appropriately 

balances the need to assure that senior 

coders are sufficiently experienced with 

the need to assure a reasonable supply 

of senior coders. However, we recognize 

that in the initial years of risk 

adjustment data validation, it may be 

difficult to find experienced coders. In 

recognition of this difficulty, and 

because we believe that by 2016, there 

will be a sufficient supply of coders 

with 5 years’ experience, we are 

modifying this provision to permit 

coders who will have sufficient 

experience by 2016 to act as senior 

coders—thus, we provide that senior 

coders are required to have at least 3 

years of experience for risk adjustment 

data validation for the 2014 and 2015 

benefit years. 

(5) Review Consistency and Reliability 

Validation audits typically include 

methods of evaluating review 

consistency and reliability. We believe 

such processes help to ensure the 

integrity of the data validation process 

and strengthen the validity of audit 

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

that the initial validation auditor 

measure and report to the issuer and 

HHS its inter-rater reliability rates 

among its reviewers. Such processes 

measure the degree of agreement among 

reviewers. In the proposed rule, we set 

the threshold for the acceptable level of 

consistency among reviewers at 95 

percent for both demographic and 

enrollment data review, and health 

status data review outcome. We 

proposed that reviews be performed 

using rater-to-standard procedures 

whereby reviews conducted by 

reviewers with extensive qualifications 

and credentials are used to establish 

testing thresholds or standards for 

consistency. We are amending 

§ 153.630(b)(8) to provide that, for the 

initial years of risk adjustment data 

validation (the 2014 and 2015 benefit 

years), the initial validation auditor may 

meet an inter-rater reliability standard 

of 85 percent for validating review 

outcomes in accordance with the 

standards established by HHS. 

(iii) Second Validation Audit 

The initial validation audit will be 

followed by a second validation audit, 

which will be conducted by an auditor 

retained by HHS to verify the accuracy 

of the findings of the initial validation 

audit. 

In the proposed rule, we proposed to 

select a subsample of the initial 

validation audit sample enrollees for 

review by the second validation auditor. 

The second validation auditor would 

perform the data validation audit of the 

enrollee subsample, adhering to the 

same audit standards applicable to the 

initial validation audit described above, 

but would only review enrollee 

information that was originally 

presented during the initial validation 

audit. In § 153.630(c), we established 

standards for issuers of risk adjustment 

covered plans related to HHS’s second 

validation audit. In § 153.630(b)(4), we 

established that issuers must submit (or 

ensure that their initial validation 

auditor submits) data validation 

information, as specified by HHS, from 

their initial validation audit for each 

enrollee included in the initial 

validation sample. Issuers must transmit 

all information to HHS or its second 

validation auditor in a timeframe and 

manner to be determined by HHS. The 

second validation auditor would inform 

the issuer of error findings based on its 

review of enrollees in the second 

validation audit subsample. We will 

provide additional guidance on the 

manner and timeframe of these 

submissions in the future. 

As discussed in the white paper and 

in the proposed rule, we would select 

the second validation audit small 

subsample using a sampling 

methodology that would allow for pairwise means testing to establish a 

statistical difference between the initial 

and second validation audit results. If 

the pair-wise means test results were to 

suggest that the difference in enrollee 

results between the initial validation 

audit and second validation audit is not 

statistically significant, the initial 

validation audit error results would be 

used for error estimation and 

calculation of adjustments for plan 

average risk score. If the test results 

suggest a statistical difference, the 

second validation auditor would 

perform another validation audit on a 

larger subsample of the enrollees 

previously subject to the initial 

validation audit. The results from the 

second validation audit of the larger 

subsample would again be compared to 

the results of the initial validation audit 

using the pair-wise means test. Again, if 

no statistical difference were to be 

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found between the initial validation 

audit and the second validation audit 

conducted on the larger subsample, 

HHS would apply the initial validation 

audit error results for error estimation 

using all enrollees selected for the 

initial validation audit sample. 

However, if a statistical difference were 

to be found based on the second 

validation audit on the larger 

subsample, HHS would apply the 

second validation audit error results to 

modify the initial validation sample, 

which would be used for the error 

estimate and calculation of adjustments 

for the plan average risk score. We 

stated that we were considering using a 

95 percent confidence interval for these 

pair-wise means tests. 

As we discussed in the white paper 

and the proposed rule, we are 

considering ways to expedite the second 

validation audit and the subsequent 

appeals processes. One possibility 

would be to begin the second validation 

audit on those enrollees for which the 

initial validation audit is complete, even 

if the entire initial validation audit has 

not been completed. 

We are finalizing the second 

validation audit approach as proposed. 

Comment: Commenters stated that it 

is unclear how and when enrollees will 

be included in the expedited second 

validation audit. Commenters expressed 

concern that the expedited process 

would permit the initial validation 

auditor to review its simplest cases first, 

negating the benefit of additional time 

for discussion in an expedited second 

validation audit. One commenter 

suggested that it would not be realistic 

to begin the second validation audit in 

advance because of the time it would 

take for the health plan to gather the 

necessary medical documentation. 

Response: We will take commenters’ 

suggestions under consideration when 

we issue guidance on this process in the 

future. 

(iv) Error Estimation 

The fourth stage in the HHS risk 

adjustment data validation process is 

error estimation. Upon completion of 

the initial and second validation audits, 

HHS will derive an issuer-level risk 

score adjustment and confidence 

interval. This adjustment will be used to 

adjust the average risk score for each 

risk adjustment covered plan offered by 

the issuer. HHS intends to provide each 

issuer with enrollee-level audit results 

and the error estimates. 

In the proposed rule, we proposed to 

use a two-phase procedure to accept or 

correct the results of the initial 

validation audit based on the results of 

the second validation audit. In phase 

one, as described above, we would 

conduct a pair-wise statistical test for 

consistency between the initial 

validation and second validation audit 

results (as described above for second 

validation audits). In phase two, if we 

determine that the results of the two 

audits are inconsistent, we would adjust 

the initial validation audit results based 

on the second validation audit results. 

In the proposed rule, for phase two, we 

described two options for using second 

validation audit results to derive an 

estimate of an overall corrected risk 

score for each issuer. 

Phase One: Consistency Test Between 

Initial and Second Validation Audit 

In phase one, we proposed using a 

pair-wise statistical test to determine if 

the initial validation audit sample 

results should be adjusted using the 

results of the second validation audit. 

To illustrate the underlying statistical 

test, consider the following notations: 

Assume an issuer submits enrollment 

and claims data to its dedicated 

distributed data environment that are 

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

scores. As required by the risk 

adjustment data validation process, the 

issuer engages an independent 

validation auditor, who reviews niva

enrollee records, as sampled by HHS, 

and validates the original enrollee risk 

scores. 


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However, if zero (0) is not contained 

within this range (that is, the difference 

between d ̄ and zero is statistically 

significant), HHS would expand the 

second validation audit subsample to 

select a larger subset of niva, have the 

second validation auditor review the 

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

subsample. If the statistical test shows 

no statistically significant difference, 

HHS would accept the results of the 

initial validation audit. If the statistical 

test shows a statistically significant 

difference between the initial validation 

audit and larger subsample second 

validation audit findings, HHS would 

conduct phase two to adjust the full 

initial validation audit sample based on 

the larger subsample second validation 

audit findings. 

Phase Two: Adjustment to the Initial 

Validation Audit Sample 

In phase two, if the difference 

between the initial and second 

validation audits is found to be 

statistically significant, HHS would 

utilize the risk score error rate 

calculated from the larger second 

validation audit subsample to adjust the 

full initial validation audit sample, 

which could in turn be used to adjust 

the average risk scores for each plan. 

This approach would adjust the entire 

initial validation audit sample using a 

one-for-one replacement for the 

enrollees reviewed by the second 

validation audit, and a uniform 

adjustment for the enrollees that were 

not. 

To illustrate this process, consider the 

following notations: 


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23For a discussion of stratified separate ratio 

estimators, see Cochran, William G., Sampling 

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

at 164. 

Comment: Commenters were 

supportive of using a pair-wise means 

test and a larger second validation audit 

subsample to adjust the initial 

validation audit sample. One 

commenter recommended that HHS 

clarify whether the larger second 

validation audit subsample will include 

the small second validation audit 

sample in the event the second 

validation audit includes the second, 

larger review. 

Response: The larger subsample will 

not include the small second validation 

audit subsample if a larger second 

validation audit subsample is necessary. 

However, all enrollees in both the small 

second validation audit subsample and 

the larger second validation audit 

subsample will be used for the pair-wise 

test and risk score adjustment, if 

applicable. We are finalizing this error 

estimation process as proposed. 

Adjusted Risk Score Projections 

The results of the initial or second 

validation audits will be used as the 

basis for projecting a corrected risk 

score for each issuer’s population. The 

full initial validation audit sample of 

200, whether the initial validation audit 

sample has been adjusted or not, will be 

used to calculate adjusted risk score 

projections. In the proposed rule, we 

proposed performing the projections 

described above on a stratum-by-stratum 

level, weighted to achieve an estimate of 

the corrected risk score for each issuer. 

We proposed to use a stratified 

separate ratio estimator 23 to estimate 

the corrected average risk score for each 

issuer. To compute the stratified 

separate ratio estimator, HHS would 

first extrapolate the total correct risk 

score within each stratum, then sum the 

stratum-specific projected correct risk 

scores for all strata, with the total sum 

divided by the total enrollee count to 

arrive at the corrected average risk 

score. The projected risk score error 

would then be calculated as the 

difference between the recorded average 

risk score across the entire population 

and the point estimate. 

The stratified separate ratio estimator 

of the total correct risk score would be 

calculated using the following equation: 


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We proposed to use the issuer’s 

corrected average risk score to compute 

an adjustment factor, based on the ratio 

between the corrected average risk score 

and the original average risk score that 

could be applied to adjust plan average 

risk for all risk adjustment covered 

plans within the issuer. We considered 

two options for applying the adjustment 

factor. Under the first option, we 

considered directly applying an 

adjustment factor to all of the issuer’s 

risk adjustment covered plans. Under 

the second option, we considered 

applying this adjustment only if the 

corrected average risk score and the 

recorded average risk score are 

statistically different. We are finalizing 

the second option, under which a 

critical parameter of the statistical test is 

the target confidence interval, which 

determines the stringency of the test. In 

the proposed rule, we considered 

performing the statistical test at the 90, 

95, or 99 percent confidence interval. As 

we noted in the proposed rule, the OIG 

performs certain similar data validation 

tests using a 90 percent confidence 

interval, while the Medicare Advantage 

risk adjustment data validation program 

uses a 99 percent confidence interval. 

We are finalizing our proposal to 

apply an adjustment factor only if the 

corrected average risk score and 

recorded risk score are statistically 

different, using a 95 percent confidence 

interval. We note that we will use this 

approach with a 95 percent confidence 

interval in the initial years of the risk 

adjustment data validation program but 

will consider using other error 

estimation approaches and statistical 


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24 If the test passes, then no adjustments would 

be made to the sample of 200, and the projected 

results from this sample would be used to adjust 

average plan liability risk scores. 

tests as risk adjustment data becomes 

available. Among the approaches that 

we may consider for future years would 

be an approach under which risk scores 

would be corrected only if a statistically 

significant difference in risk scores was 

demonstrated, but a more pronounced 

risk score adjustment would be applied. 

Comment: Commenters generally 

supported applying an adjustment factor 

only if the corrected average risk score 

and recorded risk score are statistically 

different. However, a few commenters 

supported using a 99 percent confidence 

interval instead of the proposed 95 

percent confidence interval. One 

commenter recommended using both a 

90 percent and a 95 percent confidence 

interval but having CMS retain the 

discretion whether to apply an 

adjustment factor if statistical difference 

is discovered under the 90 percent 

confidence interval but not the 95 

percent confidence interval. One 

commenter also recommended that the 

risk scores for enrollees without HCCs 

only be adjusted upward, not 

downward, since enrollees without 

HCCs are assigned the lowest error rate 

from among enrollees with HCCs. 

Response: We believe that a 99 

percent confidence interval could lead 

to under correction of bias in risk 

scores, and therefore, are finalizing a 95 

percent confidence interval. We believe 

that this lower confidence interval will 

encourage issuers to correct practices 

that may lead to errors in the data 

validation process. We note that the risk 

scores of enrollees without HCCs may 

be adjusted upward or downward based 

on the review of demographic and 

medical documentation. For example, if 

an enrollee’s age was incorrectly 

recorded, validation of that data could 

change the enrollee risk score, even if 

the enrollee had no HCCs. 

Error Estimation Example 

To illustrate the corrected average risk 

score and error estimation process 

described above, assume that a sample 

of 200 enrollees is selected for initial 

validation audit review for a particular 

issuer. From this sample, assume that a 

subsample of 20 enrollees is selected for 

second validation audit review. Assume 

the issuer’s average recorded population 

risk score is 1.60 and the projected 

correct population risk score from the 

sample of 200 is 1.40, with a two-sided 

95 percent confidence interval of 1.30 to 

1.50. 

The first step in the error estimation 

process will determine if the initial 

validation audit results should be 

corrected based on the second 

validation audit review or accepted 

without adjustment. We will perform a 

pair-wise means test to compare the 

projected risk scores for the sample of 

200 enrollees and the subsample of 20 

enrollees. 

For this example, assume that the 

statistical test fails (that is, there is a 

statistically significant difference 

between the projected risk scores in the 

sample of 200 and the subsample of 

20).24 We will then select an expanded 

subsample from the original sample of 

200 enrollees. Assume that the larger 

subsample is a sample of 80 enrollees. 

Following selection of the larger second 

validation audit subsample, we will 

perform the pair-wise means test again. 

Assume the test fails again (that is, the 

pair-wise means test shows a 

statistically significant difference in the 

projected risk scores between the initial 

validation audit and the second 

validation audit for the sample of 100 

enrollees—by assumption, 20 from the 

first subsample and 80 from the second 

subsample—selected in the second data 

validation audit). We will conclude that 

the risk scores in the sample of 200 

enrollees need to be adjusted based on 

the results of the second validation 

audit. 

In the second step of error estimation, 

HHS will adjust the risk scores in the 

sample of 200 using a one-for-one 

replacement for the risk scores of the 

100 enrollees reviewed by the second 

validation auditor, and a uniform 

adjustment for the other enrollees in the 

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

scores calculated based on initial 

validation audit findings, with the risk 

scores calculated based on the second 

validation audit findings for the 100 

enrollees. The remaining 100 enrollees 

that were not included in the second 

validation audit subsample will be 

adjusted based on the ratio of two 

projections: (1) The projected correct 

population risk score using the second 

validation audit findings in the 

subsample of 100 (assume this projected 

risk score is 1.50, with a two-sided 95 

percent confidence interval of 1.30 to 

1.70); divided by (2) the projected 

correct population risk score using the 

initial validation audit findings for the 

sample of 200 enrollees (equal to 1.40 

based on the assumption noted above). 

The adjustment ratio is equal to 1.07 = 

1.50/1.40. Therefore, the risk scores of 

the remaining 100 enrollees not 

included in the second validation audit 

subsample will be increased by 7 

percent. 

At that point, the adjusted average 

risk score of the initial validation 

sample would be calculated to derive a 

projected correct population average 

risk score for the issuer that would be 

compared to the issuer’s recorded 

average risk score. The plan average risk 

scores for the issuer would then be 

adjusted, based on the ratio between the 

corrected average risk score and the 

recorded average risk score, as described 

above, if the issuer’s recorded average 

risk score and the projected correct 

average risk score are significantly 

different. 

(v) Appeals 

We anticipate that the risk adjustment 

data validation appeals process will 

occur annually, beginning in the spring 

of the year in which the error rate will 

be applied to adjust risk scores and 

affect risk adjustment payments and 

charges. Because we are not applying 

error rates to adjust payments and 

charges for the initial 2 years of the risk 

adjustment program, the first year for 

which error rates will be applied to 

payments and charges will be 2016. 

These error rates will be used as the 

basis for adjustments to the payment 

transfers for 2017, which will take place 

in spring 2018. We anticipate the 

appeals process will begin in the spring 

of 2018, prior to the 2017 payment 

transfers. We will provide additional 

guidance on the appeals process and 

schedule in future rulemaking. 

Comment: Commenters supported 

beginning the appeals process with the 

2016 payment year. They also 

recommended leveraging existing 

appeals processes where applicable and 

providing at least 60 days to file an 

appeal. We received comments 

recommending that the individual 

reviewing the appeal be an independent 

entity with an appropriate level of 

coding, medical documentation, and 

audit experience. One commenter also 

recommended that the scope of the 

appeals be expanded to include initial 

validation audit results. 

Response: We will provide additional 

guidance on the appeals process and 

schedule in future rulemaking. 

(vi) Payment Transfer Adjustments 

Risk adjustment payment transfer 

amounts will be based on adjusted plan 

average risk scores. The data validation 

audits will be used to develop a risk 

score error adjustment for each issuer, 

as described above. Each issuer’s risk 

score adjustment will be applied to 

adjust the plan average risk score for 

each of the issuer’s risk adjustment 

covered plans. This adjustment will be 

applied on a prospective basis 

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beginning with the risk adjustment data 

for benefit year 2016 (that is, the 

adjustments would take effect in 2018, 

during payment transfers for 2017). 

Because an issuer’s adjusted plan 

average risk score is normalized as part 

of the risk adjustment payment 

calculation, the effect of an issuer’s risk 

score error adjustment will depend 

upon its magnitude and direction 

compared to the average risk score error 

adjustment and direction for the entire 

market. 

We are considering reporting the 

following summary findings to issuers 

for the initial 2 years of the program: 

• State- or market-wide error rates. 

• Issuer error rates. 

• Initial validation audit or error 

rates. 

• Projected financial impact of the 

proposed risk adjustments, as 

determined by the initial and second 

validation auditors. 

The 2-year interval before risk 

adjustment data validation adjustments 

are applied to risk scores and affect 

payments and charges will provide 

initial validation auditors and issuers 

the opportunity to reform existing 

processes prior to the implementation of 

HHS payment transfer adjustments for 

the 2016 benefit year. We believe that 

the reports described above will help 

issuers and initial validation auditors 

better understand the likely effects of 

the risk adjustment data validation 

program in States where HHS operates 

risk adjustment. We are finalizing these 

provisions as proposed. 

Comment: Commenters requested that 

HHS provide issuers with reports of 

their risk scores, as well as market risk 

scores pre- and post-audit. Commenters 

also requested that HHS provide issuers 

with State and market-wide error rates, 

issuer error rates, initial validation audit 

error rates, and the projected financial 

impact of the proposed risk adjustment, 

as determined by auditors. One 

commenter requested that HHS publicly 

report issuer error rates both nationally 

and for each State for each issuer. 

Another commenter was opposed to the 

public reporting of issuer error rates and 

requested that they be provided 

individually to issuers. 

Response: We plan to publicly report 

aggregate summaries at the State, 

market, and initial validation auditor 

level. However, we will assess whether 

to publicly report initial validation 

auditor-level results. We plan to provide 

issuer-specific reports to the issuer and 

the initial validation auditor. We will 

provide further details on the reports in 

future guidance. 

(vii) Oversight 

The second final Program Integrity 

Rule outlined selected oversight 

provisions related to the premium 

stabilization programs, such as 

maintenance of records, sanctions for 

failing to establish a dedicated 

distributed data environment, and the 

application of a default risk adjustment 

charge to issuers in the individual and 

small group markets that fail to provide 

data necessary for risk adjustment. We 

proposed expanding on these provisions 

to include oversight related to risk 

adjustment data validation when HHS 

operates risk adjustment on behalf of a 

State, and are now finalizing those 

proposals. 

Section 153.620 provides that an 

issuer that offers risk adjustment 

covered plans must comply with any 

data validation requests by the State or 

HHS on behalf of the State, and that an 

issuer that offers risk adjustment 

covered plans must also maintain 

documents and records, whether paper, 

electronic, or in other media, sufficient 

to enable the evaluation of the issuer’s 

compliance with applicable risk 

adjustment standards, and must make 

that evidence available upon request to 

HHS, OIG, the Comptroller General, or 

their designee, or in a State where the 

State is operating risk adjustment, the 

State or its designee to any such entity. 

Based on our authority under section 

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

we proposed in § 153.630(b)(9) that, 

when HHS operates risk adjustment on 

behalf of a State, an issuer of a risk 

adjustment covered plan that does not 

engage an initial validation auditor 

within the timeframe specified by HHS 

of the year following the benefit year, or 

that otherwise does not arrange for a 

risk adjustment initial validation audit 

that complies with applicable 

regulations, may be subject to CMPs. We 

stated that we intend to apply the 

proposed sanction so that the level of 

the enforcement action would be 

proportional to the level of the 

violation. While we reserve the right to 

impose penalties up to the maximum 

amounts proposed in § 156.805(c), as a 

general principle, we would work 

collaboratively with issuers to address 

problems in conducting the risk 

adjustment data validation process. In 

our application of the sanction, we 

would take into account the totality of 

the issuer’s circumstances, including 

such factors as an issuer’s previous 

record (if any), the frequency and level 

of the violation, and any aggravating or 

mitigating circumstances. We stated that 

our intent is to encourage issuers to 

address non-compliance and not to 

severely affect their business, especially 

where the issuer demonstrates good 

faith in monitoring compliance with 

applicable standards, identifies any 

suspected occurrences of noncompliance, and attempts to remedy any 

non-compliance. 

We proposed in § 153.630(b)(10) to 

assign a default risk adjustment charge 

to an issuer that does not hire an initial 

validation auditor or that otherwise 

does not submit initial validation audit 

results that comply with the regulations 

in subpart G and subpart H of part 153. 

We stated that we were considering 

whether this charge should be the same 

as the default charge in § 153.740(b) for 

failure to comply with data 

requirements, should be based on a 

default error rate, or should be 

calculated based on some other 

methodology. We are finalizing a default 

risk adjustment charge that will be 

calculated in the manner provided for in 

§ 153.740(b), which is discussed 

elsewhere in this final rule. 

Issuers may request technical 

assistance from HHS at any stage of the 

risk adjustment data validation process. 

HHS may also offer such assistance 

directly if we become aware of technical 

issues arising at any time during the risk 

adjustment data validation process. We 

plan to provide further assistance and 

clarification around the risk adjustment 

data validation process through a range 

of vehicles, including additional 

guidance, training materials, webinars, 

or user group calls. 

Based on the comments received, we 

are finalizing a default risk adjustment 

charge at § 153.630(b)(10) for issuers 

that do not conduct the initial 

validation audit. 

Comment: Commenters agreed with 

our proposal to impose CMPs if issuers 

do not engage an auditor within the 

specified timeframe, do not otherwise 

arrange for an initial validation audit 

that complies with applicable 

regulations, or are repeatedly out of 

compliance with risk adjustment data 

validation requirements, including not 

providing the initial and second 

validation audit auditors with 

information. One commenter supported 

assigning the issuer the highest possible 

default error rate that guarantees 

additional charges as a percent of 

premium or reduced payments as a 

percent of premium. Another 

commenter recommended that HHS 

enforce the initial validation audit 

requirement with a significant penalty 

for issuers that do not conduct the 

initial validation audit, while imposing 

lesser penalties if the initial validation 

audit results are not submitted in a 

timely manner. 

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Response: We agree that penalties 

should correspond to the severity of an 

issuer’s non-compliance. We also agree 

with the commenter who suggested that 

HHS enforce the initial validation audit 

requirement with a significant penalty 

such as the default risk adjustment 

charge for issuers that do not conduct 

the initial validation audit, while 

imposing CMPs if the initial validation 

audit results are not submitted in a 

timely manner. As we noted previously 

and in the proposed rule, we intend to 

apply any proposed sanction so that the 

enforcement action would be 

proportional to the level of the 

violation. 

(viii) Data Security 

We recognize that the risk adjustment 

data validation process outlined here 

will require the transmission of 

sensitive data and documents between 

an issuer and the initial and second 

validation auditors. HHS takes seriously 

the importance of safeguarding 

protected health information and PII. As 

outlined in the white paper and the 

proposed rule, we believe that it will be 

necessary to specify standards for 

safeguarding this information through 

proper information storage and 

transmission methods. 

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

requires an issuer to ensure that it and 

its initial validation auditor comply 

with the HIPAA information security 

standards described at §§ 164.308, 

164.310, and 164.312 (HIPAA Security 

Rule) in connection with the initial 

validation audit, the second validation 

audit, and any appeals. In addition to 

these requirements, we continue to 

consider defining standards and 

expectations that would apply to issuers 

and initial and second validation 

auditors pertaining to data security, 

management, and transmission. These 

standards could require systems to 

safeguard and encrypt data ‘‘at rest’’ and 

‘‘in transit,’’ and to authenticate 

identities of users. They could also 

prohibit auditors from using or 

disclosing the information they receive 

for any purpose other than the audit and 

oversight. Similar standards have been 

implemented under the Medicare 

Advantage risk adjustment data 

validation process. We will address 

these issues and the treatment of initial 

and second validation auditors under 

HIPAA in future rulemaking or 

guidance. 

Comment: Several commenters stated 

that compliance with the current 

provisions of the HIPAA Security Rule 

by issuers and their auditors will 

effectively safeguard the transmission of 

sensitive data and documents between 

the issuer and the initial and second 

validation auditors. One commenter 

recommended that HHS adopt 

additional data security standards. One 

commenter requested that HHS base 

data security standards on applicable 

Medicare Advantage risk adjustment 

data validation standards, with specific 

penalties for breaches. 

Response: Because of the sensitive 

nature of the risk adjustment data 

validation data, we recognize that it is 

essential that HHS have in place the 

proper standards and safeguards to 

ensure data security and privacy 

protections. We are continuing to 

evaluate the sufficiency of the current 

HIPAA Security Rule provisions, as well 

as the potential effectiveness of 

requiring additional data security, 

management, and transmission 

safeguards, including penalties for 

breaches. We intend to clarify our data 

security approach in future rulemaking 

or guidance. 

(ix) Implementation Timeline 

For the 2014 benefit year, we expect 

to implement risk adjustment data 

validation activities in early 2015. 

Implementation activities will begin 

with issuers submitting the identity of 

their initial validation auditor to HHS in 

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

spring of 2015, we intend to utilize the 

data submitted by issuers for risk 

adjustment payments and charges and 

apply the sampling methodology 

described above to select the audit 

sample for each issuer for the initial 

validation audit. During the same 

timeframe, we will train issuers and 

initial validation auditors on the risk 

adjustment data validation process and 

the applicable standards for performing 

the initial validation audit, which will 

begin in the summer of 2015. Once the 

initial validation audit has concluded in 

the fall of 2015, HHS will begin the 

second validation audit process, which 

will continue into 2016. Risk 

adjustment data validation 

implementation activities for the 2014 

benefit year data will conclude in 2016 

after distribution of HHS findings to 

issuers, processing of appeals, and 

estimation and reporting of final risk 

scores. Since the 2014 benefit year is the 

first year of implementation of risk 

adjustment data validation, we expect to 

report on lessons learned from these 

activities, and to use this information to 

improve the risk adjustment data 

validation process. 

We expect that risk adjustment data 

validation implementation activities 

will follow a similar schedule for each 

subsequent benefit year. The 2016 

benefit year will be the first year when 

payments and charges are adjusted. 

Those adjustments will occur after the 

conclusion of risk adjustment data 

validation activities for the 2016 benefit 

year, in the summer of 2018. 

Comment: Commenters supported the 

reporting of lessons learned from the 

initial year risk adjustment data 

validation activities. One commenter 

was concerned that the initial 2-year 

time period would be insufficient to 

analyze error rates or determine the 

appropriate sampling approach. Several 

commenters suggested that issuers 

would need to receive audit results 

more promptly to be able to improve 

their processes for the 2017 plan year. 

One commenter urged HHS to begin the 

risk adjustment data validation process 

as soon as possible. 

Response: We believe that the initial 

2 years of risk adjustment will be 

sufficient to analyze error rates, 

determine a more effective sampling 

approach, and allow issuers to gain 

experience with the risk adjustment 

data validation process in time for 

payment adjustments to occur for the 

2016 benefit year. Though final results 

for the 2014 benefit year will not 

become available until 2016, we believe 

issuers should be able to adjust their 

2017 processes in time. 

e. HHS Audits of Issuers of Risk 

Adjustment Covered Plans 

We proposed in § 153.620(c) that HHS 

or its designee may audit an issuer of a 

risk adjustment covered plan, when 

HHS operates risk adjustment on behalf 

of a State, to assess the issuer’s 

compliance with the requirements of 

subparts G and H of 45 CFR part 153. 

The issuer would also be required to 

ensure that its relevant contractors, 

subcontractors, or agents cooperate with 

the audit. We noted that we anticipate 

conducting targeted audits of issuers of 

risk adjustment covered plans informed 

by, among other criteria and sources, the 

data provided to HHS through the 

dedicated distributed data environment 

and any previous history of 

noncompliance with these standards. 

These audits would focus on aspects of 

the risk adjustment program that are not 

validated through the risk adjustment 

data validation program, such as 

whether a plan was a risk adjustment 

covered plan. 

We also proposed that if an audit 

results in a finding of material weakness 

or significant deficiency (as these terms 

are defined in GAAS issued by the 

American Institute of Certified Public 

Accountants, and Government Auditing 

Standards issued by the Government 

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Federal Register / Vol. 79, No. 47 / Tuesday, March 11, 2014 / Rules and Regulations 13771 

25See Government Auditing Standards (2011 

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

yellowbook. For public companies, the Public 

Company Accounting Oversight Board (PCAOB) 

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

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

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

AuditAttest/Pages/SAS.aspx. 

Accountability Office (GAO) 25) with 

respect to compliance with any 

requirement of subparts G or H of 45 

CFR part 153, the issuer would be 

required to: (i) Within 30 calendar days 

of the issuance of the final audit report, 

provide a written corrective action plan 

to HHS for approval; (ii) implement that 

corrective action plan; and (iii) provide 

to HHS written documentation of the 

corrective actions once taken. We 

proposed that if HHS determines as the 

result of an audit that the issuer of the 

risk adjustment covered plan was 

required to pay additional risk 

adjustment charges or received risk 

adjustment payments to which it was 

not entitled, we may require the issuer 

to pay such amounts to the Federal 

government. 

We are finalizing the audit provisions 

as proposed. 

Comment: One commenter asked that 

if an audit identifies repeated 

noncompliance with the risk adjustment 

standards and the issuer fails to correct 

such issues, including failing to 

implement a corrective action plan, the 

issuer should be subject to a default risk 

adjustment charge or CMPs. 

Response: Under § 153.620(c), an 

issuer of a risk adjustment covered plan 

must provide and implement a 

corrective action plan to rectify any 

material weakness or significant 

deficiency identified by HHS through an 

audit. Enforcement remedies are 

provided with respect to the risk 

adjustment program under § 153.740 

when an issuer of a risk adjustment 

covered plan fails to comply the data 

requirements in §§ 153.700 through 

153.730 or §§ 153.610 through 153.630. 

Enforcement remedies may be available 

through other Federal statutes, such as 

the False Claims Act, as well. While 

§ 153.620(c) does not provide specific 

remedies for the failure to implement a 

corrective action plan, we note that HHS 

will consider the totality of 

circumstances in assessing penalties for 

non-compliance with risk adjustment 

standards under § 153.740, including 

those that occur in connection with a 

corrective action plan. 

Comment: One commenter suggested 

that when an audit results in issuers 

owing risk adjustment, reinsurance, or 

risk corridors charges, those funds 

should be paid into the applicable 

program and, where applicable, 

distributed pro rata to issuers of eligible 

plans in the program. The commenter 

further suggested that any reinsurance 

deficiencies identified and rectified 

after the program has ended should be 

directed to the risk adjustment program. 

Response: As we stated in the 

proposed rule, if HHS determines as the 

result of an audit that an entity or issuer 

was required to pay risk adjustment, 

reinsurance, or risk corridors charges, 

HHS has the authority to require the 

entity or issuer to pay such amounts to 

the Federal government. We will 

address the distribution of funding 

deficiencies, including those identified 

after a temporary program has ended, in 

future rulemaking. 

Comment: We received a number of 

comments regarding audit protocols and 

procedures applicable to the premium 

stabilization programs. In order to 

minimize the number and scope of data 

requests that issuers must respond to, 

commenters encouraged HHS to identify 

data elements, sample sizes, and other 

aspects of the audits in advance, and to 

streamline and coordinate data requests, 

given the overlap in data elements 

supporting the premium stabilization 

programs and the MLR program. 

Commenters suggested centralized 

audits so that auditors can consolidate 

data requests and follow-up requests for 

information. Commenters also 

encouraged HHS to work with States, 

issuers, contributing entities, and other 

stakeholders in advance of issuing data 

requests for audits. Additionally, 

commenters encouraged HHS to provide 

significant lead time for data collection 

and submission, and suggested that 

HHS limit its audits to samples of data 

when possible and expand those sample 

audits only upon a finding of material 

non-compliance. Commenters also 

suggested that HHS limit issuer audits 

to one per year. 

Response: As stated in the proposed 

rule, to reduce the burden on issuers 

and HHS, to the extent practical, we 

intend to coordinate any audits of 

issuers and contributing entities with 

related audits of Exchange financial 

programs and premium stabilization 

programs, in order to limit the number 

of potential audits that an organization 

would experience. We intend to provide 

further details on the audit program, 

including timelines, procedures, and 

substantive requirements, in future 

rulemaking and guidance. We will 

consider the comments we received to 

this proposed rule and further feedback 

from stakeholders to ensure that our 

audit program is transparent and 

effective. 

Comment: Some commenters asked 

that HHS perform audits from a 

centralized location, with no on-site 

audits. 

Response: While we reserve the right 

to conduct on-site audits, as noted 

above, we intend to provide further 

details on the audit program in future 

rulemaking and guidance. 

f. State-Submitted Alternate Risk 

Adjustment Methodology 

For 2015, we are recertifying the 

alternate risk adjustment methodology 

submitted by Massachusetts and 

certified in the 2014 Payment Notice (78 

FR 15439–15452). We are not certifying 

any other alternate risk adjustment 

methodologies for 2015. 

3. Provisions and Parameters for the 

Transitional Reinsurance Program 

The Affordable Care Act directs that 

a transitional reinsurance program be 

established in each State to help 

stabilize premiums for coverage in the 

individual market from 2014 through 

2016. In the 2014 Payment Notice, we 

expanded on and modified the 

standards set forth in subparts C and E 

of the Premium Stabilization Rule, and 

established the reinsurance payment 

parameters and a uniform contribution 

rate for the 2014 benefit year. In this 

final rule, we finalize provisions from 

the proposed rule, including: additional 

standards regarding reinsurance 

contributions, the 2015 reinsurance 

payment parameters and uniform 

contribution rate, modifications to the 

2014 reinsurance payments parameters, 

and certain oversight provisions for the 

reinsurance program. 

a. Major Medical Coverage 

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

Affordable Care Act states that ‘‘the 

contribution amount for each issuer 

[must] proportionally reflect each 

issuer’s fully insured commercial book 

of business for all major medical 

products . . .’’ To provide additional 

clarification for contributing entities, we 

proposed to define ‘‘major medical 

coverage’’ in § 153.20 to mean health 

coverage for a broad range of services 

and treatments provided in various 

settings that provides minimum value in 

accordance with § 156.145. We noted in 

the proposed rule that this definition of 

major medical coverage only applies for 

the purpose of determining reinsurance 

contributions under section 1341 of the 

Affordable Care Act. 

We are finalizing this provision as 

proposed, with one modification—we 

are modifying the definition of major 

medical coverage to include a specific 

reference to catastrophic plans and 

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13772 Federal Register / Vol. 79, No. 47 / Tuesday, March 11, 2014 / Rules and Regulations 

26Section 2791(b)(5) of the PHS Act provides: 

‘‘The term ‘‘individual health insurance coverage’’ 

means health insurance coverage offered to 

individuals in the individual market, but does not 

include short-term limited duration insurance.’’ 

Available at: http://www.nadp.org/Libraries/HCR_

Documents/phsa027.sflb.ashx. 

individual and small group market 

plans subject to actuarial value 

requirements under § 156.140. 

Comment: Several commenters 

supported our proposed definition of 

major medical coverage, stating that the 

reference to minimum value is a 

reasonable method to provide a 

consistent definition for major medical 

coverage. Other commenters asked that 

we exclude the reference to minimum 

value and continue to classify fully 

insured major medical coverage as that 

which provides hospitalization and 

medical services, or retain the definition 

of major medical coverage as it was 

defined in the preamble to the 2014 

Payment Notice (78 FR 15456). One 

commenter stated that coverage before 

2014 was not evaluated for minimum 

value and retroactive testing would be 

difficult to implement, administratively 

burdensome, difficult to audit, and that 

this definition could exclude a fairly 

large population from reinsurance 

contributions. Another commenter 

suggested that minimum value is 

confusing because it is not a concept 

that generally applies to individual 

health coverage and is only relevant for 

determining whether employersponsored coverage provides minimum 

value. One commenter noted that 

because the safe harbor method of 

calculating minimum value has not yet 

been finalized, minimum value cannot 

yet be determined. 

Response: We believe that 

codification of this definition of major 

medical coverage will help issuers and 

group health plans more accurately 

determine their reinsurance 

contribution obligations. As noted in the 

proposed rule, we believe that 

minimum value is a reasonable way to 

clarify the definition of major medical 

coverage and reduce uncertainty as to 

whether reinsurance contributions are 

required of certain unique plan 

arrangements. In addition, we believe 

that the concept of minimum value will 

be familiar to issuers and group health 

plans, and believe that the minimum 

value calculator will enable the 

calculation of minimum value with 

minimal burden, regardless of when the 

coverage was first offered. In the event 

that the minimum value calculator is 

unsuitable for use in determining 

whether a particular plan provides 

minimum value (and, therefore, major 

medical coverage), the contributing 

entity may seek certification by an 

actuary consistent with § 156.145(a)(3) 

to establish whether the plan provides 

minimum value. 

Comment: One commenter asked that 

we include in the definition of major 

medical coverage any coverage subject 

to the actuarial value requirements 

because this would eliminate the need 

for plans subject to actuarial value 

requirements to also calculate minimum 

value. 

Response: We agree with the 

commenter that this additional 

clarification would be helpful to 

eliminate this unneeded complexity, 

and are therefore finalizing a definition 

of major medical coverage to include 

explicit references to catastrophic plans 

and individual and small group market 

plans subject to the actuarial value 

requirements under § 156.140. As noted 

in the proposed rule (78 FR 72340), the 

minimum value standards established 

under 45 CFR 156.145 deem any 

coverage that meets any of the levels of 

coverage requirements described in 45 

CFR 156.140 to satisfy minimum value 

requirements. The levels of coverage, in 

turn, are determined through 

calculation of AV between 60 to 90 

percent. As such, plans that meet the 

AV requirements in accordance with 45 

CFR 156.140 would not need to also 

calculate minimum value. We further 

note that catastrophic plans, as well as 

coverage offered in the individual and 

small group markets that are subject to 

the Affordable Care Act AV 

requirements, would be considered part 

of a contributing entity’s ‘‘commercial 

book of business.’’ Therefore, 

contributing entities must make 

reinsurance contributions on behalf of 

their enrollees with catastrophic 

coverage, as well as individual market 

coverage and small group coverage 

subject to the AV requirements under 45 

CFR 156.140, absent another exception 

in § 153.400. 

Comment: One commenter suggested 

that HHS clarify that short-term limited 

duration insurance, which is excluded 

from the definition of ‘‘individual 

health insurance coverage’’ under 

section 2791(b)(5) of the PHS Act,26 is 

not major medical coverage and is 

therefore not required to make 

reinsurance contributions. 

Response: In general, section 

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

Act requires reinsurance contributions 

for ‘‘major medical coverage’’ that is 

considered to be part of a ‘‘commercial 

book of business,’’ absent an applicable 

exemption. We are interpreting the term 

‘‘major medical coverage’’ solely in the 

context of the obligation under the 

Affordable Care Act to make reinsurance 

contributions. The question of whether 

coverage is subject to the rules that 

apply to ‘‘individual health insurance 

coverage’’ is separate from the question 

of whether it is ‘‘major medical 

coverage’’ for purposes of reinsurance 

contributions. 

As we noted in the preamble to the 

2014 Payment Notice (78 FR 15456), for 

purposes of whether a reinsurance 

contribution is required, we interpret 

the term ‘‘major medical coverage’’ in 

terms of the scope and extent of the 

coverage offered, not in terms of what 

other Federal requirements may apply 

to the coverage. Specifically, in the 2014 

Payment Notice, we indicated that we 

interpreted ‘‘major medical coverage’’ to 

be coverage of a wide range of services 

not limited in scope (for example, vision 

or dental coverage) or extent (for 

example, coverage with very low annual 

dollar limits). Therefore, reinsurance 

contributions would be required with 

respect to a contributing entity’s 

enrollees in a short-term limited 

duration plan to the extent the plan 

provides ‘‘major medical coverage,’’ as 

we have interpreted that term. In this 

final rule, we are adopting as final the 

language in proposed § 153.20 that sets 

forth a specific standard for 

implementing our interpretation of 

‘‘major medical coverage,’’ as set forth 

in the 2014 Payment Notice. 

Specifically, under § 153.20, coverage 

will be considered ‘‘major medical 

coverage’’ for reinsurance contribution 

purposes if it covers a wide range of 

services, is not limited in scope, and 

provides a level of coverage that meets 

the minimum value test under 

§ 156.145. While we are finalizing this 

standard in this final rule, because it 

implements our interpretation of ‘‘major 

medical coverage’’ as set forth in the 

2014 Payment Notice, this standard will 

be applied in determining a contributing 

entity’s reinsurance contribution 

liability for the 2014, 2015, and 2016 

benefit years. 

We recognize that the non-standard 

features of a short-term limited duration 

plan may make the minimum value 

calculator unsuitable for use with the 

plan in determining whether the plan 

provides minimum value (and, 

therefore, ‘‘major medical coverage’’). In 

such an event, the contributing entity 

may seek certification by an actuary 

consistent with § 156.145(a)(3) to 

establish whether the plan provides 

minimum value. 

b. Self-Administered, Self-Insured Plans 

Following comments submitted with 

respect to the 2014 Payment Notice and 

the proposed Program Integrity Rule, we 

proposed to modify the definition of a 

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‘‘contributing entity’’ for the 2015 and 

2016 benefit years to exclude selfinsured group health plans that do not 

use a third party administrator (TPA) in 

connection with the core administrative 

functions of claims processing or 

adjudication (including the management 

of internal appeals) or plan enrollment. 

The preamble to the proposed rule 

discussed how section 1341(b) of the 

Affordable Care Act can reasonably be 

interpreted in more than one way with 

respect to whether a self-insured, selfadministered plan is a contributing 

entity. The proposed modification 

recognized that some self-insured group 

health plans, which we believe would 

generally not be considered to be using 

the core services of a TPA, may use 

third parties for ancillary administrative 

support, and we noted that we would 

consider these plans to be selfadministered for purposes of the 

reinsurance program. For purposes of 

the definition of ‘‘contributing entity,’’ 

we proposed to consider a TPA to be, 

with respect to a self-insured group 

health plan, an entity that is not under 

common ownership or control with the 

self-insured group health plan or its 

sponsor that provides administrative 

functions to the self-insured group 

health plan in connection with the core 

administrative services noted above. We 

sought comment on this definition, and 

whether certain types of service 

providers should be considered a TPA 

for these purposes. 

In addition, we sought comment on 

whether the core administrative 

functions are the appropriate criteria for 

this revised definition, and what other 

administrative functions, such as 

medical management services, provider 

network development, or other support 

tasks, should be considered in 

determining whether a self-insured 

group health plan uses a TPA. We also 

sought comment on whether certain 

benefits or services, such as 

pharmaceutical benefits or behavioral 

health benefits, or a de minimis or small 

percentage of all benefits and services, 

may be performed by an unaffiliated 

service provider, which benefits or 

services should be excluded, and how 

such a de minimis amount or small 

percentage should be measured. 

We are finalizing the proposed 

definition of ‘‘contributing entity’’ as 

proposed, with minor modifications to 

permit the use of unrelated third parties 

for provider network development and 

related services, and to provide for a de 

minimis exception. 

Comment: Some commenters agreed 

with the proposed exemption, and 

stated that it had adequate statutory 

support and also accurately reflected 

Congressional intent. Some commenters 

urged an expanded exemption. Some 

commenters disagreed with the 

proposed exemption as not required or 

supported by the statute, inconsistent 

with HHS’s prior position on the issue, 

or not supported by a clear policy 

rationale. 

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

Affordable Care Act can reasonably be 

interpreted in more than one way with 

respect to the applicability of 

reinsurance contributions to selfinsured, self-administered plans. After 

receipt of comments submitted in 

response to the 2014 Payment Notice 

and the proposed Program Integrity 

Rule, we reconsidered this issue. 

Following this in-depth review, our 

view is that the better reading of section 

1341 is that a self-insured, selfadministered plan should not be a 

contributing entity, but in order to avoid 

disruption to contributing entities, we 

proposed to retain the prior definition of 

contributing entity for the 2014 benefit 

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

Affordable Care Act states that health 

insurance issuers and TPAs on behalf of 

group health plans are required to make 

reinsurance contributions, but does not 

refer to self-insured, self-administered 

plans. The provision’s reference to 

group health plans administered by 

TPAs, coupled with the omission of 

self-insured, self-administered plans, 

supports the proposed exemption. We 

also note that section 1341 of the 

Affordable Care Act supports the 

distinction between self-insured, selfadministered plans and self-insured 

plans that use a TPA, since sections 

1341(b)(1) and (b)(3)(B)(i) specifically 

refer to self-insured plans with TPAs 

and are silent as to self-insured, selfadministered plans. Further support for 

this reading is found under section 

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

and § 153.400(a)(1)(ii), which provide 

that reinsurance contributions are to 

reflect a ‘‘commercial book of business.’’ 

While a group health plan administered 

by a TPA would normally be considered 

part of a ‘‘commercial book of 

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

be considered part of an entity’s 

‘‘commercial book of business.’’ For the 

reasons set forth above, HHS is 

finalizing the proposed exemption, with 

certain modifications discussed below. 

Comment: Some commenters stated 

that adopting the proposed exemption 

would set a precedent permitting other 

contributing entities to seek exemptions 

from reinsurance contributions. Several 

commenters stated that the proposed 

exemption inappropriately treats selfinsured plans with TPAs differently 

from self-insured, self-administered 

plans, and will inequitably shift 

reinsurance costs from self-insured, selfadministered plans to self-insured plans 

with TPAs and health insurance issuers. 

Several commenters stated that the 

proposed exemption inappropriately 

favors ‘‘union plans.’’ 

Response: Self-insured, selfadministered plans are a unique subset 

of potential contributing entities. The 

proposed exemption is narrowly drawn 

so that only a self-insured plan that does 

not use a TPA to perform its claims 

processing, claims adjudication, and 

enrollment functions would qualify for 

the exemption. As discussed in the 

preamble to the proposed rule, section 

1341 of the Affordable Care Act 

supports the distinction between selfinsured, self-administered plans and 

self-insured plans that use a TPA, since 

sections 1341(b)(1)(A) and (b)(3)(A) of 

the Affordable Care Act specifically 

refer to self-insured plans with TPAs 

and are silent as to self-insured, selfadministered plans. In addition, section 

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

and § 153.400(a)(1)(ii) provide that 

reinsurance contributions are to reflect 

a ‘‘commercial book of business.’’ A 

self-insured, self-administered plan is 

fundamentally different from a health 

insurance issuer as well as a selfinsured plan that uses a TPA, in that an 

insured plan and a self-insured plan 

with a TPA both involve an external 

commercial entity (the issuer or the 

TPA, which may itself be an issuer or 

an issuer affiliate). There will be no 

shifting of costs for 2014 because the 

exemption for self-insured, selfadministered plans will only apply to 

the 2015 and 2016 benefit years. Based 

on comments received, our 

understanding is that relatively few 

plans will be eligible for the exemption. 

In addition, reinsurance payments will 

decrease substantially for the 2015 and 

2016 benefit years, so all contributing 

entities will be responsible for 

substantially lower contributions for 

those years. 

Finally, any self-insured plan that 

does not use a TPA for the core 

administrative functions of claims 

processing, claims adjudication 

(including the management of internal 

appeals), or enrollment may claim the 

exemption for the 2015 and 2016 benefit 

years, irrespective of whether the plan 

is jointly sponsored by a union and an 

employer or any other type of employer. 

Comment: Several commenters urged 

HHS to expand the exemption 

significantly. For example, a number of 

commenters stated that all self-insured 

plans should be exempt from 

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insured plans that use non-issuer TPAs 

should be exempt. Additionally, some 

of the commenters stated that it was 

inappropriate to have a different 

definition of contributing entity for the 

2014 benefit year, and that the proposed 

exemption should apply for all three 

benefit years. According to these 

commenters, there is adequate time for 

contributing entities to make the 

necessary adjustments, and 

consequently, the change would not be 

disruptive in the 2014 benefit year. 

Response: For the reasons discussed 

above and in the preamble to the 2014 

Payment Notice (78 FR 15455), all selfinsured plans are not exempt from 

reinsurance contributions. HHS also 

does not believe it has the authority to 

differentiate between TPAs that are 

issuers or issuer affiliates and nonissuer TPAs for purposes of the 

exemption. This is because sections 

1341(b)(1)(A) and (b)(3)(A) of the 

Affordable Care Act only refers to 

issuers and TPAs, and does not 

distinguish between issuer TPAs and 

non-issuer TPAs. Exempting only nonissuer TPAs would treat similarly 

situated TPAs that perform comparable 

services for similar clients differently 

solely because one TPA is an issuer or 

issuer affiliate. In addition, we continue 

to believe that making the proposed 

exemption effective for the 2014 benefit 

year at this late stage would be 

disruptive to plans and issuers that have 

already set contribution rates and 

premiums, and could upset settled 

estimates with respect to expected 

reinsurance payments and contribution 

obligations. Therefore, we are retaining 

the proposal that this exemption only 

apply for the 2015 and 2016 benefit 

years. 

Comment: Some commenters agreed 

with the proposed exemption, including 

the core functions test for determining 

when a self-insured plan uses a TPA. 

Some commenters objected to the 

proposed core functions approach on 

the grounds that it lacked clarity, was 

ambiguous, overly complex, or took the 

wrong factors into account. Some 

commenters stated that the proposed 

test was too broad in that it would be 

too easy for self-insured plans that use 

outside service providers to be deemed 

to be using a TPA, with the result that 

very few plans would be able to claim 

the proposed exemption. Another 

commenter indicated that the core 

functions test was unclear, and that too 

many plans would be able to claim the 

exemption. Some commenters suggested 

other tests to ascertain when a selfinsured plan is self-administered or uses 

a TPA. For example, some commenters 

suggested a test which looks to whether 

a self-insured plan is using a third party 

for a ‘‘full complement’’ of 

administrative functions or all services 

in connection with administering the 

plan. Another commenter suggested that 

the proper test was whether a plan 

retains legal responsibility to adjudicate 

claims and decide appeals. Some 

commenters urged limiting the 

exclusion to self-insured plans that do 

not utilize the services of third parties 

in any way to facilitate or assist in the 

proper administration of the plan. 

Response: After a thorough review of 

the comments, we are generally 

retaining the proposed core functions 

analysis as a reasonable and objective 

indicator of which self-insured plans 

should be properly classified as selfadministered for the limited purpose of 

determining whether such plans are 

contributing entities for reinsurance 

contribution purposes. In response to 

comments, we are clarifying that a selfinsured plan must retain responsibility 

for claims payment, claims adjudication 

(including internal appeals), and 

enrollment in order to be regarded as 

self-administered during the 2015 and 

2016 benefit years. Thus, subject to the 

exceptions described below, if a selfinsured plan uses a third party for 

claims payment, claims adjudication, or 

enrollment, it would not be treated as 

self-administered for purposes of 

reinsurance contributions during the 

2015 and 2016 benefit years. As 

suggested in comments, we are adopting 

certain modifications to our proposal 

regarding such issues as leasing of 

networks and de minimis use of third 

party services. 

Comment: In the preamble to the 

proposed rule, HHS sought comment as 

to whether any other administrative 

functions should be considered in 

determining whether a self-insured plan 

uses a TPA for core administrative 

functions, including medical 

management, provider network 

development, and other support tasks. 

Numerous commenters noted that 

self-insured plans very rarely develop 

and manage their own provider 

networks, and typically ‘‘lease’’ such 

networks from issuers. In these 

arrangements, the self-insured plan pays 

a fee to the issuer (or other entity) for 

the use of its provider network. The 

issuer (or other entity) bears the costs of 

developing and maintaining the 

networks, and also ‘‘reprices’’ the selfinsured plan’s claims to take into 

account provider discounts the issuer 

has negotiated with members of its 

network. These commenters suggested 

that a self-insured plan that leases a 

network should not lose selfadministered status for reinsurance 

contributions purposes. 

Response: HHS agrees with the 

commenters’ suggestion, and is 

clarifying in regulation text that if a selfinsured plan ‘‘leases’’ a network from an 

unrelated third party and also obtains 

provider network development, claims 

repricing, and similar services, the plan 

will not lose self-administered status as 

a result. 

Comment: In the preamble to the 

proposed rule, HHS sought comment as 

to whether a self-insured plan may 

outsource specific services, such as 

those relating to pharmaceutical 

benefits, without losing selfadministered status, or whether an 

unaffiliated service provider may 

provide a de minimis or small 

percentage of all services for the plan. 

Commenters requested that a selfinsured, self-administered plan be able 

to obtain prescription drug benefits 

provided by a pharmacy benefits 

manager (PBM), as well as services from 

specialized vendors for behavioral 

health, vision/dental benefits, or 

benefits with respect to which Medicare 

is the primary provider. The 

commenters noted the prevalence of 

these arrangements in the market, and 

that some of the outsourced benefits are 

exempt from reinsurance contributions. 

Commenters were divided as to whether 

a self-insured plan should be permitted 

to receive a de minimis percentage of all 

benefits and services from an unrelated 

third party without the plan losing selfadministered status. 

Response: In response to comments, 

we are clarifying the following in 

regulation text. First, a self-insured plan 

may outsource core administrative 

functions (claims processing, claims 

adjudication, and enrollment services) 

to an unrelated third party such as a 

PBM without losing self-administered 

status, provided that the underlying 

benefits are pharmacy benefits or 

excepted benefits as defined by section 

2791(c) of the PHS Act. We clarify that 

medical benefits, other than pharmacy 

benefits or excepted benefits, cannot be 

outsourced by a self-insured, selfadministered plan if the plan wants to 

retain its exemption from the definition 

of contributing entity. For example, if a 

self-insured plan enters into a separate 

contract for more than a de minimis 

amount of services related to mental 

health or substance abuse benefits, this 

contractual arrangement would 

disqualify the plan from the exemption. 

We also clarify that a self-insured plan 

may outsource a de minimis amount of 

core administrative services for benefits 

other than excepted benefits or 

pharmacy benefits to an unrelated party. 

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For this purpose, we clarify that a de 

minimis amount means up to 5 percent, 

as measured by the amount of 

enrollment or claims processing 

transactions for non-pharmacy and nonexcepted benefits which are outsourced, 

or by the value of the outsourced 

enrollment or claims processing 

transactions for non-pharmacy and nonexcepted benefits (measured by the cost 

of the outsourced services compared to 

the sum of those costs plus the fully 

loaded costs—that is, including an 

appropriate share of indirect costs, such 

as fixed and overhead expenses— 

reasonably allocated, borne by the selfinsured plan for such services). 

Comment: In certain multiemployer 

funds, the fund may use an 

administrator for certain purposes that 

is an affiliate of certain, but not all, 

sponsors. Several commenters requested 

clarification that this structure would 

not result in the fund losing otherwise 

applicable self-administered status. 

Response: We are clarifying that a 

service provider that is affiliated with 

one or more sponsors other than the 

sponsor that is the contributing entity in 

the context of a multiemployer fund 

will not be a TPA, and would therefore 

not lose its self-administered status for 

purposes of reinsurance contributions in 

the 2015 and 2016 benefit years. 

Comment: One commenter asked that 

HHS clarify whether a self-insured plan 

or its TPA is a contributing entity that 

must make reinsurance contributions. 

One commenter stated that any entity 

providing services to plans subject to 

reinsurance should be required to 

submit contributions for their benefits. 

Response: As noted in the preamble of 

the 2014 Payment Notice (78 FR 15455), 

pursuant to the definition of a 

contributing entity in § 153.20, ‘‘a selfinsured group health plan that is a 

contributing entity is responsible for the 

reinsurance contributions, although it 

may use a TPA or administrative 

services-only contractor for transfer of 

the reinsurance contributions.’’ 

Comment: One commenter stated that 

exempting self-insured, selfadministered plans from making 

reinsurance contributions would 

increase the 2015 contribution rate by 

$3 for all other contributing entities, and 

exempting these health plans has an 

unfair impact on those remaining 

entities subject to reinsurance 

contributions. 

Response: Because we expect few 

entities to qualify for it, we estimate that 

the exclusion of self-insured, selfadministered plans will have a small 

effect on the 2015 uniform contribution 

rate. 

c. Uniform Reinsurance Contribution 

Rate 

(i) Uniform Reinsurance Contribution 

Rate for the 2015 Benefit Year 

Section 153.220(c) requires HHS to 

publish in the annual HHS notice of 

benefit and payment parameters the 

uniform reinsurance contribution rate 

for the upcoming benefit year. Section 

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

Act specifies that $10 billion for 

reinsurance contributions are to be 

collected from contributing entities in 

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

in 2016 (reinsurance payment pool). 

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

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

Act direct that $2 billion in funds are to 

be collected for contributions to the U.S. 

Treasury in 2014, $2 billion in 2015, 

and $1 billion in 2016. Finally, section 

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

Act allows for the collection of 

additional amounts for administrative 

expenses. Taken together, these three 

components make up the total dollar 

amount to be collected from 

contributing entities for each of the 3 

years of the reinsurance program under 

the uniform reinsurance contribution 

rate. 

As discussed in the 2014 Payment 

Notice (78 FR 15459), each year, the 

uniform reinsurance contribution rate 

will be calculated by dividing the sum 

of the three amounts (the reinsurance 

payment pool, the U.S. Treasury 

contribution, and administrative costs) 

by the estimated number of enrollees in 

plans that must make reinsurance 

contributions: 

We proposed collecting $25.4 million 

for administrative expenses for the 2015 

benefit year (or 0.4 percent of the $6 

billion to be dispersed). Therefore, the 

total amount to be collected would be 

approximately $8.025 billion. Our 

estimate of the number of enrollees in 

plans that must make reinsurance 

contributions yields a 2015 annual per 

capita contribution rate of $44, about 

$3.67 per month. We are finalizing this 

contribution rate as proposed. 

Comment: One commenter asked that 

HHS implement a two-tiered 

contribution rate, charging issuers more 

since they benefit from the program and 

self-insured group health plans less. 

Other commenters suggested that only 

issuers be required to make 

contributions allocated for the U.S. 

Treasury. 

Response: The statute does not 

differentiate between the contribution 

amounts required from issuers and third 

party administrators on behalf of selfinsured group health plans. As noted in 

the Premium Stabilization Rule (77 FR 

17227), we are using a national, per 

capita contribution rate because it is a 

simpler approach that minimizes the 

administrative burden of collections. 

(ii) Timing of Collection of Reinsurance 

Contributions 

We proposed modifying our 

collection schedule for the reinsurance 

program, so that we collect the 

reinsurance contribution amounts for 

reinsurance payments and for 

administrative expenses earlier in the 

calendar year following the applicable 

benefit year, approximately in 

accordance with the schedule in 

§ 153.405(c), but collect the reinsurance 

contribution amounts for payments to 

the U.S. Treasury in the last quarter of 

the calendar year following the 

applicable benefit year. 

Under proposed § 153.405(c)(1), 

following submission of the annual 

enrollment count, HHS would notify a 

contributing entity of the reinsurance 

contribution amount allocated to 

reinsurance payments and 

administrative expenses to be paid for 

the applicable benefit year. If the 

enrollment count is timely submitted, 

HHS would notify the contributing 

entity by December of benefit year 2014, 

2015, or 2016, as applicable. We note 

that, due to our desire to align the 

notification of reinsurance contributions 

due with our monthly payment and 

collections cycle, this schedule differs 

slightly from the schedule currently set 


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forth in § 153.405(c), which provides for 

notification by the later of 30 days of the 

submission of the annual enrollment 

count or by December 15. Under 

proposed § 153.405(c)(3), the 

contributing entity must remit this 

amount within 30 days after the date of 

the first notification. 

The second installment covers the 

portion of the reinsurance contribution 

amount allocated to the payments for 

the U.S. Treasury to be paid for a benefit 

year. Under proposed § 153.405(c)(2), in 

the fourth quarter of the calendar year 

following the applicable benefit year, 

HHS would notify the contributing 

entity of the portion of the reinsurance 

contribution amount allocated for 

payments to the U.S. Treasury for the 

applicable benefit year. In accordance 

with proposed § 153.405(c)(3), a 

contributing entity would remit this 

amount within 30 days after the date of 

this second notification. We note that 

the contributing entity is required to 

submit an annual enrollment count only 

once for each benefit year under 

§ 153.405(b), by not later than November 

15th of the benefit year. 

For the 2014 benefit year, of the $63 

annual per capita contribution rate, 

$52.50 would be allocated towards 

reinsurance payments and 

administrative expenses, and $10.50 

towards payments to the U.S. Treasury. 

Therefore, if a contributing entity 

submits its enrollment count by 

November 15, 2014, a reinsurance 

contribution payment of $52.50 per 

covered life would be invoiced in 

December 2014, and payable in January, 

2015. Another reinsurance contribution 

payment of $10.50 per covered life 

would be invoiced in the fourth quarter 

of 2015, and payable late in the fourth 

quarter of 2015. For the 2015 benefit 

year, the $44 annual per capita 

contribution rate would be allocated $33 

towards reinsurance payments and 

administrative expenses, and $11 

towards payments to the U.S. Treasury. 

These amounts would similarly be 

payable in January 2016 and late in the 

fourth quarter of 2016, respectively. 

In order to leave the MLR and risk 

corridors calculations unchanged, we 

clarified in the proposed rule that the 

two installment payments would be 

included with 2014, 2015, and 2016 

data, for purposes of the risk corridors 

and MLR reports due July 31, 2015, 

2016, and 2017, respectively, despite 

the fact that the later installment would 

not have been paid at that time. 

We are finalizing the bifurcated 

contribution collection schedule as 

discussed above. 

Comment: Several commenters 

supported our proposal to collect 

reinsurance contributions via two 

collections. Many commenters 

supporting our proposal asked that 

contributing entities have the option to 

pay the entire contribution in one 

payment while other commenters asked 

that we return to one annual collection 

schedule, citing the increased 

administrative burden of making two 

collections. One commenter supporting 

the bifurcated collection schedule 

specifically supported our proposal that 

the full 2014 reinsurance contribution 

be included with 2014 MLR reporting, 

despite the fact that the second payment 

would not have occurred by the MLR 

reporting deadline. 

Response: We recognize that the 

reinsurance collections provided for in 

the Affordable Care Act will result in 

substantial upfront payments from 

contributing entities for the reinsurance 

program. Therefore, in consideration of 

the comments received, we are 

finalizing our proposal to collect 

contributions via two payments. We 

will not permit contributing entities to 

choose between collection schedules for 

operational reasons. 

Comment: One commenter expressed 

concern that the bifurcation of the 

collection of the 2014 contribution rate 

of $63 per enrollee would not evenly 

divide into a per enrollee per month 

charge when split into payments of 

$52.50 and $10.50. The commenter 

suggested that we revise the 2014 

contribution rate to require $52.44 in 

the first payment ($4.37 per enrollee per 

month) and $10.56 in the second 

payment ($0.88 per enrollee per month). 

Response: We do not believe it is 

necessary that the contribution amounts 

divide evenly into a per enrollee per 

month charge and further note that 

certain of the permitted counting 

methods set forth in 45 CFR 153.405 

will yield fractional enrollment counts, 

whether tallied at the annual or monthly 

level. 

Comment: One commenter sought 

clarification on when HHS would 

invoice contributing entities if 

enrollment counts are submitted by 

November 15th of the applicable benefit 

year pursuant to § 153.405(b). The 

commenter asked that HHS invoice 

contributing entities by December 1st. 

Response: As noted in the proposed 

rule, if a contributing entity submits its 

enrollment count for the 2014 benefit 

year by November 15, 2014, a 

reinsurance contribution payment of 

$52.50 per covered life would be 

invoiced in December 2014, and payable 

in January, 2015. We anticipate that 

these invoices will align with our 

monthly payment and collections 

schedule. We will provide more specific 

timelines in future guidance. 

Comment: One commenter asked that 

HHS defer the collection of 

contributions allocated to the U.S. 

Treasury until 2016. 

Response: Sections 1341(b)(3)(B)(iv) 

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

Act specify $2 billion in funds are to be 

collected for contributions to the U.S. 

Treasury in 2014, $2 billion in 2015, 

and $1 billion in 2016. As noted in the 

2014 Payment Notice (78 FR 15460), we 

do not believe HHS has authority under 

the statute to defer this collection. 

(iii) Allocation of Uniform Reinsurance 

Contribution Rate 

Section 153.220(c) provides that HHS 

is to set in the annual HHS notice of 

benefit and payment parameters for the 

applicable benefit year the proportion of 

contributions collected under the 

uniform reinsurance contribution rate to 

be allocated to reinsurance payments, 

payments to the U.S. Treasury, and 

administrative expenses. In the 2014 

Payment Notice (78 FR 15460), we 

stated that reinsurance contributions 

collected for 2014 will be allocated pro 

rata to the reinsurance pool, 

administrative expenses, and the U.S. 

Treasury, up to $12.02 billion. Similar 

to the pro rata approach set forth in the 

2014 Payment Notice, in Table 2, we 

specify the proportions for 2015 (or 

amounts, as applicable): 

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

ADMINISTRATIVE EXPENSES

If total contribution 

collections under the 

uniform reinsurance 

contribution rate are 

less than or equal 

to $8.025 billion 

If total contribution 

collections under the 

uniform reinsurance 

contribution rate 

are more than 

$8.025 billion 

Proportion or amount for: 

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

to the U.S. Treasury 

and administrative 

expenses. 

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

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

As shown in Table 2, if the total 

amount of contributions collected is less 

than or equal to $8.025 billion, we will 

allocate approximately 74.8 percent of 

the reinsurance contributions collected 

to reinsurance payments, 24.9 percent of 

the reinsurance contributions collected 

to the U.S. Treasury, and 0.3 percent of 

the reinsurance contributions collected 

to administrative expenses. 

To provide that all reinsurance 

contributions collected for a benefit year 

are paid out for claims for that benefit 

year, we proposed to amend 

§ 153.230(d) to provide that if HHS 

determines that the amount of all 

reinsurance payments requested under 

the uniform payment parameters from 

all reinsurance-eligible plans in all 

States for a benefit year will not be 

equal to the amount of all reinsurance 

contributions collected for reinsurance 

payments under the uniform 

contribution rate in all States for an 

applicable benefit year, HHS will 

determine a uniform pro rata adjustment 

(up or down) to be applied to all such 

requests for reinsurance payments for 

all States. We proposed that each 

applicable reinsurance entity, or HHS 

on behalf of a State, reduce or increase 

the reinsurance payment amounts for 

the applicable benefit year by any 

adjustment required under that 

paragraph. 

We sought comment on the proposal 

to use excess funds in a current benefit 

year, including whether any excess 

collections should be allocated to 

increasing coinsurance rates above 100 

percent, or whether such funds should 

be used instead to change other 

reinsurance parameters, or used for 

future benefit years. 

Because our proposed changes noted 

above would provide that all 

reinsurance contributions collected for a 

benefit year are paid out for claims for 

that benefit year, we proposed to delete 

and reserve § 153.235(b), which 

currently provides that any excess 

reinsurance contributions collected 

from contributing entities for any 

benefit year but unused for the 

applicable benefit year must be used for 

reinsurance payments in subsequent 

benefit years. We are finalizing our 

proposal to use excess contributions for 

reinsurance payments for the current 

benefit year by increasing the 

coinsurance rate up to 100 percent 

before rolling over any remaining funds 

to the next year. Therefore, we are not 

finalizing our proposal to delete and 

reserve § 153.235(b). We are finalizing 

our modification to § 153.230(d) to 

provide that if HHS determines that the 

amount of reinsurance payments 

requested under the uniform payment 

parameters will not be equal the amount 

of reinsurance contributions collected 

for reinsurance payments, HHS will 

determine a uniform adjustment (up or 

down) to be applied to all requests for 

reinsurance payments. 

Comment: Some commenters 

supported our proposal to use excess 

funds in the current benefit year. Others 

asked that we roll over excess funds to 

potentially lower the contribution rate 

in future benefit years, or that excess 

funds be refunded to contributing 

entities. Some commenters who 

supported the use of excess funds in the 

current benefit year suggested that we 

only increase the coinsurance rate up to 

100 percent and then roll over any 

additional funds to a subsequent benefit 

year, in order to avoid perverse 

incentives to incur claims costs. One 

commenter supported increasing the 

coinsurance rate above 100 percent. 

Response: We are finalizing our 

proposal to use excess reinsurance 

contributions for reinsurance payments 

in the current benefit year by increasing 

the coinsurance rate up to 100 percent 

before rolling over any remaining funds 

to the next year. We believe that a 100 

percent ceiling on the coinsurance rate 

is appropriate, and will permit us to 

increase reinsurance payments in 

subsequent years if we collect more in 

contributions than are requested in 

payments. 

(iv) Administrative Expenses 

In the 2014 Payment Notice (78 FR 

15460), we estimated that the Federal 

administrative expenses of operating the 

reinsurance program would be $20.3 

million, based on our estimated contract 

and operational costs. We proposed to 

use the same methodology to estimate 

the administrative expenses for the 2015 

benefit year. These estimated costs 

would cover the costs related to 

contracts for developing the uniform 

reinsurance payment parameters and 

the uniform reinsurance contribution 

rate, collecting reinsurance 

contributions, making reinsurance 

payments, and conducting account 

management, data collection, program 

integrity and audit functions, 

operational and fraud analytics, training 

for entities involved in the reinsurance 

program, and general operational 

support. We proposed to exclude from 

these administrative expenses the costs 

associated with work performed by 

Federal personnel. To calculate our 

proposed reinsurance administrative 

expenses for the 2015 benefit year, we 

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divided HHS’s projected total costs for 

administering the reinsurance programs 

on behalf of States by the expected 

number of covered lives for which 

reinsurance contributions are to be 

made for the 2015 benefit year. 

We estimated this amount to be 

approximately $25.4 million for the 

2015 benefit year. The 2015 estimate has 

increased from the 2014 estimate 

because we will be making reinsurance 

payments in 2015 for the 2014 benefit 

year, and as discussed below, will 

engage in program integrity and auditrelated activity in 2015 to oversee the 

reinsurance program. We believe that 

this figure reflects the Federal 

government’s significant economies of 

scale, which helps to decrease the costs 

associated with operating the 

reinsurance program. Based on our 

estimate of covered lives for which 

reinsurance contributions are to be 

made for the 2015 benefit year, we 

proposed a uniform reinsurance 

contribution rate of $0.14 annually per 

capita for HHS administrative expenses. 

We provide details below on the 

methodology we used to develop the 

2015 enrollment estimates. 

For the 2014 benefit year, we 

allocated the administrative expenses 

equally between contribution and 

payment-related activities. Because we 

anticipate that our additional activities 

in the 2015 benefit year, including our 

program integrity and audit activities, 

will also be divided approximately 

equally between contribution and 

payment-related activities, we again 

proposed to allocate the total 

administrative expenses equally 

between these two functions. Therefore, 

as shown in Table 3, we will apportion 

the annual per capita amount of $0.14 

of administrative expenses as follows: 

(a) $0.07 of the total amount collected 

per capita for administrative expenses 

for the collection of contributions from 

health insurance issuers and group 

health plans; and (b) $0.07 of the total 

amount collected per capita for 

administrative expenses for reinsurance 

payment activities, supporting the 

administration of payments to issuers of 

reinsurance-eligible plans. 

TABLE 3—BREAKDOWN OF ADMINISTRATIVE EXPENSES

[Annual, per capita] 

Activities Estimated 

expenses 

Collecting reinsurance contributions from health insurance issuers and group health plans ............................................................ $0.07 

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

Total annual per capita expenses for HHS to perform all reinsurance functions ........................................................................ 0.14 

If HHS operates the reinsurance 

program on behalf of a State, HHS will 

retain the annual per capita fee to fund 

HHS’s performance of all reinsurance 

functions, which would be $0.14. If a 

State establishes its own reinsurance 

program, HHS will transfer $0.07 of the 

per capita administrative fee to the State 

for purposes of administrative expenses 

incurred in making reinsurance 

payments, and retain the remaining 

$0.07 to offset the costs of collecting 

contributions. We note that the 

administrative expenses for reinsurance 

payments will be distributed to those 

States that operate their own 

reinsurance program in proportion to 

the State-by-State total requests for 

reinsurance payments made under the 

uniform reinsurance payment 

parameters. We received no comments 

on our proposed 2015 administrative 

expenses and are finalizing this 

provision as proposed. 

d. Uniform Reinsurance Payment 

Parameters for 2015 

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

Affordable Care Act directs the 

Secretary, in establishing standards for 

the transitional reinsurance program, to 

include a formula for determining the 

amount of reinsurance payments to be 

made to issuers for high-risk individuals 

that provides for the equitable allocation 

of funds. In the Premium Stabilization 

Rule (77 FR 17228), we provided that 

reinsurance payments to eligible issuers 

will be made for a portion of an 

enrollee’s claims costs paid by the 

issuer (the coinsurance rate) that 

exceeds an attachment point (when 

reinsurance would begin), subject to a 

reinsurance cap (when the reinsurance 

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

attachment point, and reinsurance cap 

together constitute the uniform 

reinsurance payment parameters. 

Given the smaller pool of reinsurance 

contributions to be collected for the 

2015 benefit year, as directed by the 

statute, we proposed that the 2015 

uniform reinsurance payment 

parameters be established at an 

attachment point of $70,000, a 

reinsurance cap of $250,000, and a 

coinsurance rate of 50 percent. We 

estimate that these uniform reinsurance 

payment parameters will result in total 

requests for reinsurance payments of 

approximately $6 billion for the 2015 

benefit year. 

As discussed in the 2014 Payment 

Notice (78 FR 15461), to assist with the 

development of the uniform reinsurance 

payment parameters and the premium 

adjustment percentage index, HHS 

developed the Affordable Care Act 

Health Insurance Model (ACAHIM). The 

ACAHIM estimates market enrollment, 

incorporating the effects of State and 

Federal policy choices, and accounting 

for the behavior of individuals and 

employers. The outputs of the ACAHIM, 

especially the estimated enrollment and 

expenditure distributions, were used to 

analyze a number of policy choices 

relating to the proposed 2015 

reinsurance contribution rate and 2015 

uniform reinsurance payment 

parameters. 

The ACAHIM generates a range of 

national and State-level outputs for 

2015, including the level and 

composition of enrollment across 

markets given the eligible population in 

each State. The ACAHIM is described 

below in two sections: (1) The approach 

for estimating 2015 enrollment; and (2) 

the approach for estimating 2015 

expenditures. The ACAHIM uses recent 

Current Population Survey (CPS) data 

adjusted for small populations at the 

State level, exclusion of undocumented 

immigrants, and population growth in 

2015 to assign individuals to the various 

coverage markets. 

Specifically, the ACAHIM assigns 

each individual to a single health 

insurance market as his or her baseline 

(pre-Affordable Care Act) insurance 

status. In addition to assuming that 

individuals currently enrolled in 

Medicare, TRICARE, or Medicaid will 

remain in such coverage, the ACAHIM 

takes into account the probability that a 

firm will offer employment-based 

coverage based on the CPS distribution 

of coverage offers for firms of a similar 

size and industry. Generally, to 

determine the predicted insurance 

enrollment status for an individual or 

family (the ‘‘health insurance unit’’ or 

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27Letter to Insurance Commissioners, Center for 

Consumer Information and Insurance Oversight, 

November 14, 2013. Available at: http://

www.cms.gov/CCIIO/Resources/Letters/Downloads/

commissioner-letter-11-14-2013.PDF. 

‘‘HIU’’), the ACAHIM calculates the 

probability that the firm will offer 

insurance, then models Medicaid 

eligibility, and finally models eligibility 

for advance payments of the premium 

tax credit and cost-sharing reductions 

under the Exchange. Whenever a 

transition to another coverage market is 

possible, the ACAHIM takes into 

account the costs and benefits of the 

decision for the HIU and assigns a 

higher probability of transition to those 

with the greatest benefit. The ACAHIM 

assumptions of the rate at which 

uninsured individuals will take-up 

individual market coverage are based on 

current take-up rates of insurance across 

States, varied by demographics and 

incomes and adjusted for postAffordable Care Act provisions, such as 

advance payments of the premium tax 

credit and cost-sharing reductions. 

Estimated expenditure distributions 

from the ACAHIM are used to set the 

uniform reinsurance payment 

parameters so that estimated 

contributions from all contributing 

entities equal estimated payments for all 

reinsurance-eligible plans. The 

ACAHIM uses the Health Intelligence 

Company, LLC (HIC) database from 

calendar year 2010, with the claims data 

trended to 2015 to estimate total 

medical expenditures per enrollee by 

age, gender, and area of residence. The 

expenditure distributions are further 

adjusted to take into account plan 

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

‘‘level of coverage,’’ as defined in 

§ 156.20) and other characteristics of 

individual insurance coverage in an 

Exchange. To describe a State’s coverage 

market, the ACAHIM computes the 

pattern of enrollment using the model’s 

predicted number and composition of 

participants in a coverage market. These 

estimated expenditure distributions 

were the basis for the uniform 

reinsurance payment parameters. We 

are finalizing the 2015 reinsurance 

payment parameters as proposed. 

Comment: Some commenters 

suggested that HHS keep the 

reinsurance payment parameters 

consistent between 2014 and 2015, and 

delay increasing the attachment point to 

$70,000 and decreasing the coinsurance 

rate to 50 percent until 2016, or keep the 

2014 and 2015 attachment points as 

close as possible. One commenter asked 

HHS to increase the contribution rate to 

account for increased costs during 2014 

and 2015. Other commenters supported 

lowering the 2015 contribution rate and 

uniform reinsurance payment 

parameters. 

Response: Section 1341(b)(3)(B)(iii) of 

the Affordable Care Act directs HHS to 

collect $6 billion for reinsurance 

payments in 2015. This is $4 billion less 

than will be collected in 2014 for 

reinsurance payments. We believe that 

the lower coinsurance rate and higher 

attachment point we have proposed 

appropriately accounts for this smaller 

reinsurance payment pool. We also 

believe that maintaining the reinsurance 

cap for the 2015 benefit year will make 

it easier for issuers to estimate the 

effects of reinsurance, and reduce 

interference with the traditional 

commercial reinsurance market. As 

discussed above, to the extent that 

reinsurance contributions for 2015 

exceed reinsurance payments requested, 

our policy of increasing the coinsurance 

rate up to 100 percent will help assure 

that the excess contributions are used to 

offset claims for high-cost individual 

market enrollees. 

e. Adjustment Options 

In the 2014 Payment Notice, we 

finalized the following uniform 

reinsurance payment parameters for the 

2014 benefit year—a $60,000 attachment 

point, a $250,000 reinsurance cap, and 

an 80 percent coinsurance rate. 

However, updated information, 

including the actual premiums for 

reinsurance-eligible plans, as well as 

recent policy changes, suggest that our 

prior estimates of the uniform 

reinsurance payment parameters 

overestimated the total covered claims 

costs of individuals enrolled in 

reinsurance-eligible plans in 2014. To 

account for this, we proposed to 

decrease the 2014 attachment point to 

$45,000. We are finalizing our proposal 

to decrease the 2014 attachment point to 

$45,000. 

Comment: Several commenters asked 

that HHS consider alternative relief for 

the transitional policy announced on 

November 14, 2013 27 that does not 

increase the burden on large employers 

and self-insured group health plans. 

Response: The lowering of the 2014 

attachment point will not result in 

additional contributions being collected 

from contributing entities. As noted in 

the proposed rule, we believe that our 

prior estimates of the 2014 uniform 

payment parameters overestimated the 

total covered claims costs of individuals 

enrolled in reinsurance-eligible plans in 

2014, allowing these additional 

payments to be made from within the 

amount already being collected. 

Comment: Several commenters 

supported lowering the 2014 attachment 

point to $45,000. One commenter 

suggested lowering the attachment point 

to $20,000. Other commenters opposed 

lowering the attachment point, asking 

that HHS return to the finalized 2014 

payment parameters, and urging that 

any excess funds should be rolled over 

to the subsequent benefit year and used 

to lower the contribution rate for all 

contributing entities. Some commenters 

who objected to the lowering of the 

attachment point stated that HHS 

should instead increase the reinsurance 

cap to $500,000 to reimburse issuers for 

larger claims costs. 

Response: As discussed above, the 

ACAHIM, which estimates market 

enrollment, incorporates the effects of 

State and Federal policy choices and 

accounts for the behavior of individuals 

and employers. These assumptions and 

projections, as well as the transitional 

policy announced in November 2013, 

resulted in an updated estimate of the 

2014 individual and employersponsored insurance markets and 

expenditures, and permitted us to 

update our estimate of the 2014 uniform 

reinsurance payment parameters. We 

believe that lowering the attachment 

point to $45,000 would allow the 

reinsurance program to make more 

payments for high-cost enrollees 

without increasing the contribution rate. 

We are not increasing the reinsurance 

cap to avoid interfering with traditional 

commercial reinsurance, which 

typically has attachment points in the 

$250,000 range. 

Comment: One commenter asked that 

the proposed modifications to the 

reinsurance program for the transitional 

policy be applied consistently in all 

States. 

Response: These modifications will be 

applied consistently in all States. 

f. Reinsurance-Eligible Plans 

In this final rule, we clarify that in 

accordance with the policy established 

in the 2014 Payment Notice, student 

health plans are not eligible to receive 

reinsurance payments. Under 

§ 147.145(b)(3), student health plans are 

not subject to the single risk pool 

requirement of section 1312(c) of the 

Affordable Care Act and § 156.80. Under 

§ 153.234, a reinsurance-eligible plan’s 

covered claims costs for an enrollee 

incurred prior to the application of the 

following provisions do not count 

towards either the uniform reinsurance 

payment parameters or the State 

supplemental reinsurance payment 

parameters: § 147.102 (fair premiums); 

§ 147.104 (guaranteed availability); 

§ 147.106 (guaranteed renewability); 

§ 156.80 (single risk pool); and subpart 

B of part 156 (essential health benefits). 

However, we note that a student health 

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28Letter to Insurance Commissioners, Center for 

Consumer Information and Insurance Oversight, 

November 14, 2013. Available at: http://

www.cms.gov/CCIIO/Resources/Letters/Downloads/

commissioner-letter-11-14-2013.PDF. 

plan would be considered part of a 

contributing entity’s ‘‘commercial book 

of business’’ and, to the extent that the 

plan provides major medical coverage, 

as defined in § 153.20, a contributing 

entity must make reinsurance 

contributions on behalf of their 

enrollees, absent another exception in 

§ 153.400. 

In response to this proposed rule, we 

received several comments asking that 

certain plans or coverage be eligible for 

reinsurance payments. 

Comment: Several commenters 

requested that we permit State high-risk 

pools to be eligible for reinsurance 

payments for their high-risk enrollees. 

One commenter asked that the Federal 

government extend the Federal high-risk 

pool until all funds are depleted. 

Response: As stated in the 2014 

Payment Notice (78 FR 15455), under 

the definition of a reinsurance-eligible 

plan at § 153.20, State high-risk pools 

are not eligible to receive reinsurance 

payments for their enrollees because 

high risk pool coverage is not subject to 

the 2014 market reforms outlined under 

§ 153.234 (that is, § 147.102 (fair 

premiums); § 147.104 (guaranteed 

availability); § 147.106 (guaranteed 

renewability); § 156.80 (single risk 

pool); and subpart B of part 156 

(essential health benefits). Therefore, 

claims costs incurred by high risk pools 

would not be eligible for reinsurance 

payments. Funding for the Federal high 

risk pool, also known as the Pre-Existing 

Condition Insurance Plan program, is 

not addressed in this rule. 

Comment: One commenter asked that 

HHS expand the reinsurance program to 

encompass transitional plans covered by 

the transitional policy outlined in the 

November 14, 2013 guidance,28 while 

another commenter asked that HHS 

clarify that only plans that are subject to 

all of the 2014 market reforms 

established under the Affordable Care 

Act are eligible for reinsurance 

payments. 

Response: As discussed above, under 

§ 153.234, a reinsurance-eligible plan’s 

covered claims costs for an enrollee 

incurred prior to the application of 

§§ 147.102, 147.104 (subject to 147.145), 

147.106 (subject to 147.145), 156.80, 

and subpart B of part 156 do not count 

towards either the uniform reinsurance 

payment parameters or the State 

supplemental reinsurance payment 

parameters. Therefore, a transitional 

plan is not eligible for reinsurance 

payments. For the purpose of 

reinsurance contributions, we note that 

contributing entities are required to 

make reinsurance contributions for their 

major medical coverage that is 

considered to be part of a ‘‘commercial 

book of business,’’ subject to certain 

exceptions provided for in our 

regulations. As such, a contributing 

entity must make reinsurance 

contributions on behalf of its enrollees 

in transitional plans that provide major 

medical coverage, as defined in 

§ 153.20, unless one of the exceptions 

provided under 45 CFR 153.400 applies 

to such coverage. 

g. Deducting Cost-Sharing Reduction 

Amounts From Reinsurance Payments 

Subpart H of 45 CFR part 153 governs 

the submission of medical and 

pharmacy claims to an issuer’s 

dedicated distributed data environment. 

Under § 156.410, if an individual is 

determined eligible to enroll in an 

individual market Exchange QHP and 

elects to do so, the QHP issuer must 

assign the individual to a standard plan 

or cost-sharing plan variation based on 

the enrollment and eligibility 

information submitted by the Exchange. 

Issuers of individual market Exchange 

QHPs will receive cost-sharing 

reduction payments for enrollees that 

have effectuated coverage in costsharing plan variations. Therefore, in 

the 2014 Payment Notice (78 FR 15499), 

we stated that the enrollee-level data 

submitted by an issuer of a reinsuranceeligible plan must include claims data 

and data related to determining costsharing reductions provided through a 

cost-sharing plan variation to permit 

HHS to calculate an issuer’s plan paid 

amounts on behalf of an enrollee. In the 

proposed rule, we explained the 

methodology HHS proposed to use to 

deduct the amount of cost-sharing 

reductions paid on behalf of an enrollee 

enrolled in a QHP in an individual 

market through an Exchange. 

As specified in § 153.230, HHS will 

calculate reinsurance payments by 

applying the uniform reinsurance 

payment parameters for the applicable 

benefit year to the issuer’s plan paid 

amounts on behalf of each enrollee in a 

reinsurance-eligible plan for the benefit 

year. However, this calculation may not 

always account for the cost-sharing 

reduction payments the QHP issuer 

receives for an enrollee, resulting in an 

issuer receiving payments twice for the 

same enrollee’s total costs. In the 

proposed rule, we stated that we believe 

that the cost-sharing payment amounts 

provided by HHS to a QHP issuer for an 

enrollee in a plan variation should be 

deducted from the total plan paid 

amounts to avoid ‘‘double payment’’ to 

the QHP issuer of the reinsuranceeligible plan because the QHP issuer is 

already being reimbursed for the value 

of the cost-sharing reductions provided. 

Under the Secretary’s authority under 

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

Care Act to establish a payment formula 

for the reinsurance program that 

provides for the equitable allocation of 

available funds, we proposed a method 

through which HHS intends to account 

for cost-sharing reduction payments 

when calculating reinsurance payments 

for QHP issuers for reinsurance-eligible 

plans offered in an individual market. 

We proposed that for each enrollee 

enrolled in a QHP plan variation, we 

would subtract from the QHP issuer’s 

total plan paid amounts for the enrollee 

in a reinsurance-eligible plan the 

difference between the annual 

limitation on cost sharing for the 

standard plan and the annual limitation 

on cost sharing for the plan variation. 

Because reinsurance payments are made 

for enrollees only when the issuer’s total 

plan paid amounts exceed the 

attachment point (for example, $45,000 

in the 2014 benefit year), we believe that 

it is highly unlikely that an enrollee for 

which a QHP issuer is eligible for 

reinsurance payments will not have 

reached the annual limitation on cost 

sharing. Therefore, the difference 

between the two annual limitations on 

cost sharing is likely to be an accurate 

estimate of cost-sharing reduction 

payments provided by HHS to the QHP 

issuer. We proposed to apply this 

approach to calculating the amounts of 

cost-sharing reductions provided for an 

enrollee in a silver plan variation or a 

zero cost sharing plan variation. 

For policies with multiple enrollees, 

such as family policies, we proposed to 

allocate the difference in annual 

limitation in cost sharing across all 

enrollees covered by the family policy 

in proportion to the enrollees’ QHP 

issuer total plan paid amounts. 

In contrast, we proposed not to reduce 

the QHP issuer’s plan paid amounts for 

purposes of calculating reinsurance 

payments for an Indian in a limited cost 

sharing plan variation. We are finalizing 

these provisions as proposed. 

Comment: Several commenters 

supported our proposed approach to 

account for cost-sharing reduction 

payments. One commenter asked, in the 

case of a policy with multiple enrollees, 

that the allocation be made in 

proportion to each family member’s 

share of costs subject to cost sharing 

rather than to total costs. 

Response: We appreciate the 

reasoning behind the comment, but 

believe that it will be operationally 

simpler to consider total plan paid 

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29See Government Auditing Standards (2011 

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

yellowbook. For public companies, the Public 

Company Accounting Oversight Board (PCAOB) 

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

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

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

AuditAttest/Pages/SAS.aspx. 

30See Government Auditing Standards (2011 

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

yellowbook. For public companies, the Public 

Company Accounting Oversight Board (PCAOB) 

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

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

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

AuditAttest/Pages/SAS.aspx. 

amounts when accounting for costsharing reductions. 

Comment: Several commenters 

recommended that HHS re-evaluate the 

methodology for family policies where 

each individual has a separate annual 

limitation on cost sharing, suggesting 

that HHS treat individuals with separate 

annual limitations on cost sharing as if 

they had each enrolled in an individual 

policy for the purposes of accounting for 

cost-sharing reduction payments in 

calculating reinsurance payments. 

Response: For operational reasons, we 

believe it will be easier to allocate a 

family annual limitation on cost sharing 

across enrollees rather than make 

individual calculations. 

Comment: One commenter sought 

clarification on how HHS’s proposal to 

calculate the amount of cost-sharing 

reductions provided for an enrollee in a 

silver plan variation or a zero cost 

sharing plan variation would apply if an 

individual moves between plan 

variations during the benefit year. 

Response: Because cost sharing 

accumulates over the benefit year across 

plan variations of the same standard 

plan, we will apply the adjustment for 

cost-sharing reductions based on the 

annual limitation on cost sharing 

applicable to the plan variation in 

which the enrollee was last enrolled 

during the benefit year. 

Comment: One commenter asked for 

clarification regarding the following 

footnote set forth in the proposed rule 

(78 FR 72345, n. 16): ‘‘We note that 

because the annual limitation on cost 

sharing applies only to in-network 

services, it is possible that an enrollee 

could incur additional cost-sharing 

reductions on out-of-network services. 

However, except in the case of zero cost 

sharing plan variations, an issuer is not 

required to reduce cost sharing out-ofnetwork, and we believe that an issuer 

will rarely choose to do so because the 

AV Calculator does not recognize any 

change in AV due to a reduction in outof-network cost sharing. Although it is 

possible that an enrollee in a zero cost 

sharing plan variation could incur 

significant out-of-network cost-sharing 

reductions beyond the standard plan’s 

annual limitation on cost sharing, we 

believe such a circumstance will be 

relatively rare because of the substantial 

out-of-pocket costs an enrollee would 

likely incur in the form of balance 

billing.’’ 

Response: We proposed the 

methodology described above to avoid 

reimbursing an issuer through 

reinsurance payments for claims costs 

for which it will be otherwise 

reimbursed through cost-sharing 

reduction payments. The footnote 

explains that this methodology does not 

take into account cost-sharing 

reductions on out-of-network services 

because we believe that issuers have 

little incentive to provide cost-sharing 

reductions on out-of-network services 

for silver plan variations, and that it will 

be relatively rare that an enrollee in a 

zero cost sharing plan will incur 

substantial out-of-pocket costs beyond 

the standard plan’s annual limitation on 

cost sharing. Thus, we stated that we 

believed that the effect of this limitation 

in our methodology would be small. 

h. Audits 

(i) HHS Audits of State-Operated 

Reinsurance Programs 

We proposed in § 153.270(a) authority 

for HHS or its designee to conduct a 

financial and programmatic audit of a 

State-operated reinsurance program to 

assess compliance with the 

requirements of subparts B and C of 45 

CFR part 153. We proposed that a State 

that establishes a reinsurance program 

be required to ensure that its applicable 

reinsurance entity and any relevant 

contractors, subcontractors, or agents 

cooperate with an audit of its 

reinsurance program by HHS or its 

designee. We stated that HHS 

anticipates conducting targeted audits of 

State-operated reinsurance programs 

based on the State summary report 

provided to HHS for each benefit year 

described in § 153.260(b), the results of 

the independent external audit 

conducted for each benefit year under 

§ 153.260(c), and issuer input, among 

other factors. 

We proposed in § 153.270(b) that if an 

audit by HHS results in a finding of 

material weakness or significant 

deficiency (as these terms are defined in 

GAAS issued by the American Institute 

of Certified Public Accountants, and 

Government Auditing Standards issued 

by the Government Accountability 

Office (GAO) 29) with respect to the 

State-operated reinsurance program’s 

compliance with any requirement of 

subparts B or C of 45 CFR part 153, the 

State would be required to ensure that 

its applicable reinsurance entity provide 

a written corrective action plan to HHS 

for approval within 60 calendar days of 

the issuance of the final audit report. 

The State would ensure that the 

applicable reinsurance entity 

implements the plan and provides to 

HHS written documentation of the 

corrective actions once taken. 

(ii) HHS Audits of Contributing Entities 

We proposed in § 153.405(i) that HHS 

or its designee have the authority to 

audit a contributing entity to assess its 

compliance with the requirements of 

subpart E of 45 CFR part 153. We stated 

that we anticipated conducting targeted 

audits of contributing entities based on, 

among other criteria and sources, data 

provided to HHS through the annual 

enrollment count submitted under 

§ 153.405(b), and any previous history 

of noncompliance with these standards. 

We proposed that if HHS determines as 

the result of an audit that a contributing 

entity was required to pay additional 

reinsurance contributions, we might 

require the contributing entity to pay 

such amounts to the Federal 

government. 

(iii) HHS Audits of Issuers of 

Reinsurance-Eligible Plans 

We proposed in § 153.410(d) authority 

for HHS or its designee to audit an 

issuer of a reinsurance-eligible plan to 

assess its compliance with the 

requirements of subparts E and H of 45 

CFR part 153. We also proposed that if 

an audit results in a finding of material 

weakness or significant deficiency (as 

these terms are defined in GAAS issued 

by the American Institute of Certified 

Public Accountants, and Government 

Auditing Standards issued by the 

Government Accountability Office 

(GAO) 30) with respect to compliance 

with any requirement of subpart E or H 

of 45 CFR part 153, the issuer be 

required to: (i) Within 30 calendar days 

of the issuance of the final audit report, 

provide a written corrective action plan 

to HHS for approval; (ii) implement that 

corrective action plan; and (iii) provide 

to HHS written documentation of the 

corrective actions once taken. We 

proposed that if HHS determines as the 

result of an audit that the issuer of a 

reinsurance-eligible plan has received 

reinsurance payments to which it was 

not entitled, we might require the issuer 

to pay such amounts back to the Federal 

government. 

In the proposed rule, we noted that 

we anticipate conducting targeted audits 

of issuers of reinsurance-eligible plans 

based on, among other criteria and 

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sources, the data provided to HHS 

through the dedicated distributed data 

environment and any previous history 

of noncompliance with these standards. 

We stated that we anticipate that this 

audit will focus on claims records 

validating the requests for reinsurance 

payments submitted to the dedicated 

distributed data environments, as well 

as records indicating the plan was a 

reinsurance-eligible plan. 

We addressed the general comments 

received on the proposed audit 

provisions in the preamble discussion of 

§ 153.620(c) above, and address 

comments specific to the transitional 

reinsurance program audit provisions 

below. We are finalizing these 

provisions as proposed. 

Comment: One commenter asked that 

audits of contributing entities be 

delayed until after the first year of the 

reinsurance program to enable issuers 

and self-insured group health plans to 

focus on compliance. Other commenters 

stressed the importance of prioritizing 

audits of contributing entities. 

Response: We believe that audits of 

contributing entities may be necessary 

to ensure that the reinsurance program 

has sufficient funds to effectively 

stabilize premiums during the initial 

years of Exchange operation, 

particularly with respect to the 2014 

benefit year, for which the largest 

amount of contributions will be 

collected. We are therefore not adopting 

the commenter’s suggestion. 

Comment: One commenter suggested 

audit processes that would reduce the 

burden on contributing entities. 

Specifically, the commenter asked that 

audit protocols include sufficient, 

advance written notice of the audit, and 

that requests for supporting 

documentation be limited to enrollment 

data maintained by or on behalf of the 

contributing entity and information 

related to whether the plan provides 

major medical coverage. The commenter 

also asked that contributing entities be 

able to satisfy requests for information 

in a reasonable manner and format, and 

that an audited contributing entity be 

granted appeal rights. 

Response: We agree that any audit of 

a contributing entity should focus on 

records relating to enrollment in the 

applicable self-insured or insured plan, 

to confirm that the number of covered 

lives was correctly calculated and that 

the correct amount of reinsurance 

contributions was paid. Additionally, 

these audits may be used to identify 

entities that were required to but did not 

make reinsurance contributions. We 

will consider these comments when 

developing the protocols and 

procedures of our audits, such as 

timeframes for notification, formats for 

submitting supporting documentation, 

and appeals of audit findings, as part of 

future rulemaking and guidance. 

i. Same Covered Life 

In the second final Program Integrity 

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

our intent not to require payment of 

reinsurance contributions more than 

once for the same covered life. We 

stated that we recognize that certain 

complex group health plan 

arrangements can lead to situations in 

which lives are covered by multiple 

arrangements, where it is unclear 

whether more than one health plan or 

issuer must make reinsurance 

contributions, and that we intended to 

provide clarity on the matter in future 

rulemaking. In the proposed rule, in 

§ 153.400(a)(1), we clarified the general 

principle that reinsurance contributions 

are required for major medical coverage 

that is considered to be part of a 

commercial book of business, but are 

not required to be paid more than once 

with respect to the same covered life. 

In addition, we proposed to add 

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

provided that no reinsurance 

contributions would be required in the 

case of employer-provided group health 

coverage where (A) such coverage 

applies to individuals who are also 

enrolled in individual market health 

insurance coverage for which 

reinsurance contributions are required; 

or (B) such coverage is supplemental or 

secondary to group health coverage for 

which reinsurance contributions must 

be made for the same covered lives. This 

provision was proposed to address 

situations in which a person covered 

under a group health plan also obtains 

individual market coverage, and in 

which multiple group health plans 

cover the same lives. It also addressed 

a situation in which two spouses are 

each covered as dependents by the 

respective group health plans offered by 

their two independent employers. We 

are finalizing these provisions as 

proposed. 

Comment: Several commenters 

supported our proposal that a 

contribution not be required with 

respect to the same life more than once, 

and our proposal at § 153.400(a)(1)(vi). 

Other commenters objected to our 

proposals, stating that information 

regarding whether coverage is 

supplementary or secondary is not 

available to the employer or issuers, and 

that therefore this proposal would be 

expensive to administer. One 

commenter asked if guidance would be 

forthcoming on how issuers are to 

validate this exclusion if the coverage 

occurs among different issuers. 

Response: As noted in the proposed 

rule, if it is not clear from the terms of 

the health plans which group health 

plan is supplemental, in keeping with 

§ 153.400(a)(3), the group health plan 

that offers the greater portion of 

inpatient hospitalization benefits is 

deemed the primary health plan. If it is 

not clear from the terms of the health 

plans which group health plan is 

primary and which is secondary, we 

would defer to the arrangements on 

primary and secondary liability set forth 

by the respective plan sponsors, in 

accordance with applicable State 

coordination of benefit laws and 

regulations. In such a situation, we 

would hold a plan sponsor harmless 

from non-compliance actions for failure 

to pay reinsurance contributions to the 

extent the sponsor relied in good faith 

upon a written representation by the 

other sponsor that the other sponsor’s 

coverage has primary liability for claims 

for particular covered lives (and is 

responsible for making reinsurance 

contributions with respect to those 

covered lives). 

Comment: One commenter suggested 

an operational process of reporting 

under which plans that provide 

supplemental and secondary coverage to 

a participant must identify these 

participants to the primary major 

medical coverage and pay a portion of 

the reinsurance contribution for such 

participant. 

Response: Under our proposal, if 

employer-provided group health 

coverage is secondary or supplemental 

coverage, the group health plan offering 

such supplemental or secondary 

coverage is not required to make partial 

or full contributions on behalf of 

participants who are also enrolled in a 

primary major medical plan. We do not 

wish to require an additional 

information disclosure in connection 

with this exemption. 

Comment: One commenter suggested 

that we codify an exception permitting 

a contributing entity to automatically 

exclude coverage for any enrollee for 

which the coverage is secondary under 

coordination of benefit rules. 

Response: Our rule would not extend 

this exception to coverage which is 

determined to be secondary under 

coordination of benefit rules if the entity 

that provides the primary coverage is 

not required to make reinsurance 

contributions. The intent of the rule and 

accompanying exceptions is to avoid 

double-counting of contributions, but 

the commenter’s automatic exclusion (if 

adopted) could incorrectly result in no 

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reinsurance contributions being made 

with respect to a covered life. 

Comment: One commenter asked that 

HHS clarify that with respect to 

supplemental or secondary coverage, 

any time a participant’s spouse is 

covered as an employee by another 

group health plan, the participant’s plan 

may exclude that spouse from the count 

of covered lives and could assume 

without written representation that the 

entity that covers the spouse as an 

employee would be responsible for 

paying the contribution without further 

verification. 

Response: We decline to make that 

clarification because our rule would not 

extend the exception if the entity that 

provides the primary coverage is not 

required to make reinsurance 

contributions. The adoption of the 

commenter’s automatic assumption 

could incorrectly result in no 

reinsurance contributions being made 

with respect to a covered life. As such, 

the entity covering the spouse as an 

employee would need to represent that 

it was responsible for making 

reinsurance contributions on behalf of 

the covered lives in order for the entity 

covering the spouse as a dependent to 

avail itself of the exemption. 

Comment: Several commenters asked 

that the general principle that 

reinsurance contributions are not 

required to be paid more than once with 

respect to the same covered life be 

extended to the Patient-Centered 

Outcomes Research Institute fee for 

2015 and beyond by the Treasury 

Department. 

Response: The U.S. Department of the 

Treasury is responsible for 

administration of the Patient-Centered 

Outcomes Research Institute fee, and 

regulation of that fee is outside the 

scope of this rulemaking. 

Comment: One commenter requested 

that HHS modify § 153.400 to provide 

that the secondary coverage exemption 

in § 153.400(a)(1)(vi) be determined 

based on the coverage a participant is 

enrolled in at the time of enrollment 

regardless of whether this coverage is 

terminated during the benefit year. 

Response: A contributing entity must 

consider an enrollee’s status throughout 

the benefit year such that if an enrollee 

in secondary coverage loses his or her 

primary medical coverage, the 

secondary coverage will have to account 

for that enrollee using one of the 

counting methods under § 153.405 

when calculating its reinsurance 

contributions. 

Comment: Several commenters asked 

that HHS clarify that certain types of 

coverage, even when provided in 

combination, are not subject to the 

contribution requirement. Specifically, 

they asked that all dental and vision 

coverage be exempt from the 

contribution requirement because it is 

not major medical coverage. The 

commenters also asked that excepted 

benefits, prescription drug coverage, 

and other ancillary benefits such as 

hearing aid coverage may be offered by 

the same plan without that combination 

of coverage becoming subject to the 

reinsurance contribution requirement. 

Response: Any plan not satisfying the 

definition of major medical coverage as 

set forth in § 153.20 is not required to 

make reinsurance contributions. 

Comment: One commenter asked HHS 

to permit contributing entities to submit 

reinsurance contributions and comply 

with reporting requirements 

electronically. The commenter also 

asked HHS to allow contributing entities 

flexibility in correcting inadvertent 

errors when making reinsurance 

contributions. 

Response: We will provide further 

details on how contributing entities 

should submit enrollment counts and 

reinsurance contributions in future 

guidance. We will work with 

contributing entities in establishing 

these operational processes. 

j. Reinsurance Contributions and 

Enrollees Residing in the Territories 

Section 1323(a)(1) of the Affordable 

Care Act provides that a U.S. territory 

may establish an Exchange, and any 

territory that elects to establish an 

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

purposes of the Exchange standards in 

sections 1311 through 1313 of the 

Affordable Care Act. In a letter dated 

December 10, 2012 to the governors of 

the U.S. territories, HHS stated that ‘‘if 

a territory establishes an approved 

Exchange, it may elect to establish a 

transitional reinsurance program . . . 

consistent with the provisions in section 

1341 . . . of the Affordable Care Act.’’ 

That letter further stated that if a 

territory does not establish a transitional 

reinsurance program, HHS would not do 

so on the territory’s behalf, and that in 

order to operate a reinsurance program 

for the 2014 benefit year, the territory 

was required to notify HHS of its 

intention to do so by March 1, 2013. No 

territory has notified HHS of an 

intention to operate a reinsurance 

program. 

We proposed in § 153.400(a)(1)(v) the 

following exception for when a 

contributing entity must make 

reinsurance contributions for its selfinsured group health plans and health 

insurance coverage: To the extent that 

the coverage applies to enrollees with 

primary residence in a territory when 

that territory does not operate a 

reinsurance program, the contributing 

entity would not be required to make 

reinsurance contributions for those 

enrollees. We proposed that a 

contributing entity be permitted to use 

any reasonable method to determine the 

primary residence of an enrollee, 

including using the last-known mailing 

address of the principal subscriber on 

the enrollee’s policy. We are finalizing 

this provision as proposed. 

Comment: Several commenters 

supported our proposal to exempt from 

the reinsurance contribution obligation 

enrollees who reside in a territory that 

does not operate a reinsurance program. 

One commenter asked that HHS amend 

the proposal to exempt enrollees in a 

major medical plan that is based or 

administered in a territory. 

Response: We are finalizing this 

provision as proposed. It is possible that 

a major medical plan based or 

administered in a territory that does not 

operate a reinsurance program may have 

enrollees in the 50 States and the 

District of Columbia. As noted in the 

proposed rule, this provision aligns 

with the goals of the reinsurance 

program because reinsurance 

contributions would only be required 

with respect to those jurisdictions that 

benefit from the premium stabilization 

effects of the reinsurance program. 

Additionally, we note that a 

contributing entity is not required to 

allocate its covered lives by primary 

residence between the territories, on the 

one hand, and the 50 States and the 

District of Columbia, on the other hand, 

and must do so only if it wishes to 

exclude covered lives from reinsurance 

contributions under § 153.400(a)(1)(v). 

k. Form 5500 Counting Method 

In the 2014 Payment Notice (78 FR 

15463), we established counting 

methods for calculating the annual 

enrollment for determining reinsurance 

contributions for self-insured group 

health plans, fully insured health plans, 

and plans that are partially insured and 

partially self-insured. One of the 

allowable methods for a self-insured 

group health plan is the Form 5500 

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

the proposed rule, we amended 

§ 153.405(e)(3), by changing the 

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

year’’ to clarify that a self-insured group 

health plan may use the enrollment set 

forth in the Form 5500 even if the group 

health plan is based on a plan year (as 

defined for the purposes of the Form 

5500) other than the benefit year. 

Therefore, a self-insured group health 

plan that chooses to use the Form 5500 

counting method and offers self-only 

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31Available at: http://www.dol.gov/ebsa/pdf/

2013-5500inst.pdf. 

coverage would calculate the number of 

lives covered by adding the total 

participants covered at the beginning 

and end of the most current plan year, 

as reported on the Form 5500, then 

dividing by two. A self-insured group 

health plan that offers both self-only 

coverage and coverage other than selfonly coverage would calculate the 

number of lives covered by adding the 

total participants covered at the 

beginning and the end of the most 

current plan year, as reported on the 

Form 5500. We are finalizing this 

amendment as proposed. 

Comment: Several commenters 

supported our proposed amendment to 

the Form 5500 counting method. One 

commenter suggested modifying this 

amendment to make clear that a selfinsured group health plan that offers 

both self-only coverage and coverage 

other than self-only coverage would 

calculate the number of lives covered by 

adding the numbers of total participants 

covered at the beginning and at the end 

of the most current plan year, as 

reported on the Form 5500 and then 

dividing by two to avoid double 

counting enrollees. 

Response: We are finalizing this 

technical amendment as proposed. The 

Form 5500 counting method does not 

result in the double counting of 

enrollees. As discussed in the ‘‘2013 

Instructions for Form 5500, Annual 

Return/Report of Employee Benefit 

Plan’’ 31 a ‘‘participant’’ does not 

include covered dependents, accounting 

for the counting method used for 

coverage other than self-only. 

4. Provisions for the Temporary Risk 

Corridors Program 

a. Definitions 

In the first final Program Integrity 

Rule, we provided that, in 45 CFR part 

153, subpart F regarding risk corridors, 

any reference to a ‘‘qualified health 

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

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

the same’’ as a QHP. We noted that 

plans that are substantially the same as 

a QHP will continue to be considered 

substantially the same even if they differ 

in terms of benefits, premiums, provider 

networks, or cost-sharing structure, 

provided that the differences are tied 

directly and exclusively to Federal or 

State requirements or prohibitions on 

the coverage of benefits that apply 

differently to plans depending on 

whether they are offered through an 

Exchange or outside of an Exchange. In 

the first final Program Integrity Rule, we 

recognized that OPM might issue 

additional standards for multi-State 

plan (MSP) issuers in the future (for 

example, standards related to provider 

networks) that could create situations 

analogous to the ones we discuss above. 

In the proposed rule, we considered 

whether a plan that differs from a QHP 

(as defined at § 155.20) based on OPM 

standards would be considered to be 

‘‘substantially the same’’ as a QHP for 

the purposes of participating in the risk 

corridors program, and stated that we 

were considering amending the 

definition of a QHP at § 153.500 in 

response. Because OPM has not issued 

MSP standards that create such 

analogous situations, in this final rule, 

we are not amending the definition of a 

plan that is substantially the same as a 

QHP in § 153.500, though we will 

consider doing so in the future. 

Comment: One commenter 

recommended that any difference in 

QHPs offered off-Exchange that result 

from a requirement imposed by OPM, 

including differences in provider 

networks, should not disqualify a QHP 

from participation in the risk corridors 

program. The commenter also requested 

that HHS allow plans that include an 

optional rider to be included in the 

definition of ‘‘substantially the same.’’ 

Response: The first final Program 

Integrity rule provided that a plan 

offered outside of an Exchange is 

substantially the same as an Exchange 

QHP, and thus will participate in the 

risk corridors program, if it differs from 

an Exchange QHP with respect to 

benefits, premiums, cost-sharing 

structure, and provider networks, 

provided that such differences are tied 

directly and exclusively to Federal or 

State benefit requirements that apply 

differently to plans depending on 

whether they are offered through or 

outside an Exchange. As discussed 

above, we will consider amending this 

standard if OPM promulgates standards 

that require analogous differences 

between QHPs offered through or 

outside Exchanges. We are not 

amending this definition to include 

optional riders to the extent these riders 

are not a result of differing Federal or 

State requirements with respect to 

Exchange and off-Exchange plans. 

b. Compliance With Risk Corridors 

Standards 

In the proposed rule, we outlined our 

proposed process for validating risk 

corridors data submissions and 

enforcing compliance with the risk 

corridors requirements in subpart F of 

45 CFR part 153. Because the MLR and 

risk corridors programs will require 

similar data, we proposed to closely 

align the data submission, data 

validation, audit provisions, and 

sanctions for the two programs. 

For the 2014 benefit year, we 

proposed to collect risk corridors data 

through the same form used for MLR 

data collection, at the same time (July 

31st of the year following the applicable 

benefit year). We noted that we would 

modify the collection instrument and 

adjust the operational aspects of data 

submission as necessary to ensure that 

the data collection process adheres to 

the requirements for both programs. We 

would leverage the data validation 

procedures that are used by the MLR 

program to uncover data 

inconsistencies, and would add 

additional validation steps that would 

allow us to identify QHP issuers and 

verify QHP-specific premium 

information. In addition, we stated that 

we were considering conducting an 

internal quality check of risk corridors 

data to ensure that the information 

submitted is consistent with 

information submitted for other 

programs (for example, premiums and 

claims data reported on the dedicated 

distributed data environment). We 

stated that, similar to the MLR process, 

we anticipate requiring issuers to 

resubmit corrected data after risk 

corridors data errors are identified. 

To ensure the integrity of risk 

corridors data reporting, we proposed in 

§ 153.540(a) to establish HHS authority 

to conduct post-payment audits of QHP 

issuers. Because similar data is used in 

the risk corridors and MLR calculations, 

we proposed to conduct the risk 

corridors audits using the existing MLR 

auditing process set forth at § 158.402 to 

reduce the time and expense (for both 

HHS and issuers) of conducting 

multiple audits on similar data. 

The second final Program Integrity 

Rule provides that a QHP issuer on an 

FFE that fails to comply with the risk 

corridors provisions may be subject to 

decertification or CMPs, but does not 

extend this remedy to a QHP issuer on 

a State Exchange. In § 153.540(b), we 

proposed that HHS have the authority to 

assess CMPs on QHP issuers in State 

Exchanges in accordance with the same 

enforcement and sanction procedures 

that apply to QHP issuers on FFEs, 

under § 156.805. We noted that, 

consistent with our general approach 

relating to the application of sanctions, 

we would take various factors into 

account when determining the amount 

of a CMP, including an issuer’s record 

of prior compliance with risk corridors 

requirements, the gravity and the 

frequency of the violation, and the 

issuer’s demonstrated success in 

correcting violations that HHS has 

identified (for example, errors identified 

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32We note that the good faith provision at 45 CFR 

156.800(c) will not be applicable in this context 

because risk corridors activities, such as data 

submission and payment, begin in 2015. 

in corrective action plans).32 We 

received no comments on our proposal. 

Because we are still developing our 

enforcement and audit programs for the 

risk corridors and MLR programs, we 

are not finalizing our proposed 

enforcement policy with regard to CMPs 

at this time. We note that 

noncompliance with risk corridors data 

submission requirements may be subject 

to enforcement actions under the False 

Claims Act, and that any failure to pay 

risk corridors charges may be subject to 

our debt collection rules. 

In this final rule, we are finalizing our 

policy with respect to risk corridors data 

submission, data validation, and audits, 

as proposed. 

Comment: Some commenters opposed 

our proposal to combine MLR and risk 

corridors data submission, data 

validation, and auditing processes. One 

commenter disagreed with the proposal 

to use the same form for reporting MLR 

and risk corridors data. The commenter 

stated that MLR and risk corridors 

calculations and reporting requirements 

are based upon different definitions and 

requirements, which would rule out the 

use of a single form. For example, the 

commenter noted, the programs use 

different definitions of group size, and 

require aggregation to different levels— 

QHP versus legal entity. The commenter 

also opposed the proposal to validate 

risk corridors data with data from the 

dedicated distributed data environment, 

because risk corridors data are based 

upon total claims, including capitation 

amounts, whereas the dedicated 

distributed data will include derived 

encounter values. Another commenter 

also advised against validating risk 

corridors data with data from the 

dedicated distributed data environment 

because of concerns that the dedicated 

distributed data environment would not 

be ready in time or would face shortterm operational challenges that would 

prevent it from being a reliable source 

of claims data. 

Response: We are finalizing our 

proposal to use data validation 

procedures that are employed by the 

MLR program to uncover data 

inconsistencies, and to add validation 

steps that would allow us to identify 

QHP issuers and verify QHP-specific 

premium information. We do not 

believe that differences in standards and 

requirements between the risk corridors 

and MLR programs preclude the use of 

a single form because similar data will 

be collected at the issuer and State level 

for both programs. We also note that we 

will make some modifications to the 

form to capture any additional data, 

such as QHP-specific premium, that is 

specific to any one program. We believe 

that this approach is less burdensome 

for issuers and will prevent the 

submission of duplicative information. 

We are also finalizing our proposal to 

conduct an internal quality check of risk 

corridors data to ensure that the 

information submitted is consistent 

with information submitted for other 

programs. However, in response to 

comment regarding the appropriateness 

of validating risk corridors information 

against data collected through the 

dedicated distributed environment, we 

are clarifying that we will only validate 

risk corridors data against other data 

sources if the data from the other data 

sources is sufficiently reliable and can 

be appropriately compared, including 

with respect to any data submitted 

through the dedicated distributed data 

environment for 2014. 

Comment: One commenter was 

concerned that the proposed data 

collection program is geared toward feefor-service payment systems and would 

not accommodate the unique challenges 

faced by organizations that operate, at 

least in part, through capitated or 

integrated health systems. 

Response: We disagree that the data 

collection program established for the 

MLR program would not accommodate 

the experience of capitated or integrated 

health systems. The MLR data 

submission template that would be used 

for the submission of risk corridors data 

currently accommodates data 

submission from a variety of insurance 

and provider models. 

Comment: We received several 

comments that supported our proposal 

to combine MLR and risk corridors 

audits as a way to reduce burden for 

issuers. One commenter additionally 

suggested that HHS use enrollment 

weighted selection criteria, identify 

outliers, and employ pooling methods 

similar to those used by the IRS for its 

auditing strategy. Another commenter 

encouraged HHS to coordinate risk 

corridors audits with those performed 

by State Departments of Insurance. 

Response: In § 153.540, we are 

finalizing our proposal to conduct postpayment risk corridors audits using the 

existing MLR auditing process set forth 

at § 158.402. We agree that a combined 

data submission and audit process will 

reduce burden on issuers. We appreciate 

commenters’ suggestions on the risk 

corridors audit process. We intend to 

work closely with State Departments of 

Insurance to share knowledge and 

coordinate our audit approach to the 

extent practicable, in order to prevent 

duplicative audits in States that review 

information related to MLR reporting. 

We intend to issue detailed guidance on 

the auditing process in the future. 

c. Participation in the Risk Corridors 

Program 

Because the premium stabilization 

programs, including the risk corridors 

program, are intended to mitigate 

pricing uncertainty associated with the 

2014 market reforms, particularly the 

rating rules at section 2701 of the PHS 

Act and § 147.102, we believe that the 

protections of these programs should be 

limited to plans that are subject to the 

premium rating rules. In the proposed 

rule, we proposed to amend the risk 

corridors rules to provide that a plan 

that is not subject to the market reform 

rules and premium rating rules would 

not participate in the risk corridors 

program. We proposed to add paragraph 

(f) to § 153.510 to provide that the risk 

corridors program would apply only to 

QHPs, as defined in § 153.500, 

including all plans offered through the 

individual market Exchange or SHOP, 

regardless of employer size, that are 

subject to the following provisions 

within title 45 of the CFR: 

• § 147.102 (fair health insurance 

premiums). 

• § 147.104 (guaranteed availability of 

coverage). 

• § 147.106 (guaranteed renewability 

of coverage). 

• § 147.150 (essential health benefits). 

• § 156.80 (single risk pool) and 

subpart B of 45 CFR part 156 (essential 

health benefits package). 

We also proposed that the employee 

counting method applicable under State 

law would determine whether a plan is 

considered to be offered in the small 

group market for purposes of the risk 

corridors program, even if the State 

definition does not take non-full-time 

employees into account, and thus could 

include some employers that would be 

large employers under the Federal 

definition. We noted that, for purposes 

of the risk corridors program, permitting 

the use of a State employee counting 

method that is inconsistent with the 

counting method set forth in Federal 

law differs from the approach taken 

under the MLR program and the 

proposed counting method for the risk 

adjustment program that is described 

elsewhere in this final rule. Under these 

programs, non-full-time employees must 

be counted. We also noted that the 

State’s employee counting method 

would also be used to determine 

whether a plan that is not a QHP is part 

of the non-grandfathered individual or 

small group market within a State, and 

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33Letter to Insurance Commissioners, Center for 

Consumer Information and Insurance Oversight, 

November 14, 2013. Available at: http://

www.cms.gov/CCIIO/Resources/Letters/Downloads/

commissioner-letter-11-14-2013.PDF. 

34Letter to Insurance Commissioners, Center for 

Consumer Information and Insurance Oversight, 

November 14, 2013. Available at: http://

www.cms.gov/CCIIO/Resources/Letters/Downloads/

commissioner-letter-11-14-2013.PDF. 

would, therefore, be part of a QHP 

issuer’s risk corridors data submission 

under § 153.530. 

In this final rule, we are finalizing the 

risk corridors participation rules as 

proposed to exclude plans that are not 

subject to market rules and premium 

rating rules from participating in the 

risk corridors program. We are also 

finalizing our proposal that the 

employee counting methodology used 

for the purposes of determining which 

plans participate in the risk corridors 

program will be the State employee 

counting method. 

Comment: We received three 

comments recommending that the 

experience of plans not compliant with 

the Affordable Care Act, including 

transitional plans, should be excluded 

from the risk corridors calculation, since 

those plans are not in the same risk 

pool. 

Response: QHP issuers are required to 

submit risk corridors data for all of their 

non-grandfathered plans in a market 

within a State. We are clarifying that 

this data submission requirement 

excludes the experience of plans that 

are not subject to the Affordable Care 

Act market reform rules, and plans 

being offered pursuant to the 

transitional policy announced on 

November 14, 2013.33 This is consistent 

with our single risk pool policy, which 

bases rate setting on the predicted EHB 

claims experience of all of an issuer’s 

non-grandfathered plans within the 

individual or small group market (or 

merged markets in states that require 

merging the risk pools) that are subject 

to the Affordable Care Act’s market 

reform rules, including the single risk 

pool requirement. As described in this 

section, only QHPs (as defined in 

§ 153.500) are subject to risk corridors 

charges and eligible for risk corridors 

payments, and only if they are plans 

that are required to comply with 

specified Affordable Care Act market 

reform rules previously discussed. 

Comment: Some commenters 

recommended that HHS expand the 

types of plans that would be subject to 

the risk corridors program. Some 

commenters suggested that we expand 

risk corridors to all plans compliant 

with the Affordable Care Act, not just 

plans that are the same or substantially 

the same as a QHP. One commenter 

suggested that the risk corridors 

program should apply to an 

off-Exchange plan that would otherwise 

qualify as an Exchange QHP. 

Response: Consistent with our current 

policy, only plans that are QHPs, the 

same as a QHP, or substantially the 

same as a QHP (as defined at § 153.500) 

will make or receive risk corridors 

payments. We believe that our existing 

policy preserves the intent of the risk 

corridors program, which is to share risk 

and stabilize premiums for QHPs, 

whether offered through or outside the 

Exchange. We believe that our expanded 

definition of a QHP for purposes of risk 

corridors serves to maintain the 

program’s focus on QHPs while 

permitting these plans to be offered 

outside the Exchange, with only such 

minor variations as are required by law. 

Comment: We received several 

comments that the definition of the 

small group market should be consistent 

between the premium stabilization 

programs, and that the State employee 

counting method should be used for all 

Affordable Care Act programs. 

Response: As noted earlier in this 

final rule, we agree that consistency in 

counting methods across Affordable 

Care Act programs is important, and we 

plan to collaborate with other Federal 

agencies to develop a streamlined 

counting method in future rulemaking. 

For purposes of the risk corridors 

program, we interpret section 1342 of 

the Affordable Care Act to permit us to 

defer to State counting methodologies. 

However, as noted above, we interpret 

the employer size definitions in the 

Affordable Care Act to include non-fulltime employees for purposes of 

determining small group status for 

purposes of risk adjustment. We 

therefore are finalizing our proposal that 

the employee counting methodology 

used for the purposes of determining 

which plans participate in the risk 

corridors program will be the State 

employee counting method. 

d. Adjustment for the Transitional 

Policy 

As previously noted, on November 14, 

2013, the Federal government 

announced a transitional policy under 

which it will not consider certain health 

insurance coverage in the individual or 

small group markets that is renewed for 

a policy year starting after January 1, 

2014, under certain conditions to be out 

of compliance with specified 2014 

market rules, and requested that States 

adopt a similar non-enforcement 

policy.34 CMS noted in a letter to the 

insurance commissioners of the 50 

States and the District of Columbia that 

while the transitional policy would not 

have been anticipated by issuers in 

setting rates for 2014, the risk corridors 

program should help ameliorate 

unanticipated changes in premium 

revenue as a result of this policy. We 

also stated that we intended to explore 

ways to modify the risk corridors 

program to address any unanticipated 

effects of this policy. 

In our proposed rule, we considered 

an adjustment to the risk corridors 

formula for the 2014 benefit year that 

would help to further mitigate any 

unexpected losses for issuers of plans 

subject to risk corridors attributable to 

the effects of the transitional policy, and 

noted that we were considering 

approaches that would limit the impact 

of the policy on the Federal budget. We 

considered implementing an adjustment 

to the risk corridors formula set forth in 

subpart F of part 153 for each of the 

individual and small group markets by 

increasing the profit margin floor (from 

3 percent of after-tax profits) and the 

allowable administrative costs ceiling 

(from 20 percent of after-tax profits) in 

an amount sufficient to offset the effects 

of the transitional policy upon the 

claims costs of a model plan. We stated 

that this adjustment could increase a 

QHP issuer’s risk corridors ratio and its 

risk corridors payment amount to help 

offset losses that might occur under the 

transitional policy as a result of 

increased claims costs not accounted for 

when setting 2014 premiums. We stated 

that we were considering applying this 

adjustment only to plans whose 

allowable costs (as defined at § 153.500) 

are at least 80 percent of their after-tax 

premiums, because issuers under this 

threshold would generally be required 

to pay out MLR rebates to consumers. 

We stated that because we believed that 

the Statewide effect on this risk pool 

would increase with an increase in the 

percentage enrollment in transitional 

plans in the State, we were considering 

having the State-specific percentage 

adjustment to the risk corridors formula 

also vary with the percentage 

enrollment in these transitional plans in 

the State. To estimate this State-specific 

effect of the transitional policy on 

average claims costs, we proposed to 

require all issuers participating in the 

individual and small group markets in 

a State to submit to HHS a membermonth enrollment count for transitional 

plans and non-transitional plans in the 

individual and small group markets 

prior to the risk corridors July 31, 2015 

data submission. 

In the proposed rule, we stated we 

were also considering calculating the 

State-specific percentage adjustment by 

analyzing the effects of the transitional 

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policy upon a plan with the following 

specified characteristics: allowable costs 

(including claims) equal to 80 percent of 

premiums, Federal income taxes equal 

to 35 percent of pre-tax profits, other tax 

liability equal to 7.5 percent of 

premiums, and other administrative 

costs equal to 8 percent of premiums. 

We proposed to estimate the effect of 

the transitional policy upon the model 

plan’s claims costs by assuming that 

allowable costs (including claims) 

among the transitional plans are 80 

percent of the allowable costs that 

would have resulted from the broad risk 

pool, in the absence of the transitional 

policy. HHS would analyze that data, 

and publish the State-specific 

adjustments that issuers would use in 

the risk corridors calculations for the 

2014 benefit year. 

Finally, in the proposed rule, we 

stated that we were considering 

modifying the MLR formula to ensure 

that the proposed adjustment to the risk 

corridors program does not distort the 

implementation of MLR requirements, 

so that the rebates that would be owed 

absent the transitional policy and this 

adjustment would not substantially 

change. 

We are finalizing the risk corridors 

adjustment policy as proposed. 

Consistent with our proposal, we are 

adding a definition of ‘‘adjustment 

percentage’’ to § 153.500, and are 

amending the definitions of risk 

corridors ‘‘profits’’ and ‘‘allowable 

administrative costs’’ in § 153.500 to 

account for the adjustment percentage. 

We are also adding a definition of 

‘‘transitional State’’ to § 153.500. 

Finally, we are adding paragraph (e) to 

§ 153.530 to require health insurance 

issuers in the individual and small 

group markets to submit enrollment 

data for the risk corridors adjustment. 

We are making a conforming change to 

§ 153.530(d) to clarify that the July 31st 

submission deadline for risk corridors 

data does not apply to the enrollment 

data specified in § 153.530(e). We 

project that these changes, in 

combination with the changes to the 

reinsurance program finalized in this 

rule, will result in net payments that are 

budget neutral in 2014. We intend to 

implement this program in a budget 

neutral manner, and may make future 

adjustments, either upward or 

downward to this program (for example, 

as discussed below, we may modify the 

ceiling on allowable administrative 

costs) to the extent necessary to achieve 

this goal. 

Comment: Several commenters 

recommended that HHS implement a 

risk corridors adjustment based on a 

national calculation instead of Statelevel calculations, as we proposed. One 

commenter noted that the effect of the 

transitional policy on the State risk pool 

could vary by factors that we did not 

propose to account for, such as whether 

or not the State had a guaranteed issue 

law prior to 2014, and suggested that a 

national adjustment would help to 

mitigate the effect of these differences. 

Alternatively, the commenter suggested 

that HHS could provide an adjustment 

for different categories of States. A few 

commenters suggested that a national 

adjustment would reduce administrative 

burden on issuers and would be simpler 

to implement. However, several other 

commenters supported our approach of 

implementing a State-level adjustment, 

including the proposed approach of 

applying the adjustment based on 

enrollment in non-compliant plans 

within a State. 

Response: We are finalizing our 

proposed approach to determine the risk 

corridors adjustment on a State-by-State 

basis. We believe that a State-based 

approach provides an appropriate 

means of accounting for differences in 

market composition, enrollment in 

transitional plans, and adoption of the 

transitional policy between States. 

Because a national approach would still 

require issuers to submit enrollment 

information to HHS in order to 

determine an accurate national risk 

corridors adjustment, we do not believe 

that a State-based approach would 

prove more burdensome for issuers. 

Comment: One commenter 

recommended that the adjustment be 

extended through all three years of the 

temporary risk corridors program. 

However, another commenter believed 

that the adjustment should apply for the 

2014 benefit year only, since issuers 

will be able to reflect the effect of the 

transitional policy in their pricing for 

subsequent benefit years. 

Response: We agree with the 

comment that issuers will be able to 

reflect the effect of the transitional 

policy in their pricing for benefit years 

following 2014, and thus this specific 

risk corridors adjustment is needed for 

the 2014 benefit year only. Therefore, 

we are finalizing the risk corridors 

adjustment policy to apply the 

adjustment to eligible QHP issuers in 

transitional States for the 2014 benefit 

year only. However, as we discuss 

below, we are considering further 

changes to the risk corridors program. 

Comment: Several commenters 

recommended that we apply the risk 

corridors transitional adjustment to all 

plans compliant with the Affordable 

Care Act, not just QHPs that are subject 

to the risk corridors program. Some 

commenters requested that any changes 

to the risk corridors formula be applied 

uniformly to all issuers, including 

issuers of plans that are not compliant 

with Affordable Care Act requirements, 

rather than limited to issuers offering 

transitional policies. One commenter 

supported defining ‘‘transitional plans’’ 

to include ‘‘early renewal’’ plans that 

have been renewed in late 2013 and that 

will not be required to comply with the 

Affordable Care Act until the end of 

2014. 

Response: Because, as described 

above, the risk corridors program is 

intended to share risk and stabilize 

premiums for QHPs and substantially 

similar off-Exchange plans that differ 

only due to legal requirements, we 

decline to expand the participation 

criteria for the risk corridors transitional 

adjustment. Consistent with our existing 

regulations set forth in subpart F of part 

153, any risk corridors payment or 

charge amount, including any adjusted 

payment or charge amount resulting 

from this transitional policy, will be 

calculated for a QHP issuer in 

proportion to the premium revenue that 

the issuer receives from its QHPs, as 

defined in § 153.500. Plans that do not 

comply with the Affordable Care Act 

market reforms will not participate in 

the risk corridors program, and data 

from these plans will not be included in 

a QHP issuer’s risk corridors 

calculation, or the calculation of its risk 

corridors adjustment percentage. 

We are also finalizing our proposal 

that a QHP issuer in a transitional State 

will receive the risk corridors 

adjustment only if its allowable costs 

are above 80 percent of after-tax 

premiums, and will receive that 

adjustment irrespective of whether the 

issuer offers transitional policies. 

Because the transitional policy may 

affect the overall risk pool in a 

transitional State, we believe that it is 

appropriate to provide the adjustment to 

a QHP issuer in that State even if the 

issuer does not offer a transitional 

policy. 

Comment: Some commenters 

recommended that HHS completely 

remove the administrative costs ceiling 

for risk corridors. One of these 

commenters agreed with HHS’s 

proposal that the allowable costs must 

be at least 80 percent of after-tax 

premiums, and another agreed with 

setting the profit floor according to the 

methodology outlined in the proposed 

rule. Another commenter recommended 

that the risk corridors formula be 

changed to reflect a standard ceiling of 

22 percent for allowable administrative 

costs. 

Response: As we discussed in the 

proposed rule, the adjustment to the risk 

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corridors calculation is meant to 

mitigate the effect of the transitional 

policy on QHP issuers in transitional 

States, and not in all States. However, 

we understand that issuers in all States 

are experiencing additional 

administrative costs as a result of 

transitional issues. We are carefully 

analyzing this proposal, and may 

propose implementing it in future 

rulemaking. If so, this change would 

apply in all States for the 2015 benefit 

year. We would also consider making 

corresponding changes to the risk 

corridors profit floor and to the MLR 

regulations. 

Comment: We received comments on 

the interaction between the proposed 

risk corridors adjustment and MLR 

reporting. One commenter supported 

the proposal to modify the MLR formula 

so that the calculation of MLR rebates 

would not be affected by the transitional 

adjustment to the risk corridors 

program. One commenter believed that 

there was no need to modify the MLR 

formula because the formula would 

automatically account for any 

distortions, while another commenter 

recommended that HHS maintain the 

current structure of the MLR formula in 

order to prevent issuer confusion. We 

also received one comment suggesting 

that issuers should be able to account 

for administrative expenses that are 

related to implementing the risk 

corridors transitional adjustment as part 

of their MLR calculation for the 

following year. 

Response: We are providing that 

issuers should exclude the effect of this 

transitional policy risk corridors 

adjustment from their MLR calculations. 

We are making conforming changes to 

the MLR reporting requirements in 

§§ 158.130(b)(5), 158.140(b)(4)(ii), and 

158.240(c)(2). We note that this policy 

will not change the existing structure of 

the MLR or risk corridors formulas. 

Under this policy, issuers in the 

transitional States will use unadjusted 

risk corridors amounts (that is, a risk 

corridors transfer calculated as if the 

adjustment percentage, as defined in 

§ 153.500, is equal to zero percent) in 

their MLR calculations. 

Comment: One commenter 

recommended that HHS collect 

enrollment counts by the middle of the 

year so that issuers would be able to 

estimate their risk corridors transitional 

adjustment before the end of the year, in 

time for year-end financial reporting. 

Another commenter requested that 

issuers should be permitted to reduce 

the impact of the transitional policy 

through mid-year premium rate changes 

in the small group market that would 

allow issuers to file rates as early as 

April 1, 2014. 

Response: We are clarifying that we 

will collect transitional plan enrollment 

information and publish each Statespecific adjustment in advance of when 

issuers would need to prepare their 

year-end financial reports. In response 

to comments, we are adding § 153.530(e) 

and making a conforming change to 

§ 153.530(d) to specify that, although 

the July 31 deadline will continue to 

apply to the submission of risk corridors 

data that is necessary to calculate 

allowable costs and the target amount, 

the July 31 deadline will not apply to 

the collection of enrollment data for the 

risk corridors adjustment. As mentioned 

above, we intend to collect enrollment 

information before the July 31st 

deadline for submitting risk corridors 

data, so that issuers will know the risk 

corridors adjustment amount that 

applies to them before they are required 

to submit data on allowable costs and 

the target amount for the purposes of the 

risk corridors calculation. We currently 

anticipate conducting this collection at 

the beginning of 2015. 

Comment: One commenter asked HHS 

to clarify that, for purposes of the target 

amount calculation, Federal income tax 

cannot be negative (that is, the Federal 

income tax amount would have a floor 

of zero). 

Response: We clarify that, because the 

Federal income tax effects of losses in 

one plan can be offset by gains in 

another plan, the risk corridors formula 

will account for negative Federal 

income tax, and that we will not apply 

a floor to the Federal income tax amount 

used in the risk corridors formula. 

5. Distributed Data Collection for the 

HHS-Operated Risk Adjustment and 

Reinsurance Programs 

a. Discrepancy Resolution Process 

(i) Confirmation of HHS Dedicated 

Distributed Data Environment Reports 

We proposed an iterative discrepancy 

reporting process that would require an 

issuer of a risk adjustment covered plan 

or a reinsurance-eligible plan to notify 

HHS in a timely fashion of data and 

calculation discrepancies related to the 

data the issuer uploaded to its dedicated 

distributed data environment. This 

process would allow HHS and issuers 

sufficient time to resolve discrepancies, 

prior to HHS notifying issuers of final 

risk adjustment payments and charges 

and reinsurance payments. This process 

would also enable HHS to identify and 

address issues that affect multiple 

issuers throughout the benefit year. 

Interim dedicated distributed data 

environment reports: In 2014, HHS 

anticipates sending interim dedicated 

distributed data environment reports to 

issuers of risk adjustment covered plans 

and reinsurance-eligible plans that have 

loaded data onto their dedicated 

distributed data environments. We will 

also send interim reports to issuers of 

risk adjustment covered plans and 

reinsurance-eligible plans that do not 

load data to verify this result. Issuers of 

risk adjustment covered plans will 

receive interim reports that include 

preliminary risk adjustment information 

based on this data, and issuers of 

reinsurance-eligible plans will receive 

interim reports that include an estimate 

of the issuer’s aggregated total claims 

eligible for reinsurance payments based 

on this data. We proposed in 

§ 153.710(d) that within 30 calendar 

days of the date of an interim report, the 

issuer would be required either to 

confirm to HHS that the information in 

the interim report accurately reflects the 

data to which the issuer has provided 

access to HHS through its dedicated 

distributed data environment in 

accordance with § 153.700(a) for the 

timeframe specified in the report, or else 

to describe to HHS any discrepancy it 

identifies in the interim report. 

Following the identification of a 

discrepancy in an interim report, HHS 

would review the evidence submitted 

by the issuer, along with any other 

relevant data, and determine if the 

preliminary risk adjustment information 

or estimated payment amount at issue 

was properly calculated using the 

applicable data. 

We note that for the issuer and HHS 

to effectively address and resolve 

discrepancies through the proposed 

interim reporting process, once an 

issuer’s dedicated distributed data 

environment is established, the issuer 

will be required under § 153.700(a), on 

a quarterly basis, to make a complete 

and current enrollment file accessible to 

HHS through the dedicated distributed 

data environment, and make good faith 

efforts to make accurate and current 

claims files accessible to HHS through 

the dedicated distributed data 

environment. An issuer may later (up 

until April 30th of the year after the 

benefit year, as provided for in 

§ 153.730) adjust these files with the 

most current information to account for 

changing enrollments or more current 

adjudications of claims in later periods. 

Final dedicated distributed data 

environment report: We proposed that 

HHS would provide issuers with a final 

dedicated distributed data environment 

report following the applicable benefit 

year, after the April 30th data 

submission deadline. The final 

dedicated distributed data environment 

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report will include final risk scores and 

claims amounts eligible for reinsurance 

payments, each calculated from the 

issuer’s data that was timely loaded 

onto the dedicated distributed data 

environment. As with the interim 

reports discussed above, we proposed in 

§ 153.710(e) that the issuer be required, 

within 15 calendar days of the date of 

the final report, to either confirm to 

HHS that the information in the final 

dedicated distributed data environment 

report accurately reflects the data to 

which the issuer has provided access to 

HHS through its dedicated distributed 

data environment in accordance with 

§ 153.700(a) for the benefit year 

specified in the report, or describe to 

HHS any discrepancy it identifies in the 

final report. 

Notification of payments and charges: 

Last, as required under § 153.310(e) and 

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

notification to issuers specifying the risk 

adjustment and reinsurance payments 

due and risk adjustment charges owed 

for the applicable benefit year by June 

30th of the year following the applicable 

benefit year. We anticipate providing 

this notification in the form of a report. 

We also anticipate providing a report on 

cost-sharing reduction reconciliation 

payments and charges for that benefit 

year in the same timeframe. Although 

we anticipate that the interim and final 

dedicated distributed data environment 

reports will permit HHS and issuers to 

resolve most data and payment 

discrepancies for risk adjustment and 

reinsurance before the June 30th report 

is issued, we recognize that some 

discrepancies might remain unresolved. 

Therefore, we proposed in § 153.710(f) 

that if a discrepancy that is first 

identified in an interim or final 

dedicated distributed data environment 

report in accordance with 

§ 153.710(d)(2) or § 153.710(e)(2) 

remains unresolved after issuance of the 

June 30th report, an issuer of a risk 

adjustment covered plan or reinsuranceeligible plan is permitted to make a 

request for reconsideration using the 

process described in § 156.1220(a). To 

promote the goals of the premium 

stabilization programs and to ensure 

that risk adjustment and reinsurance 

payments are provided to an issuer of a 

risk adjustment covered plan or 

reinsurance-eligible plan in a timely 

fashion, we proposed to assess charges 

and make payments based on the 

amounts listed in the June 30th report, 

whether or not the issuer had submitted 

a request for reconsideration under 

§ 156.1220(a), and to later correct any 

charges or payments determined to be 

inaccurate under the administrative 

appeals process. 

(ii) Reporting of Payments and Charges 

Under Reconsideration 

We noted in the proposed rule that 

because risk adjustment payment and 

charge amounts and reinsurance 

payment amounts are factors in an 

issuer’s risk corridors and MLR 

calculations, a delay in resolving final 

risk adjustment payments and charges 

and reinsurance payments could make it 

difficult for issuers to comply with 

reporting requirements under the risk 

corridors and MLR programs. Therefore, 

to clarify how issuers are to comply 

with these reporting requirements, we 

proposed in § 153.710(g)(1) that, 

notwithstanding any discrepancy report 

made under § 153.710(d)(2) or (e)(2), or 

any request for reconsideration under 

§ 156.1220(a), unless the dispute has 

been resolved, an issuer be required to 

report, as applicable, for purposes of the 

risk corridors and MLR programs, the 

risk adjustment or reinsurance payment 

to be made to the Federal government, 

or the risk adjustment charge assessed 

by the Federal government, as reflected 

in the June 30th report. 

If the amount of cost-sharing 

reductions a QHP issuer has provided is 

at issue because the issuer requested 

reconsideration of a cost-sharing 

reduction reconciliation payment or 

charge under § 156.1220(a), we 

proposed that for the purposes of the 

risk corridors and the MLR program, a 

QHP issuer would be required to report 

a cost-sharing reduction amount equal 

to the amount of the advance payments 

of cost-sharing reductions paid to the 

issuer by HHS for the benefit year as 

reflected in the HHS report on costsharing reduction reconciliation 

payments and charges. Additionally, we 

proposed that if a QHP issuer requests 

reconsideration of risk corridors 

payments or charges under 

§ 156.1220(a), then for purposes of MLR 

reporting, the QHP issuer would be 

required to report the risk corridors 

payment to be made to the Federal 

government or charge assessed by the 

Federal government as reflected in the 

notification provided under 

§ 153.510(d). 

Finally, we proposed in 

§ 153.710(g)(2) that an issuer be required 

to report any adjustment made 

following any discrepancy report made 

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

request for reconsideration under 

§ 156.1220(a) with respect to any risk 

adjustment payment or charge, 

including an assessment of risk 

adjustment user fees, reinsurance 

payment, cost-sharing reconciliation 

payment or charge, or risk corridors 

payment or charge, or following any 

audit, where the adjustment has not 

been accounted for in a prior risk 

corridors or MLR report, in the next 

following risk corridors and MLR report. 

We are finalizing these provisions as 

proposed. 

Comment: Several commenters 

supported the interim and final 

dedicated distributed data environment 

reports and discrepancy process, 

including the requirement to upload 

data on a quarterly basis. One 

commenter requested that HHS require, 

not merely allow, issuers to notify HHS 

in a timely fashion of data and 

calculation discrepancies. 

Response: Under § 153.710(d) and 

§ 153.710(e), an issuer will be required 

to notify HHS of any discrepancies 

within 30 calendar days of the date of 

an interim dedicated distributed data 

environment report and within 15 

calendar days of the date of the final 

dedicated distributed data environment 

report. 

Comment: One commenter stated that 

the quarterly reporting of data on an 

issuer’s dedicated distributed data 

environment should not be required 

until HHS has provided issuers with the 

necessary documents, software, and 

support needed to ensure that the 

dedicated distributed data environment 

is running properly, with additional 

time provided for issuers to implement 

the software and test the system. 

Response: We will not require issuers 

to make data available on the dedicated 

distributed data environment until we 

have provided them with the necessary 

documents, software, support, and time 

to establish the environment. We will 

issue future guidance regarding the 

initiation of quarterly data reporting. At 

that time, we will ask that issuers make 

a complete and current enrollment file 

accessible to HHS through the dedicated 

distributed data environment on a 

quarterly basis, while making good faith 

efforts to make accurate and current 

claims files accessible to HHS through 

that environment. As we stated in the 

proposed rule, an issuer may later (up 

until April 30th of the year after the 

benefit year, as provided for in 

§ 153.730) adjust these files with the 

most current information to account for 

changing enrollments or more current 

adjudications of claims in later periods. 

However, we believe it is critical for 

issuers to provide quarterly uploads of 

enrollment and claims files to permit 

issuers and HHS to monitor data 

collection. 

Comment: Many commenters asked 

for details on the timing of the interim 

reports. One commenter recommended 

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that HHS require quarterly reporting by 

the issuer to the dedicated distributed 

data environment one month after the 

end of each quarter. Commenters 

stressed the importance of receiving 

interim reports from HHS in late 2014 

to early 2015 because these reports 

could be used for 2016 pricing and 

financial reporting obligations which 

occur prior to the June 30th notification 

deadline. 

Response: We will issue future 

guidance regarding the timing of the 

interim reports. 

Comment: Several commenters 

supported receiving interim reports 

identifying preliminary risk scores and 

estimates of the issuer’s aggregated total 

claims eligible for reinsurance 

payments. Many commenters asked that 

HHS include additional information to 

enable calculation of risk adjustment 

payment transfers, and reinsurance 

payment amounts. 

Specifically, commenters requested 

that the risk adjustment interim reports 

include: (1) The State average premium; 

(2) market average risk score; (3) 

preliminary Statewide risk score; (4) the 

geographic cost factors; (5) the two 

market-wide denominators (weighted 

adjusted risk score and weighted 

allowed rating factors) needed for the 

risk adjustment transfer formula; (6) 

enrollment counts by geographic region; 

(7) member-level (de-identified) data 

contributing to the risk score: risk 

adjusting categories, plan level or plan 

ID, age, sex, enrollment period, rating 

area and subsidy information, 

recommending that such information be 

displayed for each month included in 

the interim report; (8) AV; (9) induced 

demand factor; and (10) average rate 

factor. One commenter stated that since 

interim risk score calculations would 

not reflect true relative risk, HHS should 

publish statistical reports comparing the 

issuer with market average 

demographics, proportion of claims 

with HCCs, most prevalent HCCs, and 

other pertinent data. 

Regarding the interim report for 

reinsurance, commenters asked that the 

interim reports include: (1) Member 

level claims amounts by month; (2) 

claim type; and (3) subsidy information 

necessary to validate the cost-sharing 

deduction. 

Commenters also asked that HHS 

consult with issuers about the data 

submission requirements to 

accommodate diverse market practices 

due to provider submission patterns, 

State-specific regulations and different 

delivery system models. 

Response: We will provide more 

details on the content of the interim 

reports in future rulemaking or 

guidance, as appropriate. 

Comment: Several commenters 

suggested that HHS provide information 

to issuers regarding data completeness 

or accuracy, data quality and ways to 

improve data submission in time for 

issuers to evaluate and correct such data 

issues prior to the final data submission 

deadline. 

Response: As stated in the proposed 

rule, as part of the process for making 

data available to HHS on a dedicated 

distributed data environment, we 

anticipate providing an issuer a 

transactional process report that will 

identify data that has been attempted to 

be uploaded, but that has been rejected 

along with error codes. To fulfill its 

obligation to make these files available 

to HHS, an issuer will be required to 

either correct or accept the rejection of 

this data for the submission process to 

be considered complete. We also intend 

to provide summarized reports of file 

processing. 

Comment: Some commenters 

supported the 15-calendar-day deadline 

to respond to the final dedicated 

distributed data environment report, 

while others asked that HHS provide 30 

calendar days to respond to the final 

dedicated distributed data environment 

report. 

Response: The shorter 15-calendarday reporting timeframe for the final 

dedicated distributed data environment 

report is necessary so that HHS can 

notify issuers of their final risk 

adjustment payments and charges and 

final reinsurance payments by June 30th 

of the year following the applicable 

benefit year, as required under 

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

Comment: One commenter asked that 

HHS develop penalties for noncompliance with the standards for the 

submission of data for the risk 

adjustment program. 

Response: In § 153.740(a), we 

established HHS’s authority to impose 

CMPs on issuers of risk adjustment 

covered plans who fail to provide HHS 

with access to the required data in such 

environment in accordance with 

§ 153.700(a) or otherwise fail to comply 

with the requirements of §§ 153.700 

through 153.730, or fail to adhere to the 

risk adjustment data submission and 

data storage requirements set forth in 

§§ 153.610 through 153.630. 

Additionally, under § 153.740(b), HHS 

will assess a default risk adjustment 

charge if an issuer of a risk adjustment 

covered plan fails to establish a 

dedicated distributed data environment 

or fails to provide HHS with access to 

the required data in such environment 

in accordance with § 153.610(a), 

§ 153.700, § 153.710, or § 153.730 such 

that HHS cannot apply the applicable 

Federally certified risk adjustment 

methodology to calculate the risk 

adjustment payment transfer amount. 

b. Default Risk Adjustment Charge 

As described in the second final 

Program Integrity Rule, if an issuer does 

not establish a dedicated distributed 

data environment or submits inadequate 

risk adjustment data, HHS would not 

have the required risk adjustment data 

from the issuer to calculate risk scores 

or payment transfers for the issuer. As 

a result, HHS would not be able to 

properly calculate risk adjustment 

payments and charges for the entire 

applicable market for the State. Under 

§ 153.740(b), if an issuer of a risk 

adjustment covered plan fails to 

establish a dedicated distributed data 

environment or fails to provide HHS 

with access to risk adjustment data in 

such environment by April 30th of the 

year following the applicable benefit 

year in accordance with §§ 153.610(a), 

153.700, 153.710, or 153.730 such that 

HHS cannot apply its Federally certified 

risk adjustment methodology to 

calculate the plan’s risk adjustment 

payment transfer amount in a timely 

fashion, HHS will assess a default risk 

adjustment charge. 

As described in the second final 

Program Integrity Rule, the total risk 

adjustment default charge for a risk 

adjustment covered plan would equal a 

per member per month (PMPM) amount 

multiplied by the plan’s enrollment. 

Tn = Cn * En

Where: 

Tn = total default risk adjustment charge for 

a plan n; 

Cn = the PMPM amount for plan n; and 

En = the total enrollment (total billable 

member months) for plan n. 

In the second final Program Integrity 

Rule, we provided that En could be 

calculated using an enrollment count 

provided by the issuer, using enrollment 

data from the issuer’s MLR and risk 

corridors filings for the applicable 

benefit year, or using other reliable data 

sources. 

We considered several methods to 

calculate Cn, the PMPM amount for a 

plan. As discussed in the proposed 

Program Integrity Rule, one method 

would be to set a PMPM amount that is 

equal to the highest PMPM transfer 

charge that HHS calculates based on risk 

adjustment data submitted by risk 

adjustment covered plans in the 

applicable risk pool in the applicable 

market in the State. Such a method 

could yield a PMPM amount that would 

reflect a PMPM charge that reflects the 

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35 45 CFR 156.800(c) was finalized in the first 

final Program Integrity Final Rule. 

high end of the PMPM distribution in 

certain States. However, in a situation in 

which the risk adjustment covered plans 

that provide the necessary risk 

adjustment data have very similar risk 

scores, a PMPM amount calculated 

under this method may yield a 

relatively low default risk adjustment 

charge, and fail to provide adequate 

incentive for prompt establishment of a 

compliant dedicated distributed data 

environment. 

A second option we considered was 

to assess a PMPM amount based on the 

standard deviation of the PMPM charge 

among all risk adjustment covered plans 

in the applicable risk pool in the 

applicable market in the State. The 

PMPM amount used to calculate the 

default risk adjustment charge would be 

an amount equal to the mean PMPM 

amount plus two such standard 

deviations. Such an approach could also 

yield a PMPM amount that is high but 

reflects the PMPM distribution in 

certain situations, but, again, low in 

others. The amount might also be quite 

unpredictable ex ante. 

The third option we considered was 

to assess a charge equal to a fixed 

percentage of the Statewide average 

premium, which would be calculated as 

the enrollment-weighted mean of all 

risk adjustment covered plan average 

premiums in the applicable risk pool in 

the applicable market in the State. This 

option might be relatively 

straightforward to implement, but 

would yield a charge that is not linked 

to the distribution of PMPM amounts 

within the relevant risk pool in the 

market in the State. 

We are finalizing an approach in 

which we will assess a PMPM default 

charge equal to the product of the 

Statewide average premium (expressed 

as a PMPM amount) for a risk pool and 

the 75th percentile plan risk transfer 

amount expressed as a percentage of the 

respective Statewide average PMPM 

premiums for the risk pool. The 

nationwide percentile would reflect 

only plans in States where HHS is 

operating the risk adjustment program 

and would be calculated based on the 

absolute value of plan risk transfer 

amounts. The PMPM amount 

determined using the method described 

here would be multiplied by the noncompliant plan’s enrollment, as 

determined using the sources finalized 

in the second final Program Integrity 

Rule, to establish the plan’s total default 

risk adjustment charge. 

Comment: Several commenters stated 

they supported a default risk adjustment 

charge that would be understood by 

issuers and that would encourage 

compliance. Some commenters 

supported using the greatest of the three 

proposed methodologies for calculating 

the default charge. Those commenters 

suggested that where there are a limited 

number of issuers in a market in a State, 

an alternate approach to the standard 

deviation-based methodology should be 

taken, such as one that relies on 

nationwide data. Another commenter 

suggested that the default charge be set 

at the charge that would be two 

standard deviations above the mean 

charge in a market for the first instance 

of noncompliance; and at a higher rate, 

such as the highest PMPM charge 

among risk adjustment plans in the risk 

pool, for a second instance of 

noncompliance in consecutive benefit 

years. 

Response: We are finalizing an 

approach in which the default PMPM 

charge is set at a fixed percentage of the 

Statewide average premium, which 

would be calculated as the enrollmentweighted mean of all risk adjustment 

covered plan average premiums in the 

applicable risk pool in the applicable 

market in the State in which the nonreporting plan operates. To calculate the 

fixed percentage, HHS would calculate 

the absolute value of the risk transfer 

PMPM amount of each plan in a State 

risk pool as a percentage of the 

Statewide average premium for the State 

risk pool. These percentages would then 

be used to rank all transfers as a 

percentage of Statewide average 

premium in the same risk pool in all 

States where HHS operates the risk 

adjustment program. We would select 

the fixed percentage of Statewide 

average premium yielded at the 75th 

percentile of this distribution of 

transfers, then multiply this percentage 

by the Statewide average PMPM 

premium for the risk pool in which the 

non-reporting plan operates. We will 

monitor the default charges resulting 

from this methodology and may adjust 

the percentile at which we assess the 

appropriate fixed percentage to apply 

the default charge in future rulemaking. 

c. Clarification of the Good Faith Safe 

Harbor 

In the second final Program Integrity 

rule, we finalized § 153.740(a), which 

permits HHS to impose CMPs upon 

issuers of risk adjustment covered plans 

and reinsurance-eligible plans for 

failure to adhere to certain standards 

relating to their dedicated distributed 

data environments. In the preamble to 

that rule, we stated that if we are able 

to determine that an issuer of a risk 

adjustment covered plan or reinsuranceeligible plan is making good faith efforts 

to comply with the standards set forth 

in § 153.740(a), consistent with our 

policy codified at § 156.800(c),35 we 

would not seek to impose CMPs for 

noncompliance with those standards 

during 2014 (78 FR 65061). We further 

stated: ‘‘However, we note that nothing 

in this provision prohibits HHS from 

imposing CMPs in 2015 for 

noncompliance that occurred in 2014.’’ 

We seek to clarify that this statement 

does not mean that HHS takes the 

position that it could impose CMPs for 

noncompliance with respect to 2014 

standards, even if the issuer attempted 

in good faith to comply, simply by 

waiting until 2015. 

We intended to convey that the good 

faith safe harbor does not apply to noncompliance with dedicated distributed 

data environment standards applicable 

during 2015, even if the non-compliance 

in 2015 relates to data for the 2014 

benefit year. In 2014, issuers must 

establish dedicated distributed data 

environments and load data according 

to a quarterly schedule to be provided 

by HHS. The good faith safe harbor 

would apply, for example, to 

noncompliance with the 2014 schedule 

for establishing a dedicated distributed 

data environment and loading data. 

However, the data loading schedule 

applicable to 2014 risk adjustment and 

reinsurance data extends into 2015 (the 

final loading deadline is April 30, 2015, 

which will enable HHS to calculate risk 

adjustment payments and charges and 

reinsurance payments for the 2014 

benefit year by June 30, 2015), and at 

this time, the good faith safe harbor does 

not extend to noncompliance with any 

2015 obligations, even if those 2015 

obligations apply with respect to 2014 

data. As we stated in the preamble to 

the Program Integrity final rules (78 FR 

54070 and 78 FR 65046), at the 

appropriate time, we may consider 

extending this good-faith compliance 

safe harbor. 

We further note that our clarification 

of this preamble language does not 

preclude application of the good faith 

safe harbor under § 156.800(c) to 

noncompliance actions that occurred in 

2013 with respect to 2014 standards. 

D. Part 155—Exchange Establishment 

Standards and Other Related Standards 

Under the Affordable Care Act 

1. Election To Operate an Exchange 

After 2014 

We proposed to reduce the time that 

the State must have in effect an 

approved or conditionally approved 

Exchange Blueprint and readiness 

assessment from 12 months to 6.5 

months prior to the Exchange’s first 

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effective date of coverage. HHS learned 

through the process of conditionally 

approving the first generation of State 

Exchanges that it is challenging to make 

an accurate assessment of a State’s 

progress and its ability to complete an 

Exchange build 10 months prior to open 

enrollment and a year prior to the first 

date that insurance coverage for 

consumers would become effective. In 

addition, we believe that this 

amendment will give States more time 

prior to approval of the Exchange 

Blueprint to prepare for the transition 

from an FFE or State Partnership 

Exchange model to a State Exchange. 

We proposed to amend § 155.106(a)(2) 

by moving the deadline for the approval 

of the Exchange Blueprint for those 

States electing to establish and operate 

an Exchange after 2014 to June 15th of 

the previous plan year rather than 

January 1st of the previous plan year. 

We also proposed in the preamble to the 

proposed rule that the Exchange 

Blueprint application would be 

submitted on June 1st instead of on 

November 15th. This new timeframe 

will enable HHS to gauge the State’s 

actual technical, business and 

operational progress as more indicative 

milestones should be reached by June 

15th. We are finalizing the amendment 

to § 155.106(a)(2) as proposed. 

Comment: Several commenters were 

concerned that moving the date to June 

15th will compromise the operational 

efficiency of issuers planning to offer 

QHPs in these new Exchanges. Some 

commenters stated that the June 15th 

date will give issuers insufficient time 

to program their systems for Statespecific processes and suggested that 

HHS require newly-electing Exchanges 

to use a standard file format if the 

Exchange intends to collect and remit 

premiums. Other commenters stated 

that the June 15th date provides 

insufficient time for plan testing of State 

systems to ensure a smooth transition 

from an FFE model to a State Exchange. 

Other commenters stated that the June 

15th date will provide the necessary 

time and flexibility for States 

transitioning to a State Exchange. 

Response: The June 15th date 

balances the needs of issuers to prepare 

products for the Exchanges with the 

needs of the States that wish to 

transition to a State Exchange. The QHP 

certification process of newly electing 

State Exchanges or transitioning 

Exchanges should not be delayed, as 

State DOIs, in the ordinary course of 

reviewing plans for compliance with 

State and Federal law, will be 

conducting their reviews of plans 

irrespective of the Exchange Blueprint 

deadline. DOI decisions will therefore 

be available to inform certification 

decisions by a State Exchange, and there 

should be ample time for issuers to 

program their system as required by 

newly electing State Exchanges and as 

required by those FFE States 

transitioning to a State Exchange model. 

We encourage States and new State 

Exchanges to work with issuers on 

State-specific requirements and unique 

processes. 

Comment: One commenter suggested 

that HHS monitor whether the 6.5 

month deadline provides adequate time 

for HHS to assess readiness. In addition, 

the commenter suggested that 15 days 

between the Blueprint application due 

date of June 1st and the decision of 

approval or conditional approval might 

not allow for sufficient time for HHS to 

communicate with States. Finally, the 

commenter asked HHS to clarify when 

a State must have full approval as 

opposed to conditional approval, given 

the shorter timeframe. One commenter 

stated that the new deadline would not 

give HHS enough time to conduct 

critical IT testing for the Exchange and 

the health plans. 

Response: HHS believes that the June 

15th date provides adequate time to 

assess the readiness of the Exchange. As 

stated in the preamble, the January 1st 

date proved difficult for HHS to 

appropriately assess the readiness of 

State Exchanges. Fifteen days is 

sufficient time for communication 

between the States and HHS, as HHS 

envisions that States that are applying to 

become State Exchanges will be 

communicating with HHS well before 

June 1st and HHS will provide 

appropriate support and technical 

assistance. Finally, the proposed 

timeframe is sufficient for HHS to 

approve or conditionally approve the 

new State Exchanges. 

2. Ability of States to Permit Agents and 

Brokers To Assist Qualified Individuals, 

Qualified Employers, or Qualified 

Employees Enrolling in QHPs 

We proposed to add new § 155.220(i) 

to provide that paragraph (c)(3), which 

addresses enrollment in a QHP through 

the Exchange via an Internet Web site of 

an agent or broker, would apply to 

SHOPs for plan years beginning on or 

after January 1, 2015, in addition to the 

individual market Exchanges. Under the 

proposal, employers that have not 

traditionally worked with agents and 

brokers but have, in the past, utilized 

Internet Web sites of agents and brokers 

for purchasing insurance would have 

another option to learn about and 

participate in SHOP. We proposed to 

allow SHOPs, in States that allow this 

activity under State law, to permit 

enrollment in a QHP through the SHOP 

by using an Internet Web site of an agent 

or broker under the standards outlined 

in § 155.220(c)(3) if a State SHOP or an 

FF–SHOP has the technical capability to 

make this possible. CMS does not 

currently anticipate that the FF–SHOPs 

will make this functionality available in 

2015. We are finalizing this provision as 

proposed, but note that we have added 

a title to the provision. 

Comment: A broad range of 

commenters supported permitting 

enrollment in a SHOP QHP through the 

Exchange via the Internet Web site of an 

agent or broker. While several 

commenters favored the expanded 

function for agents and brokers, some 

commenters also recommended that 

HHS require compliance with industry 

and consumer protections. Several 

commenters recommended that HHS 

explicitly include consumer protections 

and prohibit agents and brokers who 

offer Internet Web sites to help 

consumers enroll in coverage through 

the Exchange from using PII, including 

gender, age, income, or other 

characteristics, for immediate or future 

marketing purposes; that the Exchange 

make consumers aware of these agents’ 

and brokers’ financial incentives; and 

that the Exchange establish a formal 

system for monitoring agents and 

brokers who offer Internet Web sites to 

help consumers enroll in Exchange 

coverage, enforcing consumer 

protections against such agents and 

brokers, and terminating relationships 

with agents and brokers that violate 

those protections. 

Response: Under § 155.220(c)(3), HHS 

has established safeguards to protect 

consumers who are using the Internet 

Web site of an agent or broker to 

complete a QHP selection for coverage 

offered, or to enroll in coverage in the 

individual market Exchanges. The same 

safeguards and requirements would also 

apply when consumers use an Internet 

Web site of an agent or broker to 

complete a QHP selection for coverage 

offered on a SHOP Exchange. 

We note that SHOP agents and 

brokers must comply with section 

1411(g) of the Affordable Care Act, 

which provides that PII may only be 

used for purposes of, and to the extent 

necessary in, ensuring the efficient 

operation of the Exchange. States that 

are approved to operate SHOP 

Exchanges must also establish privacy 

and security standards governing the 

use of PII by non-Exchange entities 

consistent with § 155.260, which also 

prohibits any use or disclosure of PII in 

violation of section 1411(g) of the 

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36 45 CFR 155.105(b)(1) provides that HHS will 

approve the operation of an Exchange established 

by the State if the State Exchange is able to carry 

out the required functions consistent with subparts 

C, D, E, F, G, H, and K of part 155. For States 

approved to operate only a SHOP Exchange, the 

Exchange must perform the minimum functions 

described in subpart H and all applicable 

provisions of other subparts referenced therein. 45 

CFR 155.705(a) includes a reference to subparts C, 

E, K, and M of part 155. The privacy and security 

requirements for Exchanges are codified in subpart 

C. As such, all Exchanges, including all SHOPs, are 

subject to the privacy and security requirements at 

45 CFR 155.260. 

Affordable Care Act.36 We further note 

that FF–SHOP agents and brokers must 

sign an agreement with the Exchange 

(FF–SHOP Agent Broker Agreement) 

that requires strict adherence to the 

Exchange’s privacy and security 

standards established pursuant to 45 

CFR 155.260. SHOP agents’ and brokers’ 

use and disclosure of PII is limited to 

the specific authorized functions 

outlined in the FF–SHOP Agent Broker 

Agreement and that Agreement also 

explicitly prohibits the use of PII for any 

purpose that is not identified as an 

authorized function. The use of PII for 

marketing purposes is not identified as 

an authorized function and is therefore 

prohibited. 

Comment: One commenter 

recommended that HHS require that 

consumers who enroll in Exchange 

coverage through the Internet Web site 

of an agent or broker complete an 

eligibility application and the 

enrollment process through the SHOP to 

assure the SHOP remains the eligibility 

and enrollment system of record. One 

commenter further recommended that 

HHS require the SHOP to transmit 

enrollment information to a QHP or 

QDP issuer to ensure an issuer can 

effectuate enrollment of qualified 

employees. Another commenter 

recommended that the proposed rule be 

expanded to explicitly require that the 

Exchange retain responsibility for 

billing and premium aggregation 

services as required in regulation. 

Response: In accordance with CMS 

regulations, the SHOP, not an agent or 

broker, will always complete eligibility 

determinations and the SHOP will 

remain the system of record for 

eligibility purposes. Additionally, in 

accordance with CMS regulations, the 

SHOP, not an agent or broker, will 

always be responsible for premium 

aggregation services as set forth in 

§ 155.705(b)(4). Under § 155.705(b)(4), 

for plan years beginning on or after 

January 1, 2015, the SHOP must be 

responsible for all premium aggregation 

services and for routing payments from 

employers to issuers. Specifically, the 

SHOP must provide each qualified 

employer with a bill on a monthly basis 

that identifies the employer 

contribution, the employee 

contribution, and the total amount that 

is due to issuers from the qualified 

employer; collect from each qualified 

employer the total amount due; make 

payments to QHP and QDP issuers in 

the SHOP for all enrollees; and maintain 

books, records, documents, and other 

evidence of accounting procedures and 

practices of the premium aggregation 

program for each benefit year for at least 

10 years. 

Comment: Several commenters 

recommended that agents and brokers 

who offer Exchange enrollment through 

an Internet Web site be required to list 

all QHP issuer offerings displayed on 

the relevant Exchange Web site and that 

the Exchange provide this information 

to the agent or broker. Some 

commenters specifically recommended 

that HHS specify that agents and brokers 

using non-Exchange Web sites must 

refrain from disclosing QHP prices and 

rates prior to the availability of such 

data on the SHOP Web site. Other 

commenters recommended that HHS 

contract with agents and brokers 

offering Exchange enrollment through 

an Internet Web site other than the 

Exchange Web site to prohibit the early 

release of data on QHP prices and data 

to ensure that QHP rates are not shared 

with competitors prior to the plan data 

being made public. 

Response: As is required at 

§ 155.220(c)(3)(iv) for agents and brokers 

assisting with enrollment in individual 

market Exchange coverage, the Internet 

Web site of the agent or broker used to 

complete the QHP selection must 

display all QHP data provided by the 

Exchange. Agents and brokers must also 

meet all standards for disclosure and 

display of QHP information contained 

in § 155.205(b)(1) and (c). As noted in 

the proposed Program Integrity Rule (78 

FR 37046), we recognize that an 

Exchange may not be able to provide to 

agents and brokers certain data elements 

necessary to meet the § 155.205(b)(1) 

requirements, such as premium and rate 

information, depending upon 

confidentiality requirements, the agent 

or broker appointment with the QHP 

issuer, and State laws regarding agent 

and broker appointments. We therefore 

provided under § 155.220(c)(3)(i) that if 

less than all QHP data required under 

§ 155.205(b)(1) is displayed on the 

agent’s or broker’s Internet Web site, the 

agent or broker must prominently 

display a standardized disclaimer 

provided by HHS stating that all 

information required under 

§ 155.205(b)(1) for the QHP is available 

on the Exchange Web site and provide 

a Web link to the Exchange Web site. In 

addition, for States in which HHS is 

operating an FFM, pursuant to 

§ 155.220(c)(3)(vii), a second disclaimer 

is required that would include the 

following notifications: (1) The Internet 

Web site of the agent or broker is not an 

FFM Web site, (2) the Internet Web site 

of the agent or broker may not contain 

all QHP data available on the FFM Web 

site, and (3) the agent or broker is 

required to comply with all applicable 

Federal laws, including the standards 

specified in paragraph (c)(3) of 

§ 155.220, and the standards established 

under 45 CFR 155.260 to protect the 

privacy and security of PII. The 

disclaimer must also contain a link to 

HealthCare.gov. The same requirements 

would apply to agents and brokers 

assisting with enrollment in SHOP 

coverage. 

Comment: One commenter 

recommended that HHS require that the 

Internet Web site of an agent or broker 

that is used to complete a QHP selection 

through the Exchange display available 

QHPs in a manner that is as consistent 

with the Exchange Web site as possible. 

Response: Under § 155.220(c)(3)(i), all 

QHP data on the Internet Web site of an 

agent or broker that is used to complete 

a QHP selection through the Exchange 

must be disclosed and displayed 

consistent with the requirements that 

apply to the Exchange Web site at 45 

CFR 155.205(b)(1) and (c). Section 

155.205(b)(1) generally requires that 

standardized comparative information 

be provided for each available QHP and 

45 CFR 155.205(c) requires that 

information be displayed in a manner 

that is accessible to persons with 

limited English proficiency and persons 

with disabilities. In addition, as noted 

above, if an agent or broker Web site 

does not display all information 

required under § 155.205(b)(1) for a 

QHP, it must include the standardized 

disclaimer established under 

§ 155.220(c)(3)(i). The same 

requirements would apply to agents and 

brokers assisting with enrollment in 

SHOP coverage. State laws and 

regulations may establish additional 

standards for this activity. 

3. Privacy and Security of Personally 

Identifiable Information 

In § 155.260(a), we proposed allowing 

the Secretary to determine that 

additional uses or disclosures of 

personally identifiable information (PII), 

which may not be directly connected to 

Exchange ‘‘minimum functions’’ as 

currently described in regulation, 

ensure the efficient operation of the 

Exchange, subject to privacy and 

security standards that Exchanges must 

establish. We proposed a process for 

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Exchanges to seek the Secretary’s 

approval of other requested uses and 

disclosures of eligibility and enrollment 

PII that would ensure the efficient 

operation of the Exchange; comply with 

other applicable law and policy; and 

require the consent of the individual 

subject of the PII prior to the requested 

use or disclosure. 

We also proposed in § 155.260(b) to 

clarify that the definition of a ‘‘nonExchange entity’’ refers to any 

individual or entity that gains access to 

PII submitted to an Exchange, or 

collects, uses, or discloses PII gathered 

directly from applicants, qualified 

individuals, or enrollees while that 

individual or entity is performing 

functions agreed to with the Exchange. 

Examples of non-Exchange entities 

include, but are not limited to, Medicaid 

and CHIP agencies; Certified 

Application Counselors; in-person 

assisters; agents and brokers, including 

Web-brokers; QHP issuers; and other 

third parties that contract with the 

Exchange or other downstream entities 

that contract with non-Exchange 

entities. 

We proposed to maintain the existing 

requirement for Exchanges to enter into 

a contract or agreement with nonExchange entities, and we specified five 

required elements to be included in 

those contracts and agreements. We 

proposed three criteria that would 

provide a foundation and flexibility for 

Exchanges to set privacy and security 

standards as a condition of contract or 

agreement with non-Exchange entities 

while also aligning closely with the 

wide variety of non-Exchange entities, 

responsibilities, functions, operational 

environments, and technical 

infrastructures. These criteria would 

provide equivalent or more stringent 

protection than the standards which the 

Exchange has established and 

implemented for itself while aligning to 

the functions and operating 

environment of the non-Exchange 

entity. 

The proposed requirement that 

standards be relevant to non-Exchange 

entities’ duties and activities in relation 

to the Exchange introduced the concept 

of ‘‘relevant and applicable’’ and 

reflected our intent to address the 

various responsibilities assumed by 

non-Exchange entities and their 

associated technical infrastructures. We 

are finalizing the provisions as 

proposed. 

Comment: Commenters generally 

expressed support for the proposed 

substantive and procedural 

requirements established in 

§ 155.260(a)(1)(iii), including a consent 

requirement, for data uses and 

disclosures not explicitly described in 

§ 155.260(a)(1)(i) or (ii). Certain 

commenters noted that data required to 

determine eligibility and premium 

subsidies is extremely sensitive, 

necessitating strong privacy and 

security safeguards. Certain commenters 

emphasized the need to minimize 

sharing of PII to the minimum necessary 

to effectuate implementation of the 

Affordable Care Act and ensure the 

efficient operation of the Exchange. 

Response: We concur with the 

commenters’ suggestion that the 

sensitive nature of PII necessitates 

robust privacy and security safeguards, 

and we reiterate that the Secretary 

would review requestors’ proposed 

privacy and security standards as part of 

the Secretary’s proposed review process 

under § 155.260(a)(1)(iii)(B)(4). The 

proposed process establishes the 

requirement for requestors to describe 

how data will be protected with privacy 

and security standards that are 

compliant with § 155.260 and to show 

that a proposed use or disclosure will 

ensure the efficient operation of the 

Exchange consistent with section 

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

If a requested use or disclosure does not 

satisfy these requirements, it would not 

be approved under the proposed 

process. We further recognize the 

imperative to maintain safeguards for 

eligibility and enrollment PII. Once the 

Secretary approves a proposed use or 

disclosure of eligibility and enrollment 

PII, the Exchange would be required to 

limit the use or disclosure of PII to the 

extent necessary to accomplish the 

proposed function, and the individual 

would need to provide consent before 

his or her eligibility and enrollment PII 

could be used or disclosed. 

Comment: Some commenters 

supported our proposal at 

§ 155.260(b)(3), which would require 

that non-Exchange entities meet privacy 

and security standards at least as 

protective as the standards the Exchange 

establishes and implements for itself. 

The commenters further recommended 

that the same standards apply to 

downstream entities to ensure PII 

continues to be protected once it 

reaches the downstream entity. One 

commenter further recommended that 

Exchanges form direct agreements with 

downstream entities rather than relying 

on non-Exchange entities to ensure their 

compliance with privacy and security 

standards. The commenter stressed that 

this is important because downstream 

entities may have different duties or 

operational and technical environments 

than the non-Exchange entities with 

which an Exchange has an agreement, 

and these differences may not be 

properly accounted for in the 

Exchange’s agreement with a nonExchange entity. 

Response: We proposed at 

§ 155.260(b)(2) to maintain the existing 

requirement for Exchanges to enter into 

a contract or agreement with nonExchange entities and we provided 

more details specifying the required 

elements of these contracts and 

agreements. We proposed in 

§ 155.260(b)(2)(iv) that such a contract 

or agreement must require any 

downstream entities that meet the 

definition established in § 155.260(b)(1) 

to comply with the same privacy and 

security standards with which the nonExchange entity agrees to comply under 

its contract or agreement with the 

Exchange. Further, we proposed in 

§ 155.260(b)(3)(iii)(A) that the privacy 

and security standards to which nonExchange entities are bound must 

consider the operational and technical 

environment in which the nonExchange entity operates, and that these 

environments be assessed in light of the 

requirement in § 155.260(a)(5) to 

monitor, periodically assess and update 

security controls and related system 

risks to ensure continued effectiveness 

of those controls. Downstream entities 

are also subject to this criterion under 

proposed § 155.260(b)(2)(iv). Our 

adoption of these requirements in the 

final rule reflects our concurrence that 

it is important that the privacy and 

security standards continue to apply to 

PII as it moves to additional 

downstream entities. 

Comment: Several commenters 

suggested that QHP issuers should not 

be considered non-Exchange entities 

under the definition proposed in 

§ 155.260(b) because issuers’ roles differ 

fundamentally from the roles and 

functions of other entities listed as nonExchange entities in the proposed 

regulation. Certain commenters 

specified, as an example, that unlike 

other entities listed as non-Exchange 

entities, QHP issuers do not participate 

in the eligibility determination process 

because it is conducted entirely through 

the Exchange. 

Response: Because the proposed 

definition of non-Exchange entities is 

broad and includes a variety of entities, 

we recognize that there can be 

considerable variation among nonExchange entities. Different nonExchange entity functions can result in 

variation in both the amount and type 

of access to PII and the technical 

characteristics of the non-Exchange 

entity’s environment. We intended to 

address the lack of a regulatory 

mechanism to take these variations into 

account, and to alleviate potential 

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operational burdens for non-Exchange 

entities. We proposed that any 

individual or entity that gains access to 

PII submitted to an Exchange or 

accesses PII directly from individuals 

should be considered a non-Exchange 

entity. This approach defines a nonExchange entity based on the entity’s 

access to PII, not based on the roles or 

functions of the entity, and QHP issuers 

would qualify as non-Exchange entities 

based on this definition. We believe this 

approach appropriately addresses the 

fact that a QHP issuer’s role may differ 

from that of other non-Exchange 

entities. 

Comment: Several commenters 

suggested that QHP issuers should not 

be subject to the proposed regulatory 

requirements at § 155.260(b)(2) because 

they already are subject to the HIPAA 

Privacy, Security and Breach 

Notification Rules at 45 CFR Parts 160 

and 164, as well as applicable State 

breach notification standards. Certain 

commenters requested that if issuers are 

classified as non-Exchange entities as 

proposed, we recognize the HIPAA 

Privacy, Security and Breach 

Notification Rules as sufficient for 

Exchange privacy and security 

standards under § 155.260(b). Certain 

commenters further explained that, 

because QHP issuers and their delegated 

and downstream entities already are 

subject to comprehensive privacy and 

security standards under HIPAA, 

requiring issuers to implement 

additional privacy and security 

standards would pose duplicative and 

potentially conflicting requirements and 

unnecessary administrative burdens. 

Certain commenters suggested that the 

proposed regulatory requirements for 

non-Exchange entities should not apply 

to QHP issuers because they already are 

subject to business associate agreement 

requirements that the proposed 

regulatory requirements would 

duplicate, imposing unnecessary 

administrative burdens on them. 

Response: In its final form, 

§ 155.260(b)(3)(i)–(iii) will allow an 

Exchange the flexibility to tailor privacy 

and security standards to particular 

types of non-Exchange entities so long 

as those standards remain strong in 

compliance with § 155.260. With 

respect to non-Exchange entities that 

currently are obligated to follow the 

HIPAA Privacy, Security and Breach 

Notification Rules, pursuant to written 

agreements required by § 155.260(b)(3), 

Exchanges will have the flexibility to 

deem non-Exchange entities in 

compliance with the specific privacy 

and security standards that the 

Exchange establishes for its nonExchange entities by virtue of their 

compliance with the HIPAA Privacy, 

Security and Breach Notification Rules 

or similar standards. This would be 

permissible so long as the Exchange 

determines that HIPAA Privacy, 

Security and Breach Notification Rules 

or similar standards are at least as 

protective as the standards the Exchange 

has established and implemented for 

itself in compliance with paragraph 

§ 155.260(a)(3), so long as those 

standards’ protections are extended to 

all PII created, collected, disclosed, 

accessed, maintained, stored, or used in 

connection with FFEs, and so long as 

the Exchange also requires nonExchange entities to comply with the 

additional limitations on use and 

disclosure of PII in section 1411(g) of 

the Affordable Care Act. It would be 

incumbent upon the Exchange to 

evaluate whether such deeming 

arrangements would satisfy all of the 

criteria established for privacy and 

security standards under proposed 

§ 155.260(b)(3). With respect to FFEs, 

pursuant to written agreements, they 

also will have the flexibility to deem 

QHP issuers, and agents and brokers 

who use QHP issuer information 

technology systems, to be in compliance 

with the specific privacy and security 

standards that the Exchange establishes 

for its non-Exchange entities by virtue of 

their compliance with the HIPAA 

Privacy, Security and Breach 

Notification Rules or similar standards, 

so long as the FFEs determine that those 

standards are at least as protective as the 

standards the FFEs have established and 

implemented for themselves in 

compliance with paragraph 

§ 155.260(a)(3), so long as those 

standards’ protections are extended to 

all PII created, collected, disclosed, 

accessed, maintained, stored, or used in 

connection with FFEs, and so long as 

the FFEs also require non-Exchange 

entities to comply with the additional 

limitations on use and disclosure of PII 

in section 1411(g) of the Affordable Care 

Act. We intend to issue guidance that 

will address in greater detail the 

applicability of the HIPAA Privacy, 

Security, and Breach Notification Rules 

and the additional limitations on use 

and disclosure of PII in section 1411(g) 

of the Affordable Care Act. 

Comment: Certain commenters more 

specifically requested that QHP issuers 

be allowed to comply with the HIPAA 

Privacy, Security and Breach 

Notification Rules to satisfy the privacy 

and security requirements of 

§ 155.260(b) because the enrollment and 

eligibility PII that QHP issuers receive 

from an Exchange does not merit a 

different level of protection than other 

non-Exchange-based enrollment 

information that QHP issuers typically 

handle. Certain commenters explained 

that QHP issuers do not participate in 

the Exchange eligibility determination 

process, and only receive the results of 

such determinations in enrollment files 

that are substantially similar to the 

enrollment data that health plans and 

issuers receive or create for nonExchange-based products that are 

subject to HIPAA Privacy and Security 

Rules and State breach notification 

standards. One commenter also noted 

that such enrollment files do not 

contain information from Federal 

agencies such as IRS and Department of 

Homeland Security. 

Response: Under the final rule, 

Exchanges will have the flexibility to 

deem non-Exchange entities in 

compliance with the specific privacy 

and security standards that the 

Exchange establishes for its nonExchange entities by virtue of their 

compliance with the HIPAA Privacy, 

Security and Breach Notification Rules 

or similar standards, so long as those 

standards are at least as protective as the 

standards the Exchange has established 

and implemented for itself in 

compliance with paragraph 

§ 155.260(a)(3), and so long as they 

incorporate the additional limitations 

on use and disclosure of PII in section 

1411(g) of the Affordable Care Act. It 

would be the responsibility of the 

Exchange to evaluate whether such 

deeming arrangements for privacy and 

security standards for non-Exchange 

entities would satisfy the criteria 

proposed in § 155.260(b)(3). 

We proposed requirements in 

§ 155.260(b)(3) that are intended to 

provide a foundation that Exchanges 

must use to define privacy and security 

standards for non-Exchange entities that 

afford a level of protection equal to that 

provided by the standards the 

Exchanges adopt for themselves. We 

proposed three criteria that would have 

to be met by the privacy and security 

standards to which an Exchange must 

bind non-Exchange entities, and we do 

require that these standards take into 

specific account the environment in 

which the non-Exchange entity 

operates. The first criterion in 

§ 155.260(b)(3)(i) requires that any 

privacy and security standards must be 

as protective as the standards the 

Exchange sets for itself, consistent with 

all the principles and requirements 

listed under § 155.260(a). The second 

criterion requires that any privacy and 

security standards must also comply 

with requirements for workforce and 

contractor compliance, written policies 

and procedures, compliance with the 

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37The MARS–E suite of documents can be found 

at the following address: http://www.cms.gov/cciio/ 

resources/regulations-and-guidance/

index.html#MinimumAcceptableRiskStandards. 

Code, and consequences of improper 

use and disclosure of information 

established by § 155.260(c), (d), (f) and 

(g). The third criterion requires that the 

privacy and security standards to which 

non-Exchange entities are bound take 

into consideration several factors, 

including the operating and technical 

environment in which the nonExchange entity operates. These 

environments and the standards 

themselves should be assessed in light 

of the requirement established at 

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

assess, and update security controls and 

related system risks to ensure the 

continued effectiveness of those 

controls. We would expect that an 

Exchange’s contracts and agreements 

with non-Exchange entities would 

include privacy and security standards 

based on these criteria, as well as a 

proposed requirement at 

§ 155.260(b)(3)(iii)(B) requiring those 

standards to be relevant and applicable 

to the non-Exchange entity’s duties and 

activities in relation to the Exchange. 

We believe these rules allow sufficient 

flexibility for Exchanges to tailor 

privacy and security standards to the 

specific information non-Exchange 

entities will handle, including that 

information typically handled by QHP 

issuers. 

Comment: Some commenters 

expressed concern that under the 

proposed regulatory language, an 

Exchange could require a QHP issuer to 

comply with CMS’s ‘‘Minimum 

Acceptable Risk Standard for Exchanges 

(MARS–E) Suite of Documents: 

Guidance on Operational, Technical, 

Administrative, and Physical 

Safeguards.’’ 37 One commenter further 

explained that because QHP issuers do 

not conduct eligibility analyses, only 

receiving eligibility results, requiring 

issuer compliance with the full suite of 

MARS–E requirements would have 

significant operational impacts and 

increase administrative costs without 

enhancing data security. 

Response: Under the final rule, where 

an Exchange determines that a nonExchange entity’s compliance with 

MARS–E requirements are necessary to 

adequately protect PII and comply with 

§ 155.260(b), it may indeed require such 

compliance under a written agreement 

with a non-Exchange entity. For 

example, FFE agreements with agents 

and brokers who will assist consumers 

with applications for determinations of 

eligibility to enroll in insurance 

affordability programs, including QHPs, 

and/or to receive advance payments of 

premium tax credit and/or cost-sharing 

reductions using the FFE Web site, 

currently require compliance with 

MARS–E requirements. All agents and 

brokers providing such assistance 

through FFEs must comply with the FFE 

privacy and security standards for nonExchange entities as a condition of their 

separate agreements with CMS. Agents 

and brokers who will use a QHP issuer’s 

computers and work space controlled by 

a QHP issuer to perform these functions, 

must ensure those computers and work 

space are compliant with privacy and 

security provisions of their agreements 

with CMS. We believe that QHP issuers 

typically have procedures already in 

place to address general computer and 

work space security. 

Comment: One commenter 

recommended that we clarify that 

limitations on use and disclosure under 

section 1411(g) of the Affordable Care 

Act apply only to PII concerning an 

‘‘applicant.’’ The commenter further 

explained that, once an individual is 

enrolled in a QHP, PII received during 

the application process should no 

longer be subject to section 1411(g), but 

instead should be subject to HIPAA 

privacy and security standards. The 

commenter also requested that if an 

applicant provides information to a 

QHP issuer, governed by section 1411(g) 

of the Affordable Care Act, and the 

applicant does not enroll in a QHP, the 

issuer should then be able to use and 

disclose the information consistent with 

HIPAA privacy and security standards 

after obtaining the applicant’s consent. 

Response: We clarify that as proposed 

in § 155.260(b)(1), any individual or 

entity that gains access to PII submitted 

to an Exchange or collects, uses or 

discloses PII gathered directly from 

applicants, qualified individuals, or 

enrollees while that individual or entity 

is performing the functions agreed to 

with the Exchange, is considered to be 

a non-Exchange entity. We proposed in 

§ 155.260(b)(2) to maintain the existing 

requirement for Exchanges to enter into 

a contract or agreement with nonExchange entities. We also state in 

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

contract or agreement, the Exchange 

must impose a requirement for 

compliance with privacy and security 

standards, and specifically list or 

incorporate by reference the privacy and 

security standards and obligations with 

which the non-Exchange entity must 

comply, including obtaining consent 

consistent with the principle provided 

under § 155.260(a)(iv). Under the Final 

Rule, Exchanges will have the flexibility 

to deem non-Exchange entities in 

compliance with the specific privacy 

and security standards that an Exchange 

establishes for its non-Exchange entities 

by virtue of their compliance with the 

HIPAA Privacy, Security and Breach 

Notification Rules or similar standards, 

so long as the Exchange determines that 

those standards are at least as protective 

as the standards the Exchange has 

established and implemented for itself 

in compliance with paragraph 

§ 155.260(a)(3), so long as those 

standards’ protections are extended to 

all PII created, collected, disclosed, 

accessed, maintained, stored, or used in 

connection with Exchange, and so long 

as the Exchange also requires nonExchange entities to comply with the 

additional limitations on use and 

disclosure of PII in section 1411(g) of 

the Affordable Care Act. 

Comment: One commenter expressed 

concern regarding the proposed 

requirement that non-Exchange entities 

inform the Exchange of any change in 

administrative, technical or operational 

environments defined as material in the 

contract. The commenter expressed 

concern that the definition of material 

changes that would trigger the reporting 

requirement could be overly broad in 

individual Exchange contracts. The 

commenter recommended that we 

clarify that the types of changes that 

would have to be reported be significant 

and have the possibility of altering the 

organization’s overall security posture. 

Response: At § 155.260(b)(2), we 

proposed to maintain the existing 

requirement for Exchanges to enter into 

a contract or agreement with nonExchange entities, and we proposed five 

required elements of these contracts and 

agreements. One of those elements, in 

§ 155.260(b)(2)(iv), would require the 

non-Exchange entity to inform the 

Exchange of any change in its 

administrative, technical or operational 

environment, as defined within the 

contract, which would require an 

alteration of the privacy and security 

standards within the contract or 

agreement to ensure those standards 

remain relevant and aligned with 

current operating environments. The 

intent of this requirement is to provide 

an opportunity for the Exchange and the 

non-Exchange entity to assess and revise 

the privacy and security standards to 

ensure their continued relevance. 

4. Annual Open Enrollment Period for 

2015 

In § 155.410, as finalized in the 

Exchange Establishment Rule, we set 

forth provisions for initial and annual 

open enrollment periods. We proposed 

amending § 155.410(e) and (f), which 

pertain to the annual open enrollment 

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Federal Register / Vol. 79, No. 47 / Tuesday, March 11, 2014 / Rules and Regulations 13797 

38We note that the proposed rule contained a 

typographical error that referred to December 16, 

2015, instead of the clearly intended December 16, 

2014. This final rule finalizes the provision with the 

corrected date. 

period and effective date for coverage 

after the annual open enrollment period. 

These amendments apply to nongrandfathered policies offered through 

and outside the Exchange. 

In paragraph (e), we proposed adding 

a paragraph that would change the 

annual open enrollment period for the 

2015 benefit year. We proposed that for 

all Exchanges, annual open enrollment 

would begin on November 15, 2014 and 

extend through January 15, 2015. This 

would give health insurance issuers an 

additional month in 2014 before they 

would need to begin accepting plan 

selections for the upcoming plan year 

and staggers the start of open enrollment 

for the Exchange from that for Medicare 

Advantage. It would give consumers the 

ability to have coverage starting January 

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

January 15, 2015 to shop for, and select 

a QHP for the 2015 plan year. We also 

noted that if finalized, all Exchanges 

would be expected to delay their QHP 

certification dates by at least one month. 

This would give health insurance 

issuers additional time to monitor 2014 

enrollments, prior to submitting their 

2015 rates. We proposed to retain the 

October 15th to December 7th open 

enrollment period for subsequent 

benefit years. 

In paragraph (f), we proposed adding 

a paragraph to address coverage 

effective dates for plan selections made 

during the annual open enrollment 

period for the 2015 benefit year. We 

proposed that coverage must be effective 

January 1, 2015, for plan selections 

received by the Exchange on or before 

December 15, 2014. We proposed that 

coverage must be effective February 1, 

2015, for plan selections received by the 

Exchange from December 16, 2014 38

through January 15, 2015. In accordance 

with § 155.335(j), qualified individuals 

already enrolled in a QHP through the 

Exchange in 2014 who remain eligible 

for enrollment in a QHP would have 

their coverage continue into 2015, but 

they would have the ability to change 

QHPs until January 15, 2015. We also 

sought comment on whether there 

should be retrospective coverage to 

January 1, 2015, for any individual who 

signs up after December 15, 2014 in the 

open enrollment period to ensure 

continuity of coverage. We also 

proposed January 1st coverage effective 

dates for open enrollment for benefit 

years beginning on or after January 1, 

2016. 

We are finalizing the regulation with 

an open enrollment end date of 

February 15, 2015 instead of January 15, 

2015, for the benefit year beginning 

January 1, 2015, and we are adding 

coverage effective dates for enrollments 

during the period between January 16– 

February 15, 2015. We are not finalizing 

in this rule, the open enrollment period 

or effective dates for the benefit years 

beginning on or after January 1, 2016. 

Finally, for consistency within this 

section, we are changing the reference to 

‘‘plans’’ in subparagraph (f)(1) to 

‘‘QHPs.’’ 

Comment: Many commenters 

supported the proposed open 

enrollment period dates and 

corresponding coverage effective dates. 

Some commenters proposed alternate 

open enrollment period date ranges for 

both the benefit year beginning on 

January 1, 2015, and for years beyond 

2015. Other commenters opposed the 

proposed amendments to the rule. 

Issuers discouraged retroactive effective 

dates, in response to a solicitation for 

comments regarding retroactive effective 

dates. 

Response: In response to comments 

recommending different ranges for the 

annual open enrollment period, we are 

finalizing this amendment so that open 

enrollment for the benefit year 

beginning January 1, 2015 begins 

November 15, 2014, and ends February 

15, 2015. We are also adding a provision 

providing for the standard coverage 

effective date of March 1, 2015 for 

enrollments taking place between 

January 16 and 31, 2015. We believe 

that the additional time before open 

enrollment will enable the collection of 

additional rating experience that could 

have a positive benefit on reducing 2015 

rates for consumers. We further believe 

that extending the open enrollment 

period to February 15, 2015 instead of 

January 15, 2015 is beneficial for 

consumers because it provides 

additional time to select a plan. We are 

not adding any requirements for 

retroactive coverage in connection with 

this annual open enrollment period. 

Because some commenters proposed 

alternate open enrollment period date 

ranges for benefit years beyond the one 

year beginning on January 1, 2015, we 

intend to propose open enrollment dates 

for the 2016 plan year in the 2016 draft 

Payment Notice. Finalizing open 

enrollment dates for the 2016 plan year 

in the 2016 Payment Notice will allow 

an additional year’s experiences to 

inform the finalization of realistic 

enrollment dates. 

We note that non-grandfathered 

individual coverage sold on a date other 

than January 1st of the calendar year 

would still be required to have the plan 

or policy year end on December 31, 

2015 to comply with the requirement to 

be offered on a calendar policy year 

under 45 CFR 144.103 and 

147.104(b)(2). We also note that this 

amendment to the open enrollment 

period applies to the individual health 

insurance market, both for plans offered 

through and outside the Exchanges, by 

virtue of the cross-reference at 45 CFR 

147.104(b)(1)(ii), through which the 

dates of the individual market Exchange 

open enrollment period also apply to 

the individual market generally. 

5. Functions of a SHOP 

We proposed amending 

§ 155.705(b)(1), which lists the rules 

regarding eligibility and enrollment to 

which SHOPs must adhere, to include 

mention of provisions regarding 

termination of coverage in the SHOPs 

and SHOP employer and employee 

eligibility appeals that were finalized in 

the first final Program Integrity Rule. We 

are finalizing this amendment with a 

minor change to replace the list of 

provisions in the current and proposed 

versions of the rule with a more general 

reference to subpart H. The change from 

the proposed rule text will help HHS 

keep the provision up to date. 

We also proposed adding a new 

paragraph § 155.705(b)(3) to provide 

qualified employers with options to 

offer dental coverage after employee 

choice becomes available in the FF– 

SHOPs. We proposed that for plan years 

beginning on or after January 1, 2015, a 

FF–SHOP would have two methods by 

which to offer stand-alone dental plans 

(SADPs) to its employees and their 

dependents—either a single SADP or a 

choice of all SADPs available in an FF– 

SHOP after employee choice becomes 

available in the FF–SHOPs. We also 

noted in the preamble to the proposed 

2015 Payment Notice that we were 

considering allowing qualified 

employers to offer all SADPs at a given 

dental AV level option, if the SADP AV 

level requirements were not eliminated 

in this rulemaking, and sought 

comments on this approach. Because we 

are now not finalizing the elimination of 

the SADP AV requirements, we are 

finalizing the policy to reflect this 

contemplated approach, giving 

employers the option of offering 

employees either a single qualified 

dental plan, or all dental plans at a 

single dental actuarial value level. 

We proposed to re-designate 

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

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

SHOPs to establish one or more 

standard processes for premium 

calculation, payment, and collection 

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39See Rates Changes for Small Group Market 

Plans and System Processing of Rates (April 8, 

2013). 

after the SHOP makes premium 

aggregation available. We also proposed 

provisions related to the processes FF– 

SHOPs would establish for premium 

calculation, payment, and collection 

under proposed § 155.705(b)(4)(ii). 

Consistent with § 155.720(b), which 

establishes that all SHOPs must 

establish a uniform enrollment timeline 

and process, including a specified list of 

activities such as establishment of 

effective dates of employee coverage, for 

all QHP issuers and qualified employers 

to follow, and consistent with 

§ 155.720(d), which establishes that all 

SHOPs must follow the requirements set 

forth at § 155.705(b)(4), we proposed at 

§ 155.705(b)(4)(ii)(A) that, after 

premium aggregation becomes available 

in the FF–SHOPs, employers in the FF– 

SHOPs would be required to make all 

premium payments—initial and 

subsequent—according to a timeline 

and process that HHS will establish 

through guidance. We anticipate that 

this payment timeline would require 

employers to make a full initial 

premium payment at least 2 days prior 

to the employer’s desired coverage 

effectuation date, or perhaps longer, in 

order to provide a reasonable window of 

time for the relevant banks to process 

the payment transaction. 

We solicited comments about whether 

this time frame would be reasonable for 

employers or issuers, about alternative 

time frames that might be more 

appropriate, and about the payment 

timeline and process for the FF–SHOPs 

generally, including the consideration 

that HHS should factor into the 

development of the payment timeline 

and process. In developing the premium 

payment timeline and process, HHS will 

consider its interest in operating and 

administering the FF–SHOPs efficiently, 

as well as issuers’ interests in ensuring 

timely payment of premiums, and 

issuers’ and employers’ interests in 

establishing a fair and workable 

premium payment process. Section 

155.735(c) and the Draft 2015 Letter to 

Issuers in the Federally-facilitated 

Marketplaces published on February 4, 

2014 contain additional information 

about the payment timeline and process 

for payments subsequent to the initial 

premium payment. Finally, as discussed 

below in the preamble to § 156.285, we 

also proposed a conforming amendment 

to § 156.285(c)(7)(iii) to establish that an 

FF–SHOP issuer would be required to 

effectuate coverage unless it has 

received an enrollment cancellation 

from the FF–SHOP. We are finalizing 

these provisions as proposed. 

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

a methodology for prorating premiums 

in FF–SHOPs after premium aggregation 

becomes available in those SHOPs in 

plan years beginning on or after January 

1, 2015. We proposed that groups will 

be charged for the portion of the month 

for which the enrollee is enrolled. In the 

FF–SHOPs, premiums for coverage of 

less than 1 month will be prorated by 

multiplying the number of days of 

coverage in the partial month by the 

premium for 1 month divided by the 

number or days in the month. Issuers 

will charge and the FF–SHOP will 

collect for only the portion of coverage 

provided for the partial month. We also 

solicited comments about whether a 

standardized methodology regarding 

prorating premiums for partial month 

enrollment should be adopted across all 

individual market Exchanges. We are 

finalizing this provision as proposed, 

without adopting a standardized 

methodology across all individual 

market Exchanges. 

We are finalizing in this rule 

amendments to § 155.705(b)(6) that were 

proposed in the ‘‘Program Integrity 

Rule’’ published in the June 19, 2013 

Federal Register (78 FR 37032) on pages 

37051–37052 and 37084. These 

amendments were proposed in 

conjunction with the issuer standards 

regarding the frequency of indexed rate 

updates that were codified at 45 CFR 

156.80, and make explicit that this 

market-wide policy also applies to 

SHOPs. Because § 156.80 sets a market 

standard for mid-year rate updates of no 

sooner than quarterly, this provision is 

already in effect small-group-marketwide, including in all SHOPs. 

Specifically, we proposed to amend 

paragraph (b)(6)(i) to provide that 

SHOPs must require QHP issuers to 

make changes to rates at a uniform time 

that is no more frequently than 

quarterly. We also proposed at 

paragraph (b)(6)(ii) to provide issuers 

participating in the FF–SHOPs with the 

maximum amount of flexibility 

permitted under § 156.80 and the 

proposed amendment to 

§ 155.705(b)(6)(i), standardize the 

effective dates for rate updates in the 

FF–SHOPs, and provide that FF–SHOP 

issuers must submit rates to HHS 60 

days in advance of the effective date. 

Consistent with technical guidance 

provided to issuers through the Health 

Insurance Oversight System on April 8, 

2013, issuers will be able to submit 

updated quarterly rates for the FF– 

SHOPs no sooner than for the third 

quarter of 2014, due to current system 

limitations.39 Comments related to this 

provision were addressed when the 

single risk pool provision was finalized 

on October 30, 2013 in the Program 

Integrity final rule. We are finalizing as 

proposed the amendment to 

§ 155.705(b)(6)(i), but are finalizing the 

language proposed at § 155.705(b)(6)(ii) 

at § 155.705(b)(6)(i)(A) instead of at 

(b)(6)(ii), to make clear that we never 

intended for this proposal to supersede 

the language at current 

§ 155.705(b)(6)(ii). We are also making a 

minor change in the language finalized 

at § 155.705(b)(6)(i)(A) to replace the 

word FF–SHOP with the term 

‘‘Federally-facilitated SHOP.’’ 

We proposed at § 155.705(b)(11)(ii)(C) 

to provide FF–SHOPs, in plan years 

beginning on or after January 1, 2015, 

with the option of permitting a qualified 

employer to define a percentage 

contribution for full-time employees (as 

defined in § 155.20 and section 

4980H(c)(4) of the Code) that differs 

from the percentage contribution the 

qualified employer defines for 

employees that are not full-time 

employees under that definition, to the 

extent permitted by applicable law. This 

proposal would also allow an FF–SHOP 

to permit an employer to define 

different percentage contributions 

toward premiums for dependent 

coverage for full-time and non-full-time 

employees. The FF–SHOPs would be 

allowed to define up to four different 

contribution levels: full-time employeeonly, full-time employee dependent, 

non-full-time employee-only and nonfull-time employee dependent. We are 

finalizing the substance of this 

provision as proposed, but we anticipate 

that the functionality to implement 

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

and their dependents will not be 

available in the FF–SHOPs until 

sometime after January 1, 2015. We will 

provide adequate notice to issuers and 

employers before this functionality 

becomes available. 

We also proposed a prohibition on 

composite premiums in the FF–SHOPs 

for plan years beginning on or after 

January 1, 2015, when a qualified 

employer elects to offer employee 

choice—that is, when the qualified 

employer offers its qualified employees 

all QHPs within the employer’s selected 

level of coverage under 

§ 155.705(b)(3)(iv)(A). To accomplish 

this objective, we proposed 

amendments to §§ 155.705(b)(11)(ii)(D) 

and 156.285(a)(4). While we are 

finalizing the proposed amendments to 

§ 156.285(a)(4), as discussed below, we 

are not finalizing the proposed 

amendments to § 155.705(b)(11)(ii)(D), 

because those amendments would not 

carry out the intended policy, but would 

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instead limit employers’ ability to 

establish a fixed contribution to 

employee coverage, which was not an 

intended outcome of the proposals. We 

clarify that we have always interpreted 

§ 155.705(b)(11)(ii)(D) to provide that, in 

an FF–SHOP, a State or employer may 

require that employer contributions be 

based on a calculated composite 

premium, which is, in effect, a 

composite premium calculated for the 

sole purpose of establishing a fixed 

dollar amount employer contribution to 

employee coverage, and is not a 

composite premium offered to the group 

plan by the issuer. When employer 

contributions are based on a calculated 

composite premium, this has the effect 

of equalizing employer contributions for 

a given plan such that the employer’s 

contribution toward each enrollee’s 

premium does not vary by the enrollee’s 

age, but is instead a fixed dollar amount. 

In other words, the calculated 

composite premium described in 

§ 155.705(b)(11)(ii)(D) is a separate 

concept from the composite premium 

addressed in § 147.102 and in our 

proposed amendments to 

§ 156.285(a)(4). Accordingly, the fact 

that the FF–SHOPs will permit 

employers to use a calculated composite 

premium to determine employer 

contributions does not require issuers 

that are not otherwise required to offer 

composite premium rates to do so. 

Employers may also opt to set their 

contributions as a percentage of permember premiums under a calculated 

composite premium approach or under 

a per-member premium approach. For 

these reasons, no modification to 

§ 155.705(b)(11)(ii)(D) is necessary to 

carry out our intended policy on 

composite premiums in the FF–SHOPs. 

We are addressing comments on the 

proposed policy below, in the preamble 

section discussion related to final 

§ 156.285(a)(4). 

We also asked for comments on 

whether the calculation of user fees for 

the FF–SHOPs should be calculated 

based upon composite premiums or 

premiums calculated on per-member 

buildup. The methodology to calculate 

user fees for the FF–SHOPs will depend 

on how the group calculates a group’s 

monthly premium. If a group uses a 

composite premium, the user fee will be 

based on this methodology. Similarly, if 

a group uses a per-member buildup 

approach, the user fee will reflect this 

methodology. 

Comment: We received varying 

comments on our proposal to allow 

employers the ability to offer employees 

a choice of all SADPs available in an 

FF–SHOP. Several commenters 

supported our proposal of offering full 

choice among all of the SADPs available 

in an FF–SHOP, and stated that the 

proposal would allow employees to 

choose a dental benefit that works best 

for their family and will lead to an 

increase in choice and competition in 

the small group market. Commenters 

supportive of the proposal also stated 

that allowing employers the flexibility 

to select whether to make available a 

single SADP or to make available all 

SADPs will encourage employer 

participation in the Exchanges. 

However, some commenters were 

opposed to allowing employee choice of 

SADPs, specifically requesting that this 

feature should be revisited in future 

plan years. Commenters opposed to the 

proposal stated that this additional 

choice will provide an additional layer 

of complexity for both the FF–SHOP 

Web site and administrative 

functionality. Some commenters said 

that it will also increase the risk of 

adverse selection, negatively affect 

competition, and increase prices for 

consumers. 

Response: Allowing an employer 

flexibility to provide its employees and 

their dependents with a range of standalone dental coverage options advances 

our goal of increased choice and 

competition in FF–SHOPs. Allowing the 

option for qualified employers to offer 

all SADPs at a given dental AV level 

option (high and low) is similar to 

employee choice of QHPs in SHOPs, 

because under employee choice, an 

employer selects an actuarial value level 

(or ‘‘metal tier’’) of coverage and 

employees may select any QHP within 

that actuarial value level. Accordingly, 

as discussed in the preamble to the 

proposed rule, we considered whether 

to give employers the option of offering 

one SADP or all SADPs at one of the 

actuarial value levels set forth at 

§ 156.150, but we did not ultimately 

propose regulation text reflecting that 

approach. Instead, we proposed 

providing employers with the option of 

offering all SADPs in an FF–SHOP, 

because another proposed amendment 

in this rulemaking would have done 

away with the actuarial value levels for 

SADPs set forth at § 156.150. Because 

that proposed amendment to § 156.150 

will not be finalized, we can now 

amend our proposed regulation text to 

implement this alternative option. This 

modification would also address some 

commenters’ concerns about too much 

risk when all SADPs are made available 

to employees in FF–SHOPs. 

Comment: We received some 

comments stating that issuers should be 

allowed to price for the employer choice 

and employee choice for SADPs 

separately; that is, that issuers should be 

permitted to charge a different premium 

to the employer based on whether the 

SADP is the only one offered or on 

whether the SADP is one among many 

plans being offered. Commenters stated 

that not allowing issuers to price 

separately for employer choice and 

employee choice will adversely affect 

competition and increase prices for 

consumers. 

Response: 45 CFR 156.255(b) requires 

that, in order for a plan to be certified 

as a QHP, the plan’s issuer ‘‘must charge 

the same premium rate without regard 

to whether the plan is offered through 

an Exchange . . . .’’ This requirement 

applies to SADP QHPs under 

§ 155.1065(a)(3). If a SADP QHP is 

priced differently based on whether it is 

being offered as the only SADP QHP or 

as one of several SADP QHPs under 

employee choice that would mean that 

the SADP QHP would have two 

different premium rates when offered 

through the Exchange. This necessarily 

means that one of these premium rates 

would be different from the premium 

rate of the same SADP QHP offered 

outside the Exchange, resulting in a 

different premium rate specifically with 

regard to whether the plan is offered 

through an Exchange. Therefore, the 

same SADP QHP cannot be offered at 

two different premium rates through the 

Exchange and continue to meet the 

certification requirement at § 156.255(b). 

Accordingly, we are not modifying the 

rule in response to this comment. 

Comment: We received some 

suggestions that HHS require group 

minimum participation rates for SADPs. 

Response: HHS interprets 

§ 155.705(b)(10)(i) and (ii), the 

minimum participation requirement in 

the FF–SHOPs, to apply only to 

comprehensive medical QHPs offered 

through the FF–SHOPs. HHS did not 

intend for the FF–SHOP minimum 

participation requirements to apply to 

stand-alone dental coverage. Many of 

the adverse risk selection concerns that 

exist for medical plans do not apply to 

SADPs because SADPs, which are 

typically excepted benefits, are not 

subject to many of the market reforms 

applicable to other QHPs, and can 

therefore address adverse selection with 

more flexibility, through different 

premium rating and benefit design 

methodologies. 

Comment: Some commenters 

supported our proposal to provide 

options for dental coverage in the FF– 

SHOPs. However, they believe that an 

additional option should be taken into 

consideration which includes allowing 

employers to offer all SADPs but at a 

given AV level. 

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13800 Federal Register / Vol. 79, No. 47 / Tuesday, March 11, 2014 / Rules and Regulations 

40Minimum Value of Eligible EmployerSponsored Plans and Other Rules Regarding the 

Health Insurance Premium Tax Credit Proposed 

Rule published in the May 3, 2013 Federal Register 

(78 FR 25915). 

Response: Because we are not 

removing the AV standards for SADPs 

as was initially proposed in this 

rulemaking, we are modifying our 

proposal to allow employers the option 

to offer either a single QDP, or all dental 

plans at a single dental actuarial value 

level of coverage. 

Comment: Several commenters 

support allowing a SHOP to establish 

standard processes for premium 

calculation, premium payment, and 

premium collection. Further, several 

commenters believe it should be a 

requirement of all SHOP Exchanges 

both FF–SHOPs and State-based SHOPs. 

Some commenters also stated that the 

SHOP should involve issuers in the 

development of the process and that 

HHS should release a proposed version 

that is open for comment before it is 

finalized. Commenters further stated 

that HHS should build on existing 

industry models. One commenter also 

suggested ensuring that timelines are 

feasible such that employers and 

employees are not told that coverage 

will be effectuated on a given date, only 

to find that processes broke down and 

coverage was not effectuated due to 

insufficient processing time. 

Response: HHS will provide a 

premium payment process that is 

efficient and workable and may, in the 

future, establish through rulemaking a 

standard process for all SHOP 

Exchanges. We will continue to work 

with issuers and other stakeholders to 

further refine the timeline and process 

for premium payments. 

Comment: We received several 

comments on standardizing the prorating methodology in FF–SHOPs. Many 

commenters recognize the need to 

standardize pro-ration of premiums in 

an employee choice environment when 

the FF–SHOP is responsible for billing 

and payment remittance to multiple 

issuers for a single group and several 

commenters supported our proposed 

methodology of pro-rating premiums. 

One commenter specifically stated that 

this policy should only be used for 

initial enrollment due to birth or 

adoption and termination and not 

applied on an ongoing basis. However, 

some commenters opposed our proposal 

and suggested we adopt current 

industry practice of using a mid-month 

‘‘wash’’ approach where we would 

charge for the entire month when the 

coverage effective date is before the 15th 

of the month and do not charge for an 

employee or dependent plan taking 

effect after the 15th of the month. 

Response: FF–SHOPs will be 

responsible for collecting all premiums 

from participating qualified employers 

starting in 2015. It is impractical for the 

FF–SHOPs to accommodate the existing 

variation in pro-rated premium 

methodologies that exist across States 

and issuers. We believe our approach is 

fair for all issuers as they will receive 

the amount owed them based on the 

number of days an enrollee is covered. 

We are finalizing the proposed 

provision with no changes such that 

groups would be charged for the portion 

of the month for which the subscriber is 

enrolled. 

Comment: One commenter supported 

the approach to adopt a standardized 

methodology regarding prorating 

premiums for partial month enrollment 

across all individual market Exchanges 

and several commenters expressed 

concern or sought clarification about 

such an approach. One commenter 

believed that setting a standardized 

methodology was unnecessary because 

individual market Exchanges do not 

perform premium aggregation. Another 

commenter opposed the approach, 

noting that the commenter believed that 

it would create gaps in coverage, 

disruption in other standard enrollment 

and billing processes designed to 

operate on a monthly basis, and not 

align with the U.S. Department of the 

Treasury regulation concerning the 

treatment of partial month enrollment 

for the purpose of minimum essential 

coverage. 

Response: In future rulemaking, we 

intend to propose that an individual 

market Exchange may establish one or 

more standard processes for premium 

calculation, and that the FFE will 

establish one consistent with the 

methodology finalized at 

§ 155.705(b)(4)(ii)(B) of this final rule for 

the FF–SHOPs. By taking this approach, 

we would eliminate issues where 

consumers who transition to Medicaid 

are charged premiums for days on 

which they are enrolled in Medicaid, 

which is effective no earlier than the 

date of application. It would also be 

consistent with proposed 26 CFR 1.36B– 

3(d)(2) 40 which specifies that when 

coverage is terminated before the last 

day of the month, and the issuer reduces 

or refunds a portion of the monthly 

premium, the premium tax credit is 

adjusted using the same methodology 

described in this final rule for the FF– 

SHOPs. 

Comment: We received several 

comments on our proposal to give the 

FF–SHOPs the authority to permit 

qualified employers to contribute 

differently to the premiums of full-time 

and part-time employees. Some 

commenters supported our proposal 

though suggested we let employers 

determine how many hours constitute a 

full-time employee. Some commenters 

opposed our proposal because it would 

be too complicated to implement. They 

suggested that the FF–SHOP ask an 

employer to calculate the percentage or 

dollar amount of contributions instead 

of defining a standard contribution 

level. Other commenters suggested we 

delay implementing this SHOP feature 

until after the online portal and 

premium aggregation services are fully 

functional. One commenter specifically 

recommends HHS work with issuers 

and the premium aggregator to ensure 

that the FF–SHOP is fully capable of 

supporting this function. 

Response: To ensure we have fully 

tested this contribution methodology, 

while we are finalizing the proposed 

provision giving the FF–SHOPs the 

option to permit qualified employers to 

contribute differently in the premiums 

of full-time and part-time employees, 

we will not be offering employers this 

option until sometime after January 1, 

2015. We will provide issuers and 

employers adequate notice before this 

option becomes available. We further 

note that it would not be consistent with 

the definition of a ‘‘full-time employee’’ 

at 45 CFR 155.20 for the FF–SHOPs to 

permit employers to determine how 

many hours constitute a full-time 

employee. 

Comment: Some commenters 

expressed their preference that FF– 

SHOP user fees should be based on permember buildup—even when 

employers offering a single plan are 

charged composite premiums pursuant 

to § 147.102. 

Response: The FFE user fee is 

calculated by multiplying the user fee 

rate by the premium charged by the 

issuer for each policy under the plan 

where enrollment is through a FFE. For 

issuers participating in an FF–SHOP, 

the user fee rate is multiplied by the 

premium calculated under the 

methodology used to calculate a group’s 

monthly premium. For example, if a 

group is using a composite premium, 

the user fee will be based on the 

composite premium. If a group uses a 

per-member buildup approach, the user 

fee will reflect this methodology. 

6. Eligibility Determination Process for 

SHOP 

We proposed to amend paragraph 

§ 155.715(c)(4) to replace a reference to 

sections 1411(b)(2) and (c) of the 

Affordable Care Act with a reference to 

Subpart D of 45 CFR part 155, and to 

add a reference to eligibility 

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41See http://www.cms.gov/Research-StatisticsData-and-Systems/Statistics-Trends-and-Reports/

NationalHealthExpendData/Downloads/

Continued 

verifications as well as to eligibility 

determinations. The proposed changes 

would make explicit our interpretation 

of our current regulations, under which 

a SHOP is prohibited from performing 

any individual market eligibility 

determinations or verifications as 

described in Subpart D, which, for 

example, includes making eligibility 

determinations for advance payments of 

the premium tax credit and cost sharing 

reductions in the individual market 

Exchange. We are finalizing this 

provision as proposed. 

We also proposed amending 

§ 155.715(d) to address when SHOP 

eligibility adjustment periods would be 

triggered. We proposed providing 

eligibility adjustment periods for both 

employers and employees only when 

there is an inconsistency between 

information provided by an applicant 

and information collected through 

optional verification methods under 

§ 155.715(c)(2). The proposal would 

eliminate the potential for unnecessary 

delay created under the current 

regulation, while providing SHOP 

applicants with an opportunity to 

address inconsistencies between a 

submitted application and trusted thirdparty data sources that a SHOP might 

utilize to verify eligibility under the 

optional verification process established 

in § 155.715(c)(2). The applicability of 

SHOP eligibility adjustment periods 

would be limited to circumstances 

where such a discrepancy occurs, and 

the applicant would be provided an 

opportunity to submit documentation 

proving the information submitted on 

the application is correct without 

having to initiate a formal eligibility 

appeal. We also proposed to amend 

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

for eligibility adjustment periods when 

information submitted on an application 

is inconsistent with information 

collected through an optional 

verification process under 

§ 155.715(c)(2). 

We are finalizing the provisions as 

proposed 

Comment: One commenter asked for 

clarity on how the inconsistency 

process would work to ensure that 

eligibility and payment systems are in 

sync. Issuers and aggregators will need 

to know immediately when an 

inconsistency results in a group no 

longer being eligible for coverage so that 

they will not continue to provide 

coverage and so they don’t continue to 

collect premiums. 

Response: Enrollment for a group 

might not begin until any discrepancies 

being reviewed through the eligibility 

adjustment process for the employer are 

resolved, but if it does, there is no 

reason why the issuer must terminate 

enrollment for the group if the employer 

is not determined eligible. Under 

guaranteed availability, the issuer 

generally must make the plan available 

both inside and outside the SHOP. If the 

employer is determined ineligible, an 

issuer may generally continue to offer 

coverage to a group, and the SHOP will 

work with the issuer to resolve any 

concerns related to premium payments 

that the employer had made to the 

SHOP. 

7. Application Standards for SHOP 

We proposed to amend § 155.730 to 

make explicit our interpretation of our 

current regulations, under which SHOPs 

are prohibited from collecting any 

information on SHOP applications other 

than what is required to make SHOP 

eligibility determinations or effectuate 

enrollment through the SHOP. We 

proposed to re-designate paragraph 

§ 155.730(g) as paragraph (g)(1) and add 

new paragraph (g)(2) to provide that a 

SHOP is not permitted to collect 

information on the single employer or 

single employee application that is not 

necessary to determine SHOP eligibility 

or effectuate enrollment through the 

SHOP. We did not receive any 

comments on this proposal and we are 

finalizing the provisions as proposed. 

E. Part 156—Health Insurance Issuer 

Standards Under the Affordable Care 

Act, Including Standards Related to 

Exchanges 

1. Provisions Related to Cost Sharing 

In the proposed rule, we proposed 

several provisions and parameters for 

the 2015 benefit year related to cost 

sharing, including a number of 

provisions relating to indexing of 

premium growth. For the reasons 

described in the proposed rule and 

considering the comments received, we 

are generally finalizing these provisions 

as proposed, with a few modifications. 

However, we note that with respect to 

our methodology for indexing premium 

growth, we will continue to analyze 

additional methodologies in upcoming 

years, especially as additional data 

become available, and may modify these 

provisions if appropriate. 

a. Premium Adjustment Percentage 

Section 1302(c)(4) of the Affordable 

Care Act directs the Secretary to 

determine an annual premium 

adjustment percentage, which is used to 

set the rate of increase for four 

parameters detailed in the Affordable 

Care Act: the maximum annual 

limitation on cost sharing (defined at 

§ 156.130(a)), the maximum annual 

limitation on deductibles for plans in 

the small group market (defined at 

§ 156.130(b)), and the assessable 

payment amounts under section 

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

at 26 CFR 54.4980H in the ‘‘Shared 

Responsibility for Employers Regarding 

Health Coverage,’’ published in the 

February 12, 2014 Federal Register (79 

FR 8544)). Section 156.130(e) of 45 CFR 

provides that the premium adjustment 

percentage is the percentage (if any) by 

which the average per capita premium 

for health insurance coverage for the 

preceding calendar year exceeds such 

average per capita premium for health 

insurance for 2013, and that this 

percentage will be published annually 

in the HHS notice of benefit and 

payment parameters. 

We proposed to establish a 

methodology for estimating average per 

capita premium for purposes of 

calculating the premium adjustment 

percentage. In selecting this 

methodology, we considered the 

following four criteria: 

(1) Comprehensiveness—the premium 

adjustment percentage should be 

calculated based on the average per 

capita premium for health insurance 

coverage for the entire market, including 

the individual and group markets, and 

both fully insured and self-insured 

group health plans; 

(2) Availability—the data underlying 

the calculation should be available by 

the summer of the year that is prior to 

the calendar year so that the premium 

adjustment percentage can be published 

in the annual HHS notice of benefit and 

payment parameters in time for issuers 

to develop their plan designs; 

(3) Transparency—the methodology 

for estimating the average premium 

should be easily understandable and 

predictable; and 

(4) Accuracy—the methodology 

should have a record of accurately 

estimating average premiums. 

Based on these criteria, we proposed 

that the premium adjustment percentage 

be calculated based on the projections of 

average per enrollee private health 

insurance premiums from the National 

Health Expenditure Accounts (NHEA), 

which is estimated by the CMS Office of 

the Actuary. To calculate the premium 

adjustment percentage for the 2015 

calendar year, we proposed to use the 

most recent NHEA projections of 

average per enrollee private health 

insurance premiums for 2013 and 2014 

($5,128 and $5,435, respectively).41

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13802 Federal Register / Vol. 79, No. 47 / Tuesday, March 11, 2014 / Rules and Regulations 

ProjectionsMethodology2012.pdf and Table 17 in 

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

NationalHealthExpendData/Downloads/

Proj2012.pdf for additional information. 

42See http://www.cms.gov/Research-StatisticsData-and-Systems/Statistics-Trends-and-Reports/

NationalHealthExpendData/Downloads/

ProjectionsMethodology2012.pdf and Table 17 in 

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

NationalHealthExpendData/Downloads/

Proj2012.pdf for additional information. 

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

25.pdf. 

Under that methodology, the premium 

adjustment percentage for 2015 would 

be (5,435–5,128)/5,128, or 6.0 percent. 

We also considered several other 

sources of premium data, and sought 

comment on additional sources of data 

we should consider, and our choice of 

methodology. Several commenters 

suggested that, at least in the initial 

years, NHEA projections of per enrollee 

private health insurance premiums may 

not be the most appropriate source of 

data for calculating premium growth 

because it is influenced by changes in 

benefit design and market composition. 

One commenter, who supported the use 

of NHEA data generally, suggested that 

premium growth from 2013 to 2014 

would be unreliable because those data 

will reflect issuer uncertainty about the 

costs of covering a previously uninsured 

population, and that true premium 

growth, reflecting any rebates required 

to be paid after the end of the year, 

could be lower. Another commenter, 

who supported using different NHEA 

data, suggested using an index tied to 

projected medical costs. 

In response to these comments, we 

will calculate the premium adjustment 

percentage using different NHEA data— 

the NHEA projections of per enrollee 

employer-sponsored insurance (ESI) 

premiums. This data overlaps very 

significantly with the private health 

insurance data—according to the CMS 

Office of the Actuary, approximately 88 

percent of enrollees in 2014 will be 

covered by employer-sponsored 

insurance. However, because it will 

exclude premiums from the individual 

market, which is likely to be most 

affected by the significant changes in 

benefit design and market composition 

in the early years of implementation of 

market reforms and is most likely to be 

subject to risk premium pricing (which, 

as the commenter noted, may be paid 

back to consumers after the end of the 

year in the form of rebates), we believe 

it will provide a more appropriate 

measure of average per capita premiums 

for health insurance coverage for the 

initial years. And because the data are 

also from the well-known NHEA, we 

believe it continues to meet our 

selection criteria. 

Using the ESI data and our proposed 

methodology, the premium adjustment 

percentage for 2015 is the percentage (if 

any) by which the most recent NHEA 

projection of per enrollee ESI premiums 

for 2014 ($5,664) exceeds the most 

recent NHEA projection of per enrollee 

ESI premiums for 2013 ($5,435), or 

4.213431463 percent.42 We note that as 

updated 2013 NHEA data become 

available, we may update the 2013 

estimate for purposes of calculating the 

premium adjustment percentage for 

years after 2015. 

We further note that after the initial 

years of implementation of market 

reforms, once the premium trend is 

more stable, we may propose to change 

our methodology. For example we may 

consider changing our methodology to 

reflect the broader NHEA per enrollee 

private health insurance premium data. 

Additionally, as new data on health 

insurance premiums become available 

through the Exchanges and other 

sources, we intend to review the 

methodology for calculating the 

premium adjustment percentage. We 

also intend to establish consistent 

methodologies for indexing Affordable 

Care Act parameters. 

In summary, we are finalizing the 

premium adjustment percentage 

methodology as proposed, using NHEA 

projections of per enrollee ESI 

premiums in place of private health 

insurance premiums. This premium 

adjustment percentage will be used to 

increase the maximum annual 

limitation on cost sharing, the 

maximum annual limitation on 

deductibles for plans in the small group 

market, and the assessable payment 

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

of the Code. In the preamble to the 

proposed rule, when calculating the 

proposed annual limitation on cost 

sharing for 2015, we rounded to the 

multiple of $50 that is higher than the 

number calculated by the formula. 

However, we have since learned that the 

convention for similar language in 

related tax policies is to round to the 

multiple of $50 that is lower than the 

number calculated by the formula. We 

strive to align policies wherever 

possible. As such, in future rulemaking 

that will be effective prior to the start of 

the application period for qualified 

health plans for the 2015 benefit year, 

we are considering aligning the 

rounding rules, and rounding to the 

lower multiple of $50. 

Maximum Annual Limitation on Cost 

Sharing for Calendar Year 2015. Under 

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

year, cost sharing for self-only coverage 

may not exceed the dollar limit for 

calendar year 2014 increased by an 

amount equal to the product of that 

amount and the premium adjustment 

percentage for 2015. For other than selfonly coverage, the limit is twice the 

dollar limit for self-only coverage. Using 

the premium adjustment percentage of 

4.213431463 percent for 2015 we 

established above, and the 2014 

maximum annual limitation on cost 

sharing of $6,350 for self-only coverage, 

which was published by the IRS on May 

2, 2013,43 the 2015 maximum annual 

limitation on cost sharing would be 

$6,600 for self-only coverage and 

$13,200 for other than self-only 

coverage, if we were to interpret 

§ 156.130(d) and the statute to round the 

self-only limitation down to the next 

lower multiple of 50. 

Maximum Annual Limitation on 

Deductibles for Plans in the Small 

Group Market for Calendar Year 2015. 

Under § 156.130(b)(2), for the 2015 

calendar year, the annual deductible for 

a health plan in the small group market 

may not exceed, for self-only coverage, 

the maximum annual limitation on 

deductibles for calendar year 2014 

increased by an amount equal to the 

product of that amount and the 

premium adjustment percentage for 

2015, and for other than self-only 

coverage, the limit is twice the dollar 

limit for self-only coverage. Using the 

premium adjustment percentage for 

2015 of 4.213431463 percent we 

established above and the 2014 

maximum annual limitation on 

deductibles of $2,000 for self-only 

coverage, as specified in 

§ 156.130(b)(1)(i), the 2015 maximum 

annual limitation on deductibles would 

be $2,050 for self-only coverage and 

$4,100 for other than self-only coverage, 

if we were to interpret § 156.130(d) and 

the statute to round the self-only 

limitation down to the next lower 

multiple of 50. We note that pursuant to 

45 CFR 156.130(b)(3), a health plan’s 

deductible may exceed the 2015 

maximum annual limitation on 

deductibles described above in 

instances where the plan may not 

reasonably reach the AV of a given level 

of coverage without exceeding the 

annual deductible limit. 

Comment: We received three 

comments in support of our proposal to 

use data from the National Health 

Expenditure Accounts. However, we 

also received several comments 

expressing concern with the increase in 

the cost-sharing limits resulting from 

the proposed premium adjustment 

percentage methodology, and the 

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44See section 223(g) of the Code. 

potential impact on affordability and 

consumer access to care. Commenters 

noted that because the maximum annual 

limitation on cost sharing is set based 

on the premium growth rate for the 

previous years, consumers could see 

increased premiums in one year and 

then increased out-of-pocket costs in the 

following year (as well as any additional 

premium increases)—in effect, 

experiencing impacts twice. Another 

commenter noted that the proposal 

would result in the divergence of the 

maximum annual limitation on cost 

sharing from the cost-sharing limit set 

by the IRS for high deductible health 

plans, which is adjusted based on the 

Consumer Price Index.44 Some 

commenters stated that the premium 

adjustment percentage should not be 

applied until at least 2016, after the 

Federal government has evaluated 

consumer experience under the 2014 

parameters. Other commenters argued 

that the premium adjustment percentage 

should not be affected by the changes in 

benefit design and market composition 

that occur between 2013 and 2014. 

Instead, the commenters argue that the 

premium adjustment percentage should 

be based only on the change in the cost 

of medical services, or on the Consumer 

Price Index. 

Response: In response to comments, 

as discussed above, we are finalizing 

our proposed methodology for 

calculating the premium adjustment 

percentage, using NHEA projections of 

per enrollee ESI premiums in place of 

private health insurance premiums. We 

believe that NHEA per enrollee ESI 

premium data will appropriately 

capture the underlying drivers of 

premium growth, and reflect the average 

per capita premium for the majority of 

health insurance coverage in the United 

States. In addition, ESI data tends to be 

more stable and is less influenced by 

one-time changes in benefit design and 

market composition. 

We do not believe it would be 

appropriate to use the Consumer Price 

Index as the basis for estimating 

premium growth. The Consumer Price 

Index captures only price changes for a 

fixed basket of a much broader set of 

goods, and thus does not reflect the 

drivers of health insurance premiums. 

Specifically, the Consumer Price Index 

would exclude non-price factors that 

influence medical costs, and thus 

premiums, such as changes in the 

utilization or intensity of medical care. 

Because of this, the Consumer Price 

Index (both for all items and for medical 

care) has historically increased at a 

slower rate than premiums. We are 

concerned that consistently constraining 

the premium adjustment percentage and 

the cost-sharing limits to a lower rate of 

growth that is not reflective of the 

drivers of health insurance premiums 

may prevent issuers from adequately 

adjusting plan designs to offset costs, 

which could result in higher premiums. 

We clarify that the maximum annual 

limitation on cost sharing established at 

§ 156.130(a)(2) does not supersede the 

cost-sharing limit for high deductible 

health plans established by the IRS 

under § 223(c)(2)(A)(ii) of the Code. 

Comment: One commenter 

recommended that the premium 

adjustment percentage be rounded to 

the nearest tenth of a percentage point, 

rather than the proposed ‘‘nearest 

decimal point.’’ 

Response: To better align with other 

tax- and benefit-related indexation 

provisions, we specify that the premium 

adjustment percentage will be rounded 

to ten significant digits. The percentage 

for calendar year 2015 is 4.213431463 

percent. 

Comment: We received two comments 

reporting wide variation in the 

application across States of the 

maximum annual limitation on 

deductibles for plans in the small group 

market. Commenters acknowledged the 

need for flexibility in order to meet 

actuarial value standards, but requested 

that HHS monitor the application of this 

policy. 

Response: We recognize the need to 

balance between the required deductible 

limit and the ability of issuers to offer 

a variety of cost sharing approaches 

within the plan designs available to 

employers. We intend to work with 

States to assess the need for additional 

guidance in this area, as the States are 

the primary enforcers of this limit. 

b. Reduced Maximum Annual 

Limitation on Cost Sharing 

Sections 1402(a) through (c) of the 

Affordable Care Act direct issuers to 

reduce cost sharing for EHBs for eligible 

individuals enrolled in a silver level 

QHP. In the 2014 Payment Notice, we 

established standards related to the 

provision of these cost-sharing 

reductions. Specifically, in 45 CFR part 

156 subpart E, we specified that QHP 

issuers must provide cost-sharing 

reductions by developing plan 

variations, which are separate costsharing structures for each eligibility 

category that change how the cost 

sharing required under the QHP is to be 

shared between the enrollee and the 

Federal government. At § 156.420(a), we 

detailed the structure of these plan 

variations and specified that QHP 

issuers must ensure that each silver plan 

variation has an annual limitation on 

cost sharing no greater than the 

applicable reduced maximum annual 

limitation on cost sharing specified in 

the annual HHS notice of benefit and 

payment parameters. Although the 

amount of the reduction in the 

maximum annual limitation on cost 

sharing is specified in section 

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

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

states that the Secretary may adjust the 

cost-sharing limits to ensure that the 

resulting limits do not cause the AVs of 

the health plans to exceed the levels 

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

percent, 87 percent or 94 percent, 

depending on the income of the 

enrollee(s)). Accordingly, in the 2014 

Payment Notice, we established a 

process for determining the appropriate 

reductions in the maximum annual 

limitation on cost sharing. First, we 

identified the maximum annual 

limitation on cost sharing applicable to 

all plans that will offer the EHB 

package. Second, we analyzed the effect 

on AV of the reductions in the 

maximum annual limitation on cost 

sharing described in the statute. Last, 

we adjusted the reductions in the 

maximum annual limitation on cost 

sharing, if necessary, to ensure that the 

AV of a silver plan variation will not 

exceed the AV specified in the statute. 

Below, we describe our analysis for the 

2015 benefit year and our results, which 

we finalize as proposed. 

Reduced Maximum Annual 

Limitation on Cost Sharing for Benefit 

Year 2015. We developed three model 

silver level QHPs and analyzed the 

impact on their AVs of the reductions 

described in the Affordable Care Act to 

a maximum annual limitation on cost 

sharing for self-only coverage ($6,600). 

The model plan designs are based on 

data collected for QHP certification for 

2014 to ensure that they represent a 

range of plan designs that we expect 

issuers to offer at the silver level of 

coverage through an Exchange. For 

2015, the model silver level QHPs 

include a PPO with a typical costsharing structure ($6,600 annual 

limitation on cost sharing, $1,700 

deductible, and 20 percent in-network 

coinsurance rate), a PPO with a lower 

annual limitation on cost sharing 

($4,500 annual limitation on cost 

sharing, $2,000 deductible, and 20 

percent in-network coinsurance rate), 

and an HMO ($6,600 annual limitation 

on cost sharing, $2,100 deductible, 20 

percent in-network coinsurance rate, 

and the following services with copays 

that are not subject to the deductible or 

coinsurance: $500 inpatient stay per 

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45We note that although the revised 

interpretation of the rounding standard for the 

maximum annual limitation on cost sharing is not 

yet finalized, we would not expect a different 

interpretation of the rounding standard to result in 

a significant change in our analysis of the 

reductions in the maximum annual limitation on 

cost sharing. As a result, we are finalizing these 

reductions in the maximum annual limitation on 

cost sharing for 2015 in this rule. 

day, $350 emergency department visit, 

$25 primary care office visit, and $50 

specialist office visit). All three model 

QHPs meet the AV requirements for 

silver health plans. 

We then entered these model plans 

into the AV Calculator developed by 

HHS, and observed how the reductions 

in the maximum annual limitation on 

cost sharing specified in the Affordable 

Care Act affected the AVs of the plans. 

We found that the reduction in the 

maximum annual limitation on cost 

sharing specified in the Affordable Care 

Act for enrollees with household 

incomes between 100 and 150 percent 

of the FPL (2/3 reduction in the 

maximum annual limitation on cost 

sharing), and 150 and 200 percent of the 

FPL (2/3 reduction), does not cause the 

AV of any of the model QHPs to exceed 

the statutorily specified AV level (94 

and 87 percent, respectively). In 

contrast, the reduction in the maximum 

annual limitation on cost sharing 

specified in the Affordable Care Act for 

enrollees with a household income 

between 200 and 250 percent of FPL (1/ 

2 reduction), does cause the AVs of two 

of the model QHPs to exceed the 

specified AV level of 73 percent. As a 

result, we are finalizing our proposal 

that the maximum annual limitation on 

cost sharing for enrollees in the 2015 

benefit year with a household income 

between 200 and 250 percent of FPL be 

reduced by approximately 1/5, rather 

than 1/2, as shown in Table 4.45 We are 

further finalizing as proposed a 

requirement that the maximum annual 

limitation on cost sharing for enrollees 

with household incomes between 100 

and 200 percent of the FPL be reduced 

by approximately 2/3, in alignment with 

the statute. As discussed in the 

proposed rule, these reductions in the 

maximum annual limitation on cost 

sharing align with the 2014 reductions 

and should adequately account for 

unique plan designs that may not be 

captured by our three model QHPs. 

Applying the same parameters as those 

specified for 2014 will reduce the 

administrative burden for issuers related 

to designing new plans, and provide 

greater continuity for enrollees. 

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

Eligibility category 

Reduced maximum annual 

limitation on 

cost sharing 

for self-only 

coverage for 

2015 

Reduced maximum annual 

limitation on 

cost sharing 

for other than 

self-only coverage for 2015 

Individuals eligible for cost-sharing reductions under § 155.305(g)(2)(i) (that is, 100–150 percent of FPL) .......... $2,250 $4,500 

Individuals eligible for cost-sharing reductions under § 155.305(g)(2)(ii) (that is, 150–200 percent of FPL) ......... 2,250 4,500

Individuals eligible for cost-sharing reductions under § 155.305(g)(2)(iii) (that is, 200–250 percent of FPL) ........ 5,200 10,400 

Comment: We received two comments 

supporting the proposed reductions in 

the maximum annual limitation on cost 

sharing for 2015, with the caveat that 

HHS should monitor provider payments 

to ensure that cost-sharing reductions 

do not come at the expense of provider 

reimbursement. Another commenter 

stated that HHS should reduce the 

maximum annual limitation on cost 

sharing for enrollees with a household 

income between 200 and 250 percent of 

the FPL to be more in line with the 

reduction specified in section 

1402(c)(1)(A)(ii) of the Affordable Care 

Act. 

Response: As discussed in the 

proposed rule, selecting a reduction for 

the maximum annual limitation on cost 

sharing that is less than the reduction 

specified in the statute will not reduce 

the benefit afforded to enrollees in 

aggregate because QHP issuers are 

required to further reduce their annual 

limitation on cost sharing, or reduce 

other types of cost sharing, to meet the 

specified AV for the plan variation. 

Therefore, we are finalizing the 

reductions to the maximum annual 

limitation on cost sharing for 2015 as 

proposed. We do not address policy 

related to provider payments in this 

rule. 

Comment: We also received a 

comment stating that, in addition to 

reducing the maximum annual 

limitation on cost sharing, HHS should 

require issuers to exempt prescription 

drugs from any deductibles required 

under a silver plan variation. 

Response: As discussed in the 2014 

Payment Notice, we believe the current 

cost-sharing reduction standards strike 

the appropriate balance between 

protecting consumers and preserving 

QHP issuer flexibility. As a result, we 

do not intend to propose any additional 

cost-sharing reduction plan design 

requirements at this time. 

c. Design of Cost-Sharing Reduction 

Plan Variations 

Following our implementation of 

Exchange operations for 2014, we 

learned that a number of issuers 

designed QHPs with cost-sharing 

parameters that apply to both EHB and 

benefits that are not EHB. For example, 

one issuer sought to establish a common 

deductible across all benefits. For the 

zero cost sharing plan variation of this 

QHP, this would result in a substantial 

deductible being applied entirely to 

benefits that are not EHB. As a result, 

we proposed to remove the standards in 

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

QHP and each of its plan variations 

have the same out-of-pocket spending 

for benefits other than EHB. Instead, we 

proposed that the standard in 

§ 156.420(e)—that cost sharing for EHB 

from a provider (including a provider 

outside the plan’s network) required of 

an enrollee in a silver plan variation 

may not exceed the corresponding cost 

sharing required in the standard silver 

plan or any other silver plan variation 

of that plan with a lower AV—would 

also apply to out-of-pocket spending 

required of enrollees in silver plan 

variations for a benefit that is not an 

EHB. Similarly, we proposed in 

§ 156.420(d) that the out-of-pocket 

spending required of enrollees in the 

zero cost sharing plan variation of a 

QHP for a benefit that is not an EHB 

from a provider (including a provider 

outside the plan’s network) may not 

exceed the corresponding out-of-pocket 

spending required in the limited cost 

sharing plan variation of the QHP, 

which in turn may not exceed the 

corresponding out-of-pocket spending 

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46 If an issuer sought advance payments for the 

cost-sharing reductions provided under the limited 

cost sharing plan variation of a health plan it offers, 

we specified in § 156.430(a)(2) that the issuer was 

required to submit an estimate of the dollar value 

of the cost-sharing reductions to be provided. 

required in the QHP with no costsharing reductions. 

We are finalizing the provisions as 

proposed, with one modification. To 

ensure continuity across the plan 

variations, we clarify in § 156.420(d) 

that the out-of-pocket spending required 

of enrollees in the zero cost sharing plan 

variation of a QHP for a benefit that is 

not an EHB from a provider (including 

a provider outside the plan’s network) 

may not exceed the corresponding outof-pocket spending required in the 

limited cost sharing plan variation of 

the QHP and the corresponding out-ofpocket spending required in the silver 

plan variation of the QHP for 

individuals eligible for cost-sharing 

reductions under § 155.305(g)(2)(i), in 

the case of a silver QHP. This 

modification responds to commenters’ 

concerns that issuers may use this 

flexibility to selectively attract certain 

enrollees, and is consistent with our 

general policy that an enrollee in a costsharing reduction plan variation be 

provided with plan features, including 

out-of-pocket spending, provider 

network, and benefits, that are at least 

as good as those offered under the 

standard plan or any other plan 

variation designed to be less generous. 

We also clarify that in the case of an 

issuer participating in an Exchange that 

only requires issuers to submit one zero 

cost sharing plan variation with the 

lowest premium for a set of standard 

plans, as described in the 2014 Payment 

Notice at 78 FR 15494, the issuer must 

ensure that the out-of-pocket spending 

requirement for each non-EHB benefit of 

the submitted zero cost sharing plan 

variation is less than or equal to the 

lowest out-of-pocket spending 

requirement for the same benefit of a 

silver plan variation for individuals 

eligible for cost-sharing reductions 

under § 155.305(g)(2)(i), if the silver 

plan is included in the set of standard 

plans. 

Under these provisions, each costsharing reduction plan variation will 

continue to provide the most cost 

savings for which an enrollee is eligible; 

however, QHP issuers will be able to— 

though are not required to—reduce outof-pocket spending for benefits that are 

not EHB for enrollees in plan variations 

in order to offer simpler cost-sharing 

designs that are consistent across EHB 

and benefits that are not EHB. We note, 

however, that in accordance with 

section 1402(d)(4) of the Affordable Care 

Act, any reductions in out-of-pocket 

spending for benefits that are not EHB 

will not be reimbursed by the Federal 

government because payments for costsharing reductions only apply to EHB. 

Comment: One commenter strongly 

supported the proposal, stating that it 

will allow issuers the flexibility to 

develop plans that best meet the needs 

of the low-income population. 

Conversely, another commenter stated 

that issuers may use this flexibility to 

design plans that attract healthier 

beneficiaries and may offset any costs 

through premium increases. Several 

logistical concerns were also raised by 

commenters about how HHS would 

ensure that Federal reimbursement is 

not provided for these reductions, and 

how issuers would report and 

implement these reductions. 

Response: As described in 

§ 156.430(c), issuers may only submit 

information on reductions in cost 

sharing for EHB, and HHS will not 

provide reimbursement for reductions 

in out-of-pocket spending for benefits 

other than EHB. In addition, our 

changes to § 156.420(d) and (e) provide 

additional flexibility only with respect 

to different plan variations, and those 

provisions do not permit issuers to 

selectively lower cost sharing in a 

manner that disadvantages low-income 

consumers. As a result, we do not 

believe issuers will have any additional 

opportunity to attract healthy enrollees. 

Therefore, we are finalizing this 

provision as proposed, with the minor 

modification discussed above. We will 

provide additional guidance in the 

future for issuers on how to report outof-pocket spending for benefits that are 

not EHB for purposes of QHP 

certification. 

d. Advance Payments of Cost-Sharing 

Reductions 

Section 1402(c)(3) of the Affordable 

Care Act directs a QHP issuer to notify 

the Secretary of cost-sharing reductions 

made under the statute, and directs the 

Secretary to make periodic and timely 

payments to the QHP issuer equal to the 

value of those reductions. Section 

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

permits advance payments of costsharing reduction amounts to QHP 

issuers based upon amounts specified 

by the Secretary. Under these 

authorities, we established a payment 

approach in the 2014 Payment Notice 

under which monthly advance 

payments made to issuers to cover 

projected cost-sharing reduction 

amounts are reconciled after the end of 

the benefit year to the actual costsharing reduction amounts. 

To implement this approach, we 

specified in § 156.430(a) that a QHP 

issuer must provide to the Exchange an 

estimate of the dollar value of the costsharing reductions to be provided over 

the benefit year, calculated in 

accordance with the methodology 

specified by HHS in the annual HHS 

notice of benefit and payment 

parameters. We further specified in the 

2014 Payment Notice that QHP issuers 

did not need to submit an estimate of 

the dollar value of the cost-sharing 

reductions for the 2014 benefit year, 

except in the case of a limited cost 

sharing plan variation.46 Instead, the 

Exchange sent the data that issuers 

submitted under §§ 156.420 and 

156.470, including the AV of the 

standard plan and plan variation, and 

the EHB portion of expected allowed 

claims costs, to HHS for the calculation 

of the cost-sharing reduction advance 

payment rates. HHS then approved the 

rates and sent them back to the 

Exchange so that the cost-sharing 

reduction advance payment amounts 

could be reported as part of the 834 

enrollment transactions, pursuant to 

§ 156.340(a). HHS then provided 

advance payments to QHP issuers. 

Based on our experience 

implementing this process for the 2014 

benefit year, we proposed certain 

modifications to §§ 155.1030, 156.430, 

and 156.470. We believe these 

modifications will simplify the process 

and improve the accuracy of the 

calculations. Specifically, we proposed 

to remove the requirement detailed in 

§ 156.430(a) that issuers develop 

estimates of the dollar value of the costsharing reductions to be provided, and 

instead proposed to modify 

§ 155.1030(b)(3) to provide that an 

Exchange be required to use the 

methodology specified in the annual 

HHS notice of benefit and payment 

parameters to calculate advance 

payment amounts for cost-sharing 

reductions. We also proposed to modify 

§ 155.1030(b)(4) so that the Exchange 

would no longer be required to submit 

issuers’ advance payment estimates to 

HHS for approval prior to the start of the 

benefit year. The Exchange would 

simply calculate the advance payment 

amounts and transmit the amounts to 

HHS via the 834 enrollment transaction, 

pursuant to § 156.340(a). We then 

proposed in § 156.430(b)(1) that HHS 

provide periodic advance payments to 

QHP issuers based on the amounts 

transmitted by the Exchange. Lastly, we 

proposed conforming modifications to 

§§ 155.1030(b)(1) and 156.470(a), to 

remove the obligation for QHP issuers to 

submit, and Exchanges to review, the 

EHB allocation of the expected allowed 

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claims costs for the plans, because this 

data would not be used in the proposed 

2015 methodology for calculating costsharing reduction advance payments. 

Methodology for Calculating Advance 

Payment Amounts for Cost-Sharing 

Reductions for 2015. For the 2015 

benefit year, we proposed that the 

Exchanges use a methodology for 

calculating the advance payment 

amounts that would not require QHP 

issuers to submit an estimate of the 

value of cost-sharing reductions to be 

provided or the EHB portion of expected 

allowed claims costs, as previously 

required under § 156.470(a), and that 

would not require Exchanges to transfer 

data on advance payment amounts to 

HHS prior to the start of the benefit 

year. Specifically, we proposed that 

Exchanges calculate the monthly 

advance payment amount for a specific 

policy as the product of (x) the total 

monthly premium for the specific 

policy, and (y) a cost-sharing reduction 

plan variation multiplier. The costsharing reduction plan variation 

multiplier would convert the monthly 

premium into the appropriate monthly 

advance payment amount, based on the 

following formula: 

Cost-Sharing Reduction Plan Variation 

Multiplier = Factor to Remove 

Administrative Costs * Factor to 

Convert to Allowed Claims Cost * 

Induced Utilization Factor * (Plan 

Variation AV¥Standard Plan AV) 

Where, 

Factor to Remove Administrative Costs = 0.8 

for all plan variations, based on the 

individual market MLR of 80 percent; 

Factor to Convert to Allowed Claims Costs = 

the quotient of 1 and the AV for the 

standard plan, not accounting for any de 

minimis variation; 

Induced Utilization Factor = one of the 

following factors, depending on the plan 

variation: 

TABLE 5—INDUCED UTILIZATION FACTORS FOR PLAN VARIATIONS

Cost-sharing reduction plan variation Induced utilization factor 

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

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

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

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

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

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

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

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

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

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

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

Standard Plan AV = the AV specified for 

each level of coverage at § 156.140(b), 

not accounting for de minimis variation 

(that is, 60, 70, 80, or 90 percent for a 

bronze, silver, gold, or platinum QHP, 

accordingly); and 

Plan Variation AV = one of the following 

actuarial values, depending on the plan 

variation, not accounting for de minimis 

variation: 

TABLE 6—ACTUARIAL VALUES FOR PLAN VARIATIONS

Cost-sharing reduction plan variation 

Plan variation 

AV 

(percent) 

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

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

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

Limited cost sharing plan variation of bronze QHP ............................................................................................................................ 87 

Limited cost sharing plan variation of silver QHP ............................................................................................................................... 87 

Limited cost sharing plan variation of gold QHP ................................................................................................................................. 94 

Limited cost sharing plan variation of platinum QHP .......................................................................................................................... 94 

Zero cost sharing plan variation of bronze QHP ................................................................................................................................. 100 

Zero cost sharing plan variation of silver QHP ................................................................................................................................... 100 

Zero cost sharing plan variation of gold QHP ..................................................................................................................................... 100 

Zero cost sharing plan variation of platinum QHP .............................................................................................................................. 100 

The proposed induced utilization 

factors would be consistent with the 

corresponding factors established in the 

2014 Payment Notice. For the limited 

cost sharing plan variations, we derived 

the induced utilization factors based on 

the actuarial values proposed above, 

and the same assumptions used to 

develop the induced utilization factors 

for the other plan variations. We 

proposed to update the induced 

utilization factors for all plan variations 

in future rulemaking as more data 

becomes available, and stated that at 

that time we would consider applying 

them to the risk adjustment 

methodology that HHS will use when 

operating risk adjustment on behalf of a 

State. 

The proposed methodology also 

utilizes the actuarial values of the 

standard plans and plan variations, not 

accounting for de minimis variation. 

Although this may slightly reduce the 

accuracy of the calculations, we believe 

it would have little overall impact, and 

would reduce the administrative burden 

on Exchanges because Exchanges would 

not need to develop specific multipliers 

for each QHP and associated plan 

variations. However, this approach 

required us to estimate an actuarial 

value for each type of limited cost 

sharing plan variation. We estimated 

that on average, the AV of the limited 

cost sharing plan variations of bronze 

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47OMB granted HHS an exception to the policy 

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

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

rate which would have allowed HHS to recover full 

costs. This rate was chosen because we wished to 

encourage issuers to offer plans on FFEs and to 

align with the administrative cost structure of State 

Exchanges. 

and silver QHPs would be 87 percent, 

and the AV of the limited cost sharing 

plan variations of gold and platinum 

QHPs would be 94 percent. We 

developed these estimates based on the 

data submitted by QHP issuers seeking 

advance payments for limited cost 

sharing plan variations that will be 

offered in benefit year 2014. 

We believe the proposed methodology 

will improve the accuracy of the 

advance payments because it is based 

on the total premium for each policy, 

which in accordance with the rating 

rules described in §§ 147.102 and 

156.80, is based on expected allowed 

claims costs, adjusted for the plan 

design and provider network, the 

number of individuals covered by the 

policy, rating area, age, and tobacco use. 

We are finalizing the modifications to 

§§ 155.1030, 156.430, and 156.470 as 

proposed, as well as the methodology 

for calculating advance payment 

amounts for cost-sharing reductions for 

2015. 

Comment: We received one comment 

in support of the proposed changes to 

the process for calculating advance 

payments, stating that the changes 

would reduce the overall administrative 

burden and streamline reporting 

requirements for issuers. We also 

received some comments stating that it 

is too early to make changes to the 

process, which commenters stated 

would require issuers to alter their 

systems and develop new processes for 

validating the advance payment 

amounts. One commenter noted that 

under the proposed process, each 

Exchange will be responsible for 

calculating the advance payment 

amounts as opposed to one Federal 

agency, which could create the potential 

for more errors. The commenter was 

also concerned with the proposal to 

base the advance payment amounts on 

the premium for the policy, as premium 

data could be inaccurate and subject to 

a complex reconciliation process. The 

commenters also stated that the issuer 

should be allowed to validate the 

advance payment amounts before they 

are finalized. 

Response: We continue to believe that 

the modifications to the advance 

payment calculation process will reduce 

the administrative burden for all parties 

because issuers will be required to 

submit less data, and Exchanges will no 

longer be required to submit data to 

HHS prior to the start of the benefit year 

for the calculation and approval of the 

advance payment amounts. That 

approval process will no longer be 

necessary because the advance 

payments will be simply calculated 

based on the product of the cost-sharing 

reduction plan variation multiplier 

specified by HHS and the premium for 

the policy. This modification to the 

calculation should also reduce the 

administrative burden for issuers 

reviewing the advance payment 

amounts as part of the discrepancy 

reporting process because the advance 

payments will be based on premiums, 

which we presume issuers would 

review in connection with the advance 

payments of the premium tax credit. We 

also anticipate that FFE issuers will be 

able to review premium information 

prior to the start of the benefit year 

through the plan preview process. In 

addition, HHS plans to validate that the 

advance payment amounts reported via 

the 834 enrollment transaction are 

calculated in accordance with the 

methodology specified by HHS. Thus, 

we believe that this methodology and 

validation process should ensure the 

protection of Federal funds, while 

simultaneously limiting the 

administrative burden on QHP issuers 

and Exchanges. 

Comment: One commenter expressed 

concern that the proposed methodology 

for calculating advance payments would 

result in lower advance payments 

amounts that would not cover issuers’ 

costs. Another commenter stated that 

issuers should be able to request a 

change to the advance payment amounts 

mid-year if the amounts do not align 

with actual cost-sharing reduction 

amounts provided. 

Response: Although we acknowledge 

that there are some limitations to this 

methodology (for example, the 

multiplier does not make a plan-specific 

adjustment for the cost of non-EHB, or 

account precisely for costs for large 

families with children not accounted for 

in the premium), we believe that a very 

small number of QHPs would be 

affected by these limitations, and any 

inaccuracies in the advance payments 

would be corrected through the costsharing reduction reconciliation 

process. In addition, as described at 

§ 156.430(b)(2), HHS may adjust the 

advance payment amount for a 

particular QHP during the benefit year 

if the QHP issuer provides evidence that 

the advance payments are likely to be 

substantially different than the costsharing reduction amounts that the QHP 

provides. 

2. Provisions on FFE User Fees 

a. FFE User Fee for the 2015 Benefit 

Year 

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

Affordable Care Act contemplates an 

Exchange charging assessments or user 

fees to participating health insurance 

issuers to generate funding to support 

its operations. If a State does not elect 

to operate an Exchange or does not have 

an approved Exchange, section 

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

directs HHS to operate an Exchange 

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

9701 permits a Federal agency to 

establish a charge for a service provided 

by the agency. Accordingly, at 

§ 156.50(c), we specified that a 

participating issuer offering a plan 

through an FFE must remit a user fee to 

HHS each month that is equal to the 

product of the monthly user fee rate 

specified in the annual HHS notice of 

benefit and payment parameters for the 

applicable benefit year and the monthly 

premium charged by the issuer for each 

policy under the plan where enrollment 

is through an FFE. 

OMB Circular No. A–25 Revised 

(Circular No. A–25R) establishes Federal 

policy regarding user fees, and specifies 

that a user charge will be assessed 

against each identifiable recipient for 

special benefits derived from Federal 

activities beyond those received by the 

general public. As in benefit year 2014, 

issuers seeking to participate in an FFE 

in benefit year 2015 will receive two 

special benefits not available to the 

general public: (1) the certification of 

their plans as QHPs; and (2) the ability 

to sell health insurance coverage 

through an FFE to individuals 

determined eligible for enrollment in a 

QHP. Activities performed by the 

Federal government that do not provide 

issuers participating in an FFE with a 

special benefit will not be covered by 

this user fee. 

Circular No. A–25R further states that 

user charges should generally be set at 

a level so that they are sufficient to 

recover the full cost to the Federal 

government of providing the service 

when the government is acting in its 

capacity as sovereign (as is the case 

when HHS operates an FFE). We 

proposed to set the 2015 user fee rate for 

all participating issuers at 3.5 percent. 

This rate is the same as the 2014 user 

fee rate.47

We are finalizing the 2015 user fee 

rate as proposed. Because we wish to 

continue to encourage issuers to offer 

plans through an FFE, we sought and 

have received an exception from OMB 

to the policy in Circular No. A–25R that 

the 2015 user fee be set to recover full 

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48The women’s preventive health services 

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

provided for in comprehensive guidelines 

supported by the Health Resources and Services 

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

adopted and released guidelines for women’s 

preventive health services based on 

recommendations of the independent Institute of 

Medicine. 

49Under the Preventive Services Rule, an eligible 

organization is an organization that: (1) Opposes 

providing coverage for some or all of the 

contraceptive services required to be covered under 

section 2713 of the PHS Act and the companion 

provisions of ERISA and the Code on account of 

religious objections; (2) is organized and operates as 

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

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

the first three criteria. 

costs. We expect to cover full costs in 

future years. 

Comment: We received several 

comments stating that both the 2014 and 

2015 user fee rate should be lower 

because of the technical problems 

associated with FFE operations. 

Although the FFE performs important 

functions, issuers have had to take a 

larger role in supporting the processing 

of enrollment files and payments. One 

commenter specifically stated that the 

FF–SHOP user fee for 2014 should be 

waived due to the operational delays. 

Another commenter suggested that the 

2014 user fee should be waived to offset 

issuers’ costs resulting from an 

unbalanced risk pool. For the same 

reason, the commenter also suggested 

the annual fee imposed on health 

insurance providers, described in 

section 9010 of the Affordable Care Act, 

should be waived. Some other 

commenters noted that the 2015 user fee 

should be lower as a result of gains in 

operational efficiency and the expected 

increase in the number of State 

Exchanges. 

Response: As discussed above, 

Circular A–25R specifies that a user 

charge should be assessed against 

recipients of special benefits derived 

from Federal activities beyond those 

received by the general public. Despite 

the 2014 technical issues, participating 

issuers will continue to receive special 

benefits through Federal activities. For 

example, issuers participating in an FF– 

SHOP will continue to receive the 

special benefits of the certification of 

their plans as QHPs and the ability to 

sell health insurance coverage to 

employers determined eligible to 

participate in the SHOP. In addition, we 

do not expect the cost to the Federal 

government of providing these special 

benefits to change appreciably. As a 

result, we are not changing the 2014 

user fee rate. We are also finalizing the 

2015 user fee rate at 3.5 percent, as 

proposed, based on the expected 

number of Federally-facilitated 

Exchanges in 2015 and our projected 

costs. 

Changes to the risk pool will be 

addressed through the premium 

stabilization programs. Standards 

regarding the annual fee imposed on 

health insurance providers were 

finalized by the IRS on November 29, 

2013 (78 FR 71476), and we direct 

commenters with questions regarding 

that fee to the IRS. Finally, we agree that 

over time we expect operational 

efficiencies and increases in the number 

of State Exchanges and will continue to 

take these factors into account when 

determining the annual FFE user fee 

rate. 

Comment: We received two comments 

on the underlying structure of the FFE 

user fee. One commenter recommended 

that HHS establish broad-based 

financing for the FFE, such as an as 

assessment on all health care industry 

entities. If the existing fee structure is 

kept, the commenter stated that it 

should only be paid by consumers and 

small employers that purchase coverage 

through an FFE. The commenter also 

stated that the user fee should not be set 

as a percent of premium, as the cost to 

run an Exchange is not related to the 

cost of coverage. In contrast, another 

commenter stated that the user fee 

should continue to be calculated as a 

percent of premium, which ensures the 

user fee is adjusted based on the size of 

the issuer’s book of business. 

Response: The FFE user fee will 

continue to be assessed as a percent of 

the monthly premium charged by 

issuers participating in an FFE. In 

accordance with Circular A–25R, issuers 

are charged the user fee in exchange for 

receiving special benefits beyond those 

that accrue to the general public. Setting 

the user fee as a percent of premium 

ensures that the user fee generally aligns 

with the business generated by the 

issuer as a result of participation in an 

FFE. 

Comment: One commenter also 

recommended that HHS publish cost 

estimates for the FFE, disclose how 

funds will be spent, and develop 

performance metrics for the FFE. The 

commenter stated that any increase in 

an issuer’s aggregate liability for FFE 

user fees should be capped at changes 

in the Consumer Price Index, and that 

total user fee collections across all 

issuers should be capped at the level of 

expended costs. The commenter urged 

that if user fee collections exceed FFE 

costs, issuers should receive a rebate or 

credit against future fees. 

Response: HHS will continue to 

publish cost estimates through the 

Federal budget process, and 

performance results from time to time, 

as has been our practice thus far. We 

will also continue to set the user fee 

based on the expected costs to the 

Federal government of providing the 

special benefits to issuers; however, for 

2015 as noted above, we sought and 

have received an exception to this 

policy from OMB because we wish to 

continue to encourage issuers to offer 

plans through an FFE. We expect to 

cover full costs in future years. Because 

we set the user fee to no more than 

cover Federal costs (and in the case of 

2014 and 2015, at less than our 

predicted costs), we do not expect user 

fee collections to exceed the Federal 

cost of operating the FFE. 

b. Adjustment of FFE User Fee 

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

added by the Affordable Care Act and 

incorporated into the ERISA and the 

Code, directs non-grandfathered group 

health plans and health insurance 

issuers offering non-grandfathered 

group or individual health insurance 

coverage to provide benefits for certain 

women’s preventive health services 

without cost sharing.48 The Preventive 

Services Rule (78 FR 39870, July 2, 

2013) established accommodations with 

respect to the contraceptive coverage 

requirement for health coverage 

established or maintained or arranged 

by eligible organizations.49

Each organization seeking to be 

treated as an eligible organization under 

the Preventive Services Rule is required 

to self-certify that it meets the definition 

of an eligible organization. In the case 

of an eligible organization with a selfinsured plan, a copy of the selfcertification must be provided to all 

TPAs with which it or its plan has 

contracted. Upon receipt of the copy of 

the self-certification, the TPA may 

decide not to enter into, or remain in, 

a contractual relationship with the 

eligible organization to provide 

administrative services for the plan. A 

TPA that receives a copy of the selfcertification and that agrees to enter into 

or remain in a contractual relationship 

with the eligible organization to provide 

administrative services for the plan 

must provide or arrange for separate 

payments for certain contraceptive 

services for participants and 

beneficiaries in the plan without cost 

sharing, premium, fee, or other charge to 

plan participants or beneficiaries, or to 

the eligible organization or its plan. The 

TPA can provide such payments on its 

own, or it can arrange for an issuer or 

other entity to provide these payments. 

In either case, the payments are not 

health insurance policies and the TPA 

can make arrangements with an issuer 

offering coverage through an FFE to 

obtain reimbursement for its costs 

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Federal Register / Vol. 79, No. 47 / Tuesday, March 11, 2014 / Rules and Regulations 13809 

50We note that the submission of the dollar 

amount of the payments for contraceptive services 

is subject to the oversight standards detailed at 45 

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

31 U.S.C. 3729–3733. 

51That guidance stated that ‘‘. . . for purposes of 

the medical loss ratio and the risk corridors 

program, participating issuers should report the 

sum of: (1) The net FFE user fee paid to HHS; (2) 

any amounts paid out to a third party administrator 

or incurred by or for the participating issuer in 

contraceptive claims costs under the 

accommodation for self-insured group health plans 

of eligible organizations provided in these final 

regulations; and (3) the allowance for 

administrative costs and margin provided under 45 

CFR 156.50(d)(3)(ii), as licensing and regulatory 

fees referenced in 45 CFR 158.161(a).’’ 

(including an allowance for 

administrative costs and margin) 

through an adjustment to the FFE user 

fee paid by the issuer. 

At § 156.50(d), we established 

standards related to the administration 

of the user fee adjustment. Specifically, 

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

user fee adjustment will include an 

allowance for administrative costs and 

margin that is no less than 10 percent 

of the total dollar amount of the 

payments for contraceptive services, 

and that HHS would specify the 

allowance for a particular calendar year 

in the annual HHS notice of benefit and 

payment parameters. 

For user fee adjustments sought in 

2015 for the cost of payments for 

contraceptive services provided in 2014, 

we proposed an allowance for 

administrative costs and margin equal to 

15 percent of the total dollar amount of 

the payments for contraceptive services 

defined in § 156.50(d)(3)(i).50 We 

proposed this allowance based on our 

analysis described in the proposed rule 

of the administrative costs that we 

expect each entity involved in the 

arrangement to incur. We are finalizing 

the allowance for administrative costs 

and margin at 15 percent, as proposed. 

Comment: We received several 

comments expressing concern that the 

proposed allowance would not 

adequately cover administrative costs. 

One commenter emphasized that the 

allowance should take into account 

startup costs, including systems 

development, contract negotiations, 

customer service outreach, and provider 

support. Another commenter stated that 

there will be wide variation in 

administrative costs depending on 

whether the TPA operates in a State 

with an FFE, or if the beneficiaries live 

in multiple States. The commenter also 

noted that TPAs may incur care 

coordination costs related to 

contraceptive services, which should be 

covered by the allowance. As a result, 

the commenter recommended that HHS 

permit TPAs to accept either the 15 

percent allowance or request a different 

amount based on expected costs. 

Another commenter noted that amounts 

paid for contraceptive services may be 

low compared to fixed administrative 

costs, particularly if the payment is for 

a low cost generic drug. The commenter 

suggested that HHS provide a greater 

allowance for administrative costs and 

margin when the volume of 

contraceptive services falls below a set 

threshold. 

Response: As discussed in the 

proposed rule, the proposed allowance 

was set to cover the administrative costs 

and margin for all of the entities 

involved in the relationship. We 

recognize that administrative costs may 

vary between TPAs depending upon 

their arrangement with an issuer 

participating in an FFE and the total 

costs of contraceptive services for which 

they provide payment. However, we 

believe that the proposed allowance 

should adequately cover expected 

administrative costs for the majority of 

TPAs and the issuers through which 

they receive the FFE user fee 

adjustment. We do not intend to allow 

TPAs to submit requests for greater 

allowances for administrative costs and 

margin, or for different categories of 

costs, such as startup or overhead costs, 

because it would be difficult to verify 

these costs and sufficiently safeguard 

Federal funds. 

Comment: One commenter requested 

clarification that the FFE user fee 

adjustment is intended to cover the full 

cost of the payments for certain 

contraceptive services, plus an 

additional 15 percent, for administrative 

costs and margin. 

Response: As described in 

§ 156.50(d)(3), the user fee adjustment 

will be equal in value to the sum of the 

dollar amount of the payments for 

contraceptive services, plus a 15 percent 

allowance for administrative costs and 

margin. 

Comment: We received several 

general comments on the 

accommodation for eligible 

organizations with a self-insured plan. 

Commenters noted that there is no 

requirement for issuers participating in 

an FFE to enter into arrangements with 

TPAs of eligible organizations with selfinsured plans. As a result, commenters 

requested that HHS identify an 

alternative method to reimburse TPAs. 

Response: In this final rule, we are 

specifically establishing the allowance 

for administrative costs and margin. As 

discussed in the Preventive Services 

Rule, we continue to believe the 

allowance for administrative costs and 

margin should provide an incentive for 

issuers to enter into arrangements with 

TPAs of eligible organizations with selfinsured plans. 

Comment: One commenter requested 

that HHS modify the standards related 

to MLR to align with the 

accommodations finalized in the 

Preventive Services Rule. 

Response: We do not believe it is 

necessary to modify the regulations, but 

instead provided guidance on this topic 

in the preamble to the Preventive 

Services Rule (see 78 FR 39886).51

Specifically, we noted that under 45 

CFR part 158, participating issuers may 

deduct from premiums as licensing and 

regulatory fees any amounts paid out to 

a third party administrator or incurred 

by or for the issuer in contraceptive 

claims costs under the accommodations 

for self-insured group health plans of 

eligible organizations, plus the 

allowance for administrative cost and 

margin allowed under 45 CFR 

156.50(d)(3)(ii), along with their net FFE 

user fee paid to HHS. We further here 

clarify that an issuer of group health 

insurance coverage that makes 

payments for contraceptive services for 

participants and beneficiaries of its 

insured health plans under the 

accommodations for eligible 

organizations rules may treat those 

payments as an adjustment to claims 

costs for purposes of MLR and risk 

corridors program calculations. As 

discussed in the Preventive Services 

Rule, this adjustment would 

compensate for any increase in incurred 

claims associated with making 

payments for contraceptive services. 

3. AV Calculation for Determining Level 

of Coverage 

Section 2707(a) of the PHS Act and 

Section 1302 of the Affordable Care Act 

direct non-grandfathered health 

insurance issuers in the individual and 

small group markets, including QHPs, to 

ensure that plans meet a level of 

coverage specified in section 1302(d)(1) 

of the Affordable Care Act and codified 

at § 156.140(b). On February 25, 2013, 

HHS published the EHB Rule 

implementing section 1302(d) of the 

Affordable Care Act, which sets forth 

the requirement that, to determine the 

level of coverage for a given metal tier 

level, the calculation of AV be based 

upon the provision of EHB to a standard 

population. Section 156.135(a) 

establishes that AV is to be calculated 

using the AV Calculator developed and 

made available by HHS. 

HHS recognizes that certain routine 

changes will on occasion need to be 

made to facilitate the AV Calculator’s 

ongoing operation by ensuring that it 

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can accommodate changes in the 

marketplace or product design over time 

and due to the changing cost of 

providing health care services in the 

market. In accordance, we proposed to 

update certain aspects of the AV 

Calculator on a regular basis, but no 

more frequently than annually. 

In proposed § 156.140(g), HHS 

proposed to update the AV Calculator as 

follows. First, we proposed to update for 

the annual limit on cost sharing and 

related functions based on a projected 

estimate to enable the AV Calculator to 

comply with § 156.130(a)(2). Second, we 

proposed to update the continuance 

tables to reflect more current enrollment 

data when HHS has determined that the 

enrolled population has materially 

changed, defined as more than 5 percent 

different. Third, we proposed to update 

the algorithms when HHS has 

determined the need to adapt the AV 

Calculator for use by additional plan 

designs or to allow the AV Calculator to 

accommodate potential new types of 

plan designs, where such adaptations 

can be based on actuarially sound 

principles and will not have a 

substantial effect on the AV calculations 

performed by the then current AV 

Calculator. To identify new industry 

practices and technical advances, we 

proposed a process to consult annually 

with the American Academy of 

Actuaries and to take into consideration 

feedback received through CMS 

Actuarial Value email address at: 

actuarialvalue@cms.hhs.gov. Fourth, we 

also proposed to update the continuance 

tables to reflect more current claims 

data no more than every 3 and no less 

than every 5 years and to annually trend 

the claims data when the trending factor 

is more than 5 percent different, 

calculated on a cumulative basis. To 

trend the AV Calculator, we proposed to 

use premium data and/or standard 

population data in years when the 

underlying claims data are not being 

updated in the AV Calculator, and in 

years where the claims data are being 

updated, we proposed to trend the 

Calculator based on the updated claims 

data. Lastly, we proposed to update the 

AV Calculator user interface when a 

change would be useful to a broad group 

of users of the AV Calculator, would not 

affect the function of the AV Calculator, 

and would be technically feasible. 

Along with the parameters for 

updating the AV Calculator, we also 

proposed to amend § 156.135(a) to 

clarify that issuers would be required to 

use the AV Calculator published by 

HHS for a given benefit year or, in cases 

where a State has obtained HHS 

approval to use State specific data in the 

AV Calculator, issuers would be 

required to use that AV Calculator HHS 

has published for the given benefit year, 

adjusted to use the State’s data (State 

AV Calculator). 

Lastly, we solicited comments on the 

proposed 2015 AV Calculator and AV 

Calculator methodology that would 

replace the 2014 versions of the 

Calculator and methodology, 

respectively. For the 2015 AV 

Calculator, HHS proposed to make 

minor changes to the design and inputs 

into the AV Calculator and did not 

propose updating the claims data, 

including the trending factor, or the 

enrollment data, since data were not yet 

available. 

We are finalizing the regulatory 

provisions as proposed but we are not 

finalizing the 2015 AV Calculator and 

2015 AV Calculator methodology. 

Rather, under the regulatory parameters 

for updating the AV Calculator, we are 

finalizing the 2014 AV Calculator to 

account for the estimated annual limit 

on cost sharing of $6,850 and will 

update the 2014 AV Calculator 

methodology accordingly. These 

materials will also include nonsubstantive amendments to correct and 

clarify language, as well as some 

clarifying frequently asked questions, 

that do not reflect changes in the 

functioning of the AV Calculator. 

Through this final rule, the amended 

2014 documents are being finalized as 

the 2015 AV Calculator and AV 

Calculator methodology. 

Comment: Several commenters 

recommended that since the proposed 

version of the 2015 AV Calculator and 

the parameters to update the AV 

Calculator in the future can impact the 

AV of plan designs, CMS should 

increase the de minimis range to prevent 

issuers from having to make benefit 

changes in order to be able to continue 

offering the same plans, including plans 

for 2015 plans being offered in 2014. 

Other commenters submitted technical 

comments on the 2015 AV Calculator 

updates, as well as recommended that 

we not update the AV Calculator for 

2015 unless other circumstances were 

met. 

Response: We do not intend to change 

the de minimis range. The de minimis 

range is intended to allow plans to float 

within a reasonable range and is not 

intended to freeze plan designs 

preventing innovation in the market. 

Because the AV Calculator is a 

dynamic tool, it is impossible to make 

changes to the Calculator’s algorithms 

without potentially impacting the AV 

output. However, we limited the 

changes in the proposed 2015 AV 

Calculator to promote stability of the AV 

Calculator and to help better ensure that 

issuers did not have to make benefit 

changes in 2015 in order to remain 

within the de minimis range. For 

instance, we did not update the 

enrollment or claims data because 

actual data were not available and we 

did not want to update the AV 

Calculator based on another projection. 

In fact, the vast majority of the updates 

to the proposed 2015 AV Calculator 

were the direct result of comments that 

we had received from issuers on 

improvements in the algorithms and 

adding additional functionality to the 

AV Calculator based actuarially sound 

principles to allow more issuers to use 

the AV Calculator without adjustment. 

Given the limited changes that were 

being made in the proposed 2015 AV 

Calculator and that we were not 

updating the AV Calculator based on the 

enrollment and claims data for 2015, we 

are finalizing the 2014 AV Calculator as 

the 2015 AV Calculator with an updated 

estimated annual limit on cost sharing 

to help ensure that issuers do not have 

to make benefit changes between year 1 

and year 2. 

Since we are not finalizing the 

proposed 2015 AV Calculator at this 

time, with the exception of the updated 

estimated annual limit on cost sharing, 

we do not address the technical 

comments on the proposed 2015 AV 

Calculator and methodology, but we 

will take them under consideration if 

we propose updates to the AV 

Calculator in the future. 

Comment: Commenters wanted the 

final version of the 2015 AV Calculator 

to be available early in 2014 and 

recommended that we ensure that 

issuers have enough time to work with 

the final version of the AV Calculator, 

proposing various annual deadlines. 

Response: We recognize that issuers 

need time to work with the final version 

of the Calculator to develop their plan 

designs for a given benefit year. By 

finalizing the amended 2014 AV 

Calculator as the 2015 AV Calculator, 

our intention is to reduce the burden on 

issuers for 2015 in having to make 

adjustments to plan designs and do any 

recalculations with changes to the AV 

Calculator. 

In future years, our intention with 

finalizing the provisions under 

§ 156.135(g) is to allow us the option to 

release the final AV Calculator earlier in 

the year. However, certain updates to 

the AV Calculator will be dependent on 

the timeline of availability of the 

necessary data elements. Thus, while 

we will work to make the AV Calculator 

available as early as possible, we intend 

to release it no later than the end of the 

first quarter of the preceding the benefit 

year. 

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52Letter to Issuers on Federally-facilitated and 

State Partnership Exchanges, April 5, 2013, 

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

Regulations-and-Guidance/Downloads/2014_letter_

to_issuers_04052013.pdf. 

Comment: Some commenters 

expressed concern about the frequency 

and potential fluctuations as a result of 

the updates based on enrollment data, 

especially given the potential for 

dramatic changes in the enrolled 

population in the initial years. 

Commenters recommended that the 

enrollment and claims data updates be 

made as soon as possible or at the same 

time. Others asked for clarification on 

the types of statistics being used for the 

updates and the exact year that we 

intend to start updating based on 

enrollment data. 

Response: Our policy is to consider 

updating the AV Calculator, starting 

with the 2016 AV Calculator, annually 

based on enrollment data when the 

combined measurement of the effects of 

shifts in gender or age statistics are 

materially different, which we define as 

more than 5 percent. We are finalizing 

this threshold for updating based on 

enrollment data of more than 5 percent 

to help ensure that updates based on 

enrollment data are limited. We also 

recognize the importance of balancing 

changes in the AV Calculator between 

ensuring that the AV Calculator is more 

accurately reflecting the current market 

and ensuring that any change to the AV 

Calculator minimizes the disruptions to 

current plan designs. 

Comment: A commenter 

recommended that we consider 

updating based on utilization by 

income. Others expressed concern about 

the cost sharing limits in the AV 

Calculator. Comments included a 

request for additional information on 

the trending factor update particularly 

regarding the use of premium data, as 

well as a recommendation to set a 

higher threshold for applying the trend 

factor. 

Response: AV is the calculation of a 

plan’s cost sharing generosity that is 

applied to a standard population and 

does not take into account utilization by 

income level. Information on the 

development of the standard population 

is included in the AV Calculator 

methodology document. Income level is 

factored into other parts of the market, 

such as the enrollee’s eligibility for cost 

sharing reductions. The cost sharing 

limits in the AV Calculator are reflective 

of the requirements under section 

1302(c) of the Affordable Care Act, as 

implemented in regulations codified at 

§ 156.130(a)(2). 

When updating the trending factor in 

the AV Calculator, we will use two 

sources of data, one to reflect the 

individual market and one to reflect the 

small group market, to develop a single 

trend factor that could be applied to the 

AV Calculator that could be based on 

the premium rate data and/or the 

standard population data compared 

from year to year. For premium rate 

data, these updates will be reflective of 

a combination of utilization and unit 

price increases. We intend to use the 

premium data to trend the Calculator 

because it is a reliable source of data 

that is easily accessible and a good 

indicator of the market cost changes 

from year to year. This premium rate 

data will be modified for proper 

actuarial adjustments to develop the 

trend factor, including adjustments for 

the transitional reinsurance program. 

These adjustments will be detailed in 

the AV Calculator methodology. As we 

discussed in the proposed rule, we will 

consider trending the AV Calculator 

every year and in cases, where the trend 

factor is cumulatively more than 5 

percent different from the previous time 

the AV Calculator was updated, we 

would implement the trend factor. 

Comment: Commenters requested 

additional guidance on a variety topics 

related to the AV Calculator as well as 

analysis of AV policy. Other 

commenters expressed concern that 

updates to the algorithms could impact 

plans’ AV. Some commenters requested 

the opportunity to provide input on 

future updates to the AV Calculator and 

requested information about how these 

updates would apply to the minimum 

value calculator and any State AV 

Calculator. 

Response: The standard that we will 

apply in making algorithm adaptations 

will be to have the minimum impact 

possible on the outcomes produced by 

the AV Calculator generally while still 

allowing it to be adaptable to the new 

types of plan designs and allowing more 

types of plan designs to use the AV 

Calculator. However, as noted above, 

because the AV Calculator is a dynamic 

tool, it is impossible to make changes to 

the Calculator’s algorithms without 

potentially impacting the AV output. 

Guidance on the operation and 

functions of the AV Calculator is 

included in both the AV Calculator 

Methodology and the AV Calculator 

User Guide. As we update the AV 

Calculator in future plan years, we will 

revise these documents to provide our 

analysis and clarification where 

possible. In addition to taking into 

consideration stakeholder feedback that 

is submitted to the CMS Actuarial Value 

email address at actuarialvalue@

cms.hhs.gov during the year, we will 

consult with the American Academy of 

Actuaries as well as the National 

Association of Insurance Commissioners 

and will intend to release a draft version 

of the AV Calculator through guidance 

for comment. This guidance will 

include an updated AV Calculator 

Methodology to explain the changes that 

were made to the AV Calculator. We 

also intend to provide future guidance 

on the parameters for updating a State 

AV Calculator. The Department of 

Treasury and the Internal Revenue 

Service are aware of our updates to the 

AV Calculator and may consider 

updates to the minimum value 

calculator. 

Comment: We received two comments 

on potential data sources for family 

plans. Other commenters requested 

additional clarity on incorporating 

family plans as well as recommending 

that issuers should not be required to 

include family coverage in their AV 

calculation. 

Response: We are interested in 

learning more about the potential for 

States’ all payer claims databases 

systems to account for family plan cost 

sharing, but since many of these systems 

are still in development, we will 

monitor these systems to consider this 

option in the future. In the meantime, 

we will continue to maintain the policy 

for accounting for family plans that we 

provided in the ‘‘2014 Letter to Issuers 

on Federally-facilitated and State 

Partnership Exchanges.’’ 52

We believe that determining AV based 

on the cost sharing applicable to an 

individual is appropriate for most 

family plans and that for most plans, the 

amount of the change in AV due to a 

more exact calculation of family cost 

sharing is likely to be within the de 

minimis range. However, if the issuers 

finds that this approach will not yield 

an appropriate AV for a specific family 

plan, then the issuer should use an 

alternative AV calculation method 

under § 156.135(b) providing the 

appropriate documentation. We will 

continue to consider potential AV 

calculation modifications in this area. 

4. National Annual Limit on Cost 

Sharing for Stand-Alone Dental Plans in 

an Exchange 

We proposed to impose a specific 

annual limit on cost sharing for the 

pediatric dental EHB when offered 

through a stand-alone dental plan 

(SADP) of $300 for one covered child 

and $400 for two or more covered 

children. The annual limit on cost 

sharing was proposed to apply for 

SADPs certified by all Exchanges. 

Further, due to the limited variation in 

cost sharing with a decreased annual 

limit on cost sharing, we proposed 

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13812 Federal Register / Vol. 79, No. 47 / Tuesday, March 11, 2014 / Rules and Regulations 

removing the AV requirement 

applicable to SADPs offered through the 

Exchanges that had been established 

previously through rulemaking. 

We are finalizing the annual limit on 

cost sharing with an increase compared 

to the proposed levels, to apply to 

SADPs certified by all Exchanges 

nationally. In response to comments 

that the actuarial value would still be a 

valuable standard for SADPs, we are not 

finalizing our proposal to delete the 

actuarial value requirement at 

§ 156.150(b). 

Comment: Several commenters voiced 

concerns about a lowered annual limit 

on cost sharing, primarily related to the 

anticipated increase in premiums and 

concerns that a reduced annual limit on 

cost sharing would result in plan 

designs that impose deductibles on 

more of the preventive pediatric dental 

services. Commenters stated that these 

higher up-front costs would be a 

deterrent to consumers purchasing 

SADPs for their children if the pediatric 

dental EHB was not included in the 

QHP. Some commenters suggested that 

CMS wait to change the limit until more 

information is available on the first year 

of experience and to avoid disruption 

for consumers in the plan designs for 

year two, and a number suggested that 

the family to single limit ratio remain 

2:1. Other commenters supported the 

approach for its impact on reducing the 

total out-of-pocket costs for a consumer 

enrolled separately in QHPs and SADPs. 

Response: We understand that tradeoffs exist between the different cost 

levers in a plan design, such as 

premiums, deductibles, and annual 

limits on cost sharing. Accordingly, we 

requested comment on the proposed 

annual limits on cost sharing, and 

specifically whether a higher or lower 

limit would be appropriate for the 

pediatric dental EHB. In light of the 

comments received, we are finalizing 

the SADP annual limits on cost sharing 

with increases of $50 on the single child 

limit and $300 on the limit for two or 

more children. The national annual 

limits on cost sharing for the pediatric 

dental EHB when offered as part of a 

stand-alone dental plan are $350 for one 

covered child and $700 for two or more 

covered children. We believe that this 

will provide more benefit design 

flexibility to dental issuers, which will 

reduce the potential impact on 

premiums and other cost-sharing, while 

also furthering our originally stated goal 

in the proposed rule of reducing the 

total annual limit on cost sharing for 

consumers who are enrolled in both 

QHPs and SADPs. The greater increase 

in the limit for two or more children 

enrollees is to retain the 2:1 ratio of 

family, as suggested by commenters, to 

be consistent with the ratio for medical 

plans. 

Comment: Regarding the removal of 

the AV standards, most commenters 

suggested that CMS return to the 

previous AV standards so that 

consumers would continue to have a 

means of comparison between the 

relative levels of coverage and out of 

concern that, without such standards, 

SADPs could transfer more cost sharing 

to up-front deductibles that would 

result in an AV below 70 percent. 

Response: We believe that the 

commenters raised valid points 

regarding the value to a consumer of an 

AV level and, accordingly, we will not 

finalize the deletion of the actuarial 

value standards for SADPs previously 

established in the EHB Rule. The 

standard for SADPs is that they must 

meet either the 70 percent or 85 percent 

AV level. We understand that with the 

reduction in the annual limit on cost 

sharing, the lower of the two limits—70 

percent—may be more difficult to meet, 

but in such cases the SADP could 

instead target the 85 percent level. 

Comment: A small number of 

commenters supported the approach to 

having the annual limit on cost sharing 

for the pediatric dental EHB in SADPs 

as a national limit, as opposed to 

allowing State flexibility. 

Response: We agree with the 

commenter and are finalizing the rule to 

apply nationally. 

5. Additional Standards Specific to 

SHOP 

We proposed adding paragraph 

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

qualified employer in the SHOP that 

becomes a large employer would 

continue to be rated as a small 

employer, regardless of whether the 

QHP being sold through the SHOP is 

sold in the small group market or the 

large group market. To assure 

consistency of pricing within the SHOP, 

we proposed to require a QHP offered 

through the SHOP to comply with the 

rating rules described in § 147.102. 

Nothing in this proposal prevents such 

an employer from choosing to buy a 

guaranteed issue new policy (without 

small group rating rules) in the large 

group market outside of the SHOP. We 

are making a minor change from the 

proposed rule to add ‘‘being sold 

through the SHOP’’ to § 156.285(a)(4)(i). 

We proposed in amendments to 

§ 156.285(a)(4)(ii) to not allow for 

composite premiums in the FF–SHOPs 

when an employer chooses a level of 

coverage and makes all QHPs within 

that level available to its employees. In 

the proposed rule preamble, we also 

indicated that we were considering 

extending the proposed limitation on 

composite premiums to SADPs in the 

FF–SHOPs, and invited comment on 

whether such a prohibition should be 

adopted. We acknowledge that this 

proposal would create a limited 

exception to § 147.102(c)(3) and that it 

would preempt State laws requiring or 

permitting composite premiums in the 

small group market, but we believe this 

proposal to be limited in scope and 

tailored to provide for administrative 

efficiency and uniformity, system 

compatibility among the FF–SHOPs, 

and increased competition and choice 

in the small group market. We are 

finalizing the provisions with a change 

reflecting that, in response to comments 

solicited and received on whether the 

proposal to limit composite premiums 

in an employee choice environment 

should be extended to SADPs, we have 

decided to extend that limitation to 

SADPs when an employer opts to offer 

employees the choice of all SADPs at a 

dental actuarial value level. 

Because the proposed amendments to 

§ 155.705(b)(4) summarized above are 

being finalized as proposed, all SHOPs 

will be permitted to establish standard 

methods for premium payment under 

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

the premium aggregation function, and 

HHS will establish through guidance a 

process and timeline for employers to 

follow when remitting premium 

payments to the FF–SHOPs once 

premium aggregation becomes available 

in the FF–SHOPs. We anticipate that 

after premium aggregation becomes 

available in the FF–SHOPs, an FF– 

SHOP would transmit premium 

payments—both initial and 

subsequent—to issuers on a regular 

schedule and anticipate that this would 

be no more frequently than once a week. 

We proposed adding 

§ 156.285(c)(7)(iii) to establish that a 

QHP issuer offering a QHP through an 

FF–SHOP would be required to enroll a 

qualified employee unless it receives a 

cancellation notice for that employer 

from the FF–SHOP. This operational 

scenario would arise only in the case of 

an employer’s initial premium payment. 

For regular monthly payments from a 

participating SHOP employer, the 

requirements of the payment timeline 

and process established in accordance 

with new § 155.705(b)(4)(ii)(A) (as 

finalized in this rule) and the 

termination provisions of § 155.735 

would apply. We are finalizing this 

provision as proposed. 

Comment: Several commenters 

supported our proposal to limit 

composite premiums in FF–SHOPs to 

employers who choose to offer their 

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53We acknowledge that the proposed 2015 

Payment Notice listed seven elements, but referred 

erroneously to eight elements. 

employees a single QHP. In addition to 

supporting our proposal, many of these 

commenters stressed that composite 

premiums should always be optional for 

issuers participating in FF–SHOPs 

(unless required by State law or 

regulation). A few commenters, 

however, support composite premiums 

for employee choice and believe it will 

add to the value-proposition of FF– 

SHOPs. 

Response: As we discussed in the 

preamble to the proposed rule, our 

proposal to make composite premiums 

in the FF–SHOPs unavailable to 

qualified employers offering employee 

choice was motivated by our concern 

that the amendments to § 147.102 

finalized in this rule would adversely 

affect issuers in an employee choice 

environment, creating an incentive for 

issuers to avoid participating in the FF– 

SHOPs and undermining the Affordable 

Care Act’s goals of increased choice and 

competition in the small group market. 

That is because, under the composite 

premium provisions of § 147.102(c)(3), 

if an issuer offers composite premiums, 

the average enrollee premium amount 

established at the time of the initial 

group enrollment would not change 

until renewal, even if the composition 

of the group changes in the interim. For 

example, if several older employees 

joined the group or several employees 

terminated their coverage, the 

composite premium would remain the 

same until renewal. Because any risk 

related to a change in the group’s 

composition is divided among issuers in 

an employee choice environment, they 

would be taking on proportionately 

more risk than in a single plan 

environment where the issuer would be 

assuming the risk—good and bad—for 

the entire group. In light of these 

concerns, we continue to think the 

prohibition on composite premiums in 

an employee choice environment is 

warranted, and are finalizing this policy 

as proposed through the amendment to 

§ 156.285(a)(4), so as to not allow for 

composite premiums in an employee 

choice environment. 

Comment: We received some 

comments agreeing with our proposal to 

extend to SADPs in the FF–SHOPs the 

proposed limitation on composite 

premiums in an FF–SHOP when an 

employer selects a level of coverage and 

makes all QHPs within that level 

available to its employees. 

Response: In response to these 

comments, we are modifying the final 

rule to provide that the limitation on 

composite premiums in an employee 

choice environment applies to both 

medical QHPs and SADPs, in 

circumstances where the employer 

offers employees a choice of all plans at 

a given AV level or dental AV level. As 

is the case with composite premiums for 

medical QHPs, we believe composite 

premiums for SADPs could potentially 

adversely affect issuers when the 

employer offers employees all SADPs at 

a given dental AV level, and could 

create an incentive for SADP issuers to 

avoid participating in the FF–SHOPs 

and undermine the Affordable Care 

Act’s goals of increased choice and 

competition in the small group market. 

Therefore, we have finalized this 

provision with additional language 

establishing that the limitation on 

composite premiums also applies for 

SADPs when employees are given a 

choice of SADPs at a given dental AV 

level. 

Comment: We received varying 

comments on our proposal to require 

issuers in FF–SHOPs to effectuate 

coverage unless they receive a 

cancellation notice for non-payment of 

premium. Some commenters supported 

our proposal to require issuers to 

effectuate coverage if the FF–SHOP does 

not send a cancellation transaction prior 

to the coverage effective date. Some 

commenters opposed our proposal, 

stating that issuers should not be 

required to effectuate coverage before 

receiving the initial premium payment 

from the FF–SHOP. One commenter 

stated that issuers typically have 

payments in hand prior to coverage 

effectuation, giving issuers time to 

ensure that member enrollment packets 

can be sent out prior to the enrollment 

cut-off date. One commenter took a 

similar position, though suggested that 

issuers be allowed to pend claims until 

the initial payment is received by the 

FF–SHOP. Another commenter stated 

that the proposed policy could lead to 

provider reluctance to participate in 

Exchange plans. Finally, one comment 

suggested that a potential solution to 

this timing issue would be for the FF– 

SHOP to transmit daily payments to 

issuers. 

Response: This rule does not require 

issuers to effectuate coverage if the FF– 

SHOP does not receive a premium 

payment by the deadline established for 

the FF–SHOP. If payment is not 

received by the FF–SHOP prior to that 

deadline, CMS will issue a cancellation 

notice, or, in the case of payments 

subsequent to the initial premium 

payment, a termination notice to issuers 

for non-payment of premium. In 

addition, we anticipate sending issuers 

weekly premium payments, so the 

length of time between receipt of 

payment and premium remittance is not 

expected to be more than approximately 

one week. Therefore, we are not 

modifying our proposal in response to 

these comments. 

6. Meaningful Difference Standard for 

QHPs in the FFEs 

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

Affordable Care Act, codified at 

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

that the Exchange may certify a health 

plan as a QHP if it determines that 

making the plan available through the 

Exchange is in the interests of qualified 

individuals and qualified employers in 

the State or States in which such 

Exchange operates. Therefore, as a 

means of ensuring that all QHPs offered 

through an FFE are in the interest of 

qualified individuals and qualified 

employers, we proposed that, to be 

certified as a QHP in an FFE, a plan 

must be considered ‘‘meaningfully 

different’’ from all other plans offered 

by the same issuer through the same 

Exchange, and we proposed a standard 

for what is meant by the term 

‘‘meaningfully different.’’ 

In § 156.298(a), we proposed that the 

FFEs and FF–SHOPs would impose a 

meaningful difference requirement 

when approving a QHP application for 

certification of multiple QHPs within a 

service area and level of coverage in the 

Exchange from a single issuer. Due to 

the special characteristics of the SADP 

market, HHS proposed not to require 

meaningful difference as a condition for 

certification among SADPs at this time. 

We proposed, in § 156.298(b), that a 

plan within a service area and metal tier 

(bronze, silver, gold, or platinum, and 

catastrophic coverage) would be 

considered meaningfully different from 

other plans if a reasonable consumer 

(the typical consumer buying health 

insurance coverage) would be able to 

identify at least two material differences 

among seven 53 key characteristics 

between the plan and other plans to be 

offered by the same issuer. The key 

characteristics were proposed in 

paragraphs (b)(1)–(b)(7), and include (1) 

cost sharing; (2) provider networks; (3) 

covered benefits (including prescription 

drugs); (4) plan type (for example, HMO 

or PPO); (5) premiums; (6) health 

savings account eligibility; and (7) selfonly, non-self-only, or child-only 

coverage offerings. We proposed that, at 

a minimum, a reasonable consumer 

would have to be able to identify two or 

more of the characteristics proposed at 

§ 156.298(b) as different in order for the 

plan to pass the meaningful difference 

test. Therefore, within a service area and 

level of coverage in an Exchange, if two 

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plans submitted by a single issuer 

seeking QHP certification vary among 

their cost sharing and covered benefits 

features but have the same premiums, 

the plans would be deemed as having 

met the meaningful difference test. 

Furthermore, to ensure that 

consumers have an adequate number of 

plan options across all metal levels of 

coverage, we proposed at § 156.298(c), 

that if HHS determines that the plan 

offerings at a particular metal level 

(including catastrophic plans) within a 

county are limited, plans submitted for 

certification at that level within that 

county would not be subject to the 

meaningful difference requirement. 

To provide flexibility for issuers that 

merge with or acquire another issuer 

that is a separate legal entity, HHS 

proposed in § 156.298(d), a 2-year 

meaningful difference transition period 

starting from the date on which a QHP 

issuer (acquiring entity) obtains or 

merges with another issuer. We 

proposed in paragraph (d) that during 

the first 2 plan years after a merger or 

acquisition, the acquiring entity can 

offer plans that were recently obtained 

or merged from another issuer that do 

not meet the meaningful difference 

standard. 

We are finalizing the provisions with 

the following modifications. To address 

concerns with the proposed meaningful 

difference standard, we have modified 

§ 156.298(b) to have the standard set at 

one material difference rather than two, 

and have removed premiums as one of 

the characteristics among which plans 

must be different. We are not finalizing 

the text proposed at § 156.298(b)(5) and 

are therefore renumbering the 

provisions proposed at § 156.298(b)(1)– 

(7) as § 156.298(b)(1)–(6). To be 

consistent with previous HHS language 

used for other guidance and regulation, 

we have modified § 156.298(b)(6) 

(previously § 156.298(b)(7)) to read 

‘‘child-only plan offerings’’ rather than 

‘‘child-only offerings.’’ 

Comment: Several commenters were 

supportive of the standard in general, 

but they also recommended modifying 

the standard from two differences to one 

to be consistent with the guidance CMS 

released for the 2014 coverage year. 

Furthermore, issuers believed strongly 

that one material difference (that is, 

plan type of HMO vs. PPO) would have 

a large enough impact for consumers to 

be able to differentiate plans from one 

another. 

Response: Based on the comments 

received, we agree that one material 

difference (that is, plan type of HMO vs. 

PPO) would have a large enough impact 

for consumers to be able to differentiate 

plans from one another, which satisfies 

our policy goal of ensuring the ability to 

readily differentiate and compare plan 

choices, leading to informed decisions. 

Accordingly, we are finalizing the 

standard at § 156.298(b) with a 

modification from two material 

differences to one. 

Comment: Several commenters 

opposed the inclusion of premiums as a 

material difference among the key 

characteristics at the proposed 

§ 156.298(b)(5), to use when 

determining if the meaningful difference 

standard is met. Specifically, 

commenters noted that premiums alone 

are not indicators of difference in plan 

design, but rather a function of plan 

design difference that are already 

accounted for in the other 

characteristics included in the proposed 

list. 

Response: We agree based on the 

strong feedback from commenters that 

premiums alone are not indicators of 

difference in plan design, Therefore, we 

have revised § 156.298(b) so that 

premium is no longer included as a 

material difference option. We have 

renumbered the remaining 

characteristics accordingly. 

Comment: Commenters expressed 

concern over the vague descriptions of 

the characteristics associated with the 

proposed standard and requested more 

robust quantitative standards for issuers 

to follow for the 2015 benefit year. For 

instance, several commenters requested 

further guidance on the cost-sharing 

characteristic. 

Response: While we understand the 

reasoning for having more robust 

quantitative standards, we are not 

adding more robust quantitative 

standards to the characteristics because 

we believe that the characteristics are 

generally sufficiently detailed for 

issuers to be able to design QHPs that 

would be meaningfully different under 

this standard. 

Comment: Some commenters 

expressed concern with the limited plan 

availability exception proposed at 

§ 156.298(c). Commenters stated that 

they believed this exception may lead to 

cherry-picking of particular counties by 

issuers and anti-competitive practices to 

saturate the market. 

Response: This policy helps to ensure 

that consumers have adequate plan 

choice in every county within the 

marketplace. We are finalizing this 

provision of the proposed policy as 

written. 

Comment: Several commenters agreed 

with the approach of limiting an issuer’s 

participation in the FFEs should there 

be significantly different rate increases 

for its QHPs and non-QHPs, based on 

the Exchange’s authority under sections 

1311(e)(1) and (e)(2) of the Affordable 

Care Act. Moreover, commenters 

thought that it is important for HHS to 

take sufficient action to ensure that a 

given plan in the FFE is in the interest 

of qualified individuals and qualified 

employees. Conversely, other 

commenters opposed the proposed 

policy as they noted that numerous 

components of the Affordable Care Act 

that mitigate adverse selection between 

QHP and non-QHPs already exist, so 

there is no need for HHS to impose a 

new protection for the FFEs. 

Response: We appreciate all the 

feedback and comments regarding o the 

proposed approach. We are not 

finalizing any new policy related to 

limiting participation in the FFEs on 

this basis and will take this feedback 

into consideration for future 

rulemaking. 

7. Quality Standards: Establishment of 

Patient Safety Standards for QHP Issuers 

In § 156.1110, we proposed that 

during phase one, a QHP issuer that 

contracts with hospitals that have more 

than 50 beds, must verify that they are 

Medicare-certified or have been issued a 

Medicaid-only CMS certification 

number (CCN), and are subject to 

Medicare Hospital Conditions of 

Participation (CoPs) requirements found 

in 42 CFR part 482 (specifically, 

standards regarding a quality 

assessment and performance 

improvement program and a discharge 

planning process). We proposed to 

direct QHP issuers to maintain 

documentation, including but not 

limited to the CCN for each hospital, to 

demonstrate compliance. We further 

proposed that a QHP issuer must make 

this documentation available to the 

Exchange, upon request by the 

Exchange, and in a time and manner 

specified by the Exchange. Lastly, we 

proposed that a QHP issuer must ensure 

that each of its QHPs meet these initial 

patient safety standards for plan or 

policy years beginning on or after 

January 1, 2015. Additional patient 

safety standards for QHP issuers would 

be implemented over time, under the 

Secretary’s authority under section 

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

We noted that we anticipate establishing 

phase two implementation which would 

begin January 1, 2017 or when we issue 

further regulations based on a 

reassessment of the Exchange market, 

whichever is later, to include standards 

around hospitals and Patient Safety 

Organizations (PSO), health care 

providers, and health care quality 

improvement mechanisms. We noted 

that implementing all of the 

requirements described in section 

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1311(h) by January 1, 2015, could result 

in a shortage of qualified hospitals and 

providers available for contracting with 

QHPs. 

We are finalizing this approach as 

proposed with one modification. We are 

modifying the documentation standard 

in § 156.1110(b) to remove ‘‘including, 

but not limited to, the CCN,’’ to indicate 

that only the CCN is required to be 

collected. 

Comment: Many commenters agreed 

with the proposed provisions that we 

outlined in the proposed rule and 

supported the use of Medicare Hospital 

CoPs requirements in the initial phase 

of implementation of patient safety 

standards. Many commenters also 

expressed support for the phase-in 

approach to implementing the patient 

safety reporting standards for QHP 

issuers. They stated that the proposed 

approach was reasonable to ensure 

adequate numbers of hospitals in QHP 

networks and to safeguard patient 

access to health care services. 

Commenters agreed with HHS’s 

rationale that currently, there is 

insufficient capacity of Patient Safety 

Organizations (PSOs) and expressed 

concern that any more stringent 

standards than what was proposed 

would have negative effects on patient 

access and breadth of networks. 

Response: We are finalizing the 

regulation as proposed with one minor 

change to the documentation standard, 

as discussed above. By finalizing as 

proposed, we believe that this approach 

to implementation of section 1311(h) 

would ensure that QHP issuers have 

sufficient hospitals and health care 

providers to contract with, while 

providing consumers with access to 

health care that meets adequate safety 

and quality standards. 

Comment: Several commenters did 

not support the delay of the QHP issuer 

requirement of ensuring contracted 

hospitals have agreements with PSOs 

and disagreed with the proposed length 

of the phase-in period. These 

commenters disagreed regarding 

constraints for hospitals to enter into 

agreements with PSOs and for issuers to 

track such information. One commenter 

stated that Medicare Hospital CoPs 

requirements are not a proper substitute 

for hospital PSO relationships. Other 

commenters requested that CMS ensure 

that the phase-in lasts no more than one 

year as patient safety reporting is 

important to inform consumer choice 

and for health system improvement. 

Response: We believe that the 

proposed phase-in for standards will 

ensure that QHP issuers and their 

contracted hospitals demonstrate the 

implementation of patient safety 

activities while allowing time to 

develop more robust standards. We 

believe that establishing standards 

requiring hospital agreements with 

PSOs would be overly burdensome and 

an inefficient use of resources for the 

majority of hospitals and QHP issuers at 

this time. We believe it is important for 

hospitals to take adequate time to assess 

their unique patient safety data 

collection and analysis needs and to 

establish agreements with the 

appropriate PSOs. Further, we believe 

the proposed approach allows QHP 

issuers the opportunity to monitor 

patient safety of their network hospitals 

for meaningful compliance with patient 

safety standards. As the Exchange 

market evolves and as enrollment 

increases, we believe that patient safety 

reporting standards for QHP issuers 

should be enhanced. We do not intend 

phase one standards to be a substitute 

for hospital and PSO agreements. We 

believe that the first phase of 

implementation and aligning with 

Medicare Hospital CoPs requirements is 

appropriate at this time because the 

approach allows for effective alignment 

of hospital quality standards, clear 

standards for issuers and hospitals, and 

sufficient patient access to health care, 

in time to meet the statutory deadline of 

January 1, 2015. 

Comment: A few commenters 

expressed concerns that the proposed 

rule fails to acknowledge successes of 

PSOs and participating providers and 

potentially has a negative impact on the 

progress in patient safety. Some 

commenters stated that those hospitals 

participating in PSO programs should 

be differentiated or rewarded using a 

preferred quality provider designation. 

Response: We acknowledge that there 

are many successful, existing patient 

safety initiatives among health care 

providers across the country, including 

work by PSOs. In addition, we continue 

to encourage robust QHP provider 

networks that promote access to quality 

health care services. We believe the 

standards in the proposed rule support 

existing patient safety initiatives by 

providing a balanced approach to 

minimize potential duplication of 

hospital quality standards and ensure 

that individuals have the necessary 

access to health care. We recognize that 

many hospitals already have established 

agreements with PSOs but we do not 

believe it is necessary to require such 

agreements of hospitals at this time. We 

do not intend to restrict hospitals and 

QHP issuers from including such 

information in their marketing materials 

if they choose to. 

Comment: One commenter supported 

the proposed approach as integrated 

delivery systems are not able to follow 

the requirements of the Patient Safety 

Quality Improvement Act (PSQIA) 

which create barriers to the free flow of 

information between providers and the 

integrated health plan issuer of a QHP. 

One commenter was concerned with 

regard to the integrated system’s ability 

to participate in PSOs and encouraged 

the development of a reasonable 

alternative. 

Response: We understand the 

commenter’s concern of the unique 

challenges of an integrated health care 

delivery system to participate in the 

Federal PSO program established under 

the PSQIA. As we state in the preamble 

to this final rule, we intend to issue 

future rulemaking regarding the 

establishment of reasonable exceptions 

pursuant to the Secretary’s authority in 

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

Act and will welcome additional 

comments at that time. 

Comment: A few commenters were 

concerned that the proposed standards 

require QHP issuers to contract only 

with Medicare-certified hospitals and 

would therefore have a negative effect 

on patient access and breadth of 

networks. Specifically, commenters 

requested clarification that the 

standards only applied to Medicarecertified hospitals and would not 

restrict contracting with non-Medicare 

hospitals. They also asked for clarity 

that the standards did not apply to 

hospitals that may be temporarily 

without CCNs. 

Response: We are clarifying that the 

standards do not require QHP issuers to 

only contract with Medicare-certified 

hospitals. As we stated in the proposed 

rule, the standards are designed to not 

significantly limit hospital participation 

in QHP networks and as proposed, 

would prevent a potential shortage of 

qualified hospitals and providers 

available for contracting with QHPs. 

The proposed standards in § 156.1110 

establishes that a QHP issuer that 

contracts with a hospital with greater 

than 50 beds must verify that the 

hospital is Medicare-certified or has 

been issued a Medicaid-only CCN. 

However, QHP issuers are not prevented 

from contracting with other types of 

hospitals and providers. 

Comment: One commenter cautioned 

CMS against implementing duplicative 

standards on hospitals and noted the 

hospital value-based purchasing 

programs and other quality reporting 

requirements included in the Affordable 

Care Act as potential areas for 

alignment. A few commenters made 

suggestions as to alignment of hospital 

standards across Medicare, Medicaid, 

and commercial markets. 

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Response: We believe the proposed 

standards to align with Medicare 

Hospital CoPs requirements for Quality 

Assurance and Performance 

Improvement programs and discharge 

planning in the initial years of 

implementation minimizes duplication 

and we intend to continue efforts to 

align with existing and effective 

Federal, State, and private health care 

quality reporting initiatives as well as 

other quality reporting requirements in 

the Affordable Care Act to minimize 

duplication. Comments regarding 

programs other than Exchanges and 

QHP issuers (such as hospital valuebased purchasing programs) are outside 

the scope of this final rule. 

Comment: One commenter urged 

CMS to establish standards, or at the 

least a framework, for 1311(g), related to 

quality improvement strategy reporting 

by QHP issuers, before implementing 

the second phase of section 1311(h) of 

the Affordable Care Act. The commenter 

stated that it is inappropriate to request 

issuers to comment on the future phase 

without providing standards for 1311(g) 

of the Affordable Care Act. 

Response: We understand the 

commenter’s concern of establishing 

standards regarding QHP quality 

improvement strategies in accordance 

with section 1311(g) of the Affordable 

Care Act prior to the future phase of 

implementation of patient safety 

standards. We intend to issue 

rulemaking in the future and will 

welcome comments to inform 

implementation of 1311(g) at that time. 

We agree with the commenter regarding 

the importance of harmonization of 

quality and patient safety reporting 

standards for QHP issuers. 

Comment: One commenter suggested 

that phase one implementation of the 

standards should require hospitals to 

undergo an external evaluation by 

expert surveyors similar to the Medicare 

requirement for accredited hospitals. 

Response: We believe that the 

proposed standards are adequate for 

phase one implementation of patient 

safety reporting for QHP issuers without 

placing undue burden on issuers or 

hospitals. We do not intend to duplicate 

standards for hospital survey and 

certification processes already in place 

and we also do not intend to interfere 

with hospital accreditation processes. 

Comment: Many commenters 

supported the proposal to apply the 

patient safety reporting requirements to 

hospitals with more than 50 beds. 

Response: We are finalizing the 

statutory distinction of number of 

hospital beds to be greater than 50 beds 

as proposed. 

Comment: One commenter requested 

CMS to clarify what it considers to be 

a section 1861(e) hospital, including the 

types of hospitals. The commenter 

requested confirmation of their 

understanding that CMS intends for this 

provision to apply only to hospitals that 

are subject to the CoPs standards for 

Quality Assurance and Performance 

Improvement programs and discharge 

planning, which is broader than general 

acute care hospitals. Some commenters 

expressed concern that the proposed 

standards do not apply to hospitals with 

fewer beds, children’s hospitals, critical 

access hospitals, inpatient psychiatric 

facilities or other hospitals that do not 

participate in Medicare or Medicaid. 

Response: Section 1861(e) of the 

Social Security Act refers to the 

definition of the term, hospital. We 

clarify that the hospitals that are 

included in these proposed standards 

are those that are subject to the 

Medicare Hospital CoPs and that are 

Medicare-certified or are Medicaid-only 

hospitals that have CCNs. QHP issuers 

may continue to contract with other 

types of hospitals or providers that are 

not included in this reference; however, 

the issuer would not have to maintain 

the associated hospital CCNs based on 

these standards. For example, although 

we do not specifically identify 

psychiatric hospitals that are defined by 

1861(f) of the Social Security Act, the 

proposed standards do not prevent QHP 

issuers from contracting with such 

hospitals. QHP issuers would not be 

required to collect and maintain CCNs 

for such hospitals in accordance with 

§ 156.1110 but again, would be able to 

continue to contract with such 

hospitals. We encourage all hospitals 

and health care providers to engage in 

patient safety improvement activities 

with the goal of reducing harm and 

achieving better patient health 

outcomes. In the second phase of 

implementation, we will assess the 

feasibility of applying future patient 

safety reporting standards to other types 

of hospitals and will solicit comment at 

that time. 

Comment: Several commenters did 

not support the proposed methodology 

for collecting and documenting a 

hospital’s CCN as it could be 

burdensome to QHP issuers. Several 

other commenters offered suggestions 

for different methods that HHS could 

use, including having HHS collect the 

information from a hospital’s 

accrediting entity or using publicly 

available data, such as Medicare’s 

Provider of Services file. Another 

commenter asked that we specify what 

other documentation may be required in 

addition to a hospital’s CCN. 

Response: We acknowledge that there 

may be other sources for collecting a 

hospital’s CCN; however, we believe 

that the QHP issuer should have the 

responsibility of tracking their 

contracted hospitals adherence to the 

standards we have proposed. In the final 

rule, we are modifying the 

documentation standard to direct QHP 

issuers to maintain only the CCNs for 

each hospital that these standards apply 

to. We maintain the collection and 

reporting of CCNs but we have removed 

reference to any other documentation. 

Comment: One commenter seeks 

clarification that QHP issuers meet the 

documentation requirements for 

Medicare-certified or Medicaid-only 

CCN hospitals simply by providing 

Exchanges proof of those hospitals’ 

certification or CCN, as provided to the 

QHP by the contracted hospital. 

Response: We clarify that the QHP 

issuer would meet the documentation 

standard by providing the Exchange, 

upon request by the Exchange, the 

applicable hospitals’ CCNs as provided 

by the contracted hospitals. We also 

clarify that it is the responsibility of the 

QHP issuer to ensure that accurate CCN 

information is maintained. 

Comment: Several commenters 

disagreed with the proposed length of 

the phase-in period and requested that 

HHS ensure that the phase-in lasts no 

more than one year as patient safety 

reporting is important to inform 

consumer choice and for health system 

improvement. Another commenter 

requested that the phase-in period be 

shortened to one year. 

Response: We maintain that the first 

phase of implementation would be for 2 

years beginning January 1, 2015 or until 

we issue further regulations based on a 

reassessment of the Exchange market, 

whichever is later. We believe that this 

provides ample time for Exchange 

markets to develop, QHP provider 

networks to grow, PSOs to continue 

expanding, continued research 

regarding more robust patient safety 

standards for QHP issuers and examples 

of comparable activities to be included 

as reasonable exceptions. 

Comment: Several commenters 

provided detailed suggestions for 

implementing the future phase of 

patient safety reporting standards 

including reasonable exceptions to the 

requirements and a number of 

comments regarding the core aspects of 

a hospital patient safety program, 

discharge planning program, health care 

quality improvement activities, and how 

QHPs can effectively track patient safety 

activities. Some commenters requested 

additional details regarding phase two 

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to be provided now so that stakeholders 

may have time to prepare. 

Response: We intend to promulgate 

future rulemaking outlining a proposed 

approach and will seek additional 

public comment at that time. 

8. Financial Programs 

a. Netting of Payments and Charges 

In the 2014 Payment Notice, HHS 

established a monthly payment and 

collections cycle for the advance 

payments of the premium tax credit, 

cost-sharing reductions, and FFE user 

fees, and an annual payment and 

collections cycle for the premium 

stabilization programs and 

reconciliation of cost-sharing 

reductions. For 2014, to streamline our 

payments and collections process, we 

provided in § 156.1215(a) that each 

month HHS will determine amounts 

owed to or by a QHP issuer by netting 

amounts owed by the QHP issuer to the 

Federal government against payments 

due to the QHP issuer for advance 

payments of the premium tax credit, 

advance payments of cost-sharing 

reductions, and payment of FFE user 

fees. In addition to this netting across 

these programs, as further described 

below, the monthly calculation of 

amounts due will reflect current 

information related to enrollment for 

past months, including information 

related to excess payments previously 

made. Finally, amounts owed to or by 

a QHP issuer will be netted across all 

entities operating under the same 

taxpayer identification number (TIN). 

This process will permit HHS to 

calculate amounts owed each month, 

and pay or collect those amounts from 

issuers more efficiently. When netting 

occurs, HHS will demand amounts due 

only when there is a net balance due to 

the Federal government. 

Additionally, a number of annual 

payment flows will begin in 2015 for the 

risk adjustment program, the 

reinsurance program, the risk corridors 

program, and cost-sharing reduction 

reconciliation. To streamline payment 

and charge flows from all of these 

programs—advance payments of the 

premium tax credit, advance payments 

and reconciliation of cost-sharing 

reductions, FFE user fees, and the 

premium stabilization programs—we 

proposed in § 156.1215(b) that HHS may 

net amounts owed to the Federal 

government against payments due to an 

issuer (or an affiliated issuer under the 

same TIN) under these programs in 2015 

and later years. We believe that this 

process will enable HHS to operate a 

monthly payment cycle that will be 

efficient for both issuers and HHS. 

In § 156.1215(c), we proposed that 

any amount owed to the Federal 

government by an issuer and its 

affiliates for advance payments of the 

premium tax credit, advance payments 

of and reconciliation of cost-sharing 

reductions, FFE user fees, risk 

adjustment, reinsurance, and risk 

corridors after netting be the basis for 

calculating a debt owed to the Federal 

government. We proposed that 

payments and collections under all of 

these programs occur under an 

integrated monthly payment and 

collection cycle. 

After considering the comments 

received, we are finalizing these 

provisions as proposed. 

Comment: We received several 

comments supporting the proposed 

netting provisions in § 156.1215. 

However, one commenter asked HHS to 

net in a rolling fashion every month, 

and wait until the end of the calendar 

year to invoice issuers for any remaining 

balance. 

Response: We believe that issuers 

should pay amounts owed on a monthly 

basis. Under our debt collection rules, 

these amounts owed could begin to 

accrue interest and penalties in 

subsequent months. 

Comment: In response to our request 

for comment on payment timeframes, 

some commenters asked HHS to amend 

§ 156.1210 in order to give issuers 15 

business days, rather than 15 calendar 

days, to file discrepancy reports. 

Response: The 15-calendar-day 

deadline established in § 156.1210 is 

necessary to permit HHS to resolve 

discrepancies by the next month’s 

payment and collection process. Under 

§ 156.1210(b), HHS will work with 

issuers that report discrepancies after 15 

calendar days as long as the late 

reporting is not due to misconduct on 

the part of the issuer. 

b. Confirmation of HHS Payment and 

Collections Reports 

Under § 156.1210(a), an issuer must 

respond to the payment and collections 

report issued by HHS within 15 

calendar days of receipt of the report by 

either confirming the report or notifying 

HHS if there is a discrepancy between 

the data provided in the payment and 

collections report and the data that the 

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

issuer reports a discrepancy in a 

payment and collections report later 

than 15 calendar days after receipt of 

the report, HHS will work with the 

issuer to resolve the discrepancy as long 

as the late reporting was not due to 

misconduct on the part of the issuer. 

Any resolution to such an identified 

discrepancy is reflected in a later 

payment and collections report and the 

invoice generated under that later report 

does not affect the debt established by 

the invoice generated in connection 

with the earlier report. 

We proposed that if an issuer notifies 

HHS of a discrepancy under 

§ 156.1210(a) or (b), it would trigger an 

administrative discrepancy resolution 

process. Specifically, under 

§ 156.1220(a), following the end of the 

benefit year, if the issuer remains 

dissatisfied with the results of that 

process, the issuer may make a request 

for reconsideration. To decrease the 

administrative burden on issuers, HHS, 

and the Exchanges, and in recognition 

of the number and timing of the data 

flows involved, we proposed not to 

retroactively adjust previous months’ 

payment and collections reports and 

amounts previously due. The amount 

invoiced for a particular month, 

reflecting netted amounts as described 

above, constitutes an amount owed to 

the Federal government. As more 

accurate data become available to HHS, 

the Exchange, and the issuer, we 

proposed that this later information not 

reduce or increase the previous 

determination of an amount owed. 

Rather, the information is captured in 

subsequent months and reflected in 

subsequent payment cycles, and 

reflected in later invoices. Thus, an 

issuer would be required to pay the full 

amount of any invoice issued in 

connection with a payment and 

collection report for a month even if the 

issuer notes a discrepancy that may later 

be resolved as a credit in a later invoice. 

Therefore, we proposed to add 

paragraph (c) to § 156.1210 to provide 

that discrepancies in payment and 

collections reports identified to HHS 

under that section be addressed in 

subsequent payment and collections 

reports, and would not be used to 

change debts determined pursuant to 

invoices generated under previous 

payment and collections reports. 

After considering comments on this 

approach, we are finalizing these 

provisions as proposed. 

Comment: One commenter supported 

our proposal not to retroactively adjust 

HIX 820 payment and collections 

reports and amounts previously due. 

Another commenter asked HHS to 

amend proposed § 156.1215 to specify 

that HHS will delineate payments and 

charges by program and by issuer, so 

that issuers can track HHS netting, keep 

accurate track of payments by programs, 

and avoid penalties and fines for late 

payments. 

Response: The HHS monthly payment 

and collections report will detail 

charges, payments, and netting by 

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54A processing error could result from HHS 

accessing the data submitted by the issuer on the 

dedicated distributed data environment in an 

incomplete or incorrect manner. We note that under 

proposed § 156.1220(a)(4)(i)–(ii), an issuer may not 

submit new data for consideration in an appeal if 

the data was not submitted prior to the applicable 

data submission deadline, but may submit 

documentary evidence to support a contention that 

data was timely submitted. 

program for each payee group. Each 

payee group consists of one or more 

issuers with the same TIN and is 

established and organized by a parent 

health insurer. In addition to this 

monthly statement, HHS anticipates 

providing issuers with more detailed 

reports relating to certain programs. 

Comment: One commenter asked 

when HHS will make payments to 

issuers for reinsurance, risk adjustment, 

and cost-sharing reduction 

reconciliation. 

Response: We will issue guidance on 

the timing of these payments in the 

future. 

c. Administrative Appeals 

In the proposed rule, we proposed an 

administrative appeals process designed 

to address unresolved discrepancies in 

advance payments of the premium tax 

credit, advance payments of costsharing reductions, FFE user fee 

payments, payments and charges for the 

premium stabilization programs, costsharing reduction reconciliation 

payments and charges, and assessments 

of default risk adjustment charges. 

In § 156.1220(a), we proposed that an 

issuer be permitted to file a request for 

reconsideration of a processing error by 

HHS,54 HHS’s incorrect application of 

the relevant methodology, or HHS’s 

mathematical error only with respect to: 

(1) Advance payments of the premium 

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

charges; (2) risk adjustment payments or 

charges for a benefit year, including an 

assessment of risk adjustment user fees; 

(3) reinsurance payments for a benefit 

year; (4) a risk adjustment default charge 

for a benefit year; (5) a reconciliation 

payment or charge for cost-sharing 

reductions for a benefit year; or (6) risk 

corridors payments or charges for a 

benefit year. For a dispute regarding 

advance payments of the premium tax 

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

amounts for a benefit year, we proposed 

that a request for reconsideration be 

required to be filed within 30 calendar 

days after the issuer receives a final 

reconsideration notification specifying 

the aggregate amount of advance 

payments of the premium tax credit, 

advance payments of cost-sharing 

reductions, and FFE user fees for the 

applicable benefit year. We sought 

comment on this proposal, including on 

the minimum materiality threshold that 

should be required for an issuer to seek 

reconsideration. 

For a dispute regarding a risk 

adjustment payment or charge, 

including an assessment of risk 

adjustment user fees, a reinsurance 

payment, a default risk adjustment 

charge, a cost-sharing reduction 

reconciliation payment or charge, or a 

risk corridors payment or charge, we 

proposed that a request for 

reconsideration be filed within 30 

calendar days of receipt of the 

applicable notification of payments and 

charges from HHS. 

In proposed § 156.1220(a)(3)(i) 

(§ 156.1220(a)(4)(i) in this final rule), we 

proposed that the request for 

reconsideration specify the findings or 

issues that the issuer challenges, and the 

reasons for the challenge. In proposed 

§ 156.1220(a)(3)(ii) (§ 156.1220(a)(4)(ii) 

in this final rule), we proposed that a 

reconsideration with respect to a 

processing error by HHS, HHS’s 

incorrect application of the relevant 

methodology, or HHS’s mathematical 

error be permitted to be requested only 

if, to the extent the issue could have 

been previously identified by the issuer 

to HHS under § 153.710(d)(2) or (e)(2), 

it was so identified and remains 

unresolved. Similarly, in proposed 

§ 156.1220(a)(3)(iii) (§ 156.1220(a)(4)(iii) 

in this final rule), we proposed that a 

reconsideration with respect to advance 

payments of the premium tax credit, 

advance payments of cost-sharing 

reductions, and FFE user fees be 

permitted to be requested only if, to the 

extent the issue could have been 

previously identified by the issuer to 

HHS under § 156.1210, it was so 

identified and remains unresolved. We 

proposed that an issuer be permitted to 

request reconsideration if it previously 

identified an issue under § 156.1210 

after the 15-calendar-day deadline, but 

that the issuer’s late discovery of the 

issue was not due to misconduct on the 

part of the issuer. 

In § 156.1220(a)(3)(iv) 

(§ 156.1220(a)(4)(iv) in this final rule), 

we proposed that the issuer be 

permitted to include in the request for 

reconsideration additional documentary 

evidence that HHS should consider. 

Such documents could not include data 

that was to have been filed by the 

applicable data submission deadline, 

but could include evidence of the timely 

submission of such documents. 

In § 156.1220(a)(4) (§ 156.1220(a)(5) in 

this final rule), we proposed that in 

conducting the reconsideration, HHS 

would review the payment 

determination, the evidence and 

findings upon which it was based, and 

any additional documentary evidence 

submitted by the issuer. HHS would 

also have the discretion to review any 

other evidence it believes is relevant in 

deciding the reconsideration (and 

would provide the issuer a reasonable 

opportunity to review and rebut the 

evidence), and would then inform the 

issuer of the final decision in writing. 

We proposed that an issuer would be 

required to prove its case by a 

preponderance of the evidence with 

respect to issues of fact. 

In § 156.1220(a)(5) (§ 156.1220(a)(6) in 

this final rule), we proposed that a 

reconsideration decision would be final 

and binding for decisions regarding the 

advance payments of the premium tax 

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

reconsideration with respect to other 

matters would be subject to the outcome 

of a request for informal hearing filed in 

accordance with proposed 

§ 156.1220(b). We proposed in 

§ 156.1220(b) that an issuer that elects to 

challenge the reconsideration decision 

for the final risk adjustment payment or 

charge, including an assessment of risk 

adjustment user fees; reinsurance 

payment; default risk adjustment 

charge; cost-sharing reduction 

reconciliation payment or charge; or risk 

corridors payment or charge for a 

benefit year provided under paragraph 

(a) of § 156.1220 would be entitled to an 

informal hearing before a CMS hearing 

officer. In § 156.1220(b)(1), we proposed 

that a request for an informal hearing be 

made in writing and filed with HHS 

within 15 calendar days of the date the 

issuer receives the reconsideration 

decision. In § 156.1220(b)(2), we 

proposed that the request for an 

informal hearing be required to include 

a copy of the reconsideration decision 

and specify the findings or issues in the 

decision that the issuer is challenging 

and its reasons for the challenge. We 

also proposed that HHS be permitted to 

submit for review by the CMS hearing 

officer a statement of the reasons 

supporting the reconsideration decision. 

In § 156.1220(b)(3)(i), we proposed 

that the issuer would receive a written 

notice of the time and place of the 

informal hearing at least 15 calendar 

days before the scheduled date. In 

§ 156.1220(b)(3)(ii), we proposed that 

the CMS hearing officer would neither 

receive testimony nor accept any new 

evidence that was not presented with 

the reconsideration request or in any 

statement provided by HHS. The scope 

of the CMS hearing officer’s review 

would be limited to the statements 

provided by the issuer and HHS and the 

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55Consistent with the Medicare Advantage risk 

adjustment data validation audit dispute and appeal 

processes set forth in 42 CFR 422.311, we intend 

to propose in future rulemaking that CMS may also 

request review by the Administrator of a CMS 

hearing officer’s decision. 

record that was before HHS in making 

the reconsideration determination. We 

would require that the issuer prove its 

case by clear and convincing evidence 

with respect to issues of fact and would 

permit the issuer to be represented by 

counsel in the informal hearing. 

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

following the informal hearing, the CMS 

hearing officer send the decision and 

the reasons for the decision to the 

issuer. We proposed that this decision 

be final and binding, but subject to any 

Administrator’s review initiated in 

accordance with proposed 

§ 156.1220(c). 

We proposed in § 156.1220(c)(1) that 

if the CMS hearing officer upholds the 

reconsideration decision, the issuer be 

permitted to request a review by the 

Administrator of CMS within 15 

calendar days of receipt of the CMS 

hearing officer’s decision.55 The request 

for a review by the Administrator of 

CMS would be required to specify the 

findings or issues in the decision that 

the issuer is challenging, and the 

reasons for the challenge. We proposed 

that HHS be permitted to submit for 

review by the Administrator of CMS a 

statement supporting the decision of the 

CMS hearing officer. 

In § 156.1220(c)(2), we proposed that 

the Administrator of CMS or a delegate 

review the hearing officer’s decision, 

any written documents submitted by 

HHS or the issuer, as well as any other 

information included in the record of 

the CMS hearing officer’s decision, and 

determine whether to uphold, reverse, 

or modify the CMS hearing officer’s 

decision. We proposed that the issuer be 

required to prove its case by clear and 

convincing evidence with respect to 

issues of fact. We proposed that the 

Administrator’s determination be 

considered final and binding. 

In response to comments, we are 

finalizing these provisions with the 

following modifications: We are 

extending the deadline to file a request 

for reconsideration to 60 calendar days 

instead of 30 calendar days, and the 

deadline for filing an informal hearing 

to 30 calendar days instead of 15 

calendar days. We are also providing 

that these deadlines will run from the 

date of issuance of the notification and 

reconsideration decision, rather than the 

date an issuer receives the notification 

or reconsideration decision. Finally, we 

are providing that an issuer has 15 

calendar days to request review by the 

Administrator from the date of the CMS 

hearing officer decision, rather than 

from the date of receipt of the decision. 

We are also providing for a minimum 

materiality threshold that an issuer must 

meet in order to request reconsideration 

for (1) advance payments of the 

premium tax credit, advance payments 

of cost-sharing reductions, or Federallyfacilitated Exchange user fees (2) risk 

adjustment payment or charges (3) 

reinsurance payments (4) risk 

adjustment default charges (5) 

reconciliation payments or charges for 

cost-sharing reductions and (6) risk 

corridors payments or charges. That 

threshold is equal to the lesser of 1 

percent of the applicable payment or 

charge listed in the prior enumerated 

categories payable to or due from the 

issuer for a benefit year, or $10,000. For 

example, an issuer that received $75,000 

in advance payments of cost-sharing 

reductions would need to seek 

reconsideration of at least $7,500 in 

those advance payments to meet the 

minimum materiality threshold, and an 

issuer that received $800,000 in 

reinsurance payments would need to 

seek reconsideration of at least $10,000 

in reinsurance payments. 

Comment: Several comments 

supported the proposed administrative 

appeals process. Some commenters 

asked that HHS allow issuers to appeal 

reconsideration decisions regarding 

advance payments of the premium tax 

credit, cost-sharing reductions, and FFE 

user fees. 

Response: Issuers can dispute 

advance payments of the premium tax 

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

amount on a monthly basis through the 

discrepancy report process set forth in 

§ 153.1210, prior to receiving the final 

reconsideration notice in the summer of 

the year following the applicable benefit 

year. Furthermore, the methodology for 

calculating these payments provides few 

factors on which a request for 

reconsideration may be made. Given 

these considerations, we believe that 

providing one level of administrative 

appeal for advance payments of the 

premium tax credit, advance payments 

of cost-sharing reductions, and FFE user 

fees will provide issuers ample 

opportunity to resolve any 

discrepancies. 

Comment: Several commenters sought 

extensions in the proposed timeframe 

for filing an appeal. Commenters asked 

that issuers have 60 calendar days to file 

a request for reconsideration, rather 

than 30 calendar days. The commenters 

also asked that issuers have 30 calendar 

days, rather than 15 calendar days to file 

a request for an informal hearing. 

Response: We appreciate the need for 

additional time to analyze final 

notifications, and are amending 

§ 156.1220(a)(2) to allow issuers 60 

calendar days to file a request for 

reconsideration and § 156.1220(b)(1) to 

allow issuers 30 calendar days to 

request an informal hearing before a 

CMS hearing officer. In order to reduce 

the scope for disputes on when 

notifications are received, we are also 

amending our proposed policies to 

clarify that these timeframes will begin 

at the date of issuance of the notification 

and reconsideration decision rather than 

the date an issuer receives the 

notification or reconsideration decision. 

Comment: Several commenters 

supported a minimum materiality 

threshold that should be required to 

seek reconsideration. One commenter 

suggested a minimum threshold of 1 

percent of total payments made to or 

charges assessed on the issuer for a 

benefit year, while other commenters 

supported a materiality threshold equal 

to the lesser of 1 percent of total 

payments made to or charges assessed 

on the issuer for a benefit year, or 

$10,000. 

Response: We are amending our 

proposed rule to set a minimum 

materiality threshold for an issuer to 

request reconsideration under 

§ 156.1220(a)(1) for (1) advance 

payments of the premium tax credit, 

advance payments of cost-sharing 

reductions, or FFE user fees; (2) risk 

adjustment payment or charges; (3) 

reinsurance payments; (4) risk 

adjustment default charges; (5) 

reconciliation payments or charges for 

cost-sharing reductions; and (6) risk 

corridors payments or charges only if 

the amount in dispute is equal to or 

exceeds 1 percent of the applicable 

payment or charge payable to or due 

from the issuer for the benefit year, or 

$10,000, whichever is less. We are 

adopting a per-category calculation 

rather than an overall calculation 

because we do not believe the threshold 

should be artificially low if the issuer 

happens to have balancing payments 

and charges across the various 

programs. 

Comment: Commenters asked that 

HHS provide detailed guidance on how 

to reflect amounts subject to 

reconsiderations and appeals in MLR 

filings. 

Response: We are finalizing 

§ 153.710(g), which provides details on 

how amounts subject to administrative 

appeals process should be reported for 

the purposes of MLR and risk corridors. 

Issuers must report, for the purposes of 

risk corridors and MLR, the risk 

adjustment or reinsurance payment to 

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be made by the Federal government, or 

the risk adjustment charge assessed by 

the Federal government, as reflected in 

the June 30th report, regardless of the 

amount in dispute. A QHP issuer would 

be required to report a cost-sharing 

reduction amount equal to the amount 

of the advance payments of cost-sharing 

reductions paid to the issuer by HHS for 

the benefit year, as reflected in the HHS 

report on cost-sharing reduction 

reconciliation payments and charges. 

Additionally, if a QHP issuer requests 

reconsideration of risk corridors 

payments or charges, then for purposes 

of MLR reporting, the QHP issuer would 

be required to report the risk corridors 

payment to be made to the Federal 

government or charge assessed by the 

Federal government as reflected in the 

notification provided under 

§ 153.510(d). As stated in 

§ 153.710(g)(2), an issuer must report 

any adjustment made following any 

discrepancy report made under 

paragraphs (d)(2) or (e)(2), or any 

request for reconsideration under 

§ 156.1220(a) with respect to any risk 

adjustment payment or charge, 

including an assessment of risk 

adjustment user fees, reinsurance 

payment, cost-sharing reconciliation 

payment or charge, or risk corridors 

payment or charge, or following any 

audit, where the adjustment has not 

been accounted for in a prior risk 

corridors or MLR report, in the next 

following risk corridors and MLR report. 

IV. Provisions of the Final Regulations 

For the most part, this final rule 

incorporates the provisions of the 

proposed rule. Those provisions of this 

final rule that differ from the proposed 

rule are as follows: 

1. Part 144—Requirements Relating to 

Health Insurance Coverage 

We are finalizing the amendment to 

the definition of ‘‘policy year’’ for 

student health insurance coverage with 

a minor revision to remove the word 

‘‘individual’’ from the reference to 

‘‘individual health insurance coverage.’’ 

2. Part 147—Health Insurance Reform 

Requirements for the Group and 

Individual Health Insurance Markets 

We are restructuring § 147.102(c)(3) as 

paragraphs (c)(3)(i) through (iii). 

We are amending new 

§ 147.102(c)(3)(ii) to provide that an 

issuer offering composite premiums is 

subject to the standards of new 

paragraph (c)(3)(iii), and to specify that 

the requirement that the total group 

premium must equal that the sum of 

per-member premiums is determined at 

the time of applicable enrollment at the 

beginning of the plan year. 

We are amending new 

§ 147.102(c)(3)(iii) to provide that the 

standards in this paragraph apply in 

connection with a group health plan in 

the small group market. 

We are amending new 

§ 147.102(c)(3)(iii)(A) to clarify that 

composite premiums are calculated 

based on applicable enrollment of 

‘‘participants and beneficiaries’’ at the 

beginning of the plan year, and deleting 

references to participants and 

beneficiaries elsewhere in this 

paragraph. 

We are adding new 

§ 147.102(c)(3)(iii)(B) to establish a twotiered composite premium structure for 

small group market issuers that offer 

composite premiums. States may 

establish an alternate tiered-composite 

methodology with approval from HHS. 

We are adding new 

§ 147.102(c)(3)(iii)(C) to provide that an 

issuer cannot include any rating 

variation for tobacco use in a composite 

premium but instead must apply any 

applicable tobacco rating factor on a 

per-member basis, pursuant to 

applicable State law. 

We are adding new 

§ 147.102(c)(3)(iii)(D) to provide that 

issuers offering composite premiums 

with respect to a particular product 

offered in the small group market in a 

State must do so uniformly for all group 

health plans enrolling in that product, 

giving those group health plans the 

option to pay premiums based on a 

composite premium methodology, to the 

extent permitted by applicable State law 

and subject to § 156.285(c) of this final 

rule (prohibiting composite premiums 

in connection with employee choice in 

the FF–SHOPs). 

3. Part 153—Standards Related to 

Reinsurance, Risk Corridors, and Risk 

Adjustment Under the Affordable Care 

Act 

a. Provisions and Parameters for the 

Permanent Risk Adjustment Program 

We are amending § 153.630(b)(1) to 

provide that the issuer must attest that 

it has no conflicts of interest with the 

initial validation auditor to its 

knowledge, following reasonable 

investigation, and must attest that it has 

obtained an equivalent representation 

from the initial validation auditor. 

We are amending § 153.630(b)(7)(i) to 

provide that an enrollee’s risk score 

must be validated by enrollment and 

demographic data review in a manner to 

be determined by HHS. 

We are amending § 153.630(b)(7)(iv) 

to provide that, for the initial years of 

risk adjustment data validation (the 

2014 and 2015 benefit years), the senior 

reviewer may possess 3 or more years of 

experience. 

We are amending § 153.630(b)(8) to 

provide that, for the initial years of risk 

adjustment data validation (the 2014 

and 2015 benefit years), the initial 

validation auditor may meet an interrater reliability standard of 85 percent 

for validating review outcomes in 

accordance with the standards 

established by HHS. 

b. Provisions and Parameters for the 

Transitional Reinsurance Program 

We are amending the definition of 

‘‘contributing entity’’ in § 153.20 to 

mean, for the 2015 and 2016 benefit 

years, a health insurance issuer and a 

self-insured group health plan 

(including a group health plan that is 

partially self-insured and partially 

insured, where the health insurance 

coverage does not constitute major 

medical coverage) that uses a TPA in 

connection with claims processing or 

adjudication (including the management 

of internal appeals) or plan enrollment 

for services other than for pharmacy 

benefits or excepted benefits within the 

meaning of section 2791(c) of the PHS 

Act. Notwithstanding the foregoing, a 

self-insured group health plan that uses 

an unrelated third party to obtain 

provider network and related claim 

repricing services, or uses an unrelated 

third party for up to 5 percent of claims 

processing or adjudication or plan 

enrollment for services other than for 

pharmacy or excepted benefits, will not 

be deemed to use a TPA, based on either 

the number of transactions processed by 

the third party, or the volume of the 

claims processing and adjudication and 

plan enrollment services provided by 

the third party. 

We are amending the definition of 

‘‘major medical coverage’’ in § 153.20 to 

include any catastrophic plan, or 

individual or small group market 

coverage subject to actuarial value 

requirements under § 156.140. 

We are not finalizing our proposal to 

delete and reserve § 153.235(b). 

c. Provisions for the Temporary Risk 

Corridors Program 

We are adding a definition of 

‘‘adjustment percentage’’ to § 153.500, 

and are amending the definitions of 

‘‘profits’’ and ‘‘allowable administrative 

costs’’ in § 153.500 to account for the 

adjusted amount. 

We are adding a definition of 

‘‘transitional State’’ to § 153.500. 

We are making a conforming change 

to § 153.530(d) to clarify that the July 31 

submission deadline for risk corridors 

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data does not apply to the enrollment 

data specified in § 153.530(e). 

We are adding paragraph (e) to 

§ 153.530 to require health insurance 

issuers in the individual and small 

group markets to submit enrollment 

data for the risk corridors adjustment. 

We are not finalizing our proposal in 

§ 153.540 to establish our authority to 

assess CMPs for failure of an issuer to 

comply with applicable risk corridors 

rules. 

4. Part 155—Exchange Establishment 

Standards and Other Related Standards 

Under the Affordable Care Act 

a. Annual Open Enrollment Period for 

2015 

For consistency within this section, 

we are modifying § 155.410(f)(1) to refer 

to ‘‘QHPs’’ instead of ‘‘plans,’’ we are 

amending § 155.410(f)(1)(ii) to correct a 

typographical error referring to 

December 16, 2015 instead of 2014, we 

are amending § 155.410(e)(1) to change 

the close of the open enrollment period 

for 2015 to February 15, 2015, and we 

are amending § 155.410(f)(1)(iii) to 

provide for the applicable coverage 

effective dates for enrollments between 

January 16 and 31, 2015. We are not 

finalizing § 155.410(e)(2) or 

§ 155.410(f)(2), as proposed. 

b. Functions of a Small Business Health 

Options Program 

We are modifying 

§ 155.705(b)(3)(v)(B), which now allows 

an employer to choose to make available 

all stand-alone dental plans offered 

through an FF–SHOP at a level of 

coverage as described in § 156.150(b)(2). 

We are finalizing amendments to 

§ 155.705(b)(6) that were originally 

proposed in the Program Integrity 

proposed rule. We are finalizing 

language proposed at § 155.705(b)(6)(ii) 

at § 155.705(b)(6)(i)(A) instead of at 

(b)(6)(ii), to make clear that we never 

intended for this proposal to supersede 

the language at current 

§ 155.705(b)(6)(ii), and are making a 

minor change to replace the word FF– 

SHOP with the term ‘‘Federallyfacilitated SHOP. 

We added a heading to § 155.220(i). 

We are not finalizing the proposed 

amendment to § 155.705(b)(11)(ii)(D). 

5. Part 156—Health Insurance Issuer 

Standards Under the Affordable Care 

Act, Including Standards Related to 

Exchanges 

a. Provisions Related to Cost Sharing 

We clarify in § 156.420(d) that the 

out-of-pocket spending required of 

enrollees in the zero cost sharing plan 

variation of a QHP for a benefit that is 

not an essential health benefit from a 

provider (including a provider outside 

the plan’s network) may not exceed the 

corresponding out-of-pocket spending 

required in the limited cost sharing plan 

variation of the QHP and the 

corresponding out-of-pocket spending 

required in the silver plan variation of 

the QHP for individuals eligible for costsharing reductions under 

§ 155.305(g)(2)(i), in the case of a silver 

QHP. 

b. National Annual Limit on Cost 

Sharing for Stand-Alone Dental Plans in 

an Exchange 

We are finalizing the annual limit on 

cost sharing with an increase compared 

to the proposed levels, to apply to 

SADPs certified by all Exchanges 

nationally. 

We are not finalizing our proposal to 

delete the actuarial value requirement at 

§ 156.150(b). 

c. Additional Standards Specific to 

SHOP 

We have modified § 156.285(a)(4)(i) to 

add the words ‘‘being sold through the 

SHOP’’ to provide clarity to the 

regulation text finalized at 

§ 156.285(a)(4)(i). 

We have modified § 156.285(a)(4)(ii) 

to provide that the policy expressed in 

that provision also applies to SADPs in 

the Federally-facilitated SHOP, if the 

employer elects to offer coverage to its 

employees under § 155.705(b)(3)(v)(B) 

as finalized in this rule. 

d. Meaningful Difference Standard for 

Qualified Health Plans in the FFEs 

We have modified § 156.298(b) to 

have the standard set at one material 

difference rather than two and have 

removed premiums as one of the 

characteristics among which plans must 

be different. 

We are not finalizing the text 

proposed at § 156.298(b)(5) and are 

therefore renumbering the provisions 

proposed at § 156.298(b)(1) through 

(b)(7) as § 156.298(b)(1) through (b)(6) in 

this final rule. 

e. Quality Standards: Establishment of 

Patient Safety Standards for QHPs 

Issuers 

We are modifying the documentation 

standard in § 156.1110(b) to remove the 

reference to information other than the 

CCN to indicate that only the CCN is 

required to be collected. 

f. Financial Programs 

We are extending the deadline for an 

issuer to request reconsideration from 

30 to 60 calendar days in 

§ 156.1220(a)(3). 

We are extending the deadline for an 

issuer to request an informal hearing 

before a CMS hearing officer from 15 

calendar days to 30 calendar days in 

§ 156.1220(b)(1). 

We are modifying in § 156.1220(a)(3), 

§ 156.1220(b)(1) and § 156.1220(c)(1) the 

date from which certain appeals-related 

deadlines will run so that the deadlines 

will run from the date of issuance of the 

notification, reconsideration decision, 

or CMS hearing officer decision, rather 

than the date an issuer receives the 

notification or decision. 

We are establishing a minimum 

materiality threshold that an issuer must 

meet in order to request reconsideration 

for (1) advance payments of the 

premium tax credit, advance payments 

of cost-sharing reductions, or Federallyfacilitated Exchange user fees (2) risk 

adjustment payment or charges (3) 

reinsurance payments (4) risk 

adjustment default charges (5) 

reconciliation payments or charges for 

cost-sharing reductions and (6) risk 

corridors payments or charges in 

§ 156.1220(a)(2). That threshold is equal 

to the lesser of 1 percent of the 

applicable payment or charge listed in 

the prior enumerated categories payable 

to or due from the issuer for a benefit 

year, or $10,000. 

IV. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 60- 

day notice in the Federal Register and 

solicit public comment before a 

collection of information requirement is 

submitted to the Office of Management 

and Budget (OMB) for review and 

approval. This final rule contains 

information collection requirements 

(ICRs) that are subject to review by 

OMB. A description of these provisions 

is given in the following paragraphs 

with an estimate of the annual burden, 

summarized in Table 7. To fairly 

evaluate whether an information 

collection should be approved by OMB, 

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

Reduction Act of 1995 requires that we 

solicit comment on the following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

We generally used data from the 

Bureau of Labor Statistics to derive 

average labor costs (including capital 

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13822 Federal Register / Vol. 79, No. 47 / Tuesday, March 11, 2014 / Rules and Regulations 

costs, overhead, and fringe benefits) for 

estimating the burden associated with 

the ICRs. 

A. ICRs Related to HHS Audits of StateOperated Reinsurance Programs 

(§ 153.270) 

Under § 153.270, HHS or its designee 

may conduct a financial and 

programmatic audit of a State-operated 

reinsurance program to assess 

compliance with reinsurance program 

requirements. Under this provision, if 

an audit results in a finding of material 

weakness or significant deficiency, a 

State must ensure that the applicable 

reinsurance entity provides a written 

corrective action plan to HHS for 

approval within 60 calendar days of the 

issuance of the final audit report. The 

burden associated with meeting this 

third party disclosure requirement 

includes the burden for a State that 

establishes a reinsurance program to 

ensure that its applicable reinsurance 

entity and any relevant contractors, 

subcontractors, or agents cooperate with 

and take appropriate actions in 

connection with any audit, and the 

burden associated with preparing and 

submitting a corrective action plan to 

HHS for approval. Because only one 

State will operate reinsurance in the 

2014 benefit year, this collection is 

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

3502(3)(A)(i), and we will not seek 

approval from OMB for this information 

collection requirement. We discuss the 

impact associated with HHS audits of 

State-operated reinsurance programs in 

the Regulatory Impact Analysis section 

of this final rule. 

B. ICRs Regarding Issuer and Entity 

Administrative Burden Related to 

Audits for the Premium Stabilization 

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

§ 153.410(d); § 153.620(c)) 

This final rule provides HHS or its 

designee with the authority to audit 

QHP issuers, contributing entities, and 

issuers of risk adjustment covered plans 

or reinsurance-eligible plans to assess 

compliance with the requirements of 

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

applicable. As mentioned earlier in this 

rule, where possible, we intend to align 

the risk corridors audit process with the 

audits conducted for the MLR program. 

Therefore, we believe that the issuer 

burden associated with the risk 

corridors audit is already accounted for 

as part of the Supporting Statement for 

the MLR program approved under OMB 

control number 0938–1164. 

These provisions will require a thirdparty disclosure requirement of issuers 

of risk adjustment covered plans and 

issuers of reinsurance-eligible plans to 

prepare and compile the financial and 

programmatic information necessary to 

comply with the audit. In the proposed 

rule, we estimated that it would take a 

total of approximately 60 hours of 

preparation time for each onsite review 

and an additional 30 hours of onsite 

time for each issuer, at an hourly labor 

cost of $53.75 and a total cost of 

approximately $4,838 for each issuer. 

Because we have not finalized our audit 

protocols, it is difficult to accurately 

estimate an audit rate. However, we 

believe that it is reasonable to assume 

that approximately 120 issuers, 

representing roughly 5 percent of 

issuers of risk adjustment covered plans 

or reinsurance-eligible plans, would be 

audited. Therefore, we estimated an 

aggregate burden of 10,800 hours and 

$580,500 for issuers as a result of this 

requirement. 

For contributing entities, we 

estimated that the disclosure burden 

would be substantially less because the 

audit would be simpler. We estimated 

the burden to be approximately onequarter of that of an issuer of a risk 

adjustment covered plan or a 

reinsurance-eligible plan, or 

approximately 22.5 hours (at an hourly 

rate of $53.75) at a cost of approximately 

$1,209 for each contributing entity. We 

estimated that approximately 1 percent 

of contributing entities would be 

audited, representing 226 contributing 

entities. Therefore, we estimated an 

aggregate burden of 5,085 hours, or 

$273,319, as a result of this requirement. 

Comment: One commenter stated that 

HHS’s burden estimates were 

unreasonable. In particular, the 

commenter believed that the initial 

meeting by issuers of risk adjustment 

covered plans and reinsurance-eligible 

plans with auditors would involve more 

personnel and labor hours. 

Response: In response to this 

comment, we are revising our estimate 

for the onsite review portion of the audit 

to reflect the labor costs associated with 

additional personnel who would 

generally be expected to be involved in 

meetings and reviews. The new burden 

estimate includes 2 hours to schedule 

the onsite activities with the compliance 

reviewer (at an hourly labor cost of 

$53.75), 32 hours for an introductory 

meeting involving 8 managers, 12 hours 

for three managers to tour with 

reviewers onsite, 15 hours of interview 

time with three managers, 8 hours to 

walk through processes with the 

reviewer, and 16 hours for concluding 

meetings, resulting in a total of 85 hours 

of onsite time for each issuer. Therefore, 

we estimate it will take 60 hours of 

preparation time and an additional 85 

hours of onsite time for each issuer. We 

now estimate it will require a total of 

145 hours at a cost of approximately 

$7,794 for each issuer to make 

information available to HHS for an 

onsite review. For approximately 120 

issuers, representing roughly 5 percent 

of issuers of risk adjustment covered 

plans or reinsurance-eligible plans that 

might be audited in a year, we now 

estimate an aggregate burden of 17,400 

hours and $935,280 for issuers as a 

result of this requirement. 

For contributing entities, we now 

estimate the burden to be approximately 

37 hours at a cost of approximately 

$1,989 for each contributing entity, or 

about one quarter of that of an issuer of 

a risk adjustment covered plan or a 

reinsurance-eligible plan. We estimate 

that approximately 1 percent of 

contributing entities will be audited, 

representing 226 contributing entities. 

Therefore, we now estimate an aggregate 

burden of 8,362 hours, or $449,514 for 

contributing entities as a result of this 

requirement. 

We will revise the information 

collection currently approved under 

OMB Control Number 0938–1155 with 

an October 31, 2015 expiration date to 

account for this additional burden. 

C. ICRs Regarding Potential 

Adjustments for Transitional Plans 

(§ 153.500–§ 153.540) 

We will make adjustments to the 

premium stabilization programs to help 

mitigate any unexpected losses for QHP 

issuers with plans that are affected by 

the transitional policy described in the 

preamble of this rule. To effectuate 

potential adjustments, we must estimate 

the State-specific effect on average 

claims costs. We thus will require all 

issuers participating in the individual 

and small group markets in a State to 

submit to HHS a member-month 

enrollment count for transitional plans 

and non-transitional plans in the 

individual and small group markets. 

This submission will occur in 2015 

prior to the risk corridors July 31, 2015 

data submission deadline. HHS will 

analyze that enrollment data, and 

publish the State-specific adjustments 

that issuers would use in the risk 

corridors calculations for the 2014 

benefit year. To reduce the burden on 

issuers, we are considering coordinating 

this data collection with other data 

collections for the premium 

stabilization programs. 

We estimate that there will be 

approximately 2,400 issuers in the 

individual and small group markets in 

the 2014 benefit year, and that it will 

take an insurance analyst approximately 

30 minutes (at an hourly labor cost of 

$38.49) to estimate enrollment in 

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Federal Register / Vol. 79, No. 47 / Tuesday, March 11, 2014 / Rules and Regulations 13823 

transitional plans and non-transitional 

plans and submit this information to 

HHS. Therefore, we estimate a cost of 

approximately $19.25 for each issuer, 

and an aggregate cost of $46,200 for all 

individual and small group market 

issuers (though this cost may be lower 

depending upon the data collection 

method we adopt). Because we 

anticipate collecting this information in 

early 2015, and because we expect to 

issue additional clarifying guidance on 

this policy, we will seek OMB approval 

and solicit public comment on this data 

collection requirement at a future date. 

D. ICRs Regarding Risk Corridors Data 

Validation (§ 153.530 and § 153.540) 

For the 2014 benefit year, we will 

collect risk corridors data using the 

same form as is used for MLR data 

collection, at the same time (July 31st of 

the year following the applicable benefit 

year). We intend to modify the MLR 

collection form for benefit year 2015, 

approved under OMB control number 

0938–1164, to add reporting elements 

(for example, QHP-specific premium 

amounts) that are required under the 

risk corridors data submission 

requirements at § 153.530. We intend to 

include these data elements in an 

amendment to the information 

collection approved under OMB control 

number 0938–1164 for MLR data 

submission that we will publish for 

public comment and advance for OMB 

approval in the future. 

Because the MLR and risk corridors 

programs will require similar data, we 

estimate that submitting the data 

elements required for the risk corridors 

program will impose limited additional 

burden on issuers. We estimate that it 

will take each QHP issuer 

approximately 1.5 hours, representing 1 

hour for an insurance analyst (at an 

hourly labor cost of $38.49) and 30 

minutes for a senior manager (at an 

hourly labor cost of $77), to input and 

review data that is specific to the risk 

corridors program in the MLR and risk 

corridors reporting form for benefit year 

2015. In the proposed ICR, we estimated 

that 1,200 QHP issuers would submit 

risk corridors data for the 2014 benefit 

year in the 2015 risk corridors and MLR 

reporting cycle. We are revising that 

estimate to reflect our most recent 

estimate of the number of QHP issuers 

that have registered in our Health 

Insurance Oversight System (HIOS) for 

the 2014 benefit year, and now estimate 

that approximately 475 QHP issuers will 

submit data. Therefore, we now estimate 

an aggregate burden of 712.5 hours (at 

a total cost of approximately $36,573) 

for QHP issuers as a result of this 

requirement. We will revise the 

information collection currently 

approved under OMB Control Number 

0938–1155 with an October 31, 2015 

expiration date to account for this 

additional burden. 

E. ICRs Regarding Data Validation 

Requirements When HHS Operates Risk 

Adjustment (§ 153.630) 

Pursuant to § 153.630(b)(1) of this 

final rule, an issuer of a risk adjustment 

covered plan must engage one or more 

independent auditors to perform an 

initial validation audit of a sample of its 

risk adjustment data selected by HHS. 

This provision also requires the issuer 

to provide HHS with the identity of the 

initial validation auditor, and attest to 

the absence of conflicts of interest 

between the initial validation auditor 

(or the members of its audit team, 

owners, directors, officers, or 

employees) and the issuer (or its 

owners, directors, officers, or 

employees), in a timeframe and manner 

to be specified by HHS. We previously 

estimated the cost to issuers to conduct 

an initial validation audit in the 2014 

Payment Notice and the associated 

information collection request approved 

under OMB Control Number 0938–1155 

with an October 1, 2015 expiration date. 

Therefore, the burden associated with 

this reporting requirement is the time 

and effort necessary to report the 

auditor’s identity to HHS. We estimate 

it will take an insurance operations 

analyst (at an hourly labor cost of 

$38.49) and a senior manager (at an 

hourly labor cost of $77) each 

approximately 15 minutes to prepare 

and send an electronic report to HHS. 

Therefore, for 2,400 risk adjustment 

covered issuers in the individual and 

small group markets, the aggregate 

burden associated with this requirement 

is 1,200 hours, at an approximate cost 

of $69,300. 

In § 153.630(b)(8), we require the 

initial validation auditor to measure and 

report to the issuer and HHS, in a 

manner and timeframe specified by 

HHS, the inter-rater reliability rates 

among its reviewers. Also in this 

provision, we require that the initial 

validation auditor achieve a minimum 

consistency measure of 95 percent for 

demographic, enrollment, and health 

status review outcomes (85 percent for 

2014 and 2015). We believe establishing 

standards for inter-rater reliability 

among reviewers is standard practice in 

the industry and will not result in extra 

cost for the initial validation auditor. 

Therefore, the burden associated with 

this reporting requirement is the time 

and effort for the initial validation 

auditor to report the inter-rater 

reliability rate to the issuer and to HHS. 

We estimate it will take an insurance 

operations analyst (at an hourly labor 

cost of $38.49) and a senior manager (at 

an hourly labor cost of $77) each 

approximately 15 minutes to report the 

inter-rater reliability rate to the issuer 

and to HHS. Therefore, assuming that 

2,400 issuers of risk adjustment covered 

plans each engage one independent 

auditor to perform the initial validation 

audit, the aggregate burden associated 

with this requirement is 1,200 hours, at 

an approximate cost of $69,300. We will 

revise the information collection 

currently approved under OMB Control 

Number 0938–1155 with an October 31, 

2015 expiration date to account for this 

additional burden. 

F. ICRs Regarding Quarterly Data 

Submissions (§ 153.700(a)) 

Section 153.700 provides that issuers 

of a risk adjustment covered plan or a 

reinsurance-eligible plan must establish 

a dedicated distributed data 

environment and provide data access to 

HHS, in a manner and timeframe 

specified by HHS, for any HHS-operated 

risk adjustment and reinsurance 

program. In this final rule, we clarify 

this timeframe, requiring that an issuer 

must make good faith efforts to make 

complete, current enrollment and 

claims files accessible through its 

dedicated distributed data environments 

no less frequently than quarterly, once 

the issuer’s dedicated distributed data 

environment is established. 

Based on HHS’s most recent estimate 

of fully insured issuers in the individual 

and small group markets, we estimate 

that 2,400 issuers will be subject to the 

requirement to establish a dedicated 

data environment to either receive 

reinsurance payments or make risk 

adjustment transfers. Although in this 

rule we clarify that issuers must make 

this data available to HHS on a quarterly 

basis, the information collection and the 

aggregate burden associated with this 

requirement is already accounted for 

under the Premium Stabilization Rule 

Supporting Statement that is approved 

under OMB control number 0938–1155 

with an October 31, 2015 expiration 

date. We will revise that supporting 

statement to specify that issuers must 

comply with this information collection 

requirement on a quarterly basis. 

G. ICRs Related to Confirmation of 

Dedicated Distributed Data 

Environment Reports (§ 153.700(d) 

and (e)) 

Under § 153.710(d) of this final rule, 

we require that within 30 calendar days 

of the date of an interim dedicated 

distributed data environment report 

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13824 Federal Register / Vol. 79, No. 47 / Tuesday, March 11, 2014 / Rules and Regulations 

eligible or risk adjustment covered plan 

must either confirm to HHS that the 

information in the interim reports for 

the risk adjustment and reinsurance 

programs accurately reflects the data to 

which the issuer has provided access to 

HHS through its dedicated distributed 

data environment in accordance with 

§ 153.700(a) for the timeframe specified 

in the report, or describe to HHS any 

inaccuracy it identifies in the interim 

report. Similar to the interim report 

process, in § 153.710(e), we require that 

the issuer either confirm to HHS that the 

information in the final dedicated 

distributed data environment report 

accurately reflects the data to which the 

issuer has provided access to HHS 

through its dedicated distributed data 

environment in accordance with 

§ 153.700(a) for the benefit year 

specified in the report, or describe to 

HHS any inaccuracy it identifies in the 

final dedicated distributed data 

environment report within 15 calendar 

days of the date of the report. 

We estimate that 2,400 issuers of risk 

adjustment covered plans and 

reinsurance-eligible plans will be 

subject to this requirement, and that 

issuers will compare enrollee condition 

codes with risk scores and analyze 

claims costs to confirm information in 

the interim and final dedicated 

distributed data environment reports. 

On average, we estimate that it will take 

an insurance operations analyst (at an 

hourly labor cost of $38.49) 

approximately 2 hours to respond to an 

interim report and 6 hours to respond to 

the final dedicated distributed data 

environment report. Therefore, we 

estimate an aggregate burden of 19,200 

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

a result of this requirement. We will 

revise the information collection 

currently approved under OMB Control 

Number 0938–1155 with an October 31, 

2015 expiration date to account for this 

additional burden. 

H. ICRs Regarding Privacy and Security 

of Personally Identifiable Information 

(§ 155.260(a)) 

In § 155.260(a), we state that an 

Exchange, at its option, may submit to 

the Secretary a request for approval of 

a proposed use or disclosure of 

eligibility and enrollment PII. The 

Exchange submitting such a request 

would describe the nature of the 

proposed use or disclosure and how it 

would ensure the efficient operation of 

the Exchange consistent with section 

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

and describe the efficiency. The 

requesting Exchange also would 

describe how the information to be used 

or disclosed would be protected in 

compliance with the privacy and 

security standards established by the 

Exchange and describe those 

protections. While this reporting 

requirement is subject to the PRA, we 

believe the associated burden is exempt 

under 5 CFR 1320.3(h)(1). This 

reporting is not intended as a substitute 

for a collection of information of, or to 

monitor, compliance with regulatory 

standards. Therefore, we are not seeking 

approval from OMB for these 

information collection requirements. 

I. ICRs Regarding Advance Payments of 

Cost-Sharing Reductions (§§ 155.1030, 

156.430, 156.470) 

Based on our experience 

implementing the process for 

calculating advance payments of costsharing reductions for the 2014 benefit 

year, we are modifying §§ 155.1030, 

156.430, and 156.470. However, because 

our previous methodology used data 

collected through vehicles that are used 

for other purposes, we expect these 

changes to only marginally reduce the 

reporting burden for issuers and 

Exchanges. Therefore, we will not be 

revising the burden estimates in the 

corresponding PRA packages at this 

time. 

J. ICRs Regarding Quality Standards: 

Establishment of Patient Safety 

Standards for QHP Issuers (§ 156.1110) 

In § 156.1110, we describe the 

information collection, recordkeeping, 

and disclosure requirements that a QHP 

issuer must meet to demonstrate 

compliance with the patient safety 

standards finalized in this rule. The 

burden estimate associated with these 

standards includes the time and effort 

required for QHPs to maintain and 

submit hospital CMS Certification 

Numbers to the Exchange, upon request, 

that demonstrates that each of its 

contracted hospitals with greater than 

50 beds meets the patient safety 

standards required in § 156.1110(a). In 

the near future, HHS intends to publish 

a rule proposing more specific quality 

standards for Exchanges and QHPs and 

will solicit public comment. At that 

time and per requirements outlined in 

the PRA, we intend to estimate the 

burden on QHPs to comply with the 

patient safety provisions of § 156.1110. 

K. ICRs Regarding Administrative 

Appeals (§ 156.1220) 

In § 156.1220, we establish an 

administrative appeals process to 

address unresolved discrepancies for 

advance payment of the premium tax 

credit, advance payment and 

reconciliation of cost-sharing 

reductions, FFE user fees, and the 

premium stabilization programs, as well 

as any assessment of a default risk 

adjustment charge under § 153.740(b). 

In § 156.1220(a) as finalized in this 

rule, an issuer may file a request for 

reconsideration to contest a processing 

error by HHS, HHS’s incorrect 

application of the relevant methodology, 

or HHS’s mathematical error for the 

amount of: (1) Advance payment of the 

premium tax credit, advance payment of 

cost-sharing reductions or an FFE user 

fee charge for a particular month; (2) 

risk adjustment payments or charges for 

a benefit year, including an assessment 

of risk adjustment user fees; (3) 

reinsurance payments for a benefit year; 

(4) a risk adjustment default charge for 

a benefit year; (5) a reconciliation 

payment or charge for cost-sharing 

reductions for a benefit year; or (6) risk 

corridors payments or charges for a 

benefit year. While the hours involved 

in a request for reconsideration may 

vary, for purposes of this burden 

estimate we estimate that it will take an 

insurance operations analyst 1 hour (at 

an hourly labor cost of $38.49) to make 

the comparison and submit a request for 

reconsideration to HHS. We estimate 

that 24 issuers, representing 

approximately 1 percent of all issuers 

that may be eligible for reinsurance 

payments, risk adjustment payments or 

charges (including any assessment of 

risk adjustment user fees or a default 

risk adjustment charge), advance 

payment and reconciliation of costsharing reductions, advance payment of 

the premium tax credit, and FFE user 

fees, will submit a request for 

reconsideration, resulting in a total 

aggregate burden of approximately $924. 

We will revise the information 

collection currently approved OMB 

Control Number 0938–1155 with an 

October 31, 2015 expiration date to 

account for this additional burden. 

In § 156.1220(b) of this final rule, an 

issuer that is dissatisfied with the 

reconsideration decision regarding: (1) 

Risk adjustment payments and charges, 

including an assessment of risk 

adjustment user fees; (2) reinsurance 

payments; (3) default risk adjustment 

charge; (4) reconciled cost-sharing 

reduction amounts; or (5) risk corridors 

payments or charges, provided under 

paragraph (a) of § 156.1220, is entitled 

to an informal hearing before a CMS 

hearing officer, if a request is made in 

writing within 30 calendar days of the 

date of the reconsideration decision. 

Further review is available from the 

Administrator of CMS. However, we 

believe these processes will occur 

extremely infrequently. Since 

collections from fewer than 10 entities 

are exempt from the PRA under 44 

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Federal Register / Vol. 79, No. 47 / Tuesday, March 11, 2014 / Rules and Regulations 13825 

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

collection requirement. 

TABLE 7—ANNUAL REPORTING, RECORDKEEPING AND DISCLOSURE BURDEN

Regulation section(s) Number of 

respondents Responses 

Burden per 

response 

(hours) 

Total 

annual burden 

(hours) 

Hourly labor 

cost of 

reporting 

($) 

Total 

labor 

cost of 

reporting 

($) 

Total capital/ 

maintenance 

costs 

($) 

Total cost 

($) 

§ 153.405 ........................... 226 226 37.00 8,362 53.75 449,514 0 449,514 

§ 153.410; § 153.620 ......... 120 120 145.00 17,400 53.75 935,280 0 935,280 

§ 153.500¥§ 153.540 ........ 2,400 2,400 0.50 1,200 38.49 46,200 46,200 

§ 153.540 ........................... 475 475 1.50 712.5 51.33 36,573 0 36,573 

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

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

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

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

Total ........................... a 3,245 ........................ ........................ ........................ ........................ 2,346,099 0 2,346,099 

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

We have submitted an information 

collection request to OMB for review 

and approval of the ICRs contained in 

this final rule. The requirements are not 

effective until approved by OMB and 

assigned a valid OMB control number. 

To obtain copies of the supporting 

statement and any related forms for the 

paperwork collections referenced above, 

access CMS’s Web site at http://

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

PaperworkReductionActof1995/PRAListing.html or email your request, 

including your address, phone number, 

OMB number, and CMS document 

identifier, to Paperwork@cms.hhs.gov, 

or call the Reports Clearance Office at 

410–786–1326. 

If you comment on these information 

collection requirements, please do 

either of the following: 

1. Submit your comments 

electronically as specified in the 

ADDRESSES section of this proposed rule; 

or 

2. Submit your comments to the 

Office of Information and Regulatory 

Affairs, Office of Management and 

Budget, Attention: CMS Desk Officer, 

CMS–9972–F. Fax: (202) 395–5806; or 

Email: OIRA_submission@omb.eop.gov. 

VI. Regulatory Impact Analysis 

A. Statement of Need 

This final rule provides standards 

related to the premium stabilization 

programs (risk adjustment, reinsurance, 

and risk corridors) that will protect 

issuers from the potential effects of 

adverse selection and protect consumers 

from increases in premiums due to 

issuer uncertainty. The Premium 

Stabilization Rule and the 2014 

Payment Notice provided detail on the 

implementation of these programs, 

including the specific parameters 

applicable to these programs. This final 

rule provides additional standards with 

respect to composite premiums, privacy 

and security of personally identifiable 

information, the open enrollment period 

for 2015, the AV Calculator, the annual 

limitation on cost sharing for standalone dental plans, the meaningful 

difference standard for QHPs offered 

through an FFE, patient safety standards 

for issuers of QHPs, the Small Business 

Health Options Program, cost-sharing 

parameters, cost-sharing reductions, and 

FFE user fees. 

B. Overall Impact 

We have examined the impacts of this 

rule as required by Executive Order 

12866 on Regulatory Planning and 

Review (September 30, 1993), Executive 

Order 13563 on Improving Regulation 

and Regulatory Review (January 18, 

2011), the Regulatory Flexibility Act 

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

354), section 202 of the Unfunded 

Mandates Reform Act of 1995 (March 

22, 1995, Pub. L. 104–4), Executive 

Order 13132 on Federalism (August 4, 

1999), and the Congressional Review 

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

Executive Orders 12866 and 13563 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). Executive Order 13563 

emphasizes the importance of 

quantifying both costs and benefits, of 

reducing costs, of harmonizing rules, 

and of promoting flexibility. A 

regulatory impact analysis (RIA) must 

be prepared for rules with economically 

significant effects ($100 million or more 

in any one year). 

OMB has determined that this rule is 

‘‘economically significant’’ within the 

meaning of section 3(f)(1) of Executive 

Order 12866, because it is likely to have 

an annual effect of $100 million in any 

one year. Accordingly, we have 

prepared an RIA that presents the costs 

and benefits of this final rule. 

Although it is difficult to discuss the 

wide-ranging effects of these provisions 

in isolation, the overarching goal of the 

premium stabilization programs and 

Exchange-related provisions and 

policies of the Affordable Care Act is to 

make affordable health insurance 

available to individuals who do not 

have access to affordable employersponsored coverage. The provisions 

within this final rule are integral to the 

goal of expanding access to affordable 

coverage. For example, the premium 

stabilization programs decrease the risk 

of financial loss that health insurance 

issuers might otherwise expect in 2015 

and the advance payments of the 

premium tax credit and cost-sharing 

reduction programs assist low- and 

moderate-income consumers and 

Indians in purchasing health insurance. 

The combined impacts of these 

provisions affect the private sector, 

issuers, and consumers, through 

increased access to health care services, 

including preventive services, decreased 

uncompensated care, lower premiums, 

establishment of patient safety 

standards, and increased plan 

transparency. Through the reduction in 

financial uncertainty for issuers and 

increased affordability for consumers, 

these provisions are expected to 

increase access to health coverage. 

In this RIA, we discuss the 

requirements in this final rule related to 

cost sharing and FFE user fees, as well 

as new oversight provisions for the 

premium stabilization programs. We 

also discuss the impact of the 

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13826 Federal Register / Vol. 79, No. 47 / Tuesday, March 11, 2014 / Rules and Regulations 

transitional policy discussed earlier on 

the risk corridors and reinsurance 

programs, and the impact on 

reinsurance contributions of the change 

in the definition of contributing entities. 

Comment: Several commenters stated 

that the proposed regulatory impact 

statement lacked an adequate economic 

analysis. In particular, the commenters 

criticized listing only $2 million in 

annual costs and $14 million in transfer 

payments for a rule determined by OMB 

to involve costs of $100 million or more 

annually. One commenter said HHS 

should have included its internal 

analysis of the effect of regulation on 

enrollment and premium in this impact 

statement, and the omission of this 

analysis appeared to be a willful attempt 

to withhold information from the 

public. The commenter asked HHS to 

spell out how the rule affects premium 

costs, employer costs, and taxpayer 

subsidies. 

Response: We previously estimated 

the annualized impact on issuers, 

contributing entities, and States of 

transfers and other programs in the 

Premium Stabilization Rule and in the 

2014 Payment Notice. Therefore, to 

avoid double-counting, Table 8 contains 

only incremental changes incurred as a 

result of provisions in this rule. The 

results of HHS’s internal analyses were 

used to set reinsurance rates discussed 

in the 2014 Payment Notice, and again 

in this rule, where we estimate that, in 

2015, reinsurance payments from the 

Federal government to individual 

market issuers will result in premium 

decreases in the individual market of 

between 5 and 6 percent relative to 

expected premiums without 

reinsurance. As detailed below, for this 

analysis, we continue to believe that the 

best available estimates of the impact of 

the Affordable Care Act on the Federal 

budget, enrollment in health insurance 

programs, and revenue collection are by 

the Congressional Budget Office. The 

CBO’s most recent updates are available 

at http://www.cbo.gov/sites/default/

files/cbofiles/attachments/43900-2014- 

02-ACAtables.pdf. 

In our proposed rule, we noted that 

we were preparing an RIA because, 

while we were uncertain of the exact 

magnitude of the effect of the proposed 

adjustments to the risk corridors and 

reinsurance programs as a result of the 

transitional policy, we believed that the 

impact of the proposed adjustments and 

the impact of the other provisions in the 

proposed rule would reach the level of 

economic significance defined by OMB. 

In this final rule, we are finalizing our 

adjustment to the risk corridors program 

as proposed, and are lowering the 

reinsurance attachment point. Although 

it is difficult to estimate the exact 

impact of these policies, we describe 

our preliminary analysis of their 

monetary effect on health insurance 

issuers and the Federal government 

below. 

Comment: A commenter criticized the 

regulatory analysis for failing to analyze 

and directly address the impact of the 

proposed rule’s provision to exclude 

certain self-administered, self-insured 

group health plans from payment of 

reinsurance contributions, and 

requested that HHS disclose the number 

of participants and types of plans 

excluded and the per participant charge. 

Another commenter estimated the 

change would affect 14 million covered 

lives and increase the per capita 

contribution from remaining entities by 

$3. 

Response: It is difficult to estimate the 

number of self-insured, selfadministered group health plans that 

might be excluded from reinsurance 

contributions as a result of the provision 

in this rule. While we solicited 

information on the number of such 

organizations, we did not receive 

comments with quantitative detail. 

Therefore, we have not changed our 

proposed estimate. 

C. Impact Estimates of the Payment 

Notice Provisions and Accounting Table 

In accordance with OMB Circular A– 

4, Table 8 depicts an accounting 

statement summarizing HHS’s 

assessment of the benefits, costs, and 

transfers associated with this regulatory 

action. 

This final rule implements standards 

for programs that will have numerous 

effects, including providing consumers 

with affordable health insurance 

coverage, reducing the impact of 

adverse selection, and stabilizing 

premiums in the individual and small 

group health insurance markets and in 

an Exchange. We are unable to quantify 

certain benefits of this final rule—such 

as increased patient safety and 

improved health and longevity due to 

increased insurance enrollment, and 

certain costs—such as the cost of 

providing additional medical services to 

newly-enrolled individuals. The effects 

in Table 8 reflect qualitative impacts 

and estimated direct monetary costs and 

transfers resulting from the provisions 

of this final rule for contributing 

entities, States, Exchanges, and health 

insurance issuers. The annualized 

monetized costs described in Table 8 

reflect direct administrative costs 

(including costs associated with labor, 

capital, overhead, and fringe benefits) to 

States and health insurance issuers as a 

result of the provisions in this rule, and 

include administrative costs estimated 

in the Collection of Information section. 

We note that the estimated transfers in 

Table 8 do not reflect any user fees paid 

by insurance issuers for FFEs because 

we cannot estimate those fee totals. We 

also note that, while the 2015 

reinsurance contribution rate is lower 

than the 2014 reinsurance contribution 

rate, total reinsurance administrative 

expenses will increase from 2014 to 

2015. 

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Federal Register / Vol. 79, No. 47 / Tuesday, March 11, 2014 / Rules and Regulations 13827 

56 ‘‘Updated Estimates for the Insurance Coverage 

Provisions of the Affordable Care Act,’’ 

Congressional Budget Office, February 2014. 

TABLE 8—ACCOUNTING TABLE

Benefits: 

Qualitative: 

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

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

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

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

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

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

Costs: 

Estimate Year dollar Discount rate Period 

covered 

Annualized Monetized ($/year) ........................ 2.35 million ....................................... 2014 7 percent .................... 2014–2017 

2.35 million ....................................... 2014 3 percent .................... 2014–2017 

Quantitative: 

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

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

Transfers: 

Estimate Year dollar Discount rate Period 

covered 

Annualized Monetized ($/year) ........................ ¥17.25 million .................................. 2014 7 percent .................... 2014–2017 

¥16.76 million .................................. 2014 3 percent .................... 2014–2017 

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

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

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

This RIA expands upon the impact 

analyses of previous rules and utilizes 

the CBO analysis of the Affordable Care 

Act’s impact on Federal spending, 

revenue collection, and insurance 

enrollment. The CBO’s estimates remain 

the most comprehensive for provisions 

pertaining to the Affordable Care Act, 

and include Federal budget impact 

estimates for provisions that HHS has 

not independently estimated. The CBO’s 

February 2014 baseline projections 

estimated that 25 million enrollees will 

enroll in Exchange coverage by 2018, 

including approximately 20 million 

Exchange enrollees who will be 

receiving premium tax credits or costsharing reductions.56 CBO forecasts that 

92 percent of non-elderly Americans 

will receive coverage by 2017. 

Participation rates among potential 

enrollees are expected to be lower in the 

first few years of Exchange availability 

as employers and individuals adjust to 

the features of the Exchanges. Table 9 

summarizes the effects of the risk 

adjustment and reinsurance programs 

on the Federal budget for fiscal years 

2014 through 2017, with the additional, 

societal effects of this final rule 

discussed in this RIA. We do not expect 

the provisions of this final rule to 

significantly alter CBO’s estimates of the 

budget impact of the risk adjustment 

and reinsurance programs. CBO updated 

scoring for the Premium Stabilization 

programs and found all three programs 

will reduce the deficit by $8 billion over 

the budget window. For risk corridors, 

CBO now estimates the Federal 

government will pay $8 billion to 

issuers from FYs 2015–2017, but that 

collections for this program will total 

$16 billion, for a net yield of $8 billion 

to the Federal government. We note that 

transfers associated with the risk 

adjustment and reinsurance programs 

were previously estimated in the 

Premium Stabilization Rule; therefore, 

to avoid double-counting, we do not 

include them in the accounting 

statement for this final rule (Table 8). 

In addition to utilizing CBO 

projections, HHS conducted an internal 

analysis of the effects of its regulations 

on enrollment and premiums. Based on 

these internal analyses, we anticipate 

that the quantitative effects of the 

provisions in this rule are consistent 

with our previous estimates in the 2014 

Payment Notice for the impacts 

associated with the cost-sharing 

reduction program, the advance 

payments of the premium tax credit 

program, the premium stabilization 

programs, and FFE user fee 

requirements for health insurance 

issuers. 

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13828 Federal Register / Vol. 79, No. 47 / Tuesday, March 11, 2014 / Rules and Regulations 

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

PROGRAMS FROM FY 2013–2017 

[In billions of dollars] 

Year 2014 2015 2016 2017 2013–2017 

Risk Adjustment, Reinsurance, and Risk Corridors Program Payments ................................................................ 0 20 19 23 62 

Risk Adjustment, Reinsurance, and Risk Corridors Program Collections ............................................................... 0 21 21 27 69 

Source: Congressional Budget Office. 2014. Appendix B: Updated Estimates of the Insurance Coverage Provisions of the Affordable Care Act. 

February 4, 2014. 

Risk Adjustment 

The risk adjustment program is a 

permanent program created by the 

Affordable Care Act that transfers funds 

from lower risk, non-grandfathered 

plans to higher risk, non-grandfathered 

plans in the individual and small group 

markets, inside and outside the 

Exchanges. In subparts D and G of the 

Premium Stabilization Rule (45 CFR 

part 153) and in the 2014 Payment 

Notice, we established standards for the 

administration of the risk adjustment 

program. 

A State approved or conditionally 

approved by the Secretary to operate an 

Exchange may establish a risk 

adjustment program, or have HHS do so 

on its behalf. As described in the 2014 

Payment Notice, if HHS operates risk 

adjustment on behalf of a State, it will 

fund its risk adjustment program 

operations by assessing a risk 

adjustment user fee on issuers of risk 

adjustment covered plans. For the 2015 

benefit year, we estimate that the total 

cost for HHS to operate the risk 

adjustment program on behalf of States 

for 2015 will be approximately $27.3 

million, and that the risk adjustment 

user fee will be $0.96 per enrollee per 

year for HHS to operate the risk 

adjustment program on behalf of States 

for 2015. 

In § 153.620(c) of this final rule, we 

establish that HHS or its designee may 

audit an issuer of a risk adjustment 

covered plan, when HHS operates risk 

adjustment on behalf of a State, to assess 

the issuer’s compliance with the 

requirements of subparts G and H of 45 

CFR part 153. As discussed above, HHS 

intends to fund risk adjustment 

operations (not including Federal 

personnel costs), including risk 

adjustment program integrity and audit 

functions, by collecting a per capita user 

fee from issuers of risk adjustment 

covered plans. Therefore, we believe 

that the costs to the Federal government 

associated with the risk adjustment 

audit activities in this final rule will be 

covered through the risk adjustment 

user fee, and that there will be no 

impact for the Federal government as a 

result of the audit provisions. The audit 

provision would result in additional 

costs for issuers of risk adjustment 

covered plans related to gathering 

information and preparing for an audit. 

We discuss the administrative costs 

associated with this requirement for 

issuers in the Collection of Information 

section of this final rule. 

Although this final rule will result in 

some additional administrative burden 

for issuers of risk adjustment covered 

plans as a result of the requirements for 

risk adjustment data validation and 

submission of discrepancy reports in 

response to interim and final dedicated 

distributed data environment reports, 

we note that much of the impact 

associated with establishing a dedicated 

distributed data environment and a risk 

adjustment data validation process has 

previously been estimated in the 

Premium Stabilization Rule and the 

2014 Payment Notice. We do not believe 

that provisions contained within this 

rule substantially alter the previous 

estimates. We describe these 

administrative costs in the Collection of 

Information Requirements section of 

this rule. 

Reinsurance 

The Affordable Care Act directs that 

a transitional reinsurance program be 

established in each State to help 

stabilize premiums for coverage in the 

individual market from 2014 through 

2016. In the 2014 Payment Notice, we 

expanded upon the standards set forth 

in subparts C and E of the Premium 

Stabilization Rule (45 CFR part 153) and 

established the 2014 uniform 

reinsurance payment parameters and 

national contribution rate. In this final 

rule, we set forth the 2015 uniform 

reinsurance payment parameters and 

contribution rate, and certain oversight 

provisions related to the operation of 

the reinsurance program. 

Section 153.220(c) provides that HHS 

will publish the uniform per capita 

reinsurance contribution rate for the 

upcoming benefit year in the annual 

HHS notice of benefit and payment 

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

the Affordable Care Act specifies that 

$10 billion for reinsurance contributions 

is to be collected from contributing 

entities in 2014 (the reinsurance 

payment pool), $6 billion in 2015, and 

$4 billion in 2016. Additionally, 

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

of the Affordable Care Act direct that $2 

billion in funds is to be collected for 

contribution to the U.S. Treasury in 

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

in 2016. Finally, section 

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

Act allows for the collection of 

additional amounts for administrative 

expenses. Taken together, these three 

components make up the total dollar 

amount to be collected from 

contributing entities in each of the three 

years of the reinsurance program under 

the uniform per capita contribution rate. 

For the 2015 benefit year, if HHS 

operates the reinsurance program on 

behalf of a State, HHS would retain 

$0.14 as an annual per capita fee to fund 

HHS’s performance of all reinsurance 

functions. If a State establishes its own 

reinsurance program, HHS would 

transfer $0.07 of the per capita 

administrative fee to the State for 

purposes of administrative expenses 

incurred in making reinsurance 

payments, and retain the remaining 

$0.07 to offset the costs of contribution 

collection. 

To safeguard the use of Federal funds 

in the transitional reinsurance program, 

we provided in § 153.270(a) of this final 

rule that HHS or its designee may 

conduct a financial and programmatic 

audit of a State-operated reinsurance 

program to assess compliance with the 

requirements of subparts B and C of 45 

CFR part 153. As discussed above, HHS 

intends to fund reinsurance operations 

(not including Federal personnel costs), 

including program integrity and audit 

functions, by collecting as part of the 

uniform contribution rate, 

administrative expenses associated with 

operating the reinsurance program from 

all reinsurance contributing entities. 

Therefore, we believe that the costs to 

the Federal government associated with 

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Federal Register / Vol. 79, No. 47 / Tuesday, March 11, 2014 / Rules and Regulations 13829 

the reinsurance audit activities in this 

final rule would be covered through the 

reinsurance contribution rate, and that 

there would be no net budget impact for 

the Federal government as a result of the 

audit provision. Because this audit 

requirement would direct a State that 

establishes a reinsurance program to 

ensure that its applicable reinsurance 

entity and any relevant contractors, 

subcontractors, or agents cooperate with 

an audit, and would direct the State to 

provide to HHS for approval a written 

corrective action plan; implement the 

plan; and provide to HHS written 

documentation of the corrective actions 

once taken, if the audit resulted in a 

finding of material weakness or 

significant deficiency, the requirement 

does impose a cost on States operating 

reinsurance. However, we believe that 

State-operated reinsurance programs 

would already electronically maintain 

the information necessary for an audit 

as part of their normal business 

practices and as a result of the 

maintenance of records requirement set 

forth in § 153.240(c), no additional time 

or effort will be necessary to develop 

and maintain audit information. We 

estimate that it will take a compliance 

analyst (at an hourly labor cost of 

$53.75) 40 hours to gather the necessary 

information required for an audit, 5 

hours to prepare a corrective action plan 

based on the audit findings and 64 

hours to implement and document, if 

necessary, the corrective actions taken. 

We also estimate a senior manager (at an 

hourly labor cost of $77) will take 5 

hours to oversee the transmission of 

audit information to HHS and to review 

the corrective action plan prior to 

submission to HHS, and 16 hours to 

oversee implementation of any 

corrective actions taken. Therefore, we 

estimate a total administrative cost of 

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

of this audit requirement. For the one 

State that will operate reinsurance for 

the 2014 benefit year, we estimate a 

burden of approximately $7,476 as a 

result of this requirement. Although we 

have estimated the cost of a potential 

audit in this RIA, we note that we may 

not audit State-operated reinsurance 

programs. 

In § 153.405(i) and § 153.410(d), we 

establish that HHS may audit 

contributing entities and issuers of 

reinsurance-eligible plans to assess 

compliance with reinsurance program 

requirements. We discuss the costs to 

contributing entities and issuers of 

reinsurance-eligible plans as a result of 

this requirement in the Collection of 

Information section of this proposed 

rule. We intend to combine issuer audits 

for the premium stabilization programs 

whenever practicable to reduce the 

financial burden of these audits on 

issuers. Consequently, we anticipate 

that, because issuers of reinsuranceeligible plans may also be subject to risk 

adjustment requirements, we would 

conduct these audits in a manner that 

avoids overlapping review of 

information that is required for both 

programs. 

In this final rule, we are finalizing 

with modifications the definition of a 

contributing entity for the purpose of 

reinsurance contributions. Specifically, 

we exempt self-insured, selfadministered plans that do not use a 

TPA to perform claims processing, 

claims adjudication, and enrollment 

functions from the requirement to make 

reinsurance contributions for the 2015 

and 2016 benefit years. As stated earlier 

in this regulatory impact analysis, it is 

difficult to estimate the number of selfinsured, self-administered group health 

plans that might be affected by this 

modification. We did not receive 

quantitative estimates in comments, 

although as previously stated, we expect 

that few entities will qualify for this 

exemption. Therefore, we have not 

changed our proposed 2015 reinsurance 

contribution rate. 

Risk Corridors 

The Affordable Care Act created a 

temporary risk corridors program for the 

years 2014, 2015, and 2016 that applies 

to QHPs, as defined in § 153.500. The 

risk corridors program is a mechanism 

for sharing risk for allowable costs 

between the Federal government and 

QHP issuers. The Affordable Care Act 

established the risk corridors program as 

a Federal program; consequently, HHS 

will operate the risk corridors program 

under Federal rules with no State 

variation. The risk corridors program 

will help protect against inaccurate rate 

setting in the early years of the 

Exchanges by limiting the extent of 

issuer losses and gains. HHS intends to 

implement this program in a budget 

neutral manner. 

As mentioned elsewhere in this rule, 

for the 2014 benefit year, we are making 

an adjustment to the risk corridors 

formula that would help mitigate 

potential QHP issuers’ unexpected 

losses that are attributable to the effects 

of the transitional policy. We also 

estimate that this adjustment would 

result in direct administrative costs for 

individual and small group market 

issuers that are discussed in the 

Collection of Information section of this 

final rule. Because of the difficulty 

associated with predicting State 

enforcement of the 2014 market rules 

and estimating the enrollment in 

transitional plans and in QHPs, it is 

difficult to estimate the precise 

magnitude of this impact on aggregate 

risk corridors payments and charges at 

this time. 

Our initial modeling suggests that this 

adjustment for the transitional policy 

could increase the total risk corridors 

payment amount made by the Federal 

government and decrease risk corridors 

receipts, resulting in an increase in 

payments. However, we estimate that 

even with this change, the risk corridors 

program is likely to be budget neutral 

or, will result in net revenue to the 

Federal government. The magnitude of 

this effect seems likely to be 

substantially smaller than the 

magnitude of the effect of the 

transitional policy itself (because risk 

corridors applies only to the extent of an 

issuer’s QHP business), and the 

magnitude of the effect of the reduction 

of the reinsurance attachment point and 

potential increased coinsurance payout. 

Because reinsurance receipts are a 

parameter in the risk corridors 

calculation, the increase in reinsurance 

payments that would result from 

lowering the attachment point and 

potentially increasing the coinsurance 

rate would exert downward pressure on 

an issuer’s risk corridors ratio. 

Consequently, while the transitional 

risk corridors adjustment will result in 

higher risk corridors payments than 

would occur if no transitional 

adjustment were in place, we believe 

that the risk corridors program as a 

whole will be budget neutral or, will 

result in net revenue to the Federal 

government in FY 2015 for the 2014 

benefit year. We note that even with an 

estimated increase in outlays, CBO still 

projects the Premium Stabilization 

programs to reduce the deficit by 

approximately $8 billion over the 

budget window. HHS intends to 

implement this program in a budget 

neutral manner. 

To ensure the integrity of risk 

corridors data reporting, we establish 

HHS authority in § 153.540(a) of this 

final rule to conduct post-payment 

audits of QHP issuers. We are 

contemplating several ways to reduce 

issuer burden, such as conducting the 

risk corridors audits using the existing 

MLR audit process or conducting risk 

corridors audits under an overall issuer 

audit program. Therefore, as described 

in the Collection of Information section 

of this rule, we believe that the cost for 

issuers that would result from this audit 

requirement is already accounted for as 

part of the MLR audit process. 

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57Brook, Robert H., John E. Ware, William H. 

Rogers, Emmett B. Keeler, Allyson Ross Davies, 

Cathy D. Sherbourne, George A. Goldberg, Kathleen 

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

The Effect of Coinsurance on the Health of Adults: 

Results from the RAND Health Insurance 

Experiment. Santa Monica, CA: RAND Corporation, 

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

reports/R3055. 

58Available at: http://cciio.cms.gov/resources/

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

Provisions Related to Cost Sharing 

The Affordable Care Act provides for 

the reduction or elimination of cost 

sharing for certain eligible individuals 

enrolled in QHPs offered through the 

Exchanges. This assistance will help 

many low- and moderate-income 

individuals and families obtain health 

insurance—for many people, cost 

sharing is a barrier to obtaining needed 

health care.57

To support the administration of the 

cost-sharing reduction program, we are 

finalizing reductions in the maximum 

annual limitation on cost sharing for 

silver plan variations for 2015 and 

minor modifications to the standards 

relating to the design of cost-sharing 

reduction plan variations. We are also 

finalizing certain modifications to the 

methodology for calculating advance 

payments for cost-sharing reductions. 

However, we do not believe these 

changes will result in a significant 

economic impact. Therefore, we do not 

believe the provisions related to costsharing reductions in this rule as 

finalized will have an impact on the 

program established by and described in 

the 2014 Payment Notice. 

In this final rule, we also establish the 

methodology for calculating the 

premium adjustment percentage, and 

finalize the premium adjustment 

percentage for the 2015 benefit year. 

Section 156.130(e) provides that the 

premium adjustment percentage is the 

percentage (if any) by which the average 

per capita premium for health insurance 

coverage for the preceding calendar year 

exceeds such average per capita 

premium for health insurance for 2013, 

and that this percentage will be 

published annually in the HHS notice of 

benefit and payment parameters. The 

annual premium adjustment percentage 

that is issued sets the rate of increase for 

four parameters detailed in the 

Affordable Care Act: the annual 

limitation on cost sharing (defined at 

§ 156.130(a)); the annual limitation on 

deductibles for plans in the small group 

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

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

assessable payment amounts (proposed 

at 26 CFR 54.4980H in the ‘‘Shared 

Responsibility for Employers Regarding 

Health Coverage,’’ published in the 

Federal Register January 2, 2013 (78 FR 

218)). We believe that the 2015 

premium adjustment percentage is well 

within the parameters used in the 

modeling of the Affordable Care Act, 

and do not expect that it will alter 

CBO’s February 2014 baseline estimates 

of the budget impact. 

Annual Open Enrollment Period 

We revised § 155.410(e) and (f) to 

amend the dates for the annual open 

enrollment period and related coverage 

effective dates. These amendments 

would benefit issuers at no additional 

cost, as Exchanges will delay their QHP 

certification dates by at least one month, 

giving issuers additional time. Because 

open enrollment dates will be moved 

forward, Exchanges will still have the 

same amount of time for the QHP 

certification process, and we do not 

anticipate that this comes at an 

additional cost to Exchanges. 

Consumers would have the benefit of a 

more beneficial open enrollment period, 

without any additional demand placed 

on them. 

Calculation of Plan Actuarial Value 

Issuers may incur minor 

administrative costs associated with 

altering cost-sharing parameters of their 

plan designs to ensure compliance with 

AV requirements when utilizing the AV 

Calculator from year-to-year. These 

requirements were established in the 

EHB Rule and are in accordance with 

the provisions in this final rule. Since 

issuers have extensive experience in 

offering products with various levels of 

cost sharing and since these 

modifications are expected to be 

relatively minor for most issuers, HHS 

expects that the process for computing 

AV with the AV Calculator will not 

demand many additional resources. 

User Fees 

To support the operation of FFEs, we 

require in § 156.50(c) that a 

participating issuer offering a plan 

through an FFE must remit a user fee to 

HHS each month equal to the product 

of the monthly user fee rate specified in 

the annual HHS notice of benefit and 

payment parameters for the applicable 

benefit year and the monthly premium 

charged by the issuer for each policy 

under the plan where enrollment is 

through an FFE. For the 2015 benefit 

year, we are establishing a monthly user 

fee rate equal to 3.5 percent of the 

monthly premium. We do not have an 

aggregate estimate of the collections 

from the user fee at this time because we 

do not yet have a count of the number 

of States in which HHS will run an FFE 

or FF–SHOP in 2015. 

SHOP 

The SHOPs facilitate the enrollment 

of eligible employees of small 

employers into small group health 

insurance plans. A qualitative analysis 

of the costs and benefits of establishing 

a SHOP was included in the RIA 

published in conjunction with the 

Exchange Establishment Rule.58 This 

RIA addresses the additional costs and 

benefits of the modifications in this 

final rule to the SHOP sections of the 

Exchange Establishment Rule. 

In this rule, we revise § 155.705(b)(1), 

which lists the rules regarding eligibility 

and enrollment to which the SHOPs 

must adhere, to include additional 

provisions regarding termination of 

coverage in SHOPs and SHOP employer 

and employee eligibility appeals that 

were finalized in the first final Program 

Integrity Rule. In § 155.705(b)(3), we 

establish that an employer in the FF– 

SHOPs has the option to offer its 

employees either a single SADP or a 

choice of all SADPs available at a single 

SADP actuarial value level for plan 

years beginning on or after January 1, 

2015. 

We are also amending § 155.705(b)(4) 

to allow SHOPs performing premium 

aggregation to establish a standard 

method for premium calculation, 

payment, and collection. We are 

establishing that in the FF–SHOPs, after 

premium aggregation becomes available 

in plan years beginning on or after 

January 1, 2015, employers will be 

required to remit premiums to the FF– 

SHOP in accordance with a payment 

timeline and process established by 

HHS through guidance, and that 

premiums for coverage of less than 1 

month will be prorated by multiplying 

the number of days of coverage in the 

partial month by the premium for 1 

month divided by the number of days in 

the month. We believe this approach to 

prorating to be the fairest for both 

consumers and issuers because an 

enrollee will pay for the portion of 

coverage provided for a partial month. 

In this rule, we are finalizing 

amendments to § 155.705(b)(6) that were 

originally proposed in the Program 

Integrity proposed rule published in the 

June 19, 2013 Federal Register (78 FR 

37032) to establish that SHOPs must 

require all issuers to make any changes 

to rates at a uniform time that is no 

more frequently than quarterly, as is the 

case small-group-market-wide. The 

finalized amendments would also 

provide that issuers participating in the 

FF–SHOPs with the maximum amount 

of flexibility permitted under the 

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market-wide rules and the amendment 

to § 155.705(b)(6)(i), standardize the 

effective dates for rate updates in the 

FF–SHOPs, and provide that FF–SHOP 

issuers must submit rates to HHS 60 

days in advance of the effective date. 

Consistent with technical guidance 

provided to issuers through the Health 

Insurance Oversight System on April 8, 

2013, issuers will be able to submit 

updated quarterly rates for the FF– 

SHOPs no sooner than for the third 

quarter of 2014, due to current system 

limitations. This provision is being 

finalized at § 156.705(b)(6)(i) and (i)(A), 

leaving current § 155.705(b)(6)(ii) in 

place, as we did not intend to replace 

it. 

We also are amending 

§ 155.705(b)(11) to provide additional 

flexibility with respect to an employer’s 

ability to define a percentage 

contribution toward premiums under 

the employer selected reference plan in 

the FF–SHOPs. Although we proposed 

and rejected a similar approach in the 

2014 Payment Notice because we 

concluded it was inconsistent with the 

uniformity provisions established in 

Internal Revenue Service Notice 2010– 

82, which require employers to 

contribute a uniform percentage to 

employee premiums in order to claim a 

small business tax credit, we believe 

small employers are best able to 

determine whether offering different 

contribution levels are in the best 

interest of the business and its 

employees. We believe that this 

additional flexibility will bring the FF– 

SHOPs more in line with current small 

group market practices and provide an 

additional incentive for small employers 

to participate in the FF–SHOPs. 

Additionally, we believe that providing 

a mechanism that allows different 

contribution levels based on full-time or 

non-full-time status may encourage 

some employers to offer coverage to 

non-full-time employees. While we are 

finalizing this provision as proposed, 

we note that this option is not expected 

to become available in the FF–SHOPs 

until sometime after January 1, 2015. 

In this rule, we amend § 155.715 to 

provide SHOP eligibility adjustment 

periods for both employers and 

employees only when there is an 

inconsistency between information 

provided by an applicant and 

information collected through optional 

verification methods under 

§ 155.715(c)(2), rather than when an 

employer submits information on the 

SHOP single employer application that 

is inconsistent with the eligibility 

standards described in § 155.710 or 

when the SHOP receives information on 

the employee’s application that is 

inconsistent with the information 

provided by the employer, as current 

paragraph § 155.715(d) provides. We 

also amend paragraph (c)(4) to replace a 

reference to sections 1411(b)(2) and (c) 

of the Affordable Care Act with a 

reference to Subpart D of 45 CFR part 

155, and to add a reference to eligibility 

verifications as well as to eligibility 

determinations. The changes as 

finalized in this rule will prohibit a 

SHOP from performing any individual 

market Exchange eligibility 

determinations or verifications as 

described in Subpart D, which, for 

example, includes making eligibility 

determinations for advance payments of 

the premium tax credit and cost sharing 

reductions in the individual market 

Exchange. 

In § 155.730 we provide that SHOPs 

are not permitted to collect information 

from applicants, employers, or 

employees that is not necessary to 

determine SHOP eligibility or effectuate 

enrollment through a SHOP. Limiting 

the information required of an applicant 

helps to protect consumer privacy and 

promote efficiency and streamlining of 

the SHOP application process. 

In § 155.220, we establish that for 

plan years beginning on or after January 

1, 2015 SHOPs, in States that permit 

this activity under State law, may 

permit enrollment in a SHOP QHP 

through the Internet Web site of an 

agent or broker under the standards set 

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

employer to complete QHP selection 

through the Internet Web site of an 

agent or broker is an additional 

potential enrollment channel that would 

provide small employers with another 

avenue to the SHOPs. While we are 

finalizing this provision as proposed, 

we do not expect that FF–SHOPs will 

offer this option in 2015. For clarity, we 

are making the technical change to add 

a title to § 155.220(i) to say, ‘‘Use of 

agents’ and brokers’ Internet Web sites 

for SHOP.’’ 

In § 156.285 of this rule as finalized, 

we establish that when premium 

aggregation becomes available in FF– 

SHOPs for plan years beginning on or 

after January 1, 2015, if an issuer does 

not receive an enrollment cancellation 

transaction from the FF–SHOP, it 

should effectuate coverage even if the 

issuer would not receive an employer’s 

initial premium payment from the FF– 

SHOP prior to the coverage effective 

date. We also establish that a qualified 

employer in the SHOP that becomes a 

large employer, regardless of whether 

the QHP being sold through the SHOP 

is sold in the small group market or the 

large group market, will continue to be 

rated as a small employer and that 

issuers cannot offer composite 

premiums in the FF–SHOPs when 

employee choice becomes available and 

an employer offers employees a level of 

coverage rather than a single plan. 

Furthermore, we establish that when 

employee choice is offered in the FF– 

SHOPs, composite premiums will not be 

allowed when the employer elects to 

offer its employees all plans in an 

actuarial value (or metal tier) selected 

by the employer, and we extend this 

limitation to SADP issuers when 

employers offer employees a choice of 

all SADPs at a dental AV level. 

We do not expect the policies as 

finalized in this rule and related to the 

SHOP to create any new significant 

costs for small businesses, employees, 

or the FF–SHOPs. 

Patient Safety 

The patient safety requirements 

established in this final rule will be 

implemented in phases, to ensure that 

QHP issuers contract with hospitals that 

meet adequate safety and quality 

standards. The final rule requires QHP 

issuers to collect and maintain CCNs for 

each of its contracted hospitals that are 

certified for more than 50 beds. It also 

requires that this documentation, if 

requested by the Exchange, be 

submitted in a form and manner 

specified by the Exchange. QHP issuers 

already have established procedures and 

relationships to contract with hospitals 

including obtaining hospital 

identification information. Therefore, 

HHS believes that there will not be a 

significant additional cost for a QHP 

issuer to collect and maintain CCNs. 

QHP issuers will incur costs to submit 

this information, if requested, to the 

Exchange. We discuss the burden 

associated with submitting this 

information in the Collection of 

Information section of this final rule. 

D. Regulatory Alternatives Considered 

We considered a number of 

alternatives to our approach to program 

integrity for the premium stabilization 

programs. For example, although we 

finalized in previous rulemaking our 

framework for the risk adjustment data 

validation program to be used when we 

operate risk adjustment on behalf of a 

State, the preamble to this rule as 

proposed discussed and sought 

comment on a number of alternative 

approaches to the detailed methodology 

made final in this rule. For example, we 

suggested a number of options for 

confidence intervals and whether to use 

tests of statistical significance in 

determining plan average risk score 

adjustments. We also suggested an 

expedited second validation audit 

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13832 Federal Register / Vol. 79, No. 47 / Tuesday, March 11, 2014 / Rules and Regulations 

approach to permit more time for interauditor discussions and appeals. We 

suggested a number of ways to calculate 

a default risk adjustment charge for an 

issuer that fails to provide initial 

validation audits. 

In the preamble discussion of our 

proposed modifications to the risk 

adjustment methodology, we considered 

not providing for an induced demand 

adjustment for Medicaid expansion plan 

variations, but we believe that not doing 

so would underestimate the riskiness of 

those plans, potentially leading to 

higher premiums for those plans. 

In § 153.270, we establish in this rule 

that HHS may audit State-operated 

reinsurance programs to ensure 

appropriate use of Federal funds. We 

also considered not proposing that HHS 

have such authority. However, we 

believe that because HHS will collect 

reinsurance contributions and because a 

State’s issuers’ reinsurance requests 

affect the availability of reinsurance 

funds for issuers in other States, we 

think it is critical for HHS to have the 

authority to perform these audits, so 

that issuers and States are confident that 

they will receive the correct allocation 

of the reinsurance payments. We also 

considered proposing that HHS have the 

authority to audit a State-operated risk 

adjustment program. However, we 

decided not to do so because those 

programs do not take in Federal funds 

and those programs have little impact 

on the health insurance markets in other 

States. 

In the preamble discussion of the 

2015 reinsurance payment parameters, 

we also considered, when setting forth 

the proposed 2015 reinsurance payment 

parameters, a set of different uniform 

reinsurance payment parameters, but 

believe those alternative uniform 

reinsurance payment parameters would 

have unduly raised the complexity of 

estimating the effects of reinsurance for 

issuers. 

As detailed in the preamble 

discussion regarding our proposed 

approach to estimating cost-sharing 

reduction amounts in connection with 

reinsurance calculations, we considered 

a number of alternative approaches to 

this estimation. Finally, we considered 

a number of different approaches to the 

discrepancy and administrative appeals 

process proposed in § 153.710 and 

§ 156.1220. Some of these approaches 

would have provided for lengthier and 

more formal administrative appeals 

processes, including for advance 

payments of the premium tax credit, 

advance payment for cost-sharing 

reductions, and FFE user fees in 2014. 

We did not adopt that approach for 

these 2014 programs, and instead rely 

on operational discrepancy reports and 

one-level of administrative appeals—a 

request for reconsideration—because we 

believe that this approach will be 

simpler and less expensive, and will 

permit operations specialists, issuers 

and HHS to resolve most problems more 

quickly. We considered relying solely 

on a simpler operational discrepancy 

report process for the premium 

stabilization programs and cost-sharing 

reductions reconciliation in 2015, but 

decided that due to the complexity of 

the calculations involved in these 

programs and the potential magnitude 

of the payment flows, issuers would 

prefer that these calculations be subject 

to more formal administrative processes. 

Multiple alternatives were considered 

to the proposed SHOP approaches, and 

these are discussed in detail above. 

We considered requiring QHP issuers 

to only contract with hospitals that have 

agreements with one of the 79 listed 

PSOs; however, as we stated in 

preamble, this could result in a shortage 

of qualified hospitals and providers 

available for contracting with QHPs. We 

also considered establishing exceptions 

for hospitals and QHP issuers to these 

requirements. However, we believe that 

the phase in approach for implementing 

these requirements effectively balances 

the priorities for making quality health 

care accessible and safe in the 

Exchanges. 

E. Regulatory Flexibility Act 

The Regulatory Flexibility Act (5 

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

agencies to prepare an initial regulatory 

flexibility analysis to describe the 

impact of the final rule on small 

entities, unless the head of the agency 

can certify that the rule will not have a 

significant economic impact on a 

substantial number of small entities. 

The RFA generally defines a ‘‘small 

entity’’ as (1) a proprietary firm meeting 

the size standards of the Small Business 

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

in its field, or (3) a small government 

jurisdiction with a population of less 

than 50,000. States and individuals are 

not included in the definition of ‘‘small 

entity.’’ HHS uses a change in revenues 

of more than 3 to 5 percent as its 

measure of significant economic impact 

on a substantial number of small 

entities. 

In this final rule, we provide 

provisions for the risk adjustment, 

reinsurance, and risk corridors 

programs, which are intended to 

stabilize premiums as insurance market 

reforms are implemented and Exchanges 

facilitate increased enrollment. Because 

we believe that insurance companies 

offering comprehensive health 

insurance policies generally exceed the 

size thresholds for ‘‘small entities’’ 

established by the SBA, we do not 

believe that an initial regulatory 

flexibility analysis is required for such 

firms. 

For purposes of the RFA, we expect 

the following types of entities to be 

affected by this proposed rule: 

• Health insurance issuers. 

• Group health plans. 

• Reinsurance entities. 

We believe that health insurance 

issuers and group health plans would be 

classified under the North American 

Industry Classification System (NAICS) 

code 524114 (Direct Health and Medical 

Insurance Carriers). According to SBA 

size standards, entities with average 

annual receipts of $35.5 million or less 

would be considered small entities for 

these NAICS codes. Issuers could 

possibly be classified in 621491 (HMO 

Medical Centers) and, if this is the case, 

the SBA size standard would be $30 

million or less. 

In this final rule, we establish 

requirements for employers that choose 

to participate in a SHOP Exchange. 

Coverage through the SHOPs is limited 

by statute to small employers, which the 

statute defines as employers who 

employed on average at least one but 

not more than 100 employees in a given 

plan year. For plan years beginning 

before January 1, 2016, the statute also 

provides that states may elect to define 

a small employer as having at least one 

but not more than 50 employees, on 

average, in a given plan year. For this 

reason, we expect that many employers 

who would be affected by the rule 

would meet the SBA standard for small 

entities. We do not believe that the 

provisions in this final rule impose 

requirements on employers offering 

health insurance through the SHOP that 

are more restrictive than the current 

requirements on small employers 

offering employer-sponsored insurance. 

Additionally, as discussed in the RIA, 

we believe the policy will provide 

greater choice for both employees and 

employers. We believe the processes 

that we have established constitute the 

minimum requirements necessary to 

implement the SHOP program and 

accomplish our policy goals, and that no 

appropriate regulatory alternatives 

could be developed to further lessen the 

compliance burden. 

We believe that a substantial number 

of sponsors of self-insured group health 

plans could qualify as ‘‘small entities.’’ 

This rule provides HHS with the 

authority to audit these entities. 

However, we do not believe that the 

burden of these audits is likely to reflect 

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more than 3 to 5 percent of such an 

entity’s revenues. 

F. Unfunded Mandates 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

requires that agencies assess anticipated 

costs and benefits and take certain other 

actions before issuing a final rule that 

includes any Federal mandate that may 

result in expenditures in any one year 

by a State, local, or Tribal governments, 

in the aggregate, or by the private sector, 

of $100 million in 1995 dollars, updated 

annually for inflation. In 2014, that 

threshold is approximately $141 

million. Although we have not been 

able to quantify the user fees that will 

be associated with this final rule, the 

combined administrative cost and user 

fee impact on State, local, or Tribal 

governments and the private sector may 

be above the threshold. Earlier portions 

of this RIA constitute our UMRA 

analysis. 

G. Federalism 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a final 

rule that imposes substantial direct 

costs on State and local governments, 

preempts State law, or otherwise has 

Federalism implications. Because States 

have flexibility in designing their 

Exchange and Exchange-related 

programs, State decisions will 

ultimately influence both administrative 

expenses and overall premiums. States 

are not required to establish an 

Exchange or risk adjustment or 

reinsurance program. For States electing 

to operate an Exchange, risk adjustment, 

or reinsurance, much of the initial cost 

of creating these programs will be 

funded by Exchange Planning and 

Establishment Grants. After 

establishment, Exchanges will be 

financially self-sustaining, with revenue 

sources at the discretion of the State. 

Current State Exchanges charge user 

fees to issuers. 

In HHS’s view, while this final rule 

does not impose substantial direct 

requirement costs on State and local 

governments, this regulation has 

Federalism implications due to direct 

effects on the distribution of power and 

responsibilities among the State and 

Federal governments relating to 

determining standards relating to health 

insurance that is offered in the 

individual and small group markets. 

Each State electing to establish an 

Exchange must adopt the Federal 

standards contained in the Affordable 

Care Act and in this final rule, or have 

in effect a State law or regulation that 

implements these Federal standards. 

However, HHS anticipates that the 

Federalism implications (if any) are 

substantially mitigated because under 

the statute, States have choices 

regarding the structure and governance 

of their Exchanges and risk adjustment 

and reinsurance programs. Additionally, 

the Affordable Care Act does not require 

States to establish these programs; if a 

State elects not to establish any of these 

programs or is not approved to do so, 

HHS must establish and operate the 

programs in that State. 

In compliance with the requirement 

of Executive Order 13132 that agencies 

examine closely any policies that may 

have Federalism implications or limit 

the policy making discretion of the 

States, HHS has engaged in efforts to 

consult with and work cooperatively 

with affected States, including 

participating in conference calls with 

and attending conferences of the 

National Association of Insurance 

Commissioners, and consulting with 

State insurance officials on an 

individual basis. 

Throughout the process of developing 

this final rule, HHS has attempted to 

balance the States’ interests in 

regulating health insurance issuers, and 

Congress’ intent to provide access to 

Affordable Insurance Exchanges for 

consumers in every State. By doing so, 

it is HHS’s view that we have complied 

with the requirements of Executive 

Order 13132. 

H. Congressional Review Act 

This final rule is subject to the 

Congressional Review Act provisions of 

the Small Business Regulatory 

Enforcement Fairness Act of 1996 (5 

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

before a rule can take effect, the Federal 

agency promulgating the rule shall 

submit to each House of the Congress 

and to the Comptroller General a report 

containing a copy of the rule along with 

other specified information, and has 

been transmitted to Congress and the 

Comptroller General for review. 

List of Subjects 

45 CFR Part 144 

Health care, Health insurance, 

Reporting and recordkeeping 

requirements. 

45 CFR Part 147 

Health care, Health insurance, 

Reporting and recordkeeping 

requirements, and State regulation of 

health insurance. 

45 CFR Part 153 

Administrative practice and 

procedure, Adverse selection, Health 

care, Health insurance, Health records, 

Organization and functions 

(Government agencies), Premium 

stabilization, Reporting and 

recordkeeping requirements, 

Reinsurance, Risk adjustment, Risk 

corridors, Risk mitigation, State and 

local governments. 

45 CFR Part 155 

Administrative practice and 

procedure, Health care access, Health 

insurance, Reporting and recordkeeping 

requirements, State and local 

governments, Cost-sharing reductions, 

Advance payments of premium tax 

credit, Administration and calculation 

of advance payments of the premium 

tax credit, Plan variations, Actuarial 

value. 

45 CFR Part 156 

Administrative appeals, 

Administrative practice and procedure, 

Administration and calculation of 

advance payments of premium tax 

credit, Advertising, Advisory 

Committees, Brokers, Conflict of 

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

care, Health insurance, Health 

maintenance organization (HMO), 

Health records, Hospitals, American 

Indian/Alaska Natives, Individuals with 

disabilities, Loan programs-health, 

Organization and functions 

(Government agencies), Medicaid, 

Payment and collections reports, Public 

assistance programs, Reporting and 

recordkeeping requirements, State and 

local governments, Sunshine Act, 

Technical assistance, Women, and 

Youth. 

45 CFR Part 158 

Administrative practice and 

procedure, Claims, Health care, Health 

insurance, Health plans, penalties, 

Reporting and recordkeeping 

requirements, Premium revenues, 

Medical loss ratio, Rebating. 

For the reasons set forth in the 

preamble, the Department of Health and 

Human Services amends 45 CFR parts 

144, 147, 153, 155, 156, and 158 as set 

forth below: 

PART 144—REQUIREMENTS 

RELATING TO HEALTH INSURANCE 

COVERAGE 

■ 1. The authority citation for part 144 

continues to read as follows: 

Authority: Secs. 2701 through 2763, 2791, 

and 2792 of the Public Health Service Act, 

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

and 300gg–92. 

■ 2. Section 144.103 is amended by 

revising the first sentence in paragraph 

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

read as follows: 

§ 144.103 Definitions. 

* * * * * 

Policy year * * * 

(1) A grandfathered health plan 

offered in the individual health 

insurance market and student health 

insurance coverage, the 12-month 

period that is designated as the policy 

year in the policy documents of the 

health insurance coverage. * * * 

* * * * * 

PART 147—HEALTH INSURANCE 

REFORM REQUIREMENTS FOR THE 

GROUP AND INDIVIDUAL HEALTH 

INSURANCE MARKETS 

■ 3. The authority citation for part 147 

continues to read as follows: 

Authority: Secs. 2701 through 2763, 2791, 

and 2792 of the Public Health Service Act (42 

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

and 300gg–92), as amended. 

■ 4. Section 147.102 is amended by 

revising paragraph (c)(3) to read as 

follows: 

§ 147.102 Fair health insurance premiums. 

* * * * * 

(c) * * * 

(3) Application to small group 

market—(i) In the case of the small 

group market, the total premium 

charged to a group health plan is 

determined by summing the premiums 

of covered participants and beneficiaries 

in accordance with paragraph (c)(1) or 

(2) of this section, as applicable. 

(ii) Subject to paragraph (c)(3)(iii) of 

this section, nothing in this section 

prevents a state from requiring issuers to 

offer to a group health plan, or an issuer 

from voluntarily offering to a group 

health plan, premiums that are based on 

average enrollee premium amounts, 

provided that the total group premium 

established at the time of applicable 

enrollment at the beginning of the plan 

year is the same total amount derived in 

accordance with paragraph (c)(1) or (2) 

of this section, as applicable. 

(iii) Effective for plan years beginning 

on or after January 1, 2015, an issuer 

that, in connection with a group health 

plan in the small group market, offers 

premiums that are based on average 

enrollee premium amounts under 

paragraph (c)(3)(ii) of this section 

must— 

(A) Ensure an average enrollee 

premium amount calculated based on 

applicable enrollment of participants 

and beneficiaries at the beginning of the 

plan year does not vary during the plan 

year. 

(B) Unless a state establishes and CMS 

approves an alternate rating 

methodology, calculate an average 

enrollee premium amount for covered 

individuals age 21 and older, and 

calculate an average enrollee premium 

amount for covered individuals under 

age 21. The premium for a given family 

composition is determined by summing 

the average enrollee premium amount 

applicable to each family member 

covered under the plan, taking into 

account no more than three covered 

children under age 21. 

(C) Pursuant to applicable state law, 

ensure that the average enrollee 

premium amount calculated for any 

individual covered under the plan does 

not include any rating variation for 

tobacco use permitted under paragraph 

(a)(1)(iv) of this section. The rating 

variation for tobacco use permitted 

under paragraph (a)(1)(iv) of this section 

is determined based on the premium 

rate that would be applied on a permember basis with respect to an 

individual who uses tobacco and then 

included in the premium charged for 

that individual. 

(D) To the extent permitted by 

applicable state law and, in the case of 

coverage offered through a Federallyfacilitated SHOP, as permitted by 

§ 156.285(a)(4) of this subchapter, apply 

this paragraph (c)(3)(iii) uniformly 

among group health plans enrolling in 

that product, giving those group health 

plans the option to pay premiums based 

on average enrollee premium amounts. 

* * * * * 

■ 5. Section 147.145 is amended by 

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

follows: 

§ 147.145 Student health insurance 

coverage. 

* * * * * 

(b) * * * 

(1) * * * 

(ii) For purposes of section 2702 of 

the Public Health Service Act, a health 

insurance issuer that offers student 

health insurance coverage is not 

required to accept individuals who are 

not students or dependents of students 

in such coverage, and, notwithstanding 

the requirements of § 147.104(b), is not 

required to establish open enrollment 

periods or coverage effective dates that 

are based on a calendar policy year or 

to offer policies on a calendar year basis. 

* * * * * 

PART 153—STANDARDS RELATED TO 

REINSURANCE, RISK CORRIDORS, 

AND RISK ADJUSTMENT UNDER THE 

AFFORDABLE CARE ACT 

■ 6. The authority citation for part 153 

continues to read as follows: 

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

Pub. L. 111–148, 24 Stat. 119. 

■ 7. Section 153.20 is amended by 

revising the definition of ‘‘contributing 

entity’’ and adding in alphabetical order 

a definition of ‘‘major medical 

coverage’’ to read as follows: 

§ 153.20 Definitions. 

* * * * * 

Contributing entity means— 

(1) A health insurance issuer; or 

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

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

health insurance coverage does not 

constitute major medical coverage), 

whether or not it uses a third party 

administrator; and for the 2015 and 

2016 benefit years, a self-insured group 

health plan (including a group health 

plan that is partially self-insured and 

partially insured, where the health 

insurance coverage does not constitute 

major medical coverage) that uses a 

third party administrator in connection 

with claims processing or adjudication 

(including the management of internal 

appeals) or plan enrollment for services 

other than for pharmacy benefits or 

excepted benefits within the meaning of 

section 2791(c) of the PHS Act. 

Notwithstanding the foregoing, a selfinsured group health plan that uses an 

unrelated third party to obtain provider 

network and related claim repricing 

services, or uses an unrelated third 

party for up to 5 percent of claims 

processing or adjudication or plan 

enrollment, will not be deemed to use 

a third party administrator, based on 

either the number of transactions 

processed by the third party, or the 

volume of the claims processing and 

adjudication and plan enrollment 

services provided by the third party. A 

self-insured group health plan that is a 

contributing entity is responsible for the 

reinsurance contributions, although it 

may elect to use a third party 

administrator or administrative servicesonly contractor for transfer of the 

reinsurance contributions. 

* * * * * 

Major medical coverage means, for 

purposes only of the requirements 

related to reinsurance contributions 

under section 1341 of the Affordable 

Care Act, a catastrophic plan, an 

individual or a small group market plan 

subject to the actuarial value 

requirements under § 156.140 of this 

subchapter, or health coverage for a 

broad range of services and treatments 

provided in various settings that 

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provides minimum value as defined in 

§ 156.145 of this subchapter. 

* * * * * 

■ 8. Section 153.230 is amended by 

revising paragraph (d) to read as 

follows: 

§ 153.230 Calculation of reinsurance 

payments made under the national 

contribution rate. 

* * * * * 

(d) Uniform adjustment to national 

reinsurance payments. If HHS 

determines that all reinsurance 

payments requested under the national 

payment parameters from all 

reinsurance-eligible plans in all States 

for a benefit year will not be equal to the 

amount of all reinsurance contributions 

collected for reinsurance payments 

under the national contribution rate in 

all States for an applicable benefit year, 

HHS will determine a uniform pro rata 

adjustment to be applied to all such 

requests for reinsurance payments for 

all States. Each applicable reinsurance 

entity, or HHS on behalf of a State, must 

reduce or increase the reinsurance 

payment amounts for the applicable 

benefit year by any adjustment required 

under this paragraph (d). 

■ 9. Section 153.270 is added to subpart 

C to read as follows: 

§ 153.270 HHS audits of State-operated 

reinsurance programs. 

(a) Audits. HHS or its designee may 

conduct a financial and programmatic 

audit of a State-operated reinsurance 

program to assess compliance with the 

requirements of this subpart or subpart 

B of this part. A State that establishes a 

reinsurance program must ensure that 

its applicable reinsurance entity and 

any relevant contractors, subcontractors, 

or agents cooperate with any audit 

under this section. 

(b) Action on audit findings. If an 

audit results in a finding of material 

weakness or significant deficiency with 

respect to compliance with any 

requirement of this subpart or subpart B, 

the State must ensure that the 

applicable reinsurance entity: 

(1) Within 60 calendar days of the 

issuance of the final audit report, 

provides a written corrective action plan 

to HHS for approval; 

(2) Implements that plan; and 

(3) Provides to HHS written 

documentation of the corrective actions 

once taken. 

■ 10. Section 153.400 is amended by 

revising paragraph (a)(1) introductory 

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

(vi) to read as follows: 

§ 153.400 Reinsurance contribution funds. 

(a) * * * 

(1) In general, reinsurance 

contributions are required for major 

medical coverage that is considered to 

be part of a commercial book of 

business, but are not required to be paid 

more than once with respect to the same 

covered life. In order to effectuate that 

principle, a contributing entity must 

make reinsurance contributions for lives 

covered by its self-insured group health 

plans and health insurance coverage 

except to the extent that: 

* * * * * 

(v) Such plan or coverage applies to 

individuals with primary residence in a 

territory that does not operate a 

reinsurance program. 

(vi) In the case of employer-provided 

group health coverage: 

(A) Such coverage applies to 

individuals with individual market 

health insurance coverage for which 

reinsurance contributions are required; 

or 

(B) Such coverage is supplemental or 

secondary to group health coverage for 

which reinsurance contributions must 

be made for the same covered lives. 

* * * * * 

■ 11. Section 153.405 is amended by 

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

adding paragraph (i) to read as follows: 

§ 153.405 Calculation of reinsurance 

contributions. 

* * * * * 

(c) Notification and payment. (1) 

Following submission of the annual 

enrollment count described in 

paragraph (b) of this section, HHS will 

notify the contributing entity of the 

reinsurance contribution amount 

allocated to reinsurance payments and 

administrative expenses to be paid for 

the applicable benefit year. 

(2) In the fourth quarter of the 

calendar year following the applicable 

benefit year, HHS will notify the 

contributing entity of the portion of the 

reinsurance contribution amount 

allocated for payments to the U.S. 

Treasury for the applicable benefit year. 

(3) A contributing entity must remit 

reinsurance contributions to HHS 

within 30 days after the date of a 

notification. 

* * * * * 

(e) * * * 

(3) Using the number of lives covered 

for the most current plan year calculated 

based upon the ‘‘Annual Return/Report 

of Employee Benefit Plan’’ filed with the 

Department of Labor (Form 5500) for the 

last applicable time period. For 

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

number of lives covered for the plan 

year for a plan offering only self-only 

coverage equals the sum of the total 

participants covered at the beginning 

and end of the plan year, as reported on 

the Form 5500, divided by 2, and the 

number of lives covered for the plan 

year for a plan offering self-only 

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

total participants covered at the 

beginning and the end of the plan year, 

as reported on the Form 5500. 

* * * * * 

(i) Audits. HHS or its designee may 

audit a contributing entity to assess its 

compliance with the requirements of 

this subpart. 

■ 12. Section 153.410 is amended by 

adding paragraph (d) to read as follows: 

§ 153.410 Requests for reinsurance 

payment. 

* * * * * 

(d) Audits. HHS or its designee may 

audit an issuer of a reinsurance-eligible 

plan to assess its compliance with the 

requirements of this subpart and subpart 

H of this part. The issuer must ensure 

that its relevant contractors, 

subcontractors, or agents cooperate with 

any audit under this section. If an audit 

results in a finding of material weakness 

or significant deficiency with respect to 

compliance with any requirement of 

this subpart or subpart H, the issuer 

must complete all of the following: 

(1) Within 30 calendar days of the 

issuance of the final audit report, 

provide a written corrective action plan 

to HHS for approval. 

(2) Implement that plan. 

(3) Provide to HHS written 

documentation of the corrective actions 

once taken. 

■ 13. Section 153.500 is amended by 

revising the definitions of ‘‘allowable 

administrative costs’’ and ‘‘profits’’ and 

adding in alphabetical order definitions 

for ‘‘adjustment percentage’’ and 

‘‘transitional State’’ to read as follows: 

§ 153.500 Definitions. 

* * * * * 

Adjustment percentage means, with 

respect to a QHP: 

(1) For benefit year 2014, for a QHP 

offered by a health insurance issuer 

with allowable costs of at least 80 

percent of after-tax premium in a 

transitional State, the percentage 

specified by HHS for such QHPs in the 

transitional State; and otherwise 

(2) Zero percent. 

* * * * * 

Allowable administrative costs mean, 

with respect to a QHP, the sum of 

administrative costs of the QHP, other 

than taxes and regulatory fees, plus 

profits earned by the QHP, which sum 

is limited to the sum of 20 percent and 

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the adjustment percentage of after-tax 

premiums earned with respect to the 

QHP (including any premium tax credit 

under any governmental program), plus 

taxes and regulatory fees. 

* * * * * 

Profits mean, with respect to a QHP, 

the greater of: 

(1) The sum of three percent and the 

adjustment percentage of after-tax 

premiums earned; and 

(2) Premiums earned of the QHP 

minus the sum of allowable costs and 

administrative costs of the QHP. 

* * * * * 

Transitional State means a State that 

does not enforce compliance with 

§§ 147.102, 147.104, 147.106, 147.150, 

156.80, or subpart B of part 156 of this 

subchapter for individual market and 

small group health plans that renew for 

a policy year starting between January 1, 

2014, and October 1, 2014, in 

accordance with the transitional policy 

outlined in the CMS letter dated 

November 14, 2013. 

■ 14. Section 153.510 is amended by 

adding paragraph (f) to read as follows: 

§ 153.510 Risk corridors establishment 

and payment methodology. 

* * * * * 

(f) Eligibility under health insurance 

market rules. The provisions of this 

subpart apply only for plans offered by 

a QHP issuer in the SHOP or the 

individual or small group market, as 

determined according to the employee 

counting method applicable under State 

law, that are subject to the following 

provisions: §§ 147.102, 147.104, 

147.106, 147.150, 156.80, and subpart B 

of part 156 of this subchapter. 

■ 15. Section 153.530 is amended by 

revising paragraph (d) and adding 

paragraph (e) to read as follows: 

§ 153.530 Risk corridors data 

requirements. 

* * * * * 

(d) Timeframes. For each benefit year, 

a QHP issuer must submit all 

information required under paragraphs 

(a) through (c) of this section by July 31 

of the year following the benefit year. 

(e) Requirement to submit enrollment 

data for risk corridors adjustment. A 

health insurance issuer in the 

individual or small group market of a 

transitional State must submit, in a 

manner and timeframe specified by 

HHS, the following: 

(1) A count of its total enrollment in 

the individual market and small group 

market; and 

(2) A count of its total enrollment in 

individual market and small group 

market policies that meet the criteria for 

transitional policies outlined in the 

CMS letter dated November 14, 2013. 

■ 16. Section 153.540 is added to 

subpart F to read as follows: 

§ 153.540 Compliance with risk corridors 

standards. 

HHS or its designee may audit a QHP 

issuer to assess its compliance with the 

requirements of this subpart. HHS will 

conduct an audit in accordance with the 

procedures set forth in § 158.402(a) 

through (e) of this subchapter. 

■ 17. Section 153.620 is amended by 

adding paragraph (c) to read as follows: 

§ 153.620 Compliance with risk adjustment 

standards. 

* * * * * 

(c) Audits. HHS or its designee may 

audit an issuer of a risk adjustment 

covered plan to assess its compliance 

with the requirements of this subpart 

and subpart H of this part. The issuer 

must ensure that its relevant 

contractors, subcontractors, or agents 

cooperate with any audit under this 

section. If an audit results in a finding 

of material weakness or significant 

deficiency with respect to compliance 

with any requirement of this subpart or 

subpart H of this part, the issuer must 

complete all of the following: 

(1) Within 30 calendar days of the 

issuance of the final audit report, 

provide a written corrective action plan 

to HHS for approval. 

(2) Implement that plan. 

(3) Provide to HHS written 

documentation of the corrective actions 

once taken. 

■ 18. Section 153.630 is amended by 

revising paragraph (b)(1) and adding 

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

follows: 

§ 153.630 Data validation requirements 

when HHS operates risk adjustment. 

* * * * * 

(b) * * * 

(1) An issuer of a risk adjustment 

covered plan must engage one or more 

independent auditors to perform an 

initial validation audit of a sample of its 

risk adjustment data selected by HHS. 

The issuer must provide HHS with the 

identity of the initial validation auditor, 

and must attest to the absence of 

conflicts of interest between the initial 

validation auditor (or the members of its 

audit team, owners, directors, officers, 

or employees) and the issuer (or its 

owners, directors, officers, or 

employees), to its knowledge, following 

reasonable investigation, and must attest 

that it has obtained an equivalent 

representation from the initial 

validation auditor, in a timeframe and 

manner to be specified by HHS. 

* * * * * 

(5) An initial validation audit must be 

conducted by medical coders certified 

as such and in good standing by a 

nationally recognized accrediting 

agency. 

(6) An issuer must provide the initial 

validation auditor and the second 

validation auditor with all relevant 

source enrollment documentation, all 

claims and encounter data, and medical 

record documentation from providers of 

services to each enrollee in the 

applicable sample without unreasonable 

delay and in a manner that reasonably 

assures confidentiality and security in 

transmission. 

(7) The risk score of each enrollee in 

the sample must be validated by— 

(i) Validating the enrollee’s 

enrollment data and demographic data 

in a manner to be determined by HHS. 

(ii) Validating enrollee health status 

through review of all relevant medical 

record documentation. Medical record 

documentation must originate from the 

provider of the services and align with 

dates of service for the medical 

diagnoses, and reflect permitted 

providers and services. For purposes of 

this section, ‘‘medical record 

documentation’’ means clinical 

documentation of hospital inpatient or 

outpatient treatment or professional 

medical treatment from which enrollee 

health status is documented and related 

to accepted risk adjustment services that 

occurred during a specified period of 

time. Medical record documentation 

must be generated under a face-to-face 

or telehealth visit documented and 

authenticated by a permitted provider of 

services; 

(iii) Validating medical records 

according to industry standards for 

coding and reporting; and 

(iv) Having a senior reviewer confirm 

any enrollee risk adjustment error 

discovered during the initial validation 

audit. For purposes of this section, a 

‘‘senior reviewer’’ is a reviewer certified 

as a medical coder by a nationally 

recognized accrediting agency who 

possesses at least 5 years of experience 

in medical coding. However, for 

validation of risk adjustment data for 

the 2014 and 2015 benefit years, a 

senior reviewer may possess 3 or more 

years of experience. 

(8) The initial validation auditor must 

measure and report to the issuer and 

HHS, in a manner and timeframe 

specified by HHS, its inter-rater 

reliability rates among its reviewers. 

The initial validation auditor must 

achieve a consistency measure of at 

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least 95 percent for his or her review 

outcomes. However, for validation of 

risk adjustment data for the 2014 and 

2015 benefit years, the initial validation 

auditor may meet an inter-rater 

reliability standard of 85 percent for 

review outcomes. 

(9) Enforcement actions. If an issuer of 

a risk adjustment covered plan fails to 

engage an initial validation auditor or to 

submit the results of an initial 

validation audit to HHS, HHS may 

impose civil money penalties in 

accordance with the procedures set 

forth in § 156.805 of this subchapter. 

(10) Default data validation charge. If 

an issuer of a risk adjustment covered 

plan fails to engage an initial validation 

auditor or to submit the results of an 

initial validation audit to HHS, HHS 

will impose a default risk adjustment 

charge. 

* * * * * 

■ 19. Section 153.710 is amended by 

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

read as follows: 

§ 153.710 Data requirements. 

* * * * * 

(d) Interim dedicated distributed data 

environment reports. Within 30 

calendar days of the date of an interim 

dedicated distributed data environment 

report from HHS, the issuer must, in a 

format specified by HHS, either: 

(1) Confirm to HHS that the 

information in the interim report 

accurately reflects the data to which the 

issuer has provided access to HHS 

through its dedicated distributed data 

environment in accordance with 

§ 153.700(a) for the timeframe specified 

in the report; or 

(2) Describe to HHS any discrepancy 

it identifies in the interim dedicated 

distributed data environment report. 

(e) Final dedicated distributed data 

environment report. Within 15 calendar 

days of the date of the final dedicated 

distributed data environment report 

from HHS, the issuer must, in a format 

specified by HHS, either: 

(1) Confirm to HHS that the 

information in the final report 

accurately reflects the data to which the 

issuer has provided access to HHS 

through its dedicated distributed data 

environment in accordance with 

§ 153.700(a) for the benefit year 

specified in the report; or 

(2) Describe to HHS any discrepancy 

it identifies in the final dedicated 

distributed data environment report. 

(f) Unresolved discrepancies. If a 

discrepancy first identified in an 

interim or final dedicated distributed 

data environment report in accordance 

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

section remains unresolved after the 

issuance of the notification of risk 

adjustment payments and charges or 

reinsurance payments under 

§ 153.310(e) or § 153.240(b)(1)(ii), 

respectively, an issuer of a risk 

adjustment covered plan or reinsuranceeligible plan may make a request for 

reconsideration regarding such 

discrepancy under the process set forth 

in § 156.1220(a) of this subchapter. 

(g) Risk corridors and MLR reporting. 

(1) Notwithstanding any discrepancy 

report made under paragraph (d)(2) or 

(e)(2) of this section, or any request for 

reconsideration under § 156.1220(a) of 

this subchapter with respect to any risk 

adjustment payment or charge, 

including an assessment of risk 

adjustment user fees; reinsurance 

payment; cost-sharing reconciliation 

payment or charge; or risk corridors 

payment or charge, unless the dispute 

has been resolved, an issuer must 

report, for purposes of the risk corridors 

and MLR programs: 

(i) The risk adjustment payment to be 

made or charge assessed, including an 

assessment of risk adjustment user fees, 

by HHS in the notification provided 

under § 153.310(e); 

(ii) The reinsurance payment to be 

made by HHS in the notification 

provided under § 153.240(b)(1)(ii); 

(iii) A cost-sharing reduction amount 

equal to the amount of the advance 

payments of cost-sharing reductions 

paid to the issuer by HHS for the benefit 

year; and 

(iv) For medical loss ratio report only, 

the risk corridors payment to be made 

or charge assessed by HHS as reflected 

in the notification provided under 

§ 153.510(d). 

(2) An issuer must report any 

adjustment made following any 

discrepancy report made under 

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

or any request for reconsideration under 

§ 156.1220(a) of this subchapter with 

respect to any risk adjustment payment 

or charge, including an assessment of 

risk adjustment user fees; reinsurance 

payment; cost-sharing reconciliation 

payment or charge; or risk corridors 

payment or charge; or following any 

audit, where such adjustment has not be 

accounted for in a prior risk corridors or 

medical loss ratio report, in the next 

following risk corridors or medical loss 

ratio report. 

PART 155—EXCHANGE 

ESTABLISHMENT STANDARDS AND 

OTHER RELATED STANDARDS 

UNDER THE AFFORDABLE CARE ACT 

■ 20. Authority citation for part 155 

continues to read as follows: 

Authority: Title I of the Affordable Care 

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

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

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

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

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

and 18081–18083). 

■ 21. Section 155.106 is amended by 

revising paragraph (a)(2) to read as 

follows: 

§ 155.106 Election to operate an Exchange 

after 2014. 

(a) * * * 

(2) Have in effect an approved, or 

conditionally approved, Exchange 

Blueprint and operational readiness 

assessment at least 6.5 months prior to 

the Exchange’s first effective date of 

coverage; and 

* * * * * 

■ 22. Section 155.220 is amended by 

adding paragraph (i) to read as follows: 

§ 155.220 Ability of States to permit agents 

and brokers to assist qualified individuals, 

qualified employers, or qualified employees 

enrolling in QHPs. 

* * * * * 

(i) Use of agents’ and brokers’ Internet 

Web sites for SHOP. For plan years 

beginning on or after January 1, 2015, in 

States that permit this activity under 

State law, a SHOP may permit agents 

and brokers to use an Internet Web site 

to assist qualified employers and 

facilitate enrollment of qualified 

employees in a QHP through the 

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

section. 

■ 23. Section 155.260 is amended by 

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

to read as follows: 

§ 155.260 Privacy and security of 

personally identifiable information. 

(a) * * * 

(1) Where the Exchange creates or 

collects personally identifiable 

information for the purposes of 

determining eligibility for enrollment in 

a qualified health plan; determining 

eligibility for other insurance 

affordability programs, as defined in 

§ 155.20; or determining eligibility for 

exemptions from the individual 

responsibility provisions in section 

5000A of the Code, the Exchange may 

only use or disclose such personally 

identifiable information to the extent 

such information is necessary: 

(i) For the Exchange to carry out the 

functions described in § 155.200; 

(ii) For the Exchange to carry out 

other functions not described in 

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

the Secretary determines to be in 

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

of the Affordable Care Act and for 

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which an individual provides consent 

for his or her information to be used or 

disclosed; or 

(iii) For the Exchange to carry out 

other functions not described in 

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

section, for which an individual 

provides consent for his or her 

information to be used or disclosed, and 

which the Secretary determines are in 

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

of the Affordable Care Act under the 

following substantive and procedural 

requirements: 

(A) Substantive requirements. The 

Secretary may approve other uses and 

disclosures of personally identifiable 

information created or collected as 

described in paragraph (a)(1) of this 

section that are not described in 

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

provided that HHS determines that the 

information will be used only for the 

purposes of and to the extent necessary 

in ensuring the efficient operation of the 

Exchange consistent with section 

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

and that the uses and disclosures are 

also permissible under relevant law and 

policy. 

(B) Procedural requirements for 

approval of a use or disclosure of 

personally identifiable information. To 

seek approval for a use or disclosure of 

personally identifiable information 

created or collected as described in 

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

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

(ii) of this section, the Exchange must 

submit the following information to 

HHS: 

(1) Identity of the Exchange and 

appropriate contact persons; 

(2) Detailed description of the 

proposed use or disclosure, which must 

include, but not necessarily be limited 

to, a listing or description of the specific 

information to be used or disclosed and 

an identification of the persons or 

entities that may access or receive the 

information; 

(3) Description of how the use or 

disclosure will ensure the efficient 

operation of the Exchange consistent 

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

Affordable Care Act; and 

(4) Description of how the 

information to be used or disclosed will 

be protected in compliance with privacy 

and security standards that meet the 

requirements of this section or other 

relevant law, as applicable. 

(2) The Exchange may not create, 

collect, use, or disclose personally 

identifiable information unless the 

creation, collection, use, or disclosure is 

consistent with this section. 

* * * * * 

(b) Application to non-Exchange 

entities. (1) Non-Exchange entities. A 

non-Exchange entity is any individual 

or entity that: 

(i) Gains access to personally 

identifiable information submitted to an 

Exchange; or 

(ii) Collects, uses, or discloses 

personally identifiable information 

gathered directly from applicants, 

qualified individuals, or enrollees while 

that individual or entity is performing 

functions agreed to with the Exchange. 

(2) Prior to any person or entity 

becoming a non-Exchange entity, 

Exchanges must execute with the person 

or entity a contract or agreement that 

includes: 

(i) A description of the functions to be 

performed by the non-Exchange entity; 

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

privacy and security standards and 

obligations adopted in accordance with 

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

specifically listing or incorporating 

those privacy and security standards 

and obligations; 

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

assess, and update its security controls 

and related system risks to ensure the 

continued effectiveness of those 

controls in accordance with paragraph 

(a)(5) of this section; 

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

of any change in its administrative, 

technical, or operational environments 

defined as material within the contract; 

and 

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

downstream entities to the same privacy 

and security standards and obligations 

to which the non-Exchange entity has 

agreed in its contract or agreement with 

the Exchange. 

(3) When collection, use or disclosure 

is not otherwise required by law, the 

privacy and security standards to which 

an Exchange binds non-Exchange 

entities must: 

(i) Be consistent with the principles 

and requirements listed in paragraphs 

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

including being at least as protective as 

the standards the Exchange has 

established and implemented for itself 

in compliance with paragraph (a)(3) of 

this section; 

(ii) Comply with the requirements of 

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

section; and 

(iii) Take into specific consideration: 

(A) The environment in which the 

non-Exchange entity is operating; 

(B) Whether the standards are relevant 

and applicable to the non-Exchange 

entity’s duties and activities in 

connection with the Exchange; and 

(C) Any existing legal requirements to 

which the non-Exchange entity is bound 

in relation to its administrative, 

technical, and operational controls and 

practices, including but not limited to, 

its existing data handling and 

information technology processes and 

protocols. 

* * * * * 

■ 24. Section 155.410 is amended by 

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

follows: 

§ 155.410 Initial and annual open 

enrollment periods. 

* * * * * 

(e) Annual open enrollment period. 

For the benefit year beginning on 

January 1, 2015, the annual open 

enrollment period begins on November 

15, 2014, and extends through February 

15, 2015. 

(f) Effective date for coverage after the 

annual open enrollment period. For the 

benefit year beginning on January 1, 

2015, the Exchange must ensure 

coverage is effective - 

(1) January 1, 2015, for QHP 

selections received by the Exchange on 

or before December 15, 2014. 

(2) February 1, 2015, for QHP 

selections received by the Exchange 

from December 16, 2014 through 

January 15, 2015. 

(3) March 1, 2015, for QHP selections 

received by the Exchange from January 

16, 2015 through February 15, 2015. 

* * * * * 

■ 25. Section 155.705 is amended by: 

■ a. Revising paragraph (b)(1); 

■ b. Adding paragraph (b)(3)(v); 

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

(b)(4)(iii); 

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

■ e. Revising paragraph (b)(6)(i); and 

■ f. Revising paragraph (b)(11)(ii)(C). 

The additions and revisions read as 

follows: 

§ 155.705 Functions of a SHOP. 

* * * * * 

(b) * * * 

(1) Enrollment and eligibility 

functions. The SHOP must adhere to the 

requirements outlined in Subpart H. 

* * * * * 

(3) * * * 

(v) For plan years beginning on or 

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

qualified employer a choice of two 

methods to make stand-alone dental 

plans available to qualified employees 

and their dependents: 

(A) The employer may choose to make 

available a single stand-alone dental 

plan. 

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(B) The employer may choose to make 

available all stand-alone dental plans 

offered through a Federally-facilitated 

SHOP at a level of coverage as described 

in § 156.150(b)(2) of this subchapter. 

(4) * * * 

(ii) The SHOP may establish one or 

more standard processes for premium 

calculation, premium payment, and 

premium collection. 

(A) Qualified employers in a 

Federally-facilitated SHOP must make 

premium payments according to a 

timeline and process established by 

HHS; 

(B) For a Federally-facilitated SHOP, 

the premium for coverage lasting less 

than 1 month must equal the product of: 

(1) The premium for 1 month of 

coverage divided by the number of days 

in the month; and 

(2) The number of days for which 

coverage is being provided in the month 

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

this section. 

* * * * * 

(6) * * * 

(i) Require all QHP issuers to make 

any change to rates at a uniform time 

that is no more frequently than 

quarterly. 

(A) In a Federally-facilitated SHOP, 

rates may be updated quarterly with 

effective dates of January 1, April 1, July 

1, or October 1 of each calendar year, 

beginning with rates effective no sooner 

than July 1, 2014. The updated rates 

must be submitted to HHS at least 60 

days in advance of the effective date of 

the rates. 

(B) [Reserved] 

* * * * * 

(11) * * * 

(ii) * * * 

(C) The employer will define a 

percentage contribution toward 

premiums for employee-only coverage 

under the reference plan and, if 

dependent coverage is offered, a 

percentage contribution toward 

premiums for dependent coverage under 

the reference plan. To the extent 

permitted by other applicable law, for 

plan years beginning on or after January 

1, 2015, a Federally-facilitated SHOP 

may permit an employer to define a 

different percentage contribution for 

full-time employees from the percentage 

contribution it defines for non-full-time 

employees, and it may permit an 

employer to define a different 

percentage contribution for dependent 

coverage for full-time employees from 

the percentage contribution it defines 

for dependent coverage for non-full-time 

employees. 

* * * * * 

■ 26. Section 155.715 is amended by 

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

introductory text, and (d)(2) 

introductory text to read as follows: 

§ 155.715 Eligibility determination process 

for SHOP. 

* * * * * 

(c) * * * 

(4) May not perform individual 

market Exchange eligibility 

determinations or verifications 

described in subpart D of this part. 

(d) * * * 

(1) When the information submitted 

on the SHOP single employer 

application is inconsistent with 

information collected from third-party 

data sources through the verification 

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

SHOP must– 

* * * * * 

(2) When the information submitted 

on the SHOP single employee 

application is inconsistent with 

information collected from third-party 

data sources through the verification 

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

SHOP must– 

* * * * * 

■ 27. Section 155.730 is amended by 

revising paragraph (g) to read as follows: 

§ 155.730 Application standards for SHOP. 

(g) Additional safeguards. (1) The 

SHOP may not provide to the employer 

any information collected on the 

employee application with respect to 

spouses or dependents other than the 

name, address, and birth date of the 

spouse or dependent. 

(2) The SHOP is not permitted to 

collect information on the single 

employer or single employee 

application unless that information is 

necessary to determine SHOP eligibility 

or effectuate enrollment through the 

SHOP. 

■ 28. Section 155.1030 is amended by 

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

read as follows: 

§ 155.1030 QHP certification standards 

related to advance payments of the 

premium tax credit and cost-sharing 

reductions. 

* * * * * 

(b) * * * 

(1) The Exchange must collect and 

review annually the rate allocation and 

the actuarial memorandum that an 

issuer submits to the Exchange under 

§ 156.470 of this subchapter, to ensure 

that the allocation meets the standards 

set forth in § 156.470(c) and (d) of this 

subchapter. 

* * * * * 

(3) The Exchange must use the 

methodology specified in the annual 

HHS notice of benefit and payment 

parameters to calculate advance 

payment amounts for cost-sharing 

reductions, and must transmit the 

advance payment amounts to HHS, in 

accordance with § 156.340(a) of this 

subchapter. 

(4) HHS may use the information 

provided to HHS by the Exchange under 

this section for oversight of advance 

payments of cost-sharing reductions and 

premium tax credits. 

* * * * * 

PART 156—HEALTH INSURANCE 

ISSUER STANDARDS UNDER THE 

AFFORDABLE CARE ACT, INCLUDING 

STANDARDS RELATED TO 

EXCHANGES 

■ 29. The authority citation for part 156 

continues to read as follows: 

Authority: Title I of the Affordable Care 

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

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

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

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

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

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

■ 30. Section 156.135 is amended by 

revising paragraph (a) and adding 

paragraph (g) to read as follows: 

§ 156.135 AV calculation for determining 

level of coverage. 

(a) Calculation of AV. Subject to 

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

calculate the AV of a health plan, the 

issuer must use the AV Calculator 

developed and made available by HHS 

for the given benefit year. 

* * * * * 

(g) Updates to the AV Calculator. 

HHS will update the AV Calculator as 

follows, HHS will: 

(1) Update the annual limit on cost 

sharing and related functions based on 

a projected estimate to enable the AV 

Calculator to comply with 

§ 156.130(a)(2); 

(2) Update the continuance tables to 

reflect more current enrollment data 

when HHS has determined that the 

enrolled population has materially 

changed; 

(3) Update the algorithms when HHS 

has determined the need to adapt the 

AV Calculator for use by additional plan 

designs or to allow the AV Calculator to 

accommodate potential new types of 

plan designs, where such adaptations 

can be based on actuarially sound 

principles and will not have a 

substantial effect on the AV calculations 

performed by the then current AV 

Calculator; 

(4) Update the continuance tables to 

reflect more current claims data no more 

than every 3 and no less than every 5 

years and to annually trend the claims 

data when the trending factor is more 

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than 5 percent different, calculated on a 

cumulative basis; and 

(5) Update the AV Calculator user 

interface when a change would be 

useful to a broad group of users of the 

AV Calculator, would not affect the 

function of the AV Calculator, and 

would be technically feasible. 

■ 31. Section 156.150 is amended by 

revising paragraph (a) to read as follows: 

§ 156.150 Application to stand-alone 

dental plans inside the Exchange. 

(a) Annual limitation on cost-sharing. 

For a stand-alone dental plan covering 

the pediatric dental EHB under 

§ 155.1065 of this subchapter in any 

Exchange, cost sharing may not exceed 

$350 for one covered child and $700 for 

two or more covered children. 

* * * * * 

■ 32. Section 156.285 is amended by 

adding paragraph (a)(4) and revising 

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

§ 156.285 Additional standards specific to 

SHOP. 

(a) * * * 

(4)(i) Adhere to the premium rating 

standards described in § 147.102 of this 

subchapter regardless of whether the 

QHP being sold through the SHOP is 

sold in the small group market or the 

large group market; and 

(ii) Effective in plan years beginning 

on or after January 1, 2015, a QHP issuer 

in a Federally-facilitated SHOP may not 

offer to an employer premiums that are 

based on average enrollee premium 

amounts under § 147.102(c)(3) of this 

subchapter, if the employer elects to 

offer coverage to its employees under 

§ 155.705(b)(3)(iv)(A) of this subchapter. 

This paragraph (a)(4)(ii) also applies to 

stand-alone dental plans in a Federallyfacilitated SHOP, if the employer elects 

to offer coverage to its employees under 

§ 155.705(b)(3)(v)(B) of this subchapter. 

* * * * * 

(c) * * * 

(7) A QHP issuer must enroll a 

qualified employee only if the SHOP— 

(i) Notifies the QHP issuer that the 

employee is a qualified employee; 

(ii) Transmits information to the QHP 

issuer as provided in § 155.400(a) of this 

subchapter; and 

(iii) Effective for QHPs offered 

through a Federally-facilitated SHOP in 

plan years beginning on or after January 

1, 2015, does not send a cancellation 

notice to the QHP issuer prior to the 

effective date of coverage. 

* * * * * 

■ 33. Section 156.298 is added to 

subpart C to read as follows: 

§ 156.298 Meaningful difference standard 

for Qualified Health Plans in the Federallyfacilitated Exchanges. 

(a) General. Subject to paragraph 

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

coverage year, in order to be certified as 

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

meaningfully different from all other 

QHPs offered by the same issuer of that 

plan within a service area and level of 

coverage in the Exchange, as defined in 

paragraph (b) of this section. 

(b) Meaningful difference standard. A 

plan is considered meaningfully 

different from another plan in the same 

service area and metal tier (including 

catastrophic plans) if a reasonable 

consumer would be able to identify one 

or more material differences among the 

following characteristics between the 

plan and other plan offerings: 

(1) Cost sharing; 

(2) Provider networks; 

(3) Covered benefits; 

(4) Plan type; 

(5) Health Savings Account eligibility; 

or 

(6) Self-only, non-self-only, or childonly plan offerings. 

(c) Exception for limited plan 

availability. If HHS determines that the 

plan offerings at a particular metal level 

(including catastrophic plans) within a 

county are limited, plans submitted for 

certification in that particular metal 

level (including catastrophic plans) 

within that county will not be subject to 

the meaningful difference requirement 

set forth in paragraph (b) of this section. 

(d) Two-year transition period for 

issuers with new acquisitions. During 

the first 2 years after a merger or 

acquisition in which an acquiring issuer 

obtains or merges with another issuer, 

the FFEs may certify plans as QHPs that 

were previously offered by the acquired 

or merged issuer without those plans 

meeting the meaningful difference 

standard set forth in paragraph (b) of 

this section. 

■ 34. Section 156.420 is amended by 

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

read as follows: 

§ 156.420 Plan variations. 

* * * * * 

(c) Benefit and network equivalence in 

silver plan variations. A standard silver 

plan and each silver plan variation 

thereof must cover the same benefits 

and providers. Each silver plan 

variation is subject to all requirements 

applicable to the standard silver plan 

(except for the requirement that the plan 

have an AV as set forth in 

§ 156.140(b)(2)). 

(d) Benefit and network equivalence 

in zero and limited cost sharing plan 

variations. A QHP and each zero cost 

sharing plan variation or limited cost 

sharing plan variation thereof must 

cover the same benefits and providers. 

The out-of-pocket spending required of 

enrollees in the zero cost sharing plan 

variation of a QHP for a benefit that is 

not an essential health benefit from a 

provider (including a provider outside 

the plan’s network) may not exceed the 

corresponding out-of-pocket spending 

required in the limited cost sharing plan 

variation of the QHP and the 

corresponding out-of-pocket spending 

required in the silver plan variation of 

the QHP for individuals eligible for costsharing reductions under 

§ 155.305(g)(2)(i) of this subchapter, in 

the case of a silver QHP. The out-ofpocket spending required of enrollees in 

the limited cost sharing plan variation 

of the QHP for a benefit that is not an 

essential health benefit from a provider 

(including a provider outside the plan’s 

network) may not exceed the 

corresponding out-of-pocket spending 

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

sharing plan variation must have the 

same cost sharing for essential health 

benefits not described in paragraph 

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

cost-sharing reductions. Each zero cost 

sharing plan variation or limited cost 

sharing plan variation is subject to all 

requirements applicable to the QHP 

(except for the requirement that the plan 

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

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

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

under any silver plan variation of a 

standard silver plan for a benefit from 

a provider (including a provider outside 

the plan’s network) may not exceed the 

corresponding cost sharing or out-ofpocket spending required in the 

standard silver plan or any other silver 

plan variation thereof with a lower AV. 

* * * * * 

■ 35. Section 156.430 is amended by 

removing and reserving paragraph (a) 

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

as follows: 

§ 156.430 Payment for cost-sharing 

reductions. 

(b) * * * 

(1) A QHP issuer will receive periodic 

advance payments based on the advance 

payment amounts calculated in 

accordance with § 155.1030(b)(3) of this 

subchapter. 

* * * * * 

■ 36. Section 156.470 is amended by 

revising paragraph (a) to read as follows: 

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§ 156.470 Allocation of rates for advance 

payments of the premium tax credit. 

(a) Allocation to additional health 

benefits for QHPs. An issuer must 

provide to the Exchange annually for 

approval, in the manner and timeframe 

established by HHS, for each health 

plan at any level of coverage offered, or 

intended to be offered, in the individual 

market on an Exchange, an allocation of 

the rate for the plan to: 

(1) EHB, other than services described 

in § 156.280(d)(1); and 

(2) Any other services or benefits 

offered by the health plan not described 

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

* * * * * 

■ 37. Section 156.1110 is added to 

Subpart L to read as follows: 

§ 156.1110 Establishment of patient safety 

standards for QHP issuers. 

(a) Patient safety standards. A QHP 

issuer that contracts with a hospital 

with greater than 50 beds must verify 

that the hospital, as defined in section 

1861(e) of the Social Security Act, is 

Medicare-certified or has been issued a 

Medicaid-only CMS Certification 

Number (CCN) and is subject to the 

Medicare Hospital Conditions of 

Participation requirements for— 

(1) A quality assessment and 

performance improvement program as 

specified in 42 CFR 482.21; and 

(2) Discharge planning as specified in 

42 CFR 482.43. 

(b) Documentation. A QHP issuer 

must collect the CCN, from each of its 

contracted hospitals with greater than 

50 beds, to demonstrate that those 

hospitals meet patient safety standards 

required in paragraph (a) of this section. 

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

make available to the Exchange the 

documentation referenced in paragraph 

(b) of this section, upon request by the 

Exchange, in a time and manner 

specified by the Exchange. 

(2) Issuers of multi-State plans, as 

defined in § 155.1000(a) of this 

subchapter, must provide the 

documentation described in paragraph 

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

Personnel Management, in the time and 

manner specified by the U.S. Office of 

Personnel Management. 

(d) Effective date. A QHP issuer must 

ensure that each QHP meets patient 

safety standards in accordance with 

paragraph (a) of this section effective for 

plan years beginning on or after January 

1, 2015. 

■ 38. Section 156.1210 is amended by 

adding paragraph (c) to read as follows: 

§ 156.1210 Confirmation of HHS payment 

and collections reports. 

* * * * * 

(c) Discrepancies to be addressed in 

future reports. Discrepancies in 

payment and collections reports 

identified to HHS under this section 

will be addressed in subsequent 

payment and collections reports, and 

will not be used to change debts 

determined pursuant to invoices 

generated under previous payment and 

collections reports. 

■ 39. Section 156.1215 is added to 

Subpart M to read as follows: 

§ 156.1215 Payment and collections 

processes. 

(a) Netting of payments and charges 

for 2014. In 2014, as part of its monthly 

payment and collections process, HHS 

will net payments owed to QHP issuers 

and their affiliates under the same 

taxpayer identification number against 

amounts due to the Federal government 

from the QHP issuers and their affiliates 

under the same taxpayer identification 

number for advance payments of the 

premium tax credit, advance payments 

of cost-sharing reductions, and payment 

of Federally-facilitated Exchange user 

fees. 

(b) Netting of payments and charges 

for later years. In 2015 and later years, 

as part of its payment and collections 

process, HHS may net payments owed 

to issuers and their affiliates operating 

under the same tax identification 

number against amounts due to the 

Federal government from the issuers 

and their affiliates under the same 

taxpayer identification number for 

advance payments of the premium tax 

credit, advance payments of and 

reconciliation of cost-sharing 

reductions, payment of Federallyfacilitated Exchange user fees, and risk 

adjustment, reinsurance, and risk 

corridors payments and charges. 

(c) Determination of debt. Any 

amount owed to the Federal government 

by an issuer and its affiliates for 

advance payments of the premium tax 

credit, advance payments of and 

reconciliation of cost-sharing 

reductions, Federally-facilitated 

Exchange user fees, risk adjustment, 

reinsurance, and risk corridors, after 

HHS nets amounts owed by the Federal 

government under these programs, is a 

determination of a debt. 

■ 40. Section 156.1220 is added to 

subpart M to read as follows: 

§ 156.1220 Administrative appeals. 

(a) Requests for reconsideration. (1) 

Matters for reconsideration. An issuer 

may file a request for reconsideration 

under this section to contest a 

processing error by HHS, HHS’s 

incorrect application of the relevant 

methodology, or HHS’s mathematical 

error only with respect to the following: 

(i) The amount of advance payment of 

the premium tax credit, advance 

payment of cost-sharing reductions or 

Federally-facilitated Exchange user fees 

charge for a benefit year; 

(ii) The amount of a risk adjustment 

payment or charge for a benefit year, 

including an assessment of risk 

adjustment user fees; 

(iii) The amount of a reinsurance 

payment for a benefit year; 

(iv) The amount of a risk adjustment 

default charge for a benefit year; 

(v) The amount of a reconciliation 

payment or charge for cost-sharing 

reductions for a benefit year; or 

(vi) The amount of a risk corridors 

payment or charge for a benefit year. 

(2) Materiality threshold. 

Notwithstanding paragraph (a)(1) of this 

section, an issuer may file a request for 

reconsideration under this section only 

if the amount in dispute under 

paragraph (a)(1)(i) through (vi) of this 

section, as applicable, is equal to or 

exceeds 1 percent of the applicable 

payment or charge listed in that 

subparagraph payable to or due from the 

issuer for the benefit year, or $10,000, 

whichever is less. 

(3) Time for filing a request for 

reconsideration. The request for 

reconsideration must be filed in 

accordance with the following 

timeframes: 

(i) For advance payments of the 

premium tax credit, advance payments 

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

within 60 calendar days after the date of 

the final reconsideration notification 

specifying the aggregate amount of 

advance payments of the premium tax 

credit, advance payments of costsharing reductions, and Federallyfacilitated Exchange user fees for the 

applicable benefit year; 

(ii) For a risk adjustment payment or 

charge, including an assessment of risk 

adjustment user fees, within 60 calendar 

days of the date of the notification 

provided by HHS under § 153.310(e) of 

this subchapter; 

(iii) For a reinsurance payment, 

within 60 calendar days of the date of 

the notification provided by HHS under 

§ 153.240(b)(1)(ii) of this subchapter; 

(iv) For a default risk adjustment 

charge, within 60 calendar days of the 

date of the notification of the default 

risk adjustment charge; 

(v) For reconciliation of cost-sharing 

reductions, within 60 calendar days of 

the date of the notification provided by 

HHS of the cost-sharing reduction 

reconciliation payment or charge; and 

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13842 Federal Register / Vol. 79, No. 47 / Tuesday, March 11, 2014 / Rules and Regulations 

(vi) For a risk corridors payment or 

charge, within 60 calendar days of the 

date of the notification provided by 

HHS under § 153.510(d) of this 

subchapter. 

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

for reconsideration must specify the 

findings or issues specified in paragraph 

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

challenges, and the reasons for the 

challenge. 

(ii) Notwithstanding paragraph (a)(1) 

of this section, a reconsideration with 

respect to a processing error by HHS, 

HHS’s incorrect application of the 

relevant methodology, or HHS’s 

mathematical error may be requested 

only if, to the extent the issue could 

have been previously identified by the 

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

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

identified and remains unresolved. 

(iii) Notwithstanding paragraph (a)(1) 

of this section, a reconsideration with 

respect to advance payments of the 

premium tax credit, advance payments 

of cost-sharing reductions, and 

Federally-facilitated Exchange user fees 

may be requested only if, to extent the 

issue could have been previously 

identified by the issuer to HHS under 

§ 156.1210, it was so identified and 

remains unresolved. An issuer may 

request reconsideration if it previously 

identified an issue under § 156.1210 

after the 15-calendar-day deadline, but 

late discovery of the issue was not due 

to misconduct on the part of the issuer. 

(iv) The issuer may include in the 

request for reconsideration additional 

documentary evidence that HHS should 

consider. Such documents may not 

include data that was to have been filed 

by the applicable data submission 

deadline, but may include evidence of 

timely submission. 

(5) Scope of review for 

reconsideration. In conducting the 

reconsideration, HHS will review the 

appropriate payment and charge 

determinations, the evidence and 

findings upon which the determination 

was based, and any additional 

documentary evidence submitted by the 

issuer. HHS may also review any other 

evidence it believes to be relevant in 

deciding the reconsideration, which 

will be provided to the issuer with a 

reasonable opportunity to review and 

rebut the evidence. The issuer must 

prove its case by a preponderance of the 

evidence with respect to issues of fact. 

(6) Reconsideration decision. HHS 

will inform the issuer of the 

reconsideration decision in writing. A 

reconsideration decision is final and 

binding for decisions regarding the 

advance payments of the premium tax 

credit, advance payment of cost-sharing 

reductions, or Federally-facilitated 

Exchange user fees. A reconsideration 

decision with respect to other matters is 

subject to the outcome of a request for 

informal hearing filed in accordance 

with paragraph (b) of this section. 

(b) Informal hearing. An issuer may 

request an informal hearing before a 

CMS hearing officer to appeal HHS’s 

reconsideration decision. 

(1) Manner and timing for request. A 

request for an informal hearing must be 

made in writing and filed with HHS 

within 30 calendar days of the date of 

the reconsideration decision under 

paragraph (a)(5) of this section. 

(2) Content of request. The request for 

informal hearing must include a copy of 

the reconsideration decision and must 

specify the findings or issues in the 

decision that the issuer challenges, and 

its reasons for the challenge. HHS may 

submit for review by the CMS hearing 

officer a statement of its reasons for the 

reconsideration decision. 

(3) Informal hearing procedures. (i) 

The issuer will receive a written notice 

of the time and place of the informal 

hearing at least 15 calendar days before 

the scheduled date. 

(ii) The CMS hearing officer will 

neither receive testimony nor accept any 

new evidence that was not presented 

with the reconsideration request and 

HHS statement under paragraph (b) of 

this section. The CMS hearing officer 

will review only the documentary 

evidence provided by the issuer and 

HHS, and the record that was before 

HHS when HHS made its 

reconsideration determination. The 

issuer may be represented by counsel in 

the informal hearing, and must prove its 

case by clear and convincing evidence 

with respect to issues of fact. 

(4) Decision of the CMS hearing 

officer. The CMS hearing officer will 

send the informal hearing decision and 

the reasons for the decision to the 

issuer. The decision of the CMS hearing 

officer is final and binding, but is 

subject to the results of any 

Administrator’s review initiated in 

accordance with paragraph (c) of this 

section. 

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

the CMS hearing officer upholds the 

reconsideration decision, the issuer may 

request review by the Administrator of 

CMS within 15 calendar days of the date 

of the CMS hearing officer’s decision. 

The request for review must specify the 

findings or issues that the issuer 

challenges. HHS may submit for review 

by the Administrator a statement 

supporting the decision of the CMS 

hearing officer. 

(2) The Administrator will review the 

CMS hearing officer’s decision, the 

statements of the issuer and HHS, and 

any other information included in the 

record of the CMS hearing officer’s 

decision, and will determine whether to 

uphold, reverse, or modify the CMS 

hearing officer’s decision. The issuer 

must provide its case by clear and 

convincing evidence with respect to 

issues of fact. The Administrator will 

send the decision and the reasons for 

the decisions to the issuer. 

(3) The Administrator’s determination 

is final and binding. 

PART 158—ISSUER USE OF PREMIUM 

REVENUE: REPORTING AND REBATE 

REQUIREMENTS 

■ 41. The authority citation for part 158 

continues to read as follows: 

Authority: Section 2718 of the Public 

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

amended. 

■ 42. Section 158.130 is amended by 

revising paragraph (b)(5) to read as 

follows: 

§ 158.130 Premium revenue. 

* * * * * 

(b) * * * 

(5) Account for the net payments or 

receipts related to the risk adjustment, 

risk corridors (using an adjustment 

percentage, as described in § 153.500 of 

this subchapter, equal to zero percent), 

and reinsurance programs under 

sections 1341, 1342, and 1343 of the 

Patient Protection and Affordable Care 

Act, 42 U.S.C. 18061, 18062, 18063. 

* * * * * 

■ 43. Section 158.140 is amended by 

revising paragraph (b)(4)(ii) to read as 

follows: 

§ 158.140 Reimbursement for clinical 

services provided to enrollees. 

* * * * * 

(b) * * * 

(4) * * * 

(ii) Receipts related to the transitional 

reinsurance program and net payments 

or receipts related to the risk adjustment 

and risk corridors programs (calculated 

using an adjustment percentage, as 

described in § 153.500 of this 

subchapter, equal to zero percent) under 

sections 1341, 1342, and 1343 of the 

Patient Protection and Affordable Care 

Act, 42 U.S.C. 18061, 18062, 18063. 

* * * * * 

■ 44. Section 158.240 is amended by 

revising paragraph (c)(2) to read as 

follows: 

§ 158.240 Rebating premium if the 

applicable medical loss ratio standard is 

not met. 

* * * * * 

(c) * * * 

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Federal Register / Vol. 79, No. 47 / Tuesday, March 11, 2014 / Rules and Regulations 13843 

(2) For example, an issuer must rebate 

a pro rata portion of premium revenue 

if it does not meet an 80 percent MLR 

for the individual market in a State that 

has not set a higher MLR. If an issuer 

has a 75 percent MLR for the coverage 

it offers in the individual market in a 

State that has not set a higher MLR, the 

issuer must rebate 5 percent of the 

premium paid by or on behalf of the 

enrollee for the MLR reporting year after 

subtracting a pro rata portion of taxes 

and fees and accounting for payments or 

receipts related to the reinsurance, risk 

adjustment and risk corridors programs 

(calculated using an adjustment 

percentage, as described in § 153.500 of 

this subchapter, equal to zero percent). 

If the issuer’s total earned premium for 

the MLR reporting year in the 

individual market in the State is 

$200,000, the issuer received 

transitional reinsurance payments of 

$2,500, and made net payments related 

to risk adjustment and risk corridors of 

$20,000 (calculated using an adjustment 

percentage, as described in § 153.500 of 

this subchapter, equal to zero percent), 

the issuer’s gross earned premium in the 

individual market in the State would be 

$200,000 plus $2,500 minus $20,000, for 

a total of $182,500. If the issuer’s 

Federal and State taxes and licensing 

and regulatory fees, including 

reinsurance contributions, that may be 

excluded from premium revenue as 

described in §§ 158.161(a), 158.162(a)(1) 

and 158.162(b)(1), allocated to the 

individual market in the State are 

$15,000, and the net payments related to 

risk adjustment and risk corridors, 

reduced by reinsurance receipts, that 

must be accounted for in premium 

revenue as described in 

§§ 158.130(b)(5), 158.221, and 158.240, 

are $17,500 ($20,000 reduced by 

$2,500), then the issuer would subtract 

$15,000 and add $17,500 to gross 

premium revenue of $182,500, for a base 

of $185,000 in premium. The issuer 

would owe rebates of 5 percent of 

$185,000, or $9,250 in the individual 

market in the State. In this example, if 

an enrollee of the issuer in the 

individual market in the State paid 

$2,000 in premiums for the MLR 

reporting year, or 1/100 of the issuer’s 

total premium in that State market, then 

the enrollee would be entitled to 1/100 

of the total rebates owed by the issuer, 

or $92.50. 

* * * * * 

Dated: February 26, 2014. 

Marilyn Tavenner, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: February 27, 2014. 

Kathleen Sebelius, 

Secretary, Department of Health and Human 

Services. 

[FR Doc. 2014–05052 Filed 3–5–14; 4:15 pm] 

BILLING CODE 4120–01–P 

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