DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Part 600 [CMS-2380-PN] Basic Health Program: Proposed Federal Funding Methodology for Program Year 2015
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Proposed methodology.
SUMMARY: This document provides the methodology and data sources necessary to determine federal payment amounts made to states that elect to establish a Basic Health Program certified by the Secretary under section 1331 of th e Patient Protection and Affordable Care Act (the Affordable Care Act) to offer health benef its coverage to low-inco me individuals otherwise eligible to purchase coverage throug h Affordable Insurance Exchanges.
DATES : To be assured consideration, comments mu st be received at one of the addresses provided below, no later than 5 p.m. on [ OFR--insert date 30 days afte r date of publication in the Federal Register ].
ADDRESSES: In commenting, refer to file code CMS- 2380-PN. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission. You may submit comments in one of four ways (please choose only one of the ways listed): 1. Electronically . You may submit electronic comments on this regulation to http://www.regulations.gov . Follow the "Submit a comment" instructions. 2. By regular mail . You may mail written comments to the following address ONLY:CMS-2380-PN 2

Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-2380 -PN, P.O. Box 8016, Baltimore, MD 21244-8016. Please allow sufficient time for mailed comments to be received before the close of the comment period. 3. By express or overnight mail . You may send written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-2380-PN, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850. 4. By hand or courier . Alternatively, you may deliver (by hand or courier) your written ONLY to the following addresses: a. For delivery in Washington, DC-- Centers for Medicare & Medicaid Services, Department of Health and Human Services, Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201 (Because access to the interior of the Hube rt H. Humphrey Building is not readily available to persons without Federal government identification, commenters are encouraged toCMS-2380-PN 3

leave their comments in the CMS drop slots located in the main lobby of the building. A stampin clock is available for persons wishing to reta in a proof of filing by st amping in and retaining an extra copy of the comments being filed.) b. For delivery in Baltimore, MD-- Centers for Medicare & Medicaid Services, Department of Health and Human Services, 7500 Security Boulevard, Baltimore, MD 21244-1850. If you intend to deliver your comments to the Baltimore address, call telephone number (410) 786-7195 in advance to schedule your arrival with one of our staff members. Comments erroneously mailed to the addres ses indicated as appr opriate for hand or courier delivery may be delayed a nd received after the comment period. For information on viewing public co mments, see the beginning of the "SUPPLEMENTARY INFORMATION" section.
FOR FURTHER INFORMATION CONTACT: Christopher Truffer, (410) 786-1264; or Jessica Schubel, (410) 786-3032.
SUPPLEMENTARY INFORMATION: Inspection of Public Comments: All comments received before the close of the comment period are available for viewing by the public, includi ng any personally identif iable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following Web si te as soon as possible after they have been received: http://www.regulations.gov . Follow the search instructions on that Web site to view public comments. Comments received timely will also be av ailable for public inspection as they are received, generally beginning approximately 3 w eeks after publication of a document, at theCMS-2380-PN 4
headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951.
Table of Contents
I. Background
II. Provisions of the Proposed Methodology
A. Overview of the Funding Methodology a nd Calculation of the Federal Payment
Amount 1. Equation 1: Estimated PTC by Rate Cell 2. Equation 2: Estimated CSR by Rate Cell 3. Equation 3: Adjusted Reference Premium Variable 4. Equation 4: Determination of Tota l Monthly Payment for BHP Enrollees

in Each Rate Cell
B. Required Rate Cells
C. Sources and State Data Considerations
D. Discussion of Specific Variable s Used in Payment Equations 1. Reference Premium (RP) 2. Premium Trend Factor (PTF) 3. Population Health Factor (PHF) 4. Income (I) 5. Premium Tax Credit Formula (PTCF) 6. Income Reconciliation Factor (IRF) 7. Tobacco Rating Adjustment Factor (TRAF) 8. Factor for Removing Admi nistrative Costs (FRAC) 9. Actuarial Value (AV)CMS-2380-PN 5
10. Induced Utilization Factor (IUF) 11. Change in Actuarial Value ( Δ AV)
E. Adjustments for American Indians and Alaska Natives
F. Example Application of the BHP Funding Methodology
III. Collection of Information
IV. Response to Comments
V. Regulatory Impact Statement
A. Overall Impact 1. Need for Notice 2. Alternative Approaches 3. Transfers
B. Unfunded Mandates Reform Act
C. Regulatory Flexibility Act
D. Federalism I. Background The Affordable Care Act provides for the establishment of state Affordable Insurance Exchanges (Exchanges, also called the Health In surance Marketplace) that provide access to affordable health insurance coverage offere d by qualified health plans (QHPs) for most individuals under age 65 who are not eligible fo r health coverage under other federally supported health benefits programs or through affordable employer-sponsored insu rance coverage, and who have incomes above 100 percent of the federal po verty line (FPL), or whose income is below that level but are lawfully present non-citizens ineligible for Medicaid because of immigration status. Individuals enrolled through Exchanges in coverage offered by QHPs with incomes below 400 percent of the FPL may qualify fo r the federal premium tax credit (PTC) andCMS-2380-PN 6 federally-funded cost-sharing reductions (CSRs) ba sed on their household income, to ensure that such coverage meets certain standards for affordability. In the states that elect to operate a Basic Health Program (BHP), BHP will make affordable health benefits coverage availabl e for individuals under age 65 with household incomes between 133 percent and 200 percent of the FPL who ar e not otherwise eligible for Medicaid, the Children’s Health Insurance Prog ram (CHIP), or affordable employer sponsored coverage. (For many states, the lower income threshold for BHP eligibility is effectively 138 percent due to the a pplication of a required 5 percent in come disregard in determining the upper limits of Medicaid income eligibility.) Federal funding would be available for BHP based on the amount of PTC and CSRs that BHP enrollees would have received had they been enrolled in QHPs through Exchanges. In the September 25, 2013 Federal Register (78 FR 59122), we published a proposed rule entitled the “Basic Health Program: St ate Administration of Ba sic Health Programs; Eligibility and Enrollment in Standard Health Pl ans; Essential Health Benefits in Standard Health Plans; Performance Standards for Basic Health Programs; Premium and Cost Sharing for Basic Health Programs; Federal Funding Process; Trust Fund and Financ ial Integrity” proposed rule (hereinafter referred to as the BHP proposed rule) implem enting section 1331 of the Patient Protection and Affordable Care Act (Pub. L. 111-148, enacted on March 23, 2010), together with the Health Care and Education Reconcil iation Act of 2010 (Pub. L. 111-152), enacted on March 30, 2010 collectively referred as the Affordable Care Act, which requires the establishment of BHP. The BHP proposed rule proposes to establish the requirements for state and federal administration of BHP, including prov isions regarding eligibility and enrollment, benefits, cost-sharing requirements and oversig ht activities. While the BHP proposed rule proposed to codify the overall statutory require ments and basic procedural framework for the funding methodology, it does not contai n the specific information n ecessary to determine federalCMS-2380-PN 7 payments. We anticipated that the methodology would be based on data and assumptions that would reflect ongoing operations and experience of BHP programs as well as the operation of the Exchanges. For this reason, the BHP propos ed rule indicated that the development and publication of the funding methodol ogy, including any data sources , would be addressed in a separate annual Payment Notice process. In the BHP proposed rule, we proposed th at the BHP Payment Notice process would include the annual publication of both a proposed and final BHP Payment Notice. The proposed BHP Payment Notice would be published in the Federal Register each October, and would describe the proposed methodology for the upcom ing BHP program year, including how the Secretary considered the factor s specified in section 1331(d)(3) of the Affordable Care Act, along with the proposed data sources used to determine the federal BHP payment rates. The final BHP Payment Notice would be published in the Federal Register in February, and would include the final BHP funding me thodology, as well as the federal BHP payment rates for the next BHP program year. For example, payment rates published in February 2015 would apply to BHP program year 2016, beginning in January 2016. State data, as discussed further below, needed to calculate the federal BHP payment ra tes for the final BHP Payment Notice must be submitted to CMS. Once the final methodology has been publis hed, no modifications to the methodology will occur during the program year. As describe d in the BHP proposed rule, we will only make modifications to the BHP funding methodology on a prospective basis. Adjustments could be made to the payment rates to correct errors in applying the methodology (such as mathematical errors). Under section 1331(d)(3)(ii) of the Affordable Care Act, the funding methodology and payment rates are expressed as an amount per BHP enrollee for each month of enrollment, and could vary based on categories or classes of enro llees. Actual payment to a state would dependCMS-2380-PN 8 on the actual enrollment in coverage through th e state BHP. A state that is approved to implement BHP will be required to provide data showing quarterly enrollment corresponding to the federal BHP payment rate cells. The data su bmission requirements associated with this will be provided in a future CMS notice. Given that BHP will be available for stat es to implement effective January 1, 2015, we intend to modify the publication dates of the BH P Payment Notices for the first year of BHP implementation. Specifically, we intend to publis h the final BHP Payment Notice, which will contain the final 2015 BHP funding methodology and payment rates, concurrently with our intended schedule to publish the final BHP regulation in March 2014. II. Provisions of the Proposed Methodology A. Overview of the Funding Methodol ogy and Calculation of the Payment Amount Section 1331(d)(3) of the Affordable Care Ac t directs the Secretary to consider several factors when determining the federal BHP paymen t amount, which, as specified in the statute, must equal 95 percent of the value of the PTC and CSRs that BHP enrollees would have been provided had they enrolled in a QHP through an Exchange. Thus, the proposed BHP funding methodology is designed to calculate the PTC a nd CSRs as consistently as possible and in general alignment with the methodology used by Ex changes to calculate the advance payments of the PTC and CSRs, and by the Internal Revenu e Service (IRS) to calculate final PTCs. In general, we propose to rely on values for factor s in the payment methodol ogy specified in statute or other regulations as availa ble, and we propose to develop values for other factors not otherwise specified in statute, or previously calculated in other re gulations, to simulate the values of the PTC and CSRs that BHP enrollees would have received if they had enrolled in QHPs offered through an Exchange. In accordance with section 1331(d)(3)(A)(iii ) of the Affordable Care Act, the final funding me thodology must be certified by th e Chief Actuary of CMS, in consultation with the Office of Tax Analysis of the Department of the Treasury, as having metCMS-2380-PN 9
the requirements of section 1331(d)(3)(A )(ii) of the Affordable Care Act. Section 1331(d)(3)(A)(ii ) of the Affordable Care Ac t specifies that the payment determination “shall take into account all relevant factors necessary to determine the value of the premium tax credits and cost-sha ring reductions that would have been provided to eligible individuals ... including the age a nd income of the enrollee, whethe r the enrollment is for selfonly or family coverage, geogra phic differences in average spe nding for health care across rating areas, the health status of the enrollee for purposes of determining risk adjustment payments and reinsurance payments that would have been ma de if the enrollee had enrolled in a qualified health plan through an Exchange, and whether a ny reconciliation of the credit or cost-sharing reductions would have occurred if the enrollee had been so enrolled.” The proposed payment methodology takes each of th ese factors into account. We propose that the total federal BHP paymen t amount would be based on multiple “rate cells” in each state. Each “rate cell” woul d represent a unique combination of age range, geographic area, coverage category (for example, self-only or two-adu lt coverage through BHP), household size, and income range as a percentage of FPL. Thus, there wo uld be distinct rate cells for individuals in each c overage category within a particul ar age range who reside in a specific geographic rating area a nd are in households of the same size and income range. We note that for states that do not use age as a ra ting factor on the Exchange, the BHP payment rates would be consistent with those states’ Exchange ru les. Thus, for a state that does not use age as a rating factor on the Exchange, the BHP payment rates would not vary by age. The proposed rate for each rate cell would be calculated in two parts. The first part would equal 95 percent of the estim ated PTC that would have been paid if a BHP enrollee in that rate cell had instead enrolled in a QHP in the Ex change. The second part would equal 95 percent of the estimated CSR payment that would have been made if a BHP enrollee in that rate cell had instead enrolled in a QHP in the Exchange. Th ese two parts would be added together and theCMS-2380-PN 10
total rate for that rate cell would be equa l to the sum of the PTC and CSR rates. We propose that Equation (1) would be us ed to calculate the estimated PTC for individuals in each rate cell and Equation (2) w ould be used to calculate the estimated CSR payments for individuals in each rate cell. By applying the equations separately to rate cells based on age, income and other factors, we would effectively take those factors into account in the calculation. In addition, the equations would reflect the estimated e xperience of individuals in each rate cell if enrolled in coverage through the Exchange, taking into account additional relevant variables. Each of the variables in the equations is defi ned below, and further detail is provided later in this section of the payment notice. In addition, we describe how we propose to calculate the adjusted reference premium (described later in this section of the payment notic e) that is used in Equations (1) and (2). This is defined below in Equation (3). This calcu lation would take into account a number of variables, including a premium tr end factor to adjust currently available premium rates to estimate the rate for the appli cable BHP program year. 1. Equation 1: Estimated PTC by rate cell We propose that the estimated PTC, on a per enrollee basis, would be calculated for each rate cell for each state based on age range, geogr aphic area, coverage category, household size, and income range. The PTC portion of the rate w ould be calculated in a manner consistent with the methodology used to calcula te the PTC for persons enrolled in a QHP, with three adjustments. First, the PTC portion of the rate for each rate cell would represent the mean, or average, expected PTC that all persons in the rate cell would receive, rather than being calculated for each individual enrollee. Second, the refe rence premium used to calculate the PTC (described in more detail later in the section) would be adjusted for BHP population health status and for the projected change in th e premium from the current year (that is, the year of the final payment notice) to the following year, to which the rates announced in the final payment noticeCMS-2380-PN 11 would apply. These adjustments are described in Equation (3) below. Third, the PTC would be adjusted prospectively to reflect the mean, or average, net expected impact of income reconciliation on the combination of all persons enrolled in BHP; this adjustment, as described further below, would account for the impact on the PTC that would have occurred had such reconciliation been performed. Finally, the rate is multiplied by 95 percent, consistent with section 1331(d)(3)(A)(i) of the Affordable Care Act. We note that in the s ituation where the average income contribution of an enrollee woul d exceed the adjusted reference premium, we would calculate the PTC to be equal to 0 and not let the PTC be negative. We are soliciting comments re garding the methodology that we are proposing to calculate the value of PTC rate, which is defined in Equation (1):

PTC a,g,c,h,i = Premium tax credit por tion of BHP payment rate

a = Age range

g = Geographic area

c = Coverage status (self-only or applicable ca tegory of family coverage) obtained through BHP h = Household size
i = Income range (as percentage of FPL)
ARP a,g,c = Adjusted reference premium
I

h,i,j = Income (in dollars per month) at each 1 percentage-point increment of FPL j = j th percentage-point increment FPL

n = Number of income increments used to calculate the mean PTC
PTCF h,i,j = Premium Tax Credit Formula percentage
IRF = Income reconciliation factor 2. Equation 2: Estimated CSR payment by Rate CellCMS-2380-PN 12
We propose that the CSR portion of the rate would be calculated for each rate cell for each state based on age range, geographic area, coverage category, household size, and income range defined as a percentage of FPL. The CS R portion of the rate would be calculated in a manner consistent with the methodology used to calculate the prospective CSR advance payments for persons enrolled in a QHP, as de scribed in the HHS Notice of Benefit and Payment Parameters for 2015 proposed rule, with three pr incipal adjustments. (We further propose a separate calculation that includes different ad justments for American Indian/Alaska Native BHP enrollees, as described in section E.) For the first adjustment, the CSR rate, like the PTC rate, would represent the mean, or average, expected CS R subsidy that would be paid on behalf of all persons in the rate cell, instead of the CSR subs idy being calculated for each individual enrollee. Second, this calculation would be based on the adjust ed reference premium, as described below. Third, as explained earli er, this equation uses an adjusted reference premium that reflects premiums charged to non-tobacco users, rather than the actual premium that is charged to tobacco users to calculate CSR advance paym ents for tobacco users enrolled in a QHP. Accordingly, we propose that the equation include a tobacco rating adjustment factor that would account for BHP enrollees’ estimated tobacco-related health costs that are outside the premium charged to non-tobacco-users. As a practical matter, this would only affect states that allow tobacco use as a rating factor. Finally, the rate would be multiplied by 95 percent, as provided in section 1331(d)(3)(A)(i) of the Affordable Care Act. We propose using Equation (2) to calculate the CSR rate, consistent with the methodology described above.

CSR a,g,c,h,i = Cost-sharing reduction subsi dy portion of BHP payment rate

a = Age range

g

= Geographic areaCMS-2380-PN 13

c = Coverage status (self-only or applicable ca tegory of family coverage) obtained through BHP h = Household size
i = Income range (as percentage of FPL)
ARP a,g,c = Adjusted reference premium
TRAF = Tobacco rating adjustment factor
FRAC = Factor removing administrative costs
AV = Actuarial value of plan (as percentage of allowed benefits covered by the applicable QHP without a cost-shari ng reduction subsidy)
IUF h,i = Induced utilization factor
Δ

AV h,i = Change in actuarial value (as percentage of allowed benefits) 3. Equation 3: Adjusted Reference Premiu m Variable (used in Equations 1 and 2) As part of these calculations for both the PTC and CSR components, we propose to calculate the value of the adjusted reference prem ium, described below, as specified in Equation (3). The adjusted reference premium would be equal to the reference premium, which would be based on the second lowest cost silver plan pr emium, multiplied by the premium trend factor, which would reflect the projected change in the premium level be tween the current year and the next year (including the estimated impact of changes resulting fr om the transitional reinsurance program established in section 1341 of the Afford able Care Act), and the BHP population health factor, described below in section D, which w ould reflect the projecte d impact that enrolling BHP-eligible individuals in QHPs on an Ex change would have had on the average QHP premium.

ARP a,g,c = Adjusted reference premium

a = Age rangeCMS-2380-PN 14

g

= Geographic area

c = Coverage status (self-only or applicable ca tegory of family coverage) obtained through BHP
RP a,g,c = Reference premium
PTF = Premium trend factor
PHF = Population health factor 4. Equation 4: Determination of Total Monthl y Payment for BHP Enrollees in Each Rate Cell In general, the rate for each rate cell w ould be multiplied by the number of BHP enrollees in that cell (that is, the number of enrollees that meet the criteria for each rate cell) to calculate the total monthly BHP payment. This cal culation is shown in Equation 4 below.

PMT = Total monthly BHP payment
PTC a,g,c,h,i = Premium tax credit por tion of BHP payment rate
CSR a,g,c,h,i = Cost-sharing reduction subsi dy portion of BHP payment rate
E

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

a = Age range

g

= Geographic area

c = Coverage status (self-only or applicable ca tegory of family coverage) obtained through BHP h = Household size
i = Income range (as percentage of FPL) B. Required Rate Cells We propose that a state implementing BHP provi de us an estimate of the number of BHP enrollees it projects will enroll in the upcoming BHP program year, by applicable rate cell, prior to the first quarter of program operations. Upon our approval of such estimates as reasonable, they would be used to calculat e the prospective payment for the first and subsequent quarters ofCMS-2380-PN 15 program operation until the state has provided us actual enrollment data. These data would be required to calculate the final BHP payment am ount, and make any necessary reconciliation adjustments to the prior quarters’ prospectiv e payment amounts due to differences between projected and actual enrollment. Subsequent quarterly deposits to the state’s trus t fund would be based on the most recent actual enrollment data submitted to us. Procedures will ensure that federal payments to a state reflect actual BHP enrollment during a year, within each applicable category, and prospectively determined federal payment rates for each category of BHP enrollment, with such categories defined in terms of age range, geographic area, coverage status, household size, and income range, as explained above. We propose requiring the use of certain rate cells as part of th e proposed methodology. For each state, we propose using rate cells that separate the BHP population into separate cells based on the five factors described below. Factor 1--Age: We propose separating enrollees into rate cells by age, using the following age ranges that capture the widest va riations in premiums under HHS’s Default Age
Curve: 1

● Ages 0-20.

● Ages 21-44.

● Ages 45-54.

● Ages 55-64.

1 This curve is used to implement the Affordable Care Act’s 3:1 limit on age-rating in states that do not create an alternative rate structure to comply with that limit. The curve applies to all individual market plans, both within and outside the Exchange. The age bands capture the principal allowed age-based variations in premiums as permitted by this curve. More in formation can be found at http://www.cms.gov/CCIIO/Resources/Files/Downloads/marketreforms-guidance-2-25-2013.pdf . Both children and adults under age 21 are charged the same premium. For adultsage 21-64, the age bands in this document divide the total age-based premium variation into the three most equallysized ranges (defining size by the ratio between the highest and lowest premiums within the band) that are consistent with the age-bands used for risk-adjustment purposes in the HHS-Developed Risk Adjustment Model. For such age bands, see Table 5, “Age-Sex Variables,” in HHS-Developed Risk Adjustment Model Algorithm Software, May 7, 2013, http://www.cms.gov/CCIIO/Resources/Regulations-andGuidance/Downloads/ra_tables_04_16_2013xlsx.xlsx

.CMS-2380-PN 16 Factor 2--Geographic area: For each state, we propose sepa rating enrollees into rate cells by geographic areas within which a single refe rence premium is charged by QHPs offered through the state’s Exchange. Multiple, non-co ntiguous geographic rating areas would be incorporated within a single cell, so long as those areas sh are a common reference premium. 2 Factor 3--Coverage status: We propose separating enrollees into rate cells by coverage status, reflecting whether an individual is enrolled in self-onl y coverage or persons are enrolled in family coverage through BHP, as provided in section 1331(d)(3)(A )(ii) of the Affordable Care Act. Among recipients of family coverage through BHP, separate rate cells, as explained below, would apply based on whether such coverage involves two adults alone or whether it involves children. Factor 4--Household size: We propose separating enrollees into rate cells by household size that states use to determine BHP enrollees ’ income as a percentage of the FPL under proposed 42 CFR 600.320. We are pr oposing to require separate rate cells for several specific household sizes. For each additional member above the largest specified size, we propose to publish instructions for how to develop additional rate cells and calculate an appropriate payment rate based on data for the rate cell with the cl osest specified household si ze. We are currently proposing to publish separate rate cells for household sizes 1, 2, 3, 4, and 5, as unpublished analyses of American Community Survey data c onducted by the Urban Institute, which take into account unaccepted offers of employer-sponsored insurance as well as income, Medicaid and CHIP eligibility, citizenship and immigration status, and current he alth coverage status, find that less than 1 percent of all BHP- eligible persons live in househ olds of size 5 or greater.
Factor 5--Income: For households of each applicable size, we propose creating separate

2 For example, a cell within a particul ar state might refer to “County Group 1,” “County Group 2,” etc., and a table for the state would list all the counties included in each such group. These geographic areas are consistent with the geographic rating areas established under the 2014 Mark et Reform Rules. They also reflect the service area requirements applicable to qualified health plans, as de scribed in 45 CFR §155.1055, except that service areas smaller than counties are addressed as explained below.CMS-2380-PN 17 rate cells by income range, as a percentage of FPL. The PTC that a person would receive if enrolled in a QHP varies by income, both in leve l and as a ratio to the FPL, and the CSR varies by income as a percentage of FPL. Thus, we propos e that separate rate cells would be used to calculate federal BHP payment rates to reflec t different bands of income measured as a percentage of FPL. We propose using the following income ranges, measured as a ratio to the
FPL:

● 0 to 50 percent of the FPL.

● 51 to 100 percent of the FPL.

● 101 to 138 percent of the FPL. 3

● 139 to 150 percent of the FPL.

● 151 to 175 percent of the FPL.

● 176 to 200 percent of the FPL. These rate cells would only be used to calculate the federal BHP payment amount. A state implementing BHP would not be required to us e these rate cells or any of the factors in these rate cells as part of the st ate payment to the standard health plans participating in BHP or to help define BHP enrollees’ cove red benefits, premium costs, or out-of-pocket cost-sharing levels. We propose using averages to define federa l payment rates, both for income ranges and age ranges, rather than varying such rates to correspond to each indi vidual BHP enrollee’s age and income level. We believe that the propos ed approach will increase the administrative feasibility of making federal BHP payments and reduce the likelihood of inadvertently erroneous payments resulting from highly complex methodologi es. We believe that this approach should not significantly change federal payment amounts, as within applic able ranges, the BHP-eligible

3 The three lowest income ranges would be limited to lawfully present immigrants who are ineligible for Medicaid because of immigration status.CMS-2380-PN 18 population is distributed relatively evenly. We welcome comments on whether these are th e appropriate factors for developing rate cells, whether there are other factors that should be considered as part of developing the rate cells, whether the ranges or cate gories specified above (including the width of the age bands) are appropriate, and whether (as propos ed) we should assume even di stributions, by age and income, in each cell or modify those distributions to re flect data about the prec ise distribution of BHPeligible individuals. We also welcome comments on the form in which federal payment rates are displayed. Given the number of rating factors used to calcul ate the BHP payments, we would welcome comments if producing a smaller subset of tables would be more useful than a more complete set of tables; in no case would the choi ces about the list of rate s to publish affect the actual calculation of the payment rate. C. Sources and State Data Considerations To the extent possible, we intend to use data submitted to the federal government by QHP issuers seeking to offer coverage through an Exchange to perform the calculations that determine federal BHP payment cell rates. States operating a State Based Exchange (S BE) in the individual market, however, must provide certain data, including premiums for second lowest cost silver plans, by geographic area, in order for CMS to calculate the federal BHP payment rates in those states. An SBE state interested in obtaining the appli cable federal BHP payment rates for its state must submit such data accurately, completely, and as specified by CMS, by no later than January 20, 2014, in order for CMS to calculate the applicable rates and include them in the intended publication of the final BHP Payment Notice for 2015. If additional st ate data (that is, in addition to the second lowest cost silver plan premium data) are needed to determine the federal BHP payment rate, such data must be submitted in a timely manner, and in a format specified by CMS to support the development and timely release of annual BHP pa yment notices. The specifications for dataCMS-2380-PN 19
collection to support the development of BHP payment rates for 2015 w ill be published in a separate CMS notice. If a state operating a SBE provides the neces sary data accurately, completely, and as specified by CMS, but after the date specified above, we anticipate publishing federal payment rates for such a state in a subsequent Payment Notice. As noted in the BHP proposed rule, a state may elect to implement its BHP after a prog ram year has begun. In such an instance, we propose that the state, if operati ng a SBE, submit its data no later than 30 days afte r the Blueprint submission for CMS to calculate the applicable fe deral payment rates. We further propose that the BHP Blueprint itself must be submitted for Secr etarial certification with an effective date of no sooner than 120 days after submission of the BHP Blueprint. In a ddition, the state must ensure that its Blueprint include a detailed description of how the st ate will coordina te with other insurance affordability programs to transition and transfer BHP-eligible i ndividuals out of their existing QHP coverage, consistent with the re quirements set forth in proposed in 42 CFR 600.330 and §600.425. We believe that this 120-day peri od is necessary to establish the requisite administrative structures and ensure that all statut ory and regulatory requirements are satisfied. D. Discussion of Specific Variables Used in Payment Equations 1. Reference Premium (RP) In order to calculate the estimated PTC that would be paid if individuals enrolled in QHPs through the Exchange, we must calculate a reference premium (RP) because the PTC is based, in part, on the premiums for the second lowe st cost silver plan as explained below in section II.C.5 regarding the Premium Tax Cr edit Formula (PTCF). Accordingly, for the purposes of calculating the BHP payment rates, the reference premium, in accordance with 26 U.S.C. 36B (b)(3)(C), is defined as the adjust ed monthly premium for an applicable second lowest cost silver plan. The a pplicable second lowest cost silver plan is defined in 26 U.S.C. 36B (b)(3)(B) as the second lowest cost silver plan of the individual market in the rating area inCMS-2380-PN 20 which the taxpayer resides, which is offe red through the same Exchange. The reference premium would be the premium a pplicable to non-tobacc o users. This is consistent with the provision in 26 U.S.C. 36B (b)(3)(C) that bases th e PTC on premiums that are adjusted for age alone, without regard to tobacco use, even fo r states that allow insurers to vary premiums based on tobacco use pur suant to 42 U.S.C. 300gg (a)(1)(A)(iv). Consistent with the policy set forth in 26 CFR 1.36B-3(f)(6) to calculate the PTC for those enrolled in a QHP through an Excha nge, we propose not to update the payment methodology, and subsequently the federal BHP pa yment rates, in the event that the second lowest cost silver plan used as the reference premium changes (that is, terminates or closes enrollment during the year). The applicable second lowest cost silver plan premium will be included in the BHP payment methodology by age range, geographic area, and self-only or ap plicable category of family coverage obtained through BHP. We would note that the choice of the second lowest cost silver pl an for calculating BHP payments would rely on several simplifying assumptions in its se lection. For the purposes of determining the second lowest cost silver plan for calculating PTC for a person enrolled in a QHP through an Exchange, the applicable plan ma y differ for various reasons. For example, a different second lowest cost silv er plan may apply to a family consisting of two adults, their child, and their niece than to a family with two adults and their children, because one or more QHPs in the family’s geographic area might not o ffer family coverage that includes the niece. We believe that it would not be possible to replicate such va riations for calculating the BHP payment and believe that in aggregate they w ould not result in a significant difference in the payment. Thus, we propose to use the second lowe st cost silver plan available to any enrollee for a given age, geographic area, and coverage category. This choice of reference premium relies on two assumptions about enrollment in theCMS-2380-PN 21 Exchanges. First, we assume th at all persons enrolled in BHP would have elected to enroll in a silver level plan if they had instead enrolled in a QHP through the Exchanges. It is possible that some persons would have chosen not to enroll at a ll or would have chosen to enroll in a different metal-level plan (in particular, a bronze level plan with a premium that is less than the PTC for which the person was eligible). We do not believe it is appropriate to adjust the payment for an assumption that some BHP enrollees would not have enrolled in QHPs for purposes of calculating the BHP payment rates, since Affordab le Care Act section 1331(d)(3)(A)(ii) requires the calculation of such rates as “if the enrollee had enrolled in a qualified health plan through an Exchange.” Second, we assume that, among all available s ilver plans, all pers ons enrolled in BHP would have selected the second-lo west cost plan. Both this an d the prior assumption allow an administratively feasible determination of fe deral payment levels. They also have some implications for the CSR portion of the rate. If persons were to have en rolled in a bronze level plan through the Exchange, they w ould not be eligible for the CSR, unless they were an eligible American Indian or Alaska Native; thus, assuming that all persons enroll in silver level plan, rather than a plan with a different metal level, would increase the BHP payment. Assuming that all persons enroll in the second lo west cost silver plan for th e purposes of calculating the CSR portion of the rate may result in a different level of CSR payments than would have been paid if the persons were enrolled in different silver le vel plans on the Exchanges (with either lower or higher premiums). We believe it would not be reasonable at this point to estimate how BHP enrollees would have enrolled in different silver level QHPs, and thus propose to use the second lowest cost silver plan as the basis for the reference premium and calcu lating the CSR portion of the rate. For American Indian/Alaska Native BH P enrollees, we propose to use the lowest cost bronze plan as the basis for the reference pr emium as described further in section E. The applicable age bracket will be one dimension of each rate cell. We propose toCMS-2380-PN 22 assume a uniform distribution of ages and estima te the average premium amount within each rate cell. We believe that assuming a uniform distribu tion of ages within thes e ranges is a reasonable approach and would produce a reliable determinati on of the PTC and CSR components. We also believe this approach would avoid potential inaccu racies that could otherw ise occur in relatively small payment cells if age distribution were m easured by the number of persons eligible or enrolled. We propose to use the same geographic areas as specified for the Exchanges in each state within which the same second lowest cost silver level premium is charged. Although plans are allowed to serve geographic areas smaller th an counties after obtain ing our approval, we propose that no geographic area, for purposes of defining BHP payment rate cells, will be smaller than a county. We do not believe that th is assumption will have a significant impact on federal payment levels and it would likely simp lify both the calculation of BHP payment rates and the operation of BHP. Finally, in terms of the coverage category, we propose that federal payment rates only recognize self-only and two-adult coverage, with exceptions that account for children who are potentially eligible for BHP. First, in states that set the upper income threshold for children’s Medicaid and CHIP eligibility below 200 percent of FPL (based on modified adjusted gross income), children in households with incomes between that th reshold and 200 percent of FPL would be potentially eligible for BHP. Current ly, the only states in th is category are Arizona, Idaho, and North Dakota . 4 Second, BHP would include lawfully present immigrant children with incomes at or below 200 percent of FPL in states that have not exerci sed the option under the sections 1903(v)(4)(A )(ii) and 2107(e)(1)(E) of the Social Se curity Act (the Act) to qualify all otherwise eligible, lawfully pres ent immigrant children for Medicaid and CHIP. States that fall within these exceptions would be identified based on their Medica id and CHIP State Plans, and

4 CMCS. “State Medicaid and CHIP Income Elig ibility Standards Effective January 1, 2014.”CMS-2380-PN 23 the rate cells would include appropriate categories of BHP family coverage for children. For example, Idaho’s Medicaid and CHIP eligibility is limited to families with MAGI at or below 185 percent FPL. If Idaho implemented BHP, Id aho children with inco mes between 185 and 200 percent could qualify. In other states, BHP eligibility will generally be restricted to adults, since children who are citizens or lawfully present immigrants and who live in households with incomes at or below 200 percent of FPL will qualify for Medicaid or CHIP and thus be ineligible for BHP under section 1331 (e)(1 )(C) of the Affordable Care Act, which limits BHP to individuals who are ineligible for minimum essen tial coverage (as define d in section 5000A(f) of the Internal Revenue Code of 1986). 2. Premium Trend Factor (PTF) In Equation 3, we calculate an adjusted reference premium (ARP) based on the application of certain relevant variables to the reference premium (RP), including a premium trend factor (PTF). At the time we issue the fi nal federal payment notice, the adjusted monthly premium for the applicable second lowest cost silver plan will be known only for the year prior to the applicable BHP program year. For exam ple, when federal payments are set for the 2015 BHP program year, the adjusted monthly premium for the applicable second lowest cost silver plan will be known only for 2014. It is appropriate to apply a fact or that would account for the change in health care costs between the year of the premium data and the BHP plan year. We are defining this as the premium trend factor in the BHP payment methodology. This factor should approximate the change in health care costs per enrollee, which would include, but is not limited to, changes in the price of hea lth care services and changes in the utilization of health care services. This would provide an estimate of the adjusted mont hly premium for the applicable second lowest cost silver plan that would be more accurate and reflective of health care costs in the BHP program year, which will be the year following issuance of the final federal payment notice.CMS-2380-PN 24 There are several ways to deve lop this factor. One option would be to use a projection of national health care cost trends on a per capita or a per enrollee basis. Other options include using historical trends from Exchanges once availa ble—for example, the average annual rate of growth of the applicable second lo west cost silver plans over the last 5 years, or the projected change in national health care cost trends, adjusted for obser ved differences between growth rates experienced by such silver plans and t hose for private health insurance expenditures overall. In addition, we believe that it is appropriate to adjust the trend factor for the estimated impact of changes to the transitional reinsuran ce program on the average QHP premium. To the extent that changes in the operation of that pr ogram will affect QHP premiums in predictable ways that go beyond private insurance cost trends as a whole, such change s will be incorporated into the premium trend factor. We believe that for the 2015 BHP program year the most reliable and appropriate approach would use projected national health care cost trends. Therefore, we propose to use the annual growth rate in private health insurance expenditures per enrollee fr om the National Health Expenditure projections. The National Health Expenditure Accounts and Projections are developed annually by the Office of the Actuary of CMS. Over the last 10 years, the average annual increase in private health insurance premiums per enroll ee has been 6.55 percent per year, ranging from 3.22 percent to 11.55 percent. Future changes in private health insurance premiums per enrollee may differ from historical experience for many reas ons, including changes in use of health care services, provider reimbursement rates, net costs of insurance, the health status of the pe ople with private health insurance, and the demographics of the U.S. populat ion. Moreover, the change in the cost of the premium of the second lowest cost silver plan ma y differ from the increase in the average private health insurance premium; in particular, the seco nd lowest cost silver plan in a region may beCMS-2380-PN 25 offered by different insurers year to year. There may also be so me differences between the rate of premium increases in QHPs on th e Exchanges and other forms of private health insurance (for example, employer-sponsored insu rance). In addition, there may be regional differences in the change in health care premiums (that is, di fferent regions of the country may see premium increases smaller or larger than the national average). In future years, we propose to evaluate wh ether historical data and projections related specifically to the QHPs offered on the Exchan ges at a national level could produce a more reliable estimate of future changes to QHP refere nce premiums, compared to historical data and projections for private in surance in general. We particularly invi te comments concerning methods fo r addressing sign ificant changes in the cost of the second lowest cost silver plan premium in a geogr aphic rating area from one year to the next, due to changes in local Exchange structure rather than broader trends in health insurance costs. For example, if a certain second lowest cost silv er plan offered on an Exchange serves a particular geographic ra ting area in one year but not the next, the identity of the second lowest cost plan in that area could change, with potentially si gnificant effects on PTC amounts. Such changes would not be captured using the kind of premium trend factor discussed here. 3. Population Health Factor (PHF) We considered including an explicit population h ealth factor in each rate cell that varies based on the characteristics of BHP enrollees with in that cell, but we are not proposing such a variable, for several reas ons. We believe that because BHP-el igible consumers’ are eligible to enroll in QHPs in 2014, the 2014 QHP premiums al ready account for the health status of BHPeligible consumers, as explained in further detail below. Also, the function of this factor is to provide a reference premium amount that reflects the premiums that QHPs would have charged without the implementation of BHP, taking into account both the risk pr ofile of BHP-eligible consumers in the state and the operation of risk -adjustment and reinsurance mechanisms in theCMS-2380-PN 26 Exchanges. Our proposed approach to the popula tion health factor seeks to achieve this goal based on the characteristics of the state’ s BHP-eligible consumers as a whole. In the BHP proposed rule, we described in preamble what we believed to be the most appropriate approach to account fo r potential differences in health status between BHP enrollees and consumers in the individual market, in cluding those obtaining coverage through the Exchange—that is, including a risk adjustme nt factor in the BHP funding methodology. We believe that it is appropriate to consider whether or not to deve lop a population health adjustment to account for potential differences in health status between pers ons eligible for BHP and those enrolled in the individual market, as the two pop ulations may not have the same average health

status. Accordingly, we have considered applyi ng a population-wide adjustment for health status in the BHP payment calculation to account for the impact on a state’s Exchange premiums, hence the PTC and the value of CSRs, of changes to average risk levels in the state’s individual market that result from BHP implementation. Our proposed approach to the adjustment for population health status seeks to have the federal BHP payment reflect the premium that would have been charged if BHP-eligible consumers were allowed to purchase QHPs in their state’s Exchange, rather than the premium that is bei ng charged in the Exchange without the inclusion of BHP consumers. This factor would be grea ter than 1.00 if BHP enrolle es in a state are, on average, in poorer health stat us than those covered through th e state’s individual market, and thus Exchange premiums would have been highe r had the state not implemented BHP. This factor would be less than 1.00 if BH P enrollees in a state are, on aver age, in better health status than those covered through the state’s individual market, and thus Exchange premiums would have been lower if the stat e had not implemented BHP. We propose that the population health adjust ment for the 2015 BHP program year would equal 1.00. Most BHP-eligible consumers will be able to purchase coverage in the individualCMS-2380-PN 27 market during 2014, or the “measurement year”—that is, the year that precedes implementation of BHP and that provides the basis for estima ting unadjusted reference premiums; thus, making no adjustment to the premiums for differences in BHP-eligible enroll ees’ health would be appropriate. As a result, BHP-eligible consumer s’ health status is already included in the premiums that would be used to calc ulate the federal BHP payment rates. In states where significant numbers of BHP- eligible persons are c overed outside of the individual market in 2014, it may be possible to estimate differences in expected health status between persons who are eligible for BHP and pe rsons otherwise eligible for coverage in the individual market. However, we believe that th e different levels of fe deral subsidies based on household income for coverage for persons enro lled in a QHP through an Exchange may have a substantial influence on the particip ation rate of enrollees. This may result in relatively healthier persons with higher levels of s ubsidies enrolling in coverage, a nd this effect may partially or entirely offset some other differences in the health status between BHP-eligible persons and those otherwise covered in the individual market. On the Exchanges, premiums in most states will vary based on ag e, which research has shown is directly correlated to average health cost. Because the reference premium used to calculate BHP federal payment rates will vary by age, some of the difference in average health costs would be addressed by this approach to calculating the BHP payment. However, this does not further simplify the task of estimating the re maining adjustment needed to compensate for any impact of BHP implementation on average risk levels in the state’s in dividual market. Given these analytic challenges, the existing role played by age-rated premiums in compensating for risk, and the limited data about Exchange covera ge and the characteristics of BHP-eligible consumers that will available by the time we es tablish federal payment rates for 2015, we believe that the most appropriate adjustment for 2015 wo uld be 1.00, including in states that cover BHPeligible persons outside the indivi dual market in 2014. We anticipat e that, in future years, whenCMS-2380-PN 28

additional data become available about Exchan ge coverage and the ch aracteristics of BHP enrollees, we may estimate this factor differen tly. We invite comment on whether methods are currently available to accurately and reliably es timate this factor for 2015, in general and in states that will cover BHP-eligible pers ons outside their individual markets in 2014. Finally, while the statute requires consider ation of risk adjustment payments and reinsurance payments insofar as they would have affected the PTC and CSRs that would have been provided to BHP-eligible individuals had they enrolled in QHPs, this does not mean that a BHP program’s standard health plans receive such payments. As explai ned in the BHP proposed rule, BHP standard health plans are not include d in the risk adjustment program operated by HHS on behalf of states. Further, standard he alth plans do not qualify for payments from the transitional reinsurance program established und er section 1341 of the Affordable Care Act. 5 To the extent that a state operating a BHP determines that, because of the dist inctive risk profile of BHP-eligible consumers, BHP standard health plans should be included in mechanisms that share risk with other plans in the state’s indi vidual market, the state w ould need to use other methods for achieving this goal. 4. Income (I) Household income is a significant determinan t of the amount of the PTC and CSRs that are provided for persons enrolled in a QHP through the Exchange. Accordingly, the proposed BHP payment methodology incorporates income in to the calculations of the payment rates through the use of income-based rate cells. We propose defining income in accordance with the definition of modified adjusted gross income in 26 U.S.C. 36B(d)(2)(B) and consistent with the definition in 45 CFR 155.300. Income would be m easured relative to the FPL, which is updated

5 See 45 CFR 153.400(a)(2)(iv) (BHP standard health plan s are not required to submit reinsurance contributions), 153.20 (definition of “Reinsurance-eligible plan” as not including “health insurance coverage not required to submit reinsurance contributions”), §153.230(a) (reinsurance pa yments under the national reinsurance parameters are available only for “Reinsurance-eligible plans”).CMS-2380-PN 29 periodically in the Federal Register by the Secretary of Health and Human Services under the authority of 42 U.S.C. 9902(2), based on annual changes in the consumer price index for all urban consumers (CPI-U). In our proposed methodology, household size and income as a percentage of FPL would be used as factors in developing the ra te cells. We propose using the following income ranges measured as a percentage of FPL: 6

● 0–50 percent.

● 51–100 percent.

● 101–138 percent.

● 139–150 percent.

● 151-175 percent.

● 176-200 percent. We further propose to assume a uniform income distribution for each federal BHP payment cell. We believe that assuming a unifo rm income distribution for the income ranges proposed would be reasonably accurate for th e purposes of calculating the PTC and CSR components of the BHP payment and would avoid potential errors that could result if other sources of data were used to estimate the specif ic income distribution of persons who are eligible for or enrolled in BHP within rate cells that ma y be relatively small. Thus, when calculating the mean, or average, PTC for a rate cell, we propose to calculate the value of the PTC at each one percentage point interval of the income range for each federal BHP payment cell and then calculate the average of the PTC across all interv als. This calculation would rely on the PTC formula described below. As the PTC for persons enrolled in QHPs would be calculated based on their income during the open enrollment period, and that income would be measured against the FPL at that

6 These income ranges and this analysis of income apply to the calculation of the PTC. Many fewer income ranges and a much simpler analysis apply in determ ining the value of CSRs, as specified below.CMS-2380-PN 30 time, we propose to adjust the FPL by multiplyin g the FPL by a projected increase in the CPI-U between the time that the BHP payment rates ar e published and the QHP open enrollment period, if the FPL is expected to be updated during that time. We propose that the projected increase in the CPI-U would be based on the intermediate in flation forecasts from the most recent OASDI and Medicare Trustees Reports. 7 5. Premium Tax Credit Formula (PTCF) In Equation 1, we propose to use the formula described in 26 U.S.C. 36B(b) to calculate the estimated PTC that would be paid on behalf of a person enrolled in a QHP on an Exchange as part of the BHP payment methodology. This fo rmula is used to determine the amount of premium that an individual or household would be required to pay to enroll in a QHP on an Exchange, which is based on (A) the household in come; (B) the household income measured as a percentage of FPL; and (C) the schedule specif ied in 26 U.S.C. 36B(b)(3)(A) and shown below. The difference between the amount of premium a person or a household is required to pay and the adjusted monthly premium for the applicable second lowest cost silver plan is the estimated amount of the PTC that would be provided for the enrollee. The PTC amount provided for a person enrolled in a QHP through an Exchange is calculated in accordance with the methodology descri bed in 26 U.S.C. 36B(b)(2) as the amount equal to the lesser of: (A) the monthly premiums for such month of one or more QHPs offered in the individual market within a state that cover the taxpayer, the taxpayer’s spouse, or any dependent (as defined in section 26 U.S.C. 152) of the taxpayer a nd that the taxpayer and spouse or dependents were enrolled in thro ugh an Exchange; or (B) the exce ss (if any) of (i) the adjusted monthly premium for such month for the applicable second lowest cost silver plan for the taxpayer over (ii) an amount equa l to 1/12 of the product of the a pplicable percentage (described

7 See Table IV A1 from the 2013 reports in http://www.cms.gov/Research-Statis tics-Data-and-Systems/StatisticsTrends-and-Reports/ReportsTrustFunds/Downloads/TR2013.pdf

.CMS-2380-PN 31 below) and the taxpayer’s household income for the taxable year. The applicable percentage is defined in 26 U.S.C. 36B (b)(3)(A) and 26 CFR 1.36B-3(g) as the percentage that applies to a taxpayer’s household income that is within an income tier specified in the table, increasing on a sliding sc ale in a linear manner fr om an initial premium percentage to a final premium percentage specified in the table (see Table 1):
TABLE 1: In the case of household income (expressed as a percent of poverty line) within the following income tier: The initial premium percentage is– The final premium percentage is–

Up to 133% 2.0% 2.0% 133% but less than 150% 3.0% 4.0% 150% but less than 200% 4.0% 6.3% 200% but less than 250% 6.3% 8.05% 250% but less than 300% 8.05% 9.5% 300% but not more than 400% 9.5% 9.5%

These are the applicable percen tages for CY 2014. The applicab le percentages will be updated in future years in accordance w ith 26 U.S.C. 36B (b)(3)(A)(ii). 6. Income Reconciliation Factor (IRF) For persons enrolled in a QHP through an Exchange who receive an advance payment of the PTC (APTC), there will be an annual reconciliation following th e end of the year to compare such payment to the correct amount of PTC based on household circumstances shown on the federal income tax return. Any difference be tween the latter amounts and the credit received during the year would either be paid to the taxpayer (if the enro llee received less in APTC than they were entitled to receive) or charged to the ta xpayer as additional tax (if the enrollee received more in APTC than they were entitled to re ceive, subject to any lim itations in statute or regulation), as provided in 26 U.S.C. 36B(f). Section 1331(e)(2) of th e Affordable Care Act specifies th at individuals enrolled in BHP may not be treated as a qualified individual under section 1312 eligible for enrollment in a QHPCMS-2380-PN 32 offered through an Exchange. Therefore, BHP enro llees are not eligible to receive an APTC to purchase coverage in the Exchange. Because th ey do not receive APTC, BHP enrollees are not subject to the same income reconciliation as Exchange consumers. Nonetheless, there may still be differences between a BHP enrollee’s household income reported at the beginning of the year and the actual income over the year. These ma y include small changes (reflecting changes in hourly wage rates, hours worked per week, and other fluctuations in income during the year) and large changes (reflecting significant changes in employment status, hourly wage rates, or substantial fluctuations in income). There ma y also be changes in household composition. Thus, we believe that using unadjusted income as report ed prior to the BHP program year may result in calculations of estimated PTC that are inconsiste nt with the actual incomes of BHP enrollees during the year. Even if the BHP program adjusts household income determinations and corresponding claims of federal payment amounts based on household reports during the year or data from third-party sources, such adjustme nts may not fully capture the effects of tax reconciliation that BHP enrollees would have experienced had they been enrolled in a QHP through an Exchange and received an APTC. Therefore, we propose including in Equation 1 an income adju stment factor that would account for the difference between calculating estimat ed PTC using: (a) income relative to FPL as determined at initial app lication and potentially revised mid-year, under proposed 42 CFR 600.320, for purposes of determining BHP eligibi lity and claiming federal BHP payments; and (b) actual income relative to FPL received durin g the plan year, as it would be reflected on individual federal income tax returns. This ad justment would seek prospectively to capture the average effect of income r econciliation aggregated across the BHP population had those BHP enrollees been subject to tax reconciliation af ter receiving APTC for coverage provided through QHPs. For 2015, we propose estimating reconciliati on effects based on tax data for two years, reflecting income and tax unit composition chan ges over time among BHP-eligible individuals.CMS-2380-PN 33 Specifically, the Office of Tax Analysis (O TA) at the Department of the Treasury maintains a model which combines detailed tax and other data, including Exchange enrollment and PTC claimed, to project Exchange premiums, en rollment, and tax credits . For each enrollee, this model compares the APTC estimated at th e point of enrollment with the PTC based on household income and family size reported at the end of the tax year. The former reflects the determination using enrollee information furnished by the applicant. The latter would reflect the PTC eligibility based on information on the tax retu rn, which would have been determined if the individual had not enrolled in BHP. The ratio of the reconciled premium tax credit to the initial determination of premium tax credit will be used as the income reconciliation factor in Equation (1) for estimating the PTC portion of the BHP pa yment rate. We invite comment on this approach. 7. Tobacco Rating Adjustment Factor (TRAF) As described above, the reference premium is estimated, for purposes of determining both the PTC and related federal BHP payments , based on premiums charged for non-tobacco users, including in states that allow premium va riations based on tobacco use, as provided in 42 U.S.C. 300gg (a)(1)(A)(iv). In contrast, as pr oposed in the HHS Notice of Benefit and Payment Parameters for 2015, the CSR advance payments are based on the total premium for a policy, including any adjustment for tobacco use. Accordingly, we propose to incorporate a tobacco rating adjustment factor into Equation 2 that refl ects the average percentage increase in health care costs that results from tobacco use among the BHP-eligible population and that would not be reflected in the premium charged to non-users. This factor will also take into account the estimated proportion of tobacco user s among BHP-eligible consumers. To estimate the average effect of tobacco use on health care costs (not reflected in the premium charged to non-users), we propose to calc ulate the ratio between premiums that silver level QHPs charge for tobacco users to the premiums they charge for non-tobacco users atCMS-2380-PN 34 selected ages. To calculate estimated proportions of tobacco users, we propose to use data from the Centers for Disease Control and Prevention to estimate tobacco utilizat ion rates by state and relevant population characteristic. 8 For BHP program year 2015, we would compare these tobacco utilization rates to the characteristics of BHP-eligible consumers, as shown by national and state survey data. We invite comments on this approach. We also propose to consider differentiating this factor by the rate cell factors, if there are significant variations in either (a) the difference in health car e costs for tobacco users and nontobacco users or (b) the preval ence of tobacco use along any of these dimensions (including age range, state, geographic area, and income range). For example, if the differences in the tobacco and non-tobacco user rates in a state vary by age group, we would consider applying different adjustments to different rate cells by age. 8. Factor for Removing Admi nistrative Costs (FRAC) The Factor for Removing Administrative Costs (FRAC) represents the average proportion of the total premium that covers a llowed health benefits, and we propose including this factor in our calculation of estimated CSRs in Equation 2. The product of the reference premium and the FRAC would approximate the es timated amount of EHB claims that would be expected to be paid by the plan. This step is needed because the premium also covers such costs as taxes, fees, and QHP administrative expenses. We are proposing to set this factor equal to 0.80, which is proposed for calculating CSR advance payments for 2015 in the HHS Notice of Benefit and Payment Parameters for 2015. 9. Actuarial Value (AV) The actuarial value is defined as the percentage paid by a heal th plan of the total allowed costs of benefits, as defined under 45 CFR 156.20. (For example, if the av erage health care costs

8 See http://www.cdc.gov/nchs/nhis/tobacco.htm; http://app s.nccd.cdc.gov/statesyst em/default/DataSource.aspx

. .CMS-2380-PN 35
for enrollees in a health insurance plan were $1,000 and that plan has an actuarial value of 70 percent, the plan would be e xpected to pay on average $700 ( $1,000 x 0.70) for health care costs per enrollee, on average.) By dividing such estimated costs by the actuarial value in the proposed methodology, we would calculate the estim ated amount of total EHB-allowed claims, including both the portio n of such claims paid by the plan and the portion paid by the consumer for in-network care. (To continue with that same example, we would divide the plan’s expected $700 payment of the person’s EHB-allowed claims by the plan’s 70 percent actuarial value to ascertain that the total amount of EHB-allowed claims, including amounts paid by the consumer, is $1,000.) For the purposes of calculating the CSR ra te in Equation 2, we propose to use the standard actuarial value of the s ilver level plans in the individual market, which is equal to 70 percent. 10. Induced Utilization Factor (IUF) The induced utilization factor is proposed as a factor in calculating estimated CSRs in Equation 2 to account for the increase in health care service utiliza tion associated with a reduction in the level of cost sharing a QHP enrollee would have to pay, based on the costsharing reduction subsidie s provided to enrollees. In the HHS Notice of Benefit and Payment Parameters for 2015 proposed rule, we proposed induced utilization factors for the purposes of calculating cost-sharing reduction advance payments for 2015. The induced utilizati on factor for all persons who would enroll in a silver plan and qualify for BHP ba sed on their household income as a percentage of FPL is 1.12; this would include persons with household inco me between 100 percent and 200 percent of FPL, lawfully present non-citizens belo w 100 percent of FPL w ho are ineligible fo r Medicaid because of immigration status, and persons with househol d income under 300 percent of FPL, not subject to any cost-sharing. Thus, we propose to use the induced utilization factor equal to 1.12 for theCMS-2380-PN 36 BHP payment methodology. We would note that for CSRs for QHP, there will be a final reconci liation at the end of the year and the actual level of induced utilization could differ from the factor proposed in the rule. Our proposed methodology for BHP funding would not include a ny reconciliation for utilization and thus may understate or overstate the impact of the e ffect of the subsidies on health care utilization. 11. Change in Actuarial Value ( Δ AV)
The increase in actuarial value would account for the impact of the cost-sharing reduction subsidies on the relative amount of EHB claims that would be c overed for or paid by eligible persons, and we propose including it as a factor in calculating estimated CSRs in Equation 2. The actuarial values of QHPs for persons elig ible for cost-sharing reduction subsidies are defined in 45 CFR 156.420(a), and eligibility for such subsidies is defined in 45 CFR 155.305(g)(2)(i) through (iii). For QHP enrollees with household incomes between 100 percent and 150 percent of FPL, and those below 100 percen t of FPL who are ineligible for Medicaid because of their immigration status , CSRs increase the actuarial va lue of a QHP silver plan from 70 percent to 94 percent. For QHP enrollees with household incomes between 150 percent and 200 percent of FPL, CSRs increase the actuarial value of a QHP s ilver plan from 70 percent to 87 percent. We propose to apply this factor by subtra cting the standard AV from the higher AV allowed by the applicable cost-sharing reduction. For BHP enrollees with household incomes at or below 150 percent of FPL, this factor woul d be 0.24 (94 percent minus 70 percent); for BHP enrollees with household incomes more than 150 percent but not more than 200 percent of FPL, this factor would be 0.17 (87 percent minus 70 percent). E. Adjustments for American Indians and Alaska Natives There are several exceptions made for Ameri can Indians and Alaska Natives enrolled inCMS-2380-PN 37 QHPs through an Exchange to calculate the PTC and CSRs. Thus, we propose adjustments to the payment methodology described above to be consistent with the Exchange rules. We propose the following adjustments:
1. We propose that the adjusted reference pr emium for use in the CSR portion of the rate would use the lowest cost br onze plan instead of the second lowest cost silver plan, with the same adjustments for the premium trend factor and population health factor. American Indians and Alaska Natives are eligible for CSRs with any metal level plan, and thus we believe that eligible persons would be more lik ely to select a bronze level plan instead of a silver level plan. (It is important to note that this would not chan ge the PTC, as that is the maximum possible PTC payment, which is always based on the second lowest cost silver plan.) We invite comments as to whether other assumptions are warranted a bout the distribution, among bronze plans charging various premiums, of American Indian and Alaska Native BHP-eligible individuals.
2. We propose that the actuaria l value for use in the CSR portion of the rate would be 0.60 instead of 0.70, which is consistent with the actuarial value of a bronze level plan.
3. We propose that the induced utilization f actor for use in the CSR portion of the rate would be 1.15, which is consistent with the proposed HHS Notice of Benefit and Payment Parameters for 2015 induced utilization factor fo r calculating advance CSR payments for persons enrolled in bronze level plans and eligible fo r CSRs up to 100 percent of actuarial value.
4. We propose that the change in the actuari al value for use in the CSR portion of the rate would be 0.40. This reflects the increas e from 60 percent actuar ial value of the bronze plan to 100 percent actuarial valu e, as American Indians and Al aska Natives are eligible to receive CSRs up to 100 per cent of actuarial value. F. Example Application of the BHP Funding Methodology This example of the proposed approach involves 1-person households with incomes between 138 and 150 percent FPL who obtain sing le coverage through BHP in a particularCMS-2380-PN 38 geographic rating area located in a state that perm its insurers to increase premiums for tobacco users. To determine federal BHP payment rates, we begin by analyzing singl e-adult, silver-level coverage offered through the Exchange in that area. A particular QHP charges the “reference premium”—that is, the second lowest cost pr emium among those charged by all silver-level plans offered in the area, for a specific age range , without premium increases for tobacco users. Within the following age ranges, the mean valu e of that reference premium for 2014, assuming every age in the range is equally repres ented, is as follows in our example:

● $132.34 for 0-20 year olds.

● $243.39 for 21-44 year olds.

● $385.37 for 45-54 year olds.

● $571.49 for 55-64 year olds. We multiply these reference premiums by the premium trend factor—that is, by the expected increase in average private health insurance costs from 2014 to 2015. The most recent National Health Expenditure projections from the CMS Office of the Actuary estimate that, from 2014 to 2015, private health insurance costs per en rollee will rise by an average of 3.5 percent. 9 Accordingly, for purposes of calculating 2015 federal BHP payments, reference premium amounts will be adjusted to:

● $136.97 for 0-20 year olds.

● $251.91 for 21-44 year olds.

● $398.86 for 45-54 year olds.

● $591.50 for 55-64 year olds. We then multiply these amounts by the population health factor, reflecting the amount by which premiums in the Exchange would have incr eased or decreased, relativ e to actual levels, if

9 http://www.cms.gov/Research -Statistics-Data-and-Syste ms/Statistics-Trends-andReports/NationalHealthExpendData/Downloads/Proj2012.pdf

.CMS-2380-PN 39 all BHP-eligible consumers had been allowed to obtain covera ge through QHPs, rather than BHP. In this particular state, the amount s charged in the Exchange for 2014 assume the inclusion of BHP-eligible consumers, so no adjustment needs to be made for BHP program year
2015. 10 As a result, this factor is 1.00, so th e final premiums listed above, by age, are the adjusted reference premiums. We then factor in the effects of household size, FPL, and the PTC formula. We take current FPL guidelines (which are for 2013) 11 and trend them forwards to 2015, based on the
intermediate inflation forecasts from the most recent Medicare Trustees Report. 12 Accordingly, for purposes of calculating federal BHP payments , we assume that 100 percent of FPL will be $12,024 a year ($1,002 a month) fo r a 1-person household in 2015. With each household size and FPL range, we de termine the average (mean) PTC amount. For purposes of this example, we calculate the amount that BHP-eligible consumers with incomes between 138 and 150 percent FPL in 1- person households would pay, after receiving a premium tax credit, for an adjusted-reference-prem ium plan at every FPL percentage point level included in that range—at 138 percent FPL, 139 percent FPL, 140 percent FPL, etc., up to and including 150 percent FPL. Household paymen ts throughout this range average $38.28 (Table 2). Subtracting this payment level from the 2015 adjusted reference premium amounts shown above yields the following estimated premium ta x credits, by age range, for 1-person households between 138 and 150 percent FPL:

● $98.69 for 0-20 year olds.

10 If the state implements BHP in 2015, this factor may ch ange as early as BHP program year 2016 if state or national data demonstrate, based on differences between average risk scores for individual market participants below and above 200 percent FPL, that adding BHP-eligible consumers to the state’s 2015 individual market would have changed the reference premiums ch arged in the state’s Exchange. 11 https://www.federalregister.gov/articles/2013/01/24/2 013-01422/annual-update-of-the-hhs-poverty-guidelines 12 See Table IV A1 in http://www.cms.gov/Research-Statistics-Da ta-and-Systems/Statistics-Trends-andReports/ReportsTrustFund s/Downloads/TR2013.pdf . This forecast involves an increase in the Consumer Price Index of 2.2 percent in 2014 and 2.4 percent in 2015. Compounded, this results in a 4.65 percent increase from 2013 to 2015.CMS-2380-PN 40

● $213.63 for 21-44 year olds.

● $360.58 for 45-54 year olds.

● $553.22 for 55-64 year olds. If the best estimates from modeling show that, taking into account tax reconciliation effects across the entire BH P-eligible population, the net impact of reconciliation is to reduce tax credit amounts by an average (mean) of 2.00 percen t, then the income reconciliation adjustment for 2015 would be 0.98. Between that adjustment and including 95 rather than 100 percent of the estimated premium tax credit within the fe deral BHP payment rate, the above amounts are multiplied by 0.931, resulting in the premium ta x components of federal BHP payments as follows for 1-person households between 138 and 150 percent FPL receiving single coverage through BHP:

● $91.88 for 0-20 year olds.

● $198.89 for 21-44 year olds.

● $335.70 for 45-54 year olds.

● $515.05 for 55-64 year olds. In calculating the cost-sharing reduction subs idy component of federal BHP payments, we begin with the above adjusted reference premiums for 2015, including the premium trend factor and the population health factor ($136.97 for 0- 20 year olds, etc.). We then multiply those premiums by the following additional factor s, with the results shown in Table 3:

● The Factor for Removing Administrative Costs, which is 0.80;

● A standard actuarial value (AV) factor, wh ich is 1 over the standa rd actuarial value of 70 percent for silver-lev el plans, or 1.4286;

● The tobacco rating adjustment factor, whic h we assume, for purposes of this example, would be found to be 1.30, following a determin ation of: (a) weighted-average premiums charged by silver level QHPs to tobacco users an d non-users, by age; and (b) CDC estimates ofCMS-2380-PN 41 tobacco usage within the state’s BH P-eligible population, by age;

● An induced utiliza tion factor of 1.12;

● The increase in actuarial value (by inco me), which is 0.24 for BHP enrollees in the applicable income range ( 138 to 150 percent FPL); and

● 0.95. Table 4 concludes this example by showing both the premium tax credit component and the cost-sharing reduction subsi dy component of federal BHP payments for 1-person households between 138 and 150 percent FPL who obt ain single coverage through BHP. TABLE 2: Household premium charges, afte r receiving premium tax credits, for 1-person households between 138-150 percent FPL buying reference-premium single coverage in the Marketplace

Household premium charges FPL As a percentage of income In dollars per month 138 2.29 $31.72 139 2.35 $32.77 140 2.41 $33.83 141 2.47 $34.91 142 2.53 $35.99 143 2.59 $37.09 144 2.65 $38.19 145 2.71 $39.31 146 2.76 $40.45 147 2.82 $41.59 148 2.88 $42.75 149 2.94 $43.91 150 3.00 $45.09 Average: $38.28 Note : This table assumes a hypothesized geographic area that: (a ) is within a state that pe rmits insurers to increase premiums for tobacco users; and (b) has mean premiums for the second-lowest-cost silve r-level QHP, calculated for non-tobacco users assuming an even age distribution, as follows in 2014: $132.34 for 0-20 year olds; $243.39 forCMS-2380-PN 42

21-44 year olds; $385.37 for 45-54 year olds; and $571.49 for ages 55-64 year olds

.CMS-2380-PN 43TABLE 3: Calculating the monthly cost-sharing reduction subsidy component of federal BHP payments for 1-personhouseholds between 138 and 150 percent FPL receiving single coverage through BHPAfter application of factor (by name and amount)Factor for removingadministrative costsStandard AVfactorTobacco ratingadjustmentInducedutilizationIncreased AVFinal BHPCSR subsidycomponentAgeAdjustedreferencepremiumfor 20150.8 1.43 1.3 1.12 0.24 0.950-20$136.97 $109.58 $156.69 $203.70 $228.15 $54.76 $52.0221-44$251.91 $201.53 $288.19 $374.64 $419.60 $100.70 $95.6745-54$398.86 $319.09 $456.30 $593.18 $664.37 $159.45 $151.4855-64$591.50 $473.20 $676.68 $879.68 $985.24 $236.46 $224.63Note:See note to Table 2.TABLE 4: Total monthly and quarterlyfederal BHP payments for 1-person households between 138 and 150 percent FPLreceiving single coverage through BHPNote:See note to Table 2.Monthly components Total BHP payments perenrolleeAgePremium tax credit Cost-sharingreduction subsidy Monthly Quarterly0-20$91.88 $52.02 $143.90$431.6921-44$198.89 $95.67 $294.56$883.6745-54$335.70 $151.48 $487.18$1,461.5355-64$515.05 $224.63 $739.68$2,219.05CMS-2380-PN 44
III. Collection of Information Requirements While this document contains collection of in formation requirements that are subject to the Paperwork Reduction Act, CMS is seeking em ergency OMB review and approval of those requirements under 5 CFR 1320.13. The notice se tting out the proposed requirements and burden estimates is publishing in today’s Federal Register under CMS-10510 (OCN 0938- New). That notice also sets out instructions for submitting public comment, as well as the comment due date. IV. Response to Comments Because of the large number of public comments we normally receive on Federal Register documents, we are not able to acknowledge or respond to them individually. We will consider all comments we receive by the date and time specified in the "DATES" section of this preamble, and, when we proceed with a subse quent document, we will respond to the comments in the preamble to that document. V. Regulatory Impact Statement A. Overall Impact We have examined the impacts of this rule as required by Executive Order 12866 on Regulatory Planning and Review (Septemb er 30, 1993), Executive Order 13563 on Improving Regulation and Regulatory Review (January 18, 2011), the Regul atory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, section 202 of the Unfunded Mandates Reform Act of 1995 (Mar ch 22, 1995; Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 1999) and the Congre ssional 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 imp acts, and equity). Section 3(f) of Executive Order 12866 defines aCMS-2380-PN 45 “significant regulator y action” as an action that is likely to result in a rule: (1) having an annual effect on the economy of $100 million or more in any 1 year, or adversely and materially affecting a sector of the economy, productivity, co mpetition, jobs, the environment, public health or safety, or state, local or tribal governments or communities (also referred to as “economically significant”); (2) creating a seriou s inconsistency or otherwise inte rfering with an action taken or planned by another agency; (3) ma terially altering the budgetary impacts of entitlement grants, user fees, or loan programs or the rights and oblig ations of recipients ther eof; or (4) raising novel legal or policy issues arising out of legal mandates, the President’s priorities, or the principles set forth in the Executive Order. A regulatory impact analysis (RIA) must be prepared for major rules with economically significant effects ($100 million or more in any 1 year). As noted in the BHP proposed rule, BHP provides states the flexibility to establish an alternative coverage program for low-income individuals who would otherwise be eligible to purchase covera ge through the Exchange. We are uncertain, as described further below, as to whether the effects of the proposed rulemaking, and subsequently, this document, will be “ec onomically significant” as measured by the $100 million threshold, and hence not a major rule unde r the Congressional Review Act. We seek comment on the analysis provided below to he lp inform this assessment by the time of concurrent publication of the final BHP rule a nd final payment notice. In accordance with the provisions of Executive Order 12866, this document was reviewed by the Office of Management and Budget.
1. Need for the Notice Section 1331 of the Affordable Care Act (codified at 42 U.S.C. 18051) requires the Secretary to establish a Basic Health Program, an d subsection (d)(1) specifically provides that if the Secretary finds that a state “meets the re quirements of the program established under subsection (a) [of section 1331], th e Secretary shall transfer to the State” federal BHP paymentsCMS-2380-PN 46
described in subsection (d)(3). This doc ument provides for the funding methodology to determine the federal BHP payment amounts re quired to implement these provisions. 2. Alternative Approaches Many of the factors proposed in this document are specified in statute; therefore, we are limited in the alternative approaches we could co nsider. One area in which we had a choice was in selecting the data sources used to determin e the factors included in the proposed methodology. Except for state-specific reference premiums a nd enrollment data, we propose using national rather than state-specific data. This is due to the lack of currently ava ilable state-specific data needed to develop the majority of the factors included in th e proposed methodology. We believe the national data will produce suffi ciently accurate determinations of payment rates. In addition, we believe that this approach will be less burdensome on states. With respect to reference premiums and enrollment data, we propose using stat e-specific data rather than national data as we believe state-specific data will produce more accurate determinations th an national averages.
3. Transfers The provisions of this document are designed to determine the amount of funds that will be transferred to states offering coverage th rough a Basic Health Program rather than to individuals eligible for prem ium and cost-sharing reductions for coverage purchased on the Exchange. We are uncertain what the total fede ral BHP payment amounts to states will be as these amounts will vary from state to state due to the varying nature of state composition. For example, total federal BHP payment amounts may be greater in more populous states simply by virtue of the fact that they have a larger BHP-eligible population and total payment amounts are based on actual enrollment. Alternatively, total federal BHP payment amounts may be lower in states with a younger BHP-eligible population as the reference premium us ed to calculate the federal BHP payment will be lower relative to older BHP enrollees. While state composition will cause total federal BHP payment amounts to vary from state to state, we believe that theCMS-2380-PN 47 proposed methodology accounts for these variations to ensure accurate BHP payment transfers are made to each state. B. Unfunded Mandates Reform Act Section 202 of the Unfunded Mandates Re form Act of 1995 (UMRA) requires that agencies assess anticipated costs and benefits before issuing any rule whose mandates require spending in any 1 year of $100 million in 1995 dolla rs, updated annually for inflation, by state, local, or tribal governments, in th e aggregate, or by the private s ector. In 2013, that threshold is approximately $141 million. States have the option, but are not required, to establish a BHP. Further, the proposed methodology would establis h federal payment rates without requiring states to provide the Secretary with any data not already required by other provisions of the Affordable Care Act or its im plementing regulations. Thus, this proposed payment notice does not mandate expenditures by state governments, local governments, or tribal governments. C. Regulatory Flexibility Act The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) requires agencies to prepare an initial regulatory flexibility analysis to describe the impact of the proposed rule on small entities, unless the head of the agency can cer tify that the rule will not have a significant economic impact on a substantial number of sma ll entities. The Act generally defines a “small entity” as (1) a proprieta ry firm meeting the size standards of the Small Business Administration (SBA); (2) a not-for-profit orga nization that is not dominant in its field; or (3) a small government jurisdiction with a popul ation of less than 50,000. I ndividuals and states are not included in the definition of a sm all entity. Few of the entities that meet the definition of a small entity as that term is used in the RFA w ould be impacted directly by this document. Because this document is focused on the pr oposed funding methodology th at will be used to determine federal BHP payment rates, it doe s not contain provision s that would have a significant direct impact on hospita ls, and other health care providers that are designated as smallCMS-2380-PN 48
entities under the RFA. However, the provisions in this document ma y have a substantial, positive indirect effect on hospitals and other health care providers due to the substantial increase in the prevalence of health coverage among popul ations who are currently unable to pay for needed health care, leading to lower rates of uncompensated care at hospitals. The Department cannot determine whether this document woul d have a significant economic impact on a substantial number of small entities, and we request publ ic comment on this issue. Section 1102(b) of the Act requires us to prepare a regulatory impact analysis if a document may have a significant ec onomic impact on the operations of a substantial number of small rural hospitals. For purposes of section 1102(b) of the Act, we define a small rural hospital as a hospital that is located out side of a metropolitan statistical area and has fewer than 100 beds. As indicated in the preceding discussion, there ma y be indirect positive effects from reductions in uncompensated care. Again, the Department cannot determine whether this document would have a significant economic imp act on a substantial number of small rural hospitals, and we request public comment on this issue. D. Federalism Executive Order 13132 establishes certain requirem ents that an agency must meet when it promulgates a proposed rule (and subsequent final ru le) that imposes substant ial direct effects on states, preempts state law, or otherwise has federalism implications. The BHP is entirely optional for states, and if implemented in a stat e, provides access to a pool of funding that would not otherwise be availabl e to the state. We have consulted with states to receiv e input on how the Affordable Care Act provisions codified in this documen t would affect states. We have participated in a number of conference calls and in person meet ings with state officials. We continue to engage in ongoing consultations with states that have expressed interest in implementing a BHP through the BHP Learning Co llaborative, which serves as a staff levelCMS-2380-PN 49 policy and technical exchange of informa tion between CMS and the states. Through consultations with this Learning Collaborative, we have been able to get input from states on many of the specific issues a ddressed in this document.Authority: Section 133 1(d)(3) of the Affordable Care Act.

Dated: November 20, 2013.

_____________________________ Marilyn Tavenner, Administrator , Centers for Medicare & Medicaid Services

.

Approved: November 22, 2013

_____________________________ Kathleen Sebelius, Secretary, Department of Health and Human Services.

BILLING CODE 4120-01-PCMS-2380-PN 51
[FR Doc. 2013-30435 Filed 12/18/2013 at 4:15 pm; Publication Date: 12/23/2013]